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 Reports 17% Increase in Fourth Quarter 2019 Net Income

Company Release - 1/28/2020 7:30 AM ET

STRASBURG, Va., Jan. 28, 2020 (GLOBE NEWSWIRE) -- First National Corporation (the “Company” or “First National”) (NASDAQ:FXNC) reported net income of $2.7 million, or $0.55 per diluted share, for the fourth quarter of 2019, which resulted in a return on average assets of 1.36% and a return on average equity of 14.10%. This was a $395 thousand, or 17%, increase compared to net income for the fourth quarter of 2018, which totaled $2.3 million or $0.47 per diluted share, and a return on average assets of 1.22% and a return on average equity of 14.15%.

For the year ended December 31, 2019, net income totaled $9.6 million, or $1.92 per diluted share, which resulted in return on assets of 1.23% and return on equity of 13.19%. This compares to net income of $10.1 million, or $2.04 per diluted share, for the year ended December 31, 2018.

Highlights for the fourth quarter of 2019:

  • Return on average equity of 14.10%
  • Return on average assets of 1.36%
  • Wealth management revenue increased $53 thousand, or 12%
  • Net gains on sale of loans increased $66 thousand  
  • Total assets increased 6% to $800.0 million at year end
  • Nonperforming assets decreased to 0.18% of assets

“First National Corporation produced strong results in the fourth quarter of 2019 to finish a year of solid performance for the Company,” said Scott C. Harvard, President and CEO of First National. Harvard added, “Although lower market rates and a flat yield curve caused net interest margin compression, we are pleased with six percent loan growth and five percent deposit growth during the year. In addition, wealth management revenue has consistently increased from growth in the number of accounts under management and their market values. Going forward, we plan to focus on operating efficiently and expanding our customer portfolios by offering the latest banking products and delivering superior service.”

BALANCE SHEET

Total assets of First National increased $47.1 million, or 6%, to $800.0 million at December 31, 2019, compared to $753.0 million at December 31, 2018. The earning asset composition was unchanged as loans, net of the allowance for loan losses, increased $31.6 million, or 6%, and securities and interest-bearing deposits in banks increased $16.3 million, or 10%.

Total deposits increased $35.9 million, or 5%, to $706.4 million at December 31, 2019, compared to $670.6 million at December 31, 2018. There was a slight change in the deposit composition as noninterest-bearing deposits was unchanged at 27% of total deposits, while savings and interest-bearing demand deposits increased from 55% to 57% of total deposits and time deposits decreased from 18% to 16% of total deposits.

Shareholders’ equity increased $10.5 million to $77.2 million at December 31, 2019, compared to $66.7 million one year ago, primarily from a $7.8 million increase in retained earnings and a $2.5 million increase in accumulated other comprehensive income. Tangible common equity totaled $77.0 million at the end of the fourth quarter, an increase of 16% compared to $66.2 million one year ago. The Company’s wholly owned subsidiary, First Bank (the “Bank”), was considered well capitalized at December 31, 2019.

ANALYSIS OF THE THREE-MONTH PERIOD

Net interest income decreased $90 thousand, or 1%, to $7.1 million for the fourth quarter of 2019, compared to the same period of 2018. The decrease resulted from a 26 basis point decrease in net interest margin, which was partially offset by a 6% increase in average earning assets. The decrease in the net interest margin resulted from a 10 basis point increase in interest expense as a percent of average earning assets and a 16 basis point decrease in the yield on average earning assets.

The lower yield on average earning assets was primarily attributable to a 14 basis point decrease in the yield on loans. The increase in interest expense was primarily attributable to higher interest rates paid on deposits, as the cost of total interest-bearing deposits increased 16 basis points.

Noninterest income increased $62 thousand, or 3%, to $2.3 million, compared to the same period of 2018. Wealth management fees increased $53 thousand, or 12%, fees for other customer services increased $27 thousand, or 18%, income from bank owned life insurance increased $26 thousand, or 27%, and net gains on sale of loans increased $66 thousand. These increases were partially offset by a $61 thousand, or 7%, decrease in service charges on deposits, and a $63 thousand decrease in other operating income.

Noninterest expense decreased $277 thousand, or 5%, to $5.8 million, compared to the same period one year ago. The decrease was primarily attributable to a $113 thousand, or 3%, decrease in salaries and employee benefits, a $27 thousand, or 17%, decrease in marketing expense, a $32 thousand, or 9%, decrease in legal and professional fees, a $121 thousand decrease in FDIC assessment, and a $38 thousand decrease in amortization expense of core deposit intangibles. These decreases were partially offset by a $53 thousand, or 30%, increase in ATM and check card expense.

