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 46% Increase in Third Quarter Net Income

Company Release - 10/24/2018 7:30 AM ET

STRASBURG, Va., Oct. 24, 2018 (GLOBE NEWSWIRE) -- First National Corporation (the “Company” or “First National”) (OTC: FXNC) today reported net income of $2.7 million and earnings per share of $0.54 for the third quarter ended September 30, 2018. This was an $844 thousand, or 46%, increase when compared to net income of $1.8 million and earnings per share of $0.37 for the third quarter of 2017. The increase in net income resulted primarily from a $663 thousand, or 10%, increase in net interest income.

Select highlights for the third quarter of 2018:

  • Return on average equity of 16.89%
  • Return on average assets of 1.41%
  • Net interest income increased $663 thousand, or 10%
  • Net loans increased $25.6 million, or 5%, compared to one year ago
  • Net interest margin of 4.02%
  • Efficiency ratio of 62.68%

“We were delighted with the Company’s third quarter financial performance,” said Scott C. Harvard, president and chief executive officer of First National.  Harvard added, “Moderate loan growth for the period and rising interest rates helped drive the increase in net income over the second quarter of 2018 and third quarter of 2017. We continue to remain disciplined in our loan underwriting at this point in the economic cycle while working hard to deepen existing relationships with our best customers. The company’s profitability ratios were excellent and compared favorably to prior periods thanks to a continued focus on efficiency and customer service.”

BALANCE SHEET

Total assets of First National increased $15.0 million to $746.5 million at September 30, 2018, compared to one year ago.  The earning asset composition changed favorably as loans, net of the allowance for loan losses, increased $25.6 million, or 5%, while securities and interest-bearing deposits in banks decreased $9.9 million, or 6%, when comparing the periods.

Total deposits increased $10.8 million, or 2%, to $667.1 million, compared to $656.3 million one year ago.  The deposit portfolio composition also changed favorably as noninterest-bearing deposits increased $6.9 million, or 4%, savings and interest-bearing deposits increased $10.1 million, and time deposits decreased $6.2 million.  Noninterest-bearing deposits increased to 28% of total deposits compared to 27% one year ago.

Shareholders’ equity increased $6.1 million to $63.7 million, compared to $57.5 million one year ago from retained earnings. Tangible common equity increased $6.6 million, or 12%, to $63.1 million, compared to $56.5 million at September 30, 2017. The Company’s wholly-owned banking subsidiary, First Bank, was considered well-capitalized based on regulatory requirements at the end of the quarter.

ANALYSIS OF THE THREE-MONTH PERIOD

Net interest income increased $663 thousand, or 10%, to $7.1 million, compared to $6.4 million for the same period in 2017. The increase resulted from a higher net interest margin and higher average earning assets. Average earning assets increased 3%, and the net interest margin increased 23 basis points to 4.02%, compared to 3.79% for the same period in 2017. The increase in the net interest margin resulted from a 38 basis point increase in the yield on total earning assets, which was partially offset by a 15 basis point increase in interest expense as a percent of average earning assets.

The higher yield on earning assets was attributable to an increase in yields on loans, securities, and interest-bearing deposits in banks, which all benefited from increases in market rates. Yields increased on loans, securities, and interest-bearing deposits in banks by 33 basis points, 26 basis points, and 84 basis points, respectively.

The increase in interest expense as a percent of average earning assets was primarily attributable to higher interest rates paid on interest-bearing deposits, with the largest impact coming from a 49 basis point increase in the cost of money market accounts, when comparing the periods.

Noninterest income increased $161 thousand, or 8%, to $2.2 million, compared to $2.0 million for the same period of 2017. Wealth management revenue increased $64 thousand, or 18%, and service charges on deposits increased $58 thousand, or 8%, compared to the same period one year ago.

Noninterest expense increased $143 thousand, or 2%, to $6.0 million, compared to $5.8 million for the same period one year ago. This was primarily attributable to a $150 thousand, or 5%, increase in salaries and employee benefits and a $40 thousand increase in other operating expenses. The increases in salaries and employee benefits resulted primarily from the expansion of the Company's banking subsidiary, First Bank, into the Richmond, Virginia market during the fourth quarter of 2017. The increases in expenses were partially offset by a $43 thousand decrease in amortization expense.

