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 23% Increase in Second Quarter Net Income

Company Release - 7/25/2017 7:30 AM ET

STRASBURG, Va., July 25, 2017 (GLOBE NEWSWIRE) -- First National Corporation (the “Company” or “First National”) (OTC:FXNC) today reported net income of $1.8 million and earnings per share of $0.36 for the second quarter ended June 30, 2017. This was a $323 thousand, or 23%, increase when compared to net income of $1.4 million and earnings per share of $0.29 for the second quarter of 2016. The increase in net income resulted primarily from an increase in net interest income and a decrease in noninterest expenses. 

For the six months ended June 30, 2017, net income increased $767 thousand, or 30%, to $3.3 million and $0.67 per share, compared to net income of $2.5 million and $0.51 per share for the same period of 2016. The increase in net income resulted primarily from an increase in net interest income and a decrease in noninterest expenses. 

Select highlights for the second quarter of 2017:

  • Net income increased 23%
  • Return on equity of 12.79%
  • Return on average assets of 0.96%
  • Net interest margin increased to 3.73%
  • Efficiency ratio improved to 66.71% from 71.62%
  • Net interest income increased $453 thousand, or 8%
  • Noninterest expenses decreased $178 thousand, or 3%
  • Assets-per-employee increased to $4.6 million, up from $4.2 million at June 30, 2016
  • Proposed expansion to Richmond

“Our banking company continued to reap the benefits of the low cost deposit acquisition and branch expansion from 2015 as the funds were deployed into loans in legacy and new markets,” said Scott Harvard, president and chief executive officer of First National.  Harvard added, “The combination of the expansion and efficiency initiatives has generated profitable growth and outstanding financial results. During the quarter, First Bank submitted a branch application to further expand the franchise to the Westhampton neighborhood of Richmond.  This expansion will begin to bring more coherence to the branch footprint, while providing an introduction into a growing deposit and loan market.” 

BALANCE SHEET

Total assets of First National increased $24.3 million to $735.7 million at June 30, 2017, compared to one year ago.  While total assets increased, the composition changed as loans, net of the allowance for loan losses, increased $38.6 million, or 8%, and securities and interest-bearing deposits in banks decreased $11.2 million, or 6%.  The loan-to-asset ratio increased to 68% at June 30, 2017, up from 65% one year ago, and the loan-to-deposit ratio increased to 76% from 74%.

Total deposits increased $31.5 million, or 5%, to $661.8 million, compared to $630.3 million at June 30, 2016.  When comparing the composition of the deposit portfolio at June 30, 2017 to one year ago, noninterest-bearing demand deposits increased from 25% to 27% of total deposits, while time deposits decreased from 21% to 19%. 

Shareholders’ equity increased $6.7 million to $56.0 million at June 30, 2017 compared to $49.3 million one year ago, primarily from an increase in retained earnings. Tangible common equity totaled $54.7 million at the end of the second quarter, compared to $47.3 million at June 30, 2016. The Company exceeded its target capital ratios at the end of the quarter and was considered well capitalized. 

ANALYSIS OF THE THREE MONTH PERIOD

Net interest income increased $453 thousand, or 8%, to $6.2 million for the quarter, compared to $5.8 million for the same period of 2016. 

Total interest income increased $541 thousand, or 9%, to $6.8 million. The increase resulted from higher average earning assets and a higher yield on total earning assets. Earning asset yields increased 14 basis points, primarily from a change in asset composition as average loans increased to 73% of average earning assets for the second quarter, up from 70% for the same period of 2016.

Total interest expense increased $88 thousand, or 18%, to $570 thousand. The increase in interest expense resulted primarily from a 6 basis point increase in the cost of interest-bearing deposits. 

Noninterest income totaled $2.0 million, compared to $2.1 million for the same period of 2016. A decrease in service charges on deposits was partially offset by an increase in wealth management revenue and an increase in ATM and check card revenue.

