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First National Corporation Announces 17% Increase in First Quarter Earnings

STRASBURG, Va., April 23, 2014 /PRNewswire/ -- First National Corporation (the "Company") (OTCBB: FXNC), the parent company of First Bank (the "Bank"), reported a 17% increase in first quarter earnings. Net income totaled $1.1 million, or $0.19 per basic and diluted share, for the three months ended March 31, 2014, compared to $983 thousand, or $0.15 per basic and diluted share, for the same period in 2013. The Company's earnings for the three-month period resulted in a return on average assets of 0.88% and a return on average equity of 8.53%.

First Quarter Highlights

Earnings:

  • Net income increased 17% to $1.1 million
  • Noninterest income increased 8% to $1.6 million
  • Noninterest expenses decreased 10% to $4.6 million
  • Return on average assets was 0.88%

Capital and Asset Quality:

  • Book value per share increased from $6.35 to $8.24 per common share
  • Total risk-based capital increased from 15.82% to 18.49%
  • Substandard loans decreased by $19.5 million, or 47%

"We began the year with solid earnings as the Bank made good progress improving profitability and growing the loan and deposit portfolios," said Scott C. Harvard, President and CEO of the Company and the Bank. "Results for the first quarter reflected the team's efforts to improve both efficiency and asset quality, while expanding customer relationships. We are pleased with the continued progress of our banking company."

First Quarter Earnings

Net income totaled $1.1 million for the first quarter of 2014, compared to $983 thousand for the same period of 2013. The return on average assets was 0.88% for the first quarter compared to 0.75% for the same quarter one year ago, and the return on average equity was 8.53% compared to 8.84% for the same period in 2013. 

Net interest income totaled $4.4 million for the quarter, compared to $4.6 million for the same period one year ago. The net interest margin was 3.72% compared to 3.80% for the first quarter of 2013.  Noninterest income increased $118 thousand, or 8% compared to the same period of 2013, primarily from a 37% increase in revenue from service charges on deposits and a 7% increase in wealth management revenues. Assets under management of the wealth management division increased by $41.8 million to $289.4 million at March 31, 2014 compared to $247.6 million one year ago.

Noninterest expense decreased $497 thousand, or 10%, to $4.6 million for the quarter compared to $5.1 million for the same period in the prior year. Salaries and employee benefits decreased $125 thousand, occupancy decreased $63 thousand, FDIC assessment decreased $169 thousand, other real estate owned expense decreased $76 thousand, and net loss on disposal of premises and equipment decreased $203 thousand, compared to the same period in 2013. During the first quarter of 2013, the Company made the decision to terminate a land lease for branch expansion that resulted in a one-time charge to earnings totaling $209 thousand that was included in net loss on disposal of premises and equipment. The decrease in expenses, when comparing the first quarter of 2014 to the same period one year ago, reflected the Company's efforts to improve efficiency by diligently managing its operating expenses. 

The Bank recorded a recovery of loan losses of $200 thousand during the first quarter, which resulted in a total allowance for loan losses of $10.3 million or 2.86% of total loans at March 31, 2014. The recovery of loan losses was primarily a result of a decrease in the general allocation from an improvement in the historical loss experience. This compared to a recovery of loan losses of $250 thousand and an allowance for loan losses of $12.8 million, or 3.34% of total loans, at the end of the first quarter of 2013.

Capital and Asset Quality

Nonperforming assets decreased slightly to $14.7 million at March 31, 2014 compared to $14.9 million one year ago, and troubled debt restructurings decreased to $1.0 million from $4.1 million, comparing the same periods. Substandard loans decreased 47% to $21.9 million at the end of the first quarter compared to $41.5 million for the same period one year ago. 

Total shareholders' equity increased $9.4 million to $55.0 million at March 31, 2014, compared to $45.6 million one year ago. The book value per common share was $8.24 at the end of the first quarter.  Regulatory capital ratios were higher than previous periods, with the total risk-based capital ratio at 18.49% at March 31, 2014. 

Caution about 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, 2013, and other filings with the Securities and Exchange Commission.

About the Company

First National Corporation, headquartered in Strasburg, Virginia, is the bank holding company of First Bank. First Bank offers loan, deposit, trust and investment products and services from 10 office locations located throughout the northern Shenandoah Valley region of Virginia, which includes Shenandoah County, Warren County, Frederick County and the City of Winchester. Banking services are also accessed from the Bank's website, www.fbvirginia.com, and from a network of ATMs located throughout its market area. 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 Statement

March 31,
2014


December 31,
2013


September 30,
2013


June 30,
2013


March 31,
2013

Interest income










  Interest and fees on loans

$      4,215


$         4,422


$           4,673


$        4,816


$      4,933

  Interest on deposits in banks

16


16


18


17


10

  Interest on securities available for sale

657


636


577


519


445

  Dividends on restricted securities

21


19


18


19


19

Total interest income   

$      4,909


$         5,093


$           5,286


$        5,371


$      5,407











Interest expense










  Interest on deposits

$         400


$            458


$              572


$           632


$         706

  Interest on trust preferred capital notes

54


56


55


55


56

  Interest on other borrowings

29


30


30


30


29

Total interest expense

$         483


$            544


$              657


$           717


$         791











Net interest income

$      4,426


$         4,549


$           4,629


$        4,654


$      4,616

Provision for (recovery of) loan losses

(200)