Income before taxes increased by $681 thousand, or 26%, to $3.3 million, compared to the same period one year ago. Although income before taxes increased, income tax expense decreased by $163 thousand because of the new 21% federal corporate income tax rate established by the Tax Cuts and Jobs Act enacted in December 2017.

ANALYSIS OF THE NINE MONTH PERIOD

Net interest income increased $1.8 million, or 10%, to $20.5 million, compared to $18.7 million for the same period in 2017. The increase resulted from a higher net interest margin and higher average earning assets. Average earning assets increased 5%, and the net interest margin increased 15 basis points to 3.89%, compared to 3.74% for the same period in 2017. The increase in the net interest margin resulted from a 29 basis point increase in the yield on total earning assets, which was partially offset by a 14 basis point increase in interest expense as a percent of average earning assets.

The higher yield on earning assets was attributable to an increase in yields on loans, securities, and interest-bearing deposits in banks, which all benefited from increases in market rates. Yields increased on loans, securities, and interest-bearing deposits in banks by 28 basis points, 20 basis points, and 64 basis points, respectively.

The increase in interest expense as a percent of average earning assets was primarily attributable to higher interest rates paid on interest-bearing deposits, with the largest impact coming from a 51 basis point increase in the cost of money market accounts, when comparing the periods.

Noninterest income increased $942 thousand, or 16%, to $6.9 million, compared to $5.9 million for the same period of 2017. This was primarily a result of a $431 thousand increase in income from bank owned life insurance, a $178 thousand increase in wealth management revenue, and a $192 thousand increase in other operating income. The increase in income from bank owned life insurance was attributable to a $469 thousand life insurance benefit recorded during the first quarter of 2018. The increase in other operating income was primarily attributable to the termination of the pension plan and the subsequent distribution of plan assets, which increased other operating income by $126 thousand.

Noninterest expense increased $417 thousand, or 2%, to $17.7 million, compared to $17.3 million for the same period one year ago. This was primarily attributable to a $396 thousand, or 4%, increase in salaries and employee benefits, an $80 thousand increase in occupancy expense, and a $177 thousand increase in other operating expenses. The increases in salaries and employee benefits and occupancy resulted primarily from the expansion of First Bank into the Richmond market during the fourth quarter of 2017. The increases in expenses were partially offset by a $96 thousand decrease in telecommunications expense and a $121 thousand decrease in amortization expense. Telecommunication expense decreased primarily from a refund received in the first quarter of 2018 from over-billed services in prior periods.

Income before taxes increased by $2.2 million, or 30%, to $9.6 million, compared to the same period one year ago. Although income before taxes increased, income tax expense decreased by $458 thousand because of the new 21% federal corporate income tax rate established by the Tax Cuts and Jobs Act enacted in December 2017.

ASSET QUALITY/LOAN LOSS PROVISION

There was no provision for loan losses for the three months ended September 30, 2018 and 2017.  Net charge-offs totaled $238 thousand compared to $143 thousand for the same period one year ago.

The provision for loan losses totaled $100 thousand for the nine months ended September 30, 2018, compared to no provision for loan losses for the same period one year ago.  Net charge-offs totaled $625 thousand for the nine months ended September 30, 2018, compared to net charge-offs of $20 thousand for the same period one year ago.

Nonperforming assets totaled $2.7 million, or 0.37% of total assets at September 30, 2018, compared to $2.4 million, or 0.32% of total assets, one year ago. The allowance for loan losses totaled $4.8 million at September 30, 2018 and $5.3 million at September 30, 2017, representing 0.89% and 1.03% 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, 2017, 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, a loan production office, a customer service center in a retirement community, and 15 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.