ANALYSIS OF THE TWELVE-MONTH PERIOD

Net interest income increased $384 thousand, or 1%, to $28.0 million for the year ended December 31, 2019, compared to $27.6 million for the same period of 2018. The increase resulted from higher average earning asset balances, which was partially offset by a lower net interest margin. Average earning asset balances increased 3%, while the net interest margin decreased 5 basis points to 3.88%. The decrease in the net interest margin resulted from a 17 basis point increase in interest expense as a percent of average earning assets, which was partially offset by a 12 basis point increase in the yield on average earning assets. 

The higher yield on average earning assets was attributable to a change in the average earning asset composition, a 6 basis point increase in the yield on loans, and a 23 basis point increase in the yield on interest-bearing deposits in banks. The change in the earning asset composition favorably impacted the yield on average earning assets as loans increased from 75% to 77% of average earning assets, while interest-bearing deposits in banks and securities decreased from 25% to 23% of average earning assets. The increase in interest expense was primarily attributable to higher interest rates paid on deposits, as the cost of total interest-bearing deposits increased by 26 basis points.

Noninterest income decreased $605 thousand to $8.6 million, compared to the same period of 2018. The decrease was primarily attributable to a $252 thousand, or 8%, decrease in service charges on deposits, a $384 thousand decrease in income from bank-owned life insurance, and a $400 thousand decrease in other operating income. These decreases were partially offset by a $74 thousand, or 3%, increase in ATM and check card fees, a $186 thousand, or 11%, increase in wealth management fees, an $85 thousand, or 14% increase in fees for other customer services, and an $84 thousand increase in net gains on sales of loans.

The decrease in income from bank-owned life insurance resulted from a death benefit recorded in the first quarter of 2018. The decrease in other operating income was impacted by the termination of the Company’s pension plan and subsequent distribution of plan assets in the prior year, which resulted in a one-time increase in other operating income of $126 thousand during the first quarter of 2018, as well as revenue earned during the prior year from a settlement and release agreement related to brokerage services.

Noninterest expense increased $557 thousand, or 2%, to $24.3 million, compared to the same period one year ago. The increase was primarily attributable to a $280 thousand, or 2%, increase in salaries and employee benefits, a $54 thousand, or 3%, increase in occupancy expense, a $103 thousand, or 19%, increase in marketing expense, a $100 thousand, or 10%, increase in legal and professional fees, an $88 thousand, or 11%, increase in ATM and check card expense, a $70 thousand, or 15%, increase in bank franchise tax, and a $202 thousand, or 8%, increase in other operating expense. These increases were partially offset by a $249 thousand decrease in FDIC assessments and a $156 thousand decrease in amortization expense of core deposit intangibles.  

The increase in marketing expense was attributable to strategic initiatives. The increase in legal and professional fees resulted from an increase in investment advisory costs of the wealth management department, legal fees, and consulting expenses related to bank compliance testing and implementation of new accounting standards. The increase in investment advisory costs correlated with the increase in wealth management revenue, when comparing the same periods. The increase in other operating expense was primarily attributable to fraud losses on ATM and debit card transactions and costs of listing the Company’s common stock on the Nasdaq Capital Market stock exchange.   

ASSET QUALITY/LOAN LOSS PROVISION

Provision for loan losses totaled $250 thousand for the fourth quarter of 2019, compared to $500 thousand for the same period of 2018. Net charge-offs totaled $228 thousand for the fourth quarter of 2019, compared to $292 thousand for the fourth quarter of 2018. Nonperforming assets totaled $1.5 million, or 0.18% of total assets at December 31, 2019, compared to $3.2 million, or 0.42% of total assets, one year ago. The allowance for loan losses totaled $4.9 million, or 0.86% of total loans, and $5.0 million, or 0.92% of total loans, at December 31, 2019 and 2018, respectively.

The provision for loan losses totaled $450 thousand for the year ended December 31, 2019, compared to $600 thousand for the year ended December 31, 2018. Net charge-offs totaled $525 thousand for the year ended December 31, 2019, compared to $917 thousand for the same period of 2018.

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, 2018, and other filings with the Securities and Exchange Commission.

ABOUT FIRST NATIONAL CORPORATION

First National Corporation (NASDAQ: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, one loan production office, 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.