Noninterest expense decreased $178 thousand, or 3%, to $5.7 million. Salaries and employee benefits expense decreased $293 thousand, or 9%, and FDIC assessment decreased $49 thousand.  Salaries and employee benefits decreased primarily from a decrease in salaries and wages, insurance, and retirement plan expense. A reduction in the number of employees had a favorable impact on each of these expense categories. These decreases were partially offset by an $89 thousand increase in legal and professional fees, and a $53 thousand increase in other real estate owned expense. Other real estate owned expense totaled $4 thousand for the second quarter of 2017, compared to other real estate income of $49 thousand for the same period of 2016.

ANALYSIS OF THE SIX MONTH PERIOD

Net interest income increased $746 thousand, or 6%, to $12.2 million for the six months ended June 30, 2017, compared to $11.5 million for the same period of 2016. 

Total interest income increased $882 thousand, or 7%, to $13.4 million. The increase resulted from higher average earning assets and a higher yield on total earning assets. Earning asset yields increased 12 basis points, primarily from a change in asset composition as average loans increased to 74% of average earning assets for the six month period, up from 70% for the prior year.

Total interest expense increased $136 thousand, or 14%, to $1.1 million.  The increase in interest expense resulted primarily from a 5 basis point increase in the cost of interest-bearing deposits. 

Noninterest income totaled $3.9 million, compared to $4.1 million for the same period of 2016. A decrease in service charges on deposits was partially offset by an increase in wealth management revenue and an increase in ATM and check card revenue.

Noninterest expense decreased $544 thousand, or 5%, to $11.5 million. Salaries and employee benefits decreased $495 thousand, or 7%, FDIC assessment decreased $92 thousand, and occupancy decreased $74 thousand. These decreases were partially offset by a $127 thousand increase in other real estate owned expense. Other real estate owned expense totaled $6 thousand for the six month period of 2017, compared to other real estate income of $121 thousand for the same period of 2016.

ASSET QUALITY/LOAN LOSS PROVISION

There was no provision for loan loss during the three month and six month periods ended June 30, 2017. Net charge-offs totaled $7 thousand for the second quarter of 2017.  For the six month period, net recoveries totaled $123 thousand. Nonperforming assets totaled $2.2 million, or 0.29% of total assets at June 30, 2017, which was an improvement compared to $4.5 million, or 0.63% of total assets, one year ago. The allowance for loan losses totaled $5.4 million at June 30, 2017 and $5.7 million at June 30, 2016, representing 1.08% and 1.23% 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 StatementJune 30,
2017
 March 31,
2017
 December 31,
 2016
  September 30,
 2016
 June 30,
 2016
Interest income          
Interest and fees on loans$5,933 $5,646 $5,556  $5,500 $5,370 
Interest on deposits in banks 86  61  55   73  62 
Interest on securities 779  805  794   749  825 
Dividends on restricted securities    21     20     21      20    21 
Total interest income$   6,819 $   6,532 $   6,426  $   6,342 $  6,278 
Interest expense            
Interest on deposits$405 $383 $353  $338 $329 
Interest on subordinated debt 89  89  91   91  89 
Interest on junior subordinated debt 76  68  69   65  64 
Interest on other borrowings   -    -    -     1    - 
Total interest expense$  570 $  540 $  513  $  495 $  482 
Net interest income$6,249 $5,992 $5,913  $5,847 $5,796 
Provision for loan losses   -    -    -     -    - 
Net interest income after provision for loan losses$        6,249 $        5,992 $           5,913  $         5,847 $        5,796 
Noninterest income            
Service charges on deposit accounts$735 $755 $877  $941 $914 
ATM and check card fees 527  501  505   529  515 
Wealth management fees 355  347  353   339  334 
Fees for other customer services 137  140  154   143  137 
Income from bank owned life insurance 102  85  109   123  107 
Net gains (losses) on sales of securities 13  -  (2)  4  - 
Net gains on sale of loans 34  33  42   50  31 
Other operating income   75    80    89     182    74 
Total noninterest income$1,978 $  1,941 $  2,127  $  2,311 $  2,112 
Noninterest expense            
Salaries and employee benefits$3,122 $3,242 $2,897  $3,183 $3,415 
Occupancy 348  367  364   380  365 
Equipment 400  408  402   406  394 
Marketing 136  136  210   125  120 
Supplies 105  91  138   108  103 
Legal and professional fees 245  197  238   179  156 
ATM and check card fees 229  162  211   229  221 
FDIC assessment 77  79  72   106  126 
Bank franchise tax 110  104  90   89  90 
Telecommunications expense 108  110  112   110  115 
Data processing expense 152  150  159   160  146 
Postage expense 74  61  56   56  57 
Amortization expense 160  169  179   187  198 
Other real estate owned expense (income), net 4  2  -   1  (49)
Net loss on disposal of premises and equipment -  -  -   8  - 
Other operating expense 435  473  507   526  426  
Total noninterest expense$5,705 $5,751 $5,635  $5,853 $5,883 
Income before income taxes$2,522 $2,182 $2,405  $2,305 $2,025 
Income tax expense 766  639  724   611  592 
Net income$1,756 $1,543 $1,681  $1,694 $1,433 
            