CONTACTS

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


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

 (unaudited)
For the Quarter Ended
 September 30,
2018
 June 30,
2018
 March 31,
2018
 December 31,
2017
 September 30,
2017
Income Statement         
Interest income         
Interest and fees on loans$6,917  $6,546  $6,305  $6,365  $6,138 
Interest on deposits in banks88  186  160  96  92 
Interest on securities         
Taxable interest797  776  680  636  637 
Tax-exempt interest156  156  145  147  148 
Dividends on restricted securities23  22  22  21  21 
Total interest income$7,981  $7,686  $7,312  $7,265  $7,036 
Interest expense         
Interest on deposits$702  $665  $590  $489  $446 
Interest on subordinated debt91  89  89  91  91 
Interest on junior subordinated debt105  101  86  80  79 
Total interest expense$898  $855  $765  $660  $616 
Net interest income$7,083  $6,831  $6,547  $6,605  $6,420 
Provision for loan losses    100  100   
Net interest income after provision for loan losses$7,083  $6,831  $6,447  $6,505  $6,420 
Noninterest income         
Service charges on deposit accounts$818  $784  $762  $778  $760 
ATM and check card fees540  555  519  596  516 
Wealth management fees423  409  407  386  359 
Fees for other customer services143  151  153  162  131 
Income from bank owned life insurance107  77  559  408  117 
Net gains (losses) on securities      (114) 11 
Net gains on sale of loans39  15  9  51  54 
Other operating income108  76  224  89  69 
Total noninterest income$2,178  $2,067  $2,633  $2,356  $2,017 
Noninterest expense         
Salaries and employee benefits$3,371  $3,227  $3,383  $3,338  $3,221 
Occupancy387  387  400  388  379 
Equipment396  420  423  428  400 
Marketing123  161  109  166  138 
Supplies75  88  80  88  81 
Legal and professional fees229  223  191  228  216 
ATM and check card expense217  211  203  209  205 
FDIC assessment78  66  82  76  84 
Bank franchise tax118  118  115  111  111 
Telecommunications expense83  98  36  103  95 
Data processing expense168  170  162  165  153 
Postage expense42  42  61  14  62 
Amortization expense108  120  131  141  151 
Other real estate owned expense (income), net2  1  (23) (192)  
Net loss on disposal of premises and equipment2      252   
Other operating expense551  532  513  506  511 
Total noninterest expense$5,950  $5,864  $5,866  $6,021  $5,807 
Income before income taxes$3,311  $3,034  $3,214  $2,840  $2,630 
Income tax expense635  583  527  1,523  798 
Net income$2,676  $2,451  $2,687  $1,317  $1,832 
 


FIRST NATIONAL CORPORATION

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

 (unaudited)
For the Quarter Ended
 September 30,
2018
 June 30,
2018
 March 31,
2018
 December 31,
2017
 September 30,
2017
Common Share and Per Common Share Data         
Net income, basic$0.54  $0.49  $0.54  $0.27  $0.37 
Weighted average shares, basic4,955,162  4,952,712  4,949,112  4,945,175  4,943,301 
Net income, diluted$0.54  $0.49  $0.54  $0.27  $0.37 
Weighted average shares, diluted4,958,162  4,954,265  4,952,373  4,948,981  4,946,128 
Shares outstanding at period end4,956,925  4,953,356  4,952,575  4,945,702  4,945,056 
Tangible book value at period end$12.72  $12.31  $11.89  $11.57  $11.42 
Cash dividends$0.05  $0.05  $0.05  $0.035  $0.035 
          
Key Performance Ratios         
Return on average assets1.41% 1.29% 1.45% 0.71% 1.00%
Return on average equity16.89% 16.23% 18.47% 9.01% 12.78%
Net interest margin4.02% 3.86% 3.79% 3.86% 3.79%
Efficiency ratio (1)62.68% 64.17% 62.39% 63.48% 66.38%
          
Average Balances         
Average assets$750,619  $762,626  $751,164  $736,745  $729,651 
Average earning assets703,894  715,163  704,947  689,338  681,800 
Average shareholders’ equity62,882  60,592  58,979  57,973  56,857 
          
Asset Quality         
Loan charge-offs$295  $294  $206  $223  $243 
Loan recoveries57  61  52  148  100 
Net charge-offs238  233  154  75  143 
Non-accrual loans2,738  2,330  682  937  2,121 
Other real estate owned, net  68    326  250 
Nonperforming assets2,738  2,398  682  1,263  2,371 
Loans 30 to 89 days past due, accruing2,707  3,408  2,602  4,223  1,960 
Loans over 90 days past due, accruing261  549  773  183  89 
Troubled debt restructurings, accruing269  273  278  282  287 
Special mention loans2,718  3,988  5,365  5,225  9,677 
Substandard loans, accruing1,216  3,798  9,003  8,863  9,218 
          