(2,950)


275


2,500


(250)

Net interest income after provision for
(recovery of) loan losses

 

$      4,626


 

$         7,499


 

$           4,354


 

$        2,154


 

$      4,866











Noninterest income










  Service charges on deposit accounts

$         630


$            654


$              627


$           464


$         459

  ATM and check card fees

335


354


373


365


333

  Wealth management fees

484


463


406


375


452

  Fees for other customer services

87


89


86


128


88

  Gains on sale of loans

3


22


47


65


59

  Gain on termination of postretirement
    benefit

 

-


 

-


 

-


 

543


 

-

  Other operating income

77


189


86


97


107

Total noninterest income

$      1,616


$         1,771


$           1,625


$        2,037


$      1,498











Noninterest expense










  Salaries and employee benefits

$      2,509


$         3,040


$           2,411


$        2,443


$      2,634

  Occupancy

315


302


306


296


378

  Equipment         

304


319


302


288


299

  Marketing

109


41


81


113


110

  Stationery and supplies

  Legal and professional fees

80

202


66

340


66

237


81

219


75

179

  ATM and check card fees

163


166


176


168


158

  FDIC assessment

172


174


189


180


341

  Other real estate owned, net

31


380


252


376


107

  Net losses on disposal of premises and
     equipment

 

2


 

393


 

-


 

3


 

205

  Loss on lease termination

-


263


-


-


-

  Other operating expense

726


748


628


593


624

Total noninterest expense

$      4,613


$         6,232


$           4,648


$        4,760


$      5,110











Income (loss) before income taxes

$      1,629


$         3,038


$           1,331


$        (569)


$      1,254

Income tax provision (benefit)

483


(4,352)


91


(830)


271

Net income

$      1,146


$         7,390


$           1,240


$           261


$         983

Effective dividend and accretion on

preferred stock

 

221


 

228


 

229


 

230


 

226

Net income available to common

shareholders

 

$         925


 

$         7,162


 

$           1,011


 

$             31


 

$         757











Common Share and Per Common Share Data









Net income, basic and diluted

$        0.19


$           1.46


$             0.21


$          0.01


$        0.15

Shares outstanding at period end

4,901,464


4,901,464


4,901,464


4,901,464


4,901,464

Weighted average shares, basic and

diluted

 

4,901,464


 

4,901,464


 

4,901,464


 

4,901,464


 

4,901,464

Book value at period end

$        8.24


$            7.96


$             5.93


$          5.83


$        6.35















 

FIRST NATIONAL CORPORATION

Quarterly Performance Summary


(in thousands, except share and per share data)



(unaudited)

For the Quarter Ended


March 31,
2014


December 31,
2013


September 30,
2013


June 30,
2013


March 31,
2013

Key Performance Ratios










Return on average assets

0.88%


5.55%


0.92%


0.19%


0.75%

Return on average equity

8.53%


62.92%


11.44%


2.32%


8.84%

Net interest margin

3.72%


3.68%


3.68%


3.71%


3.80%

Efficiency ratio (1)

74.85%


81.40%


69.60%


70.54%


78.61%











Average Balances










Average assets

$  525,337


$    528,475


$     535,885


$  540,081


$  529,827

Average earning assets

490,521


496,619


505,888


509,940


498,462

Average shareholders' equity

54,460


46,569


43,001


45,096


45,090











Asset Quality










Loan charge-offs

$       239


$           192


$            955


$     3,067


$         278

Loan recoveries

79


1,911


77


289


209

Net charge-offs (recoveries)

160


(1,719)