CONTACTS

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

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

  (unaudited) 
  For the Quarter Ended 
  December 31,  September 30,  June 30,  March 31,  December 31, 
  2019  2019  2019  2019  2018 
Income Statement                    
Interest income                    
Interest and fees on loans $7,333  $7,429  $7,200  $6,996  $7,106 
Interest on deposits in banks  163   97   133   110   105 
Interest on securities                    
Taxable interest  627   645   696   737   771 
Tax-exempt interest  156   157   159   156   153 
Dividends  27   26   26   24   24 
Total interest income $8,306  $8,354  $8,214  $8,023  $8,159 
Interest expense                    
Interest on deposits $1,042  $1,089  $1,051  $922  $798 
Interest on federal funds purchased     1          
Interest on subordinated debt  91   90   90   89   91 
Interest on junior subordinated debt  98   103   108   111   105 
Interest on other borrowings           2    
Total interest expense $1,231  $1,283  $1,249  $1,124  $994 
Net interest income $7,075  $7,071  $6,965  $6,899  $7,165 
Provision for loan losses  250      200      500 
Net interest income after provision for loan losses $6,825  $7,071  $6,765  $6,899  $6,665 
Noninterest income                    
Service charges on deposit accounts $753  $757  $715  $701  $814 
ATM and check card fees  654   586   573   517   642 
Wealth management fees  496   477   458   437   443 
Fees for other customer services  181   177   153   175   154 
Income from bank owned life insurance  123   131   99   103   97 
Net gains (losses) on securities  1            (1)
Net gains on sale of loans  89   34   25   22   23 
Other operating income  44   29   12   30   107 
Total noninterest income $2,341  $2,191  $2,035  $1,985  $2,279 
Noninterest expense                    
Salaries and employee benefits $3,193  $3,556  $3,375  $3,443  $3,306 
Occupancy  415   398   401   438   424 
Equipment  406   410   409   420   410 
Marketing  128   143   239   141   155 
Supplies  88   86   91   73   91 
Legal and professional fees  311   231   303   241   343 
ATM and check card expense  231   225   225   216   178 
FDIC assessment  (53)  (6)  35   69   68 
Bank franchise tax  136   136   136   130   117 
Data processing expense  179   174   179   173   173 
Amortization expense  61   71   80   90   99 
Other real estate owned expense (income), net  1             
Net loss on disposal of premises and equipment  14             
Other operating expense  694   762   757   664   717 
Total noninterest expense $5,804  $6,186  $6,230  $6,098  $6,081 
Income before income taxes $3,362  $3,076  $2,570  $2,786  $2,863 
Income tax expense  646   583   484   525   542 
Net income $2,716  $2,493  $2,086  $2,261  $2,321 

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

  (unaudited) 
  For the Quarter Ended 
  December 31,  September 30,  June 30,  March 31,  December 31, 
  2019  2019  2019  2019  2018 
Common Share and Per Common Share Data                    
Net income, basic $0.55  $0.50  $0.42  $0.46  $0.47 
Weighted average shares, basic  4,968,574   4,966,641   4,963,737   4,960,264   4,957,055 
Net income, diluted $0.55  $0.50  $0.42  $0.46  $0.47 
Weighted average shares, diluted  4,972,535   4,969,126   4,965,822   4,964,134   4,960,597 
Shares outstanding at period end  4,969,716   4,968,277   4,964,824   4,963,487   4,957,694 
Tangible book value at period end $15.50  $15.11  $14.60  $13.97  $13.35 
Cash dividends $0.09  $0.09  $0.09  $0.09  $0.05 
                     
Key Performance Ratios                    
Return on average assets  1.36%  1.27%  1.08%  1.21%  1.22%
Return on average equity  14.10%  13.31%  11.76%  13.47%  14.15%
Net interest margin  3.79%  3.87%  3.88%  3.97%  4.05%
Efficiency ratio (1)  60.50%  65.65%  67.94%  67.23%  62.99%
                     
Average Balances                    
Average assets $795,391  $780,376  $773,574  $757,910  $753,112 
Average earning assets  745,721   730,865   724,909   709,690   706,323 
Average shareholders’ equity  76,424   74,291   71,124   68,089   65,077 
                     
Asset Quality                    
Loan charge-offs $281  $156  $219  $228  $374 
Loan recoveries  53   73   68   165   82 
Net charge-offs  228   83   151   63   292 
Non-accrual loans  1,459   1,566   1,775   1,915   3,172 
Other real estate owned, net               
Nonperforming assets  1,459   1,566   1,775   1,915   3,172 
Loans 30 to 89 days past due, accruing  2,372   902   792   1,002   1,446 
Loans over 90 days past due, accruing  97   113   19   133   235 
Troubled debt restructurings, accruing           259   264 
Special mention loans  6,069   1,458   2,610   1,910   2,078 
Substandard loans, accruing  3,410   3,758   2,825   3,132   3,522 
                     