Common Share and Per Common Share Data          
Net income, basic$0.36 $0.31 $0.34  $0.34 $0.29 
Weighted average shares, basic 4,940,904  4,935,421  4,927,728   4,925,753  4,924,702 
Net income, diluted$0.36 $0.31 $0.34  $0.34 $0.29 
Weighted average shares, diluted 4,942,726  4,937,625  4,933,572   4,929,922  4,926,859 
Shares outstanding at period end 4,941,604  4,940,766  4,929,403   4,926,546  4,925,599 
Tangible book value at period end$11.08 $10.64 $10.26  $9.99 $9.61 
Cash dividends$0.035 $0.035 $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
 June 30,
2017
 March 31,
2017
 December 31,
 2016
 September 30,
 2016
 June 30,
 2016
Key Performance Ratios         
Return on average assets 0.96%  0.88%  0.94%  0.95%  0.82%
Return on average equity 12.79%  11.78%  13.04%  13.44%  11.90%
Net interest margin 3.73%  3.70%  3.60%  3.57%  3.62%
Efficiency ratio (1) 66.71%  69.52%  67.05%  68.57%  71.62%
          
Average Balances         
Average assets$730,838  $714,714  $711,834  $710,005  $705,707 
Average earning assets 682,132   667,184   663,982   661,624   654,535 
Average shareholders’ equity 55,068   53,132   51,295   50,160   48,443 
          
Asset Quality         
Loan charge-offs$161  $106  $337  $195  $136 
Loan recoveries 154   236   48   71   350 
Net charge-offs (recoveries) 7   (130)  289   124   (214)
Non-accrual loans 1,913   1,596   1,520   3,521   4,057 
Other real estate owned, net 250   250   250   250   442 
Nonperforming assets 2,163   1,846   1,770   3,771   4,499 
Loans 30 to 89 days past due, accruing 1,368   2,606   2,583   2,036   1,979 
Loans over 90 days past due, accruing 151   119   116   59   11 
Troubled debt restructurings, accruing 291   296   300   392   308 
Special mention loans 10,378   12,896   13,073   14,238   13,392 
Substandard loans, accruing 9,295   7,877   8,056   8,273   9,610 
          
Capital Ratios (2)         
Total capital$69,325  $67,264  $65,590  $65,759  $64,375 
Tier 1 capital 63,881   61,813   60,269   60,149   58,641 
Common equity tier 1 capital 63,881   61,813   60,269   60,149   58,641 
Total capital to risk-weighted assets 13.82%  13.53%  13.47%  13.90%  13.66%
Tier 1 capital to risk-weighted assets 12.73%  12.43%  12.38%  12.72%  12.45%
Common equity tier 1 capital to risk-weighted assets 12.73%  12.43%  12.38%  12.72%  12.45%
Leverage ratio 8.76%  8.66%  8.48%  8.48%  8.33%
          