Capital Ratios (2)         
Total capital$72,807  $71,026  $69,435  $67,624  $71,318 
Tier 1 capital68,006  65,987  64,163  62,298  66,017 
Common equity tier 1 capital68,006  65,987  64,163  62,298  66,017 
Total capital to risk-weighted assets13.20% 13.47% 13.52% 13.12% 13.91%
Tier 1 capital to risk-weighted assets12.33% 12.52% 12.50% 12.09% 12.87%
Common equity tier 1 capital to risk-weighted assets12.33% 12.52% 12.50% 12.09% 12.87%
Leverage ratio9.07% 8.66% 8.55% 8.46% 9.06%
               


FIRST NATIONAL CORPORATION

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

 (unaudited)
For the Quarter Ended
 September 30,
2018
 June 30,
2018
 March 31,
2018
 December 31,
2017
 September 30,
2017
Balance Sheet         
Cash and due from banks$11,370  $13,501  $11,185  $11,358  $9,162 
Interest-bearing deposits in banks10,068  27,762  58,092  28,628  24,480 
Securities available for sale, at fair value102,748  106,707  93,699  89,255  93,102 
Securities held to maturity, at carrying value44,239  45,701  46,791  48,208  49,376 
Restricted securities, at cost1,590  1,590  1,590  1,570  1,570 
Loans held for sale516  1,195  68  438  660 
Loans, net of allowance for loan losses535,020  525,894  515,664  516,875  509,406 
Other real estate owned, net of valuation allowance  68    326  250 
Premises and equipment, net19,557  19,633  19,833  19,891  20,510 
Accrued interest receivable2,138  2,073  1,869  1,916  1,886 
Bank owned life insurance13,894  13,787  13,711  13,967  14,232 
Core deposit intangibles, net571  679  799  930  1,071 
Other assets4,743  4,774  4,553  5,748  5,798 
Total assets$746,454  $763,364  $767,854  $739,110  $731,503 
          
Noninterest-bearing demand deposits$186,293  $196,839  $189,460  $180,912  $179,351 
Savings and interest-bearing demand deposits360,988  367,399  378,330  361,417  350,879 
Time deposits119,823  122,291  125,035  122,651  126,032 
Total deposits$667,104  $686,529  $692,825  $664,980  $656,262 
Subordinated debt4,961  4,956  4,952  4,948  4,943 
Junior subordinated debt9,279  9,279  9,279  9,279  9,279 
Accrued interest payable and other liabilities1,459  952  1,105  1,749  3,485 
Total liabilities$682,803  $701,716  $708,161  $680,956  $673,969 
          
Preferred stock$  $  $  $  $ 
Common stock6,196  6,192  6,191  6,182  6,181 
Surplus7,438  7,346  7,312  7,260  7,238 
Retained earnings52,741  50,313  48,109  45,670  44,368 
Accumulated other comprehensive loss, net(2,724) (2,203) (1,919) (958) (253)
Total shareholders’ equity$63,651  $61,648  $59,693  $58,154  $57,534 
Total liabilities and shareholders’ equity$746,454  $763,364  $767,854  $739,110  $731,503 
          
Loan Data         
Mortgage loans on real estate:         
Construction and land development$42,982  $37,350  $33,941  $35,927  $37,182 
Secured by farm land942  975  848  646  657 
Secured by 1-4 family residential211,938  211,101  208,338  208,177  203,896 
Other real estate loans223,961  223,387  221,504  221,610  221,497 
Loans to farmers (except those secured by real estate)937  476  403  822  525 
Commercial and industrial loans (except those secured by real estate)41,924  40,467  38,850  37,941  33,922 
Consumer installment loans12,301  12,315  12,140  12,101  12,047 
Deposit overdrafts249  231  222  232  196 
All other loans4,587  4,631  4,690  4,745  4,785 
Total loans$539,821  $530,933  $520,936  $522,201  $514,707 
Allowance for loan losses(4,801) (5,039) (5,272) (5,326) (5,301)
Loans, net$535,020  $525,894  $515,664  $516,875  $509,406 
 


FIRST NATIONAL CORPORATION

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

 (unaudited)
For the Quarter Ended
 September 30,
2018
 June 30,
2018
 March 31,
2018
 December 31,
2017
 September 30,
2017
Reconciliation of Tax-Equivalent Net Interest Income        
GAAP measures:         
Interest income – loans$6,917  $6,546  $6,305  $6,365  $6,138 
Interest income – investments and other1,064  1,140  1,007  900  898 
Interest expense – deposits(702) (665) (590) (489) (446)
Interest expense – subordinated debt(91) (89) (89) (91) (91)
Interest expense – junior subordinated debt(105) (101) (86) (80) (79)
Total net interest income$7,083  $6,831  $6,547  $6,605  $6,420 
Non-GAAP measures:         
Tax benefit realized on non-taxable interest income – loans$12  $11  $10  $17  $18 
Tax benefit realized on non-taxable interest income – municipal securities41  41  39  76  76 
Total tax benefit realized on non-taxable interest income$53  $52  $49  $93  $94 
Total tax-equivalent net interest income$7,136  $6,883  $6,596  $6,698  $6,514 
 