878


2,778


69

Non-accrual loans

11,697


11,678


8,000


9,091


9,715

Other real estate owned, net

2,991


3,030


3,833


4,084


5,173

Nonperforming assets

14,688


14,708


11,833


13,175


14,888

Loans over 90 days past due, still accruing

111


49


2,150


1,889


-

Troubled debt restructurings, accruing

986


829


834


838


4,096

Special mention loans

20,606


19,660


23,226


26,432


26,685

Substandard loans, accruing

21,917


22,909


31,119


34,466


41,460

Doubtful loans

-


-


-


-


-











Capital Ratios










Tier 1 capital

$      63,041


$      61,800


$           56,830


$      55,773


$       55,696

Total capital

67,687


66,437


61,565


60,623


60,580

Total capital to risk-weighted assets

18.49%


18.21%


16.57%


15.94%


15.82%

Tier 1 capital to risk-weighted assets

17.22%


16.94%


15.29%


14.66%


14.55%

Leverage ratio

12.05%


11.75%


10.61%


10.33%


10.51%











Balance Sheet










Cash and due from banks

$       7,106


$          5,767


$            8,649


$        8,104


$         7,678

Interest-bearing deposits in banks

27,017


25,741


29,221


23,045


31,859

Securities available for sale, at fair value

110,561


103,301


105,321


105,163


89,089

Restricted securities, at cost

1,636


1,804


1,804


1,805


1,805

Loans, net of allowance for loan losses

349,250


346,449


354,952


365,035


369,583

Premises and equipment, net

16,470


16,642


17,417


17,992


18,130

Accrued interest receivable

1,305


1,302


1,339


1,425


1,430

Other assets

21,250


21,884


17,752


18,170


17,955

  Total assets

$   534,595


$      522,890


$        536,455


$    540,739


$     537,529











Noninterest-bearing demand deposits

$   101,813


$        92,901


$           95,609


$      91,946


$       90,789

Savings and interest-bearing demand
deposits

 

239,725


 

234,054


 

229,990


 

232,763


 

224,150

Time deposits

120,151


123,756


145,664


151,249


155,041

  Total deposits

$   461,689


$      450,711


$         471,263


$    475,958


$    469,980

Other borrowings

6,046


6,052


6,058


6,064


6,070

Trust preferred capital notes

9,279


9,279


9,279


9,279


9,279

Other liabilities

2,614


3,288


6,244


6,377


6,649

Total liabilities

$   479,628


$      469,330


$         492,844


$    497,678


$    491,978









































FIRST NATIONAL CORPORATION

Quarterly Performance Summary


(in thousands, except share and per share data)


                                                                           (unaudited)


March 31,

2014


December 31,
2013


September 30,
2013


June 30, 2013


March 31, 2013











Balance Sheet (continued)










Preferred stock

$    14,595


$        14,564


$       14,525


$    14,485


$    14,446

Common stock

6,127


6,127


6,127


6,127


6,127

Surplus

6,813


6,813


6,813


6,813


6,813

Retained earnings

28,286


27,360


20,199


19,188


19,156

Accumulated other comprehensive loss, net

(854)


(1,304)


(4,053)


(3,552)


(991)

Total shareholders' equity

$    54,967


$        53,560


$       43,611


$    43,061


$    45,551

  Total liabilities and shareholders' equity

$  534,595


$      522,890


$     536,455


$  540,739


$  537,529











Loan Data










Mortgage loans on real estate:










  Construction and land development

$    33,876


$      34,060


$       34,404


$    44,305


$    45,783

  Secured by farm land

1,257


1,264


1,302


1,318


1,344

  Secured by 1-4 family residential

147,541


141,961


142,446


145,628


143,765

  Other real estate loans

141,462


144,704


155,389


158,516


161,398

Loans to farmers (except those secured by 
    real estate)

 

3,060


 

3,418


 

2,130


 

2,093


 

2,173

Commercial and industrial loans (except
     those secured by real estate)

 

20,321


 

19,385


 

19,186


 

17,608


 

20,570

Consumer installment loans

4,816


4,935


5,420


5,973


6,408

Deposit overdrafts

213


279


187


99


71

All other loans

6,987


7,087


6,363


1,973


827

  Total loans

$  359,533


$    357,093


$     366,827


$  377,513


$  382,339

Allowance for loan losses

(10,283)


(10,644)


(11,875)


(12,478)


(12,756)

Loans, net

$  349,250


$    346,449


$     354,952


$  365,035


$  369,583











Reconciliation of Tax-Equivalent Net Interest Income









GAAP measures:










  Interest income – loans

$      4,215


$        4,422


$         4,673


$    4,816


$      4,933

  Interest income – investments and other

694


671


613


555


474

  Interest expense – deposits

400


458


572


632


706

  Interest expense – other borrowings

29


30


30


30


29

Interest expense – trust preferred capital

     notes

 

54


 

56


 

55


 

55


 

56

Total net interest income

$      4,426


$          4,549


$         4,629


$    4,654


$      4,616

Non-GAAP measures:










Tax benefit realized on non-taxable interest

     income – loans

 

$           29


 

$               21


 

$              23


 

$         24


 

$           14

Tax benefit realized on non-taxable interest

     income – municipal securities

 

49


 

43


39


39


37

Total tax benefit realized on non-taxable

      interest income

 

$           78


 

$               64


 

$              62


 

$         63


 

$           51

Total tax-equivalent net interest income

$      4,504


$          4,613


$         4,691


$    4,717


$      4,667



(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned expense, loss on land lease termination and net 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 and gain on termination of postretirement benefit.  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 table above for the quarterly tax-equivalent net interest income and a reconciliation 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 in accordance with generally accepted accounting principles (GAAP) and should not be construed as such.  Management believes 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.


 

Contact:


Scott C. Harvard

M. Shane Bell

President and CEO

Executive Vice President and CFO

(540) 465-9121

(540) 465-9121

[email protected]

[email protected]

SOURCE First National Corporation

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