Capital Ratios (2)                    
Total capital $85,439  $83,591  $82,078  $80,780  $74,697 
Tier 1 capital  80,505   78,679   77,083   75,834   69,688 
Common equity tier 1 capital  80,505   78,679   77,083   75,834   69,688 
Total capital to risk-weighted assets  14.84%  14.57%  14.24%  14.49%  13.62%
Tier 1 capital to risk-weighted assets  13.99%  13.71%  13.37%  13.60%  12.71%
Common equity tier 1 capital to risk-weighted assets  13.99%  13.71%  13.37%  13.60%  12.71%
Leverage ratio  10.13%  10.09%  9.96%  10.01%  9.26%

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

  (unaudited) 
  For the Quarter Ended 
  December 31,  September 30,  June 30,  March 31,  December 31, 
  2019  2019  2019  2019  2018 
Balance Sheet                    
Cash and due from banks $9,675  $11,885  $12,354  $10,862  $13,378 
Interest-bearing deposits in banks  36,110   18,488   10,716   31,833   15,240 
Securities available for sale, at fair value  120,983   114,568   119,510   121,202   99,857 
Securities held to maturity, at amortized cost  17,627   18,222   18,828   19,489   43,408 
Restricted securities, at cost  1,806   1,806   1,701   1,701   1,688 
Loans held for sale  167   1,098   675   200   419 
Loans, net of allowance for loan losses  569,412   566,341   569,959   545,529   537,847 
Premises and equipment, net  19,747   19,946   20,182   20,282   20,066 
Accrued interest receivable  2,065   2,053   2,163   2,143   2,113 
Bank owned life insurance  17,447   17,324   17,193   17,094   13,991 
Core deposit intangibles, net  170   231   302   382   472 
Other assets  4,839   5,231   4,801   4,361   4,490 
Total assets $800,048  $777,193  $778,384  $775,078  $752,969 
                     
Noninterest-bearing demand deposits $189,623  $189,797  $186,553  $189,261  $181,964 
Savings and interest-bearing demand deposits  399,255   376,047   385,399   377,673   369,383 
Time deposits  117,564   119,777   117,863   117,290   119,219 
Total deposits $706,442  $685,621  $689,815  $684,224  $670,566 
Other borrowings           5,000    
Subordinated debt  4,983   4,978   4,974   4,969   4,965 
Junior subordinated debt  9,279   9,279   9,279   9,279   9,279 
Accrued interest payable and other liabilities  2,125   1,999   1,507   1,878   1,485 
Total liabilities $722,829  $701,877  $705,575  $705,350  $686,295 
                     
Preferred stock $  $  $  $  $ 
Common stock  6,212   6,210   6,206   6,204   6,197 
Surplus  7,700   7,648   7,566   7,515   7,471 
Retained earnings  62,583   60,314   58,268   56,629   54,814 
Accumulated other comprehensive income (loss), net  724   1,144   769   (620)  (1,808)
Total shareholders’ equity $77,219  $75,316  $72,809  $69,728  $66,674 
Total liabilities and shareholders’ equity $800,048  $777,193  $778,384  $775,078  $752,969 
                     
Loan Data                    
Mortgage loans on real estate:                    
Construction and land development $43,164  $45,193  $46,281  $48,948  $45,867 
Secured by farmland  900   916   855   883   880 
Secured by 1-4 family residential  229,438   226,828   225,820   217,527   215,945 
Other real estate loans  235,655   232,151   236,515   220,513   218,673 
Loans to farmers (except those secured by real estate)  1,423   1,461   1,006   806   1,035 
Commercial and industrial loans (except those secured by real estate)  48,730   49,096   48,347   45,239   43,570 
Consumer installment loans  10,400   11,040   11,572   11,890   12,061 
Deposit overdrafts  374   263   208   204   275 
All other loans  4,262   4,305   4,350   4,465   4,550 
Total loans $574,346  $571,253  $574,954  $550,475  $542,856 
Allowance for loan losses  (4,934)  (4,912)  (4,995)  (4,946)  (5,009)
Loans, net $569,412  $566,341  $569,959  $545,529  $537,847 