FIRST NATIONAL CORPORATION

Year-to-Date Performance Summary
(in thousands, except share and per share data)

 (unaudited)
For the Nine Months Ended
 September 30,
2018
 September 30,
2017
Income Statement   
Interest income   
Interest and fees on loans$19,768  $17,717 
Interest on deposits in banks434  239 
Interest on securities   
Taxable interest2,253  1,933 
Tax-exempt interest457  436 
Dividends on restricted securities67  62 
Total interest income$22,979  $20,387 
Interest expense   
Interest on deposits$1,957  $1,234 
Interest on subordinated debt269  269 
Interest on junior subordinated debt292  223 
Total interest expense$2,518  $1,726 
Net interest income$20,461  $18,661 
Provision for loan losses100   
Net interest income after provision for loan losses$20,361  $18,661 
Noninterest income   
Service charges on deposit accounts$2,364  $2,250 
ATM and check card fees1,614  1,544 
Wealth management fees1,239  1,061 
Fees for other customer services447  408 
Income from bank owned life insurance743  312 
Net gains (losses) on securities  24 
Net gains on sale of loans63  121 
Other operating income408  216 
Total noninterest income$6,878  $5,936 
Noninterest expense   
Salaries and employee benefits$9,981  $9,585 
Occupancy1,174  1,094 
Equipment1,239  1,208 
Marketing393  410 
Supplies243  277 
Legal and professional fees643  658 
ATM and check card expense631  596 
FDIC assessment226  240 
Bank franchise tax351  325 
Telecommunications expense217  313 
Data processing expense500  455 
Postage expense145  197 
Amortization expense359  480 
Other real estate owned expense (income), net(20) 6 
Net loss on disposal of premises and equipment2   
Other operating expense1,596  1,419 
Total noninterest expense$17,680  $17,263 
Income before income taxes$9,559  $7,334 
Income tax expense1,745  2,203 
Net income$7,814  $5,131 
 


FIRST NATIONAL CORPORATION

Year-to-Date Performance Summary
(in thousands, except share and per share data)        

 (unaudited)
For the Nine Months Ended
 September 30, 2018 September 30, 2017
Common Share and Per Common Share Data   
Net income, basic$1.58  $1.04 
Weighted average shares, basic4,952,351  4,939,905 
Net income, diluted$1.58  $1.04 
Weighted average shares, diluted4,954,955  4,942,189 
Shares outstanding at period end4,956,925  4,945,056 
Tangible book value at period end$12.72  $11.42 
Cash dividends$0.15  $0.105 
    
Key Performance Ratios   
Return on average assets1.38% 0.95%
Return on average equity17.17% 12.47%
Net interest margin3.89% 3.74%
Efficiency ratio (1)63.07% 67.51%
    
Average Balances   
Average assets$754,856  $725,106 
Average earning assets707,998  677,092 
Average shareholders’ equity60,848  55,029 
    
Asset Quality   
Loan charge-offs$795  $510 
Loan recoveries170  490 
Net charge-offs (recoveries)625  20 
    
Reconciliation of Tax-Equivalent Net Interest Income  
GAAP measures:   
Interest income – loans$19,768  $17,717 
Interest income – investments and other3,211  2,670 
Interest expense – deposits(1,957) (1,234)
Interest expense – subordinated debt(269) (269)
Interest expense – junior subordinated debt(292) (223)
Total net interest income$20,461  $18,661 
Non-GAAP measures:   
Tax benefit realized on non-taxable interest income – loans$33  $55 
Tax benefit realized on non-taxable interest income – municipal securities121  224 
Total tax benefit realized on non-taxable interest income$154  $279 
Total tax-equivalent net interest income$20,615  $18,940 

(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 21% for 2018 and 34% for 2017. 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.

First National Corporation logo

Source: First National Corporation