Balance Sheet         
Cash and due from banks$9,801  $10,593  $10,106  $8,955  $10,518 
Interest-bearing deposits in banks 40,937   35,246   30,986   47,902   40,225 
Securities available for sale, at fair value 89,741   91,907   94,802   88,323   94,566 
Securities held to maturity, at carrying value 50,824   51,999   53,398   55,263   57,401 
Restricted securities, at cost 1,570   1,570   1,548   1,548   2,058 
Loans held for sale 999   -   337   1,053   1,819 
Loans, net of allowance for loan losses 498,389   492,319   480,746   465,224   459,812 
Other real estate owned, net of valuation allowance 250   250   250   250   442 
Premises and equipment, net 20,501   20,709   20,785   20,852   21,126 
Accrued interest receivable 1,728   1,753   1,746   1,631   1,612 
Bank owned life insurance 14,115   14,013   13,928   13,808   13,935 
Core deposit intangibles, net 1,222   1,382   1,551   1,730   1,917 
Other assets 5,580   5,555   5,817   6,133   5,917 
Total assets$735,657  $727,296  $716,000  $712,672  $711,348 
                     
Noninterest-bearing demand deposits$176,780  $173,963  $168,076  $168,204  $159,278 
Savings and interest-bearing demand deposits 362,128   353,958   349,067   340,884   337,589 
Time deposits 122,920   126,848   128,427   131,654   133,479 
Total deposits$661,828  $654,769  $645,570  $640,742  $630,346 
Other borrowings -   -   -   -   12,000 
Subordinated debt 4,939   4,934   4,930   4,926   4,921 
Junior subordinated debt 9,279   9,279   9,279   9,279   9,279 
Accrued interest payable and other liabilities 3,644   4,336   4,070   6,742   5,544 
Total liabilities$679,690  $673,318  $663,849  $661,689  $662,090 



FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
 
   (unaudited)
 For the Quarter Ended
 June 30,
2017
 March 31,
2017
 December 31,
 2016
 September 30,
 2016
 June 30,
 2016
          
Balance Sheet (continued)         
Preferred stock$-  $-  $-  $-  $- 
Common stock 6,177   6,176   6,162   6,158   6,157 
Surplus 7,177   7,155   7,093   7,046   7,021 
Retained earnings 42,709   41,126   39,756   38,223   36,676 
Accumulated other comprehensive loss, net (96)  (479)  (860)  (444)  (596)
Total shareholders’ equity$55,967  $53,978  $52,151  $50,983  $49,258 
Total liabilities and shareholders’ equity$735,657  $727,296  $716,000  $712,672  $711,348 
                             
Loan Data         
Mortgage loans on real estate:         
Construction and land development$36,783  $36,024  $34,699  $34,518  $33,232 
Secured by farm land 666   676   688   695   706 
Secured by 1-4 family residential 205,114   205,623   198,763   196,492   196,295 
Other real estate loans 215,076   215,915   210,522   202,148   199,456 
Loans to farmers (except those secured by real estate) 511   461   1,316   737   492 
Commercial and industrial loans (except those secured by real estate) 30,690   28,731   28,665   25,114   24,229 
Consumer installment loans 9,938   5,279   4,611   4,283   4,083 
Deposit overdrafts 245   199   264   260   334 
All other loans 4,810   4,862   6,539   6,587   6,719 
Total loans$503,833  $497,770  $486,067  $470,834  $465,546 
Allowance for loan losses (5,444)  (5,451)  (5,321)  (5,610)  (5,734)
Loans, net$498,389  $492,319  $480,746  $465,224  $459,812 
                             
Reconciliation of Tax-Equivalent Net Interest Income        
GAAP measures:         
Interest income – loans$5,933  $5,646  $5,556  $5,500  $5,370 
Interest income – investments and other 886   886   870   842   908 
Interest expense – deposits (405)  (383)  (353)  (338)  (329)
Interest expense – other borrowings -   -   -   (1)  - 
Interest expense – subordinated debt (89)  (89)  (91)  (91)  (89)
Interest expense – junior subordinated debt (76)  (68)  (69)  (65)  (64)
Total net interest income$6,249  $5,992  $5,913  $5,847  $5,796 
Non-GAAP measures:                          
Tax benefit realized on non-taxable interest income – loans$18  $19  $25  $26  $25 
Tax benefit realized on non-taxable interest income – municipal securities  74   74   71   70   73 
Total tax benefit realized on non-taxable interest income$92  $93  $96  $96  $98 
Total tax-equivalent net interest income$6,341  $6,085  $6,009  $5,943  $5,894 
                             


FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
 
 (unaudited)
  For the Six Months Ended 
Income StatementJune 30,
 2017
 June 30,
 2016
Interest income   
Interest and fees on loans$11,579 $10,606 
Interest on deposits in banks 147  110 
Interest on securities 1,584  1,713 
Dividends on restricted securities 41  40 
Total interest income$13,351 $12,469 
Interest expense     
Interest on deposits$788 $662 
Interest on federal funds purchased -  3 
Interest on subordinated debt 178  179 
Interest on junior subordinated debt 144  125 
Interest on other borrowings -  5 
Total interest expense$1,110 $974 
Net interest income$12,241 $11,495 
Provision for loan losses -  - 
Net interest income after provision for loan losses$12,241 $11,495 
Noninterest income     
Service charges on deposit accounts$1,490 $1,694 
ATM and check card fees 1,028  1,003 
Wealth management fees 702  670 
Fees for other customer services 277  284 
Income from bank owned life insurance 187  193 
Net gains on sales of securities 13  6 
Net gains on sale of loans 67  52 
Other operating income 155  153 
Total noninterest income$3,919 $4,055 
Noninterest expense     
Salaries and employee benefits$6,364 $6,859 
Occupancy 715  789 
Equipment 808  826 
Marketing 272  227 
Supplies 196  204 
Legal and professional fees 442  467 
ATM and check card fees 391  426 
FDIC assessment 156  248 
Bank franchise tax 214  193 
Telecommunications expense 218  229 
Data processing expense 302  274 
Postage expense 135  126 
Amortization expense 329  405 
Other real estate owned expense (income), net 6  (121)
Other operating expense 908  848 
Total noninterest expense$11,456 $12,000 
      
Income before income taxes$4,704 $3,550 
Income tax expense 1,405  1,018 
Net income$3,299 $2,532 
     
Net income, basic$0.67 $0.51 
Weighted average shares, basic 4,938,178  4,922,509 
Net income, diluted$0.67 $0.51 
Weighted average shares, diluted 4,940,191  4,924,598 
Shares outstanding at period end 4,941,604  4,925,599 
Tangible book value at period end$11.08 $9.61 
Cash dividends$0.07 $0.06 


FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
 
 (unaudited)
For the Six Months Ended
 June 30,
 2017
 June 30,
 2016
Key Performance Ratios   
Return on average assets 0.92%  0.73%
Return on average equity 12.29%  10.66%
Net interest margin 3.71%  3.62%
Efficiency ratio (1) 68.09%  74.42%
    
Average Balances   
Average assets$722,820  $699,736 
Average earning assets 674,699   648,946 
Average shareholders’ equity 54,118   47,762 
    
Asset Quality   
Loan charge-offs$267  $256 
Loan recoveries 390   466 
Net recoveries (123)  (210)
    
Reconciliation of Tax-Equivalent Net Interest Income  
GAAP measures:   
Interest income – loans$ 11,579  $10,606 
Interest income – investments and other1,772   1,863 
Interest expense – deposits(788)  (662)
Interest expense – other borrowings-   (5)
Interest expense – subordinated debt(178)  (179)
Interest expense – junior subordinated debt(144)  (125)
Interest expense – federal funds purchased  -   (3)
Total net interest income$ 12,241  $11,495 
Non-GAAP measures:      
Tax benefit realized on non-taxable interest income – loans$ 37  $50 
Tax benefit realized on non-taxable interest income – municipal securities  148   149 
Total tax benefit realized on non-taxable interest income$ 185  $199 
Total tax-equivalent net interest income$ 12,426  $11,694 

(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 First 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