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

  (unaudited) 
  For the Quarter Ended 
  December 31,  September 30,  June 30,  March 31,  December 31, 
  2019  2019  2019  2019  2018 
Reconciliation of Tax-Equivalent Net Interest Income                    
GAAP measures:                    
Interest income – loans $7,333  $7,429  $7,200  $6,996  $7,106 
Interest income – investments and other  973   925   1,014   1,027   1,053 
Interest expense – deposits  (1,042)  (1,089)  (1,051)  (922)  (798)
Interest expense – federal funds purchased     (1)         
Interest expense – subordinated debt  (91)  (90)  (90)  (89)  (91)
Interest expense – junior subordinated debt  (98)  (103)  (108)  (111)  (105)
Interest expense – other borrowings           (2)   
Total net interest income $7,075  $7,071  $6,965  $6,899  $7,165 
Non-GAAP measures:                    
Tax benefit realized on non-taxable interest income – loans $10  $9  $10  $11  $11 
Tax benefit realized on non-taxable interest income – municipal securities  41   43   42   41   42 
Total tax benefit realized on non-taxable interest income $51  $52  $52  $52  $53 
Total tax-equivalent net interest income $7,126  $7,123  $7,017  $6,951  $7,218 

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

  (unaudited) 
  For the Year Ended 
  December 31,  December 31, 
  2019  2018 
Income Statement        
Interest income        
Interest and fees on loans $28,958  $26,874 
Interest on deposits in banks  503   539 
Interest on securities        
Taxable interest  2,705   3,024 
Tax-exempt interest  628   610 
Dividends  103   91 
Total interest income $32,897  $31,138 
Interest expense        
Interest on deposits $4,104  $2,755 
Interest on federal funds purchased  1    
Interest on subordinated debt  360   360 
Interest on junior subordinated debt  420   397 
Interest on other borrowings  2    
Total interest expense $4,887  $3,512 
Net interest income $28,010  $27,626 
Provision for loan losses  450   600 
Net interest income after provision for loan losses $27,560  $27,026 
Noninterest income        
Service charges on deposit accounts $2,926  $3,178 
ATM and check card fees  2,330   2,256 
Wealth management fees  1,868   1,682 
Fees for other customer services  686   601 
Income from bank owned life insurance  456   840 
Net gains (losses) on securities  1   (1)
Net gains on sale of loans  170   86 
Other operating income  115   515 
Total noninterest income $8,552  $9,157 
Noninterest expense        
Salaries and employee benefits $13,567  $13,287 
Occupancy  1,652   1,598 
Equipment  1,645   1,649 
Marketing  651   548 
Supplies  338   334 
Legal and professional fees  1,086   986 
ATM and check card expense  897   809 
FDIC assessment  45   294 
Bank franchise tax  538   468 
Data processing expense  705   673 
Amortization expense  302   458 
Other real estate owned expense (income), net  1   (20)
Net loss on disposal of premises and equipment  14   2 
Other operating expense  2,877   2,675 
Total noninterest expense $24,318  $23,761 
Income before income taxes $11,794  $12,422 
Income tax expense  2,238   2,287 
Net income $9,556  $10,135 

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

  (unaudited) 
  For the Year Ended 
  December 31,  December 31, 
  2019  2018 
Common Share and Per Common Share Data        
Net income, basic $1.92  $2.05 
Weighted average shares, basic  4,964,832   4,953,537 
Net income, diluted $1.92  $2.04 
Weighted average shares, diluted  4,967,932   4,956,376 
Shares outstanding at period end  4,969,716   4,957,694 
Tangible book value at period end $15.50  $13.35 
Cash dividends $0.36  $0.20 
         
Key Performance Ratios        
Return on average assets  1.23%  1.34%
Return on average equity  13.19%  16.36%
Net interest margin  3.88%  3.93%
Efficiency ratio (1)  65.27%  63.05%
         
Average Balances        
Average assets $776,933  $754,457 
Average earning assets  727,904   707,575 
Average shareholders’ equity  72,451   61,933 
         
Asset Quality        
Loan charge-offs $884  $1,169 
Loan recoveries  359   252 
Net charge-offs  525   917 
         
Reconciliation of Tax-Equivalent Net Interest Income        
GAAP measures:        
Interest income – loans $28,958  $26,874 
Interest income – investments and other  3,939   4,264 
Interest expense – deposits  (4,104)  (2,755)
Interest expense – federal funds purchased  (1)   
Interest expense – subordinated debt  (360)  (360)
Interest expense – junior subordinated debt  (420)  (397)
Interest expense – other borrowings  (2)   
Total net interest income $28,010  $27,626 
Non-GAAP measures:        
Tax benefit realized on non-taxable interest income – loans $40  $44 
Tax benefit realized on non-taxable interest income – municipal securities  167   163 
Total tax benefit realized on non-taxable interest income $207  $207 
Total tax-equivalent net interest income $28,217  $27,833 

(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%. 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.

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Source: First National Corporation