First National Corporation Announces Asset Quality Improvement and Second Quarter Earnings

STRASBURG, Va., Aug. 2, 2013 /PRNewswire/ -- First National Corporation (the "Company") (OTCBB: FXNC), the parent company of First Bank (the "Bank"), reported its sixth consecutive profitable quarter and significant asset quality improvement over prior year.  Net income for the quarter ending June 30, 2013 was $261 thousand compared to $694 thousand for the same period in 2012. Non-performing assets decreased 18% compared to one year ago and substandard loans declined 35% compared to one year ago.

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Scott C. Harvard, President and CEO commented, "We are pleased to report sustained profitability and positive results from the Bank's classified asset reduction program. The Company has been laser-focused on improving asset quality while driving consistent revenues from our 106 year old community banking franchise. I am proud of how our team has remained true to our core values of personal banking built on great service and strong relationships, while strengthening our risk management practices across the organization. We are looking to the future with optimism and excitement."

Operating Highlights for the Second Quarter

  • Sixth consecutive profitable quarter
  • Non-performing assets decreased 18% compared to one year ago
  • Substandard loans decreased 35% compared to one year ago
  • Allowance for loan losses totaled 3.31% of loans
  • Net interest margin for the quarter was 3.71%

Second Quarter Earnings

Net income was $261 thousand for the quarter ending June 30, 2013, compared to $694 thousand for the same period in 2012.  This difference was primarily attributable to a $1.9 million increase in the provision for loan losses, which was driven by a charge-off of one large loan relationship during the quarter.  Return on average assets was 0.19% compared to 0.53% for the second quarter of 2012.  Return on average equity was 2.32% for the second quarter of 2013, compared to 7.21% for the second quarter of 2012.  After the effective dividend on preferred stock, net income available to common shareholders totaled $31 thousand or $0.01 per basic and diluted share for the second quarter of 2013, compared to $467 thousand, or $0.16 per basic and diluted share for the same period of 2012. 

The net interest margin was 3.71% compared to 3.88% for the same period in 2012, resulting in net interest income totaling $4.7 million for the second quarter of 2013, compared to $4.8 million for the same period one year ago.  Noninterest income increased 39% to $2.0 million, compared to $1.5 million for the same period one year ago.  The Company recorded a $543 thousand gain from the termination of a liability related to its split dollar life insurance plan during the quarter.  Noninterest income, excluding the gain on termination of the split dollar liability, remained relatively unchanged at $1.5 million when comparing the periods.  Revenue from bank owned life insurance increased while service charges on deposit accounts and ATM and check card fees decreased. 

Noninterest expense increased 7% to $4.8 million for the second quarter of 2013, compared to $4.4 million for the same period in 2012.  The increase in noninterest expense was primarily due to an increase in expenses related to other real estate owned (OREO) from $106 thousand for the second quarter of 2012 to $376 thousand for the second quarter of 2013.  Income tax benefit totaled $830 thousand for the second quarter of 2013.  This was impacted by the sale of OREO and loan charge-offs during the quarter.

Year-to-Date Performance

Net income totaled $1.2 million for the six months ended June 30, 2013 and for the same period one year ago. Return on average assets was 0.47% and return on average equity was 5.57% for the six months ended June 30, 2013, compared to 0.44% and 6.17%, respectively, for the same period in 2012.

Net interest income was $9.3 million compared to $9.9 million for same period in 2012.  Noninterest income, excluding gains on sale of securities and the termination of the split dollar liability, increased 5% to $3.0 million compared to $2.9 million for the same period one year ago. Revenues from trust and investment advisory fees and bank owned life insurance increased while service charges on deposit accounts decreased.

Noninterest expense increased 6% to $9.9 million compared to $9.3 million for the same period in 2012.  Salaries and employee benefits increased $320 thousand to $5.1 million for the second quarter of 2013, compared to $4.8 million for the same period of 2012.  Other operating expenses increased $254 thousand to $1.4 million, compared to $1.2 million for the same period one year ago. Other operating expenses increased primarily from the decision to terminate a land lease for branch expansion that resulted in a one-time charge to earnings.  The elimination of this lease payment is expected to improve efficiency in future periods.  These increased expenses were partially offset by a decrease in OREO related expenses from $670 thousand for the six months ended June 30, 2012 to $483 thousand for the same period in 2013.  Income tax benefit totaled $559 thousand for the six months ended June 30, 2013.  This was impacted by the sale of OREO and loan charge-offs during the period.

Cautionary Statements

The Company notes to investors that past results of operations do not necessarily indicate future results.  Certain factors that affect the Company's operations and business environment are subject to uncertainties that could in turn affect future results.  These factors are identified in the Annual Report on Form 10-K for the year ended December 31, 2012, which can be accessed from the Company's website at www.fbvirginia.com, as filed 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 Three Months Ended


(unaudited)

For the Six Months Ended

Income Statement

June 30, 2013


June 30, 2012


June 30, 2013


June 30, 2012

Interest and dividend income








  Interest and fees on loans

$           4,816


$         5,265


$           9,749


$       10,812

  Interest on federal funds sold

-


6


-


9

  Interest on deposits in banks

17


5


27


8

  Interest and dividends on securities available for sale:








    Taxable interest

443


514


815


1,048

    Tax-exempt interest

76


71


149


173

    Dividends

19


19


38


38

Total interest and dividend income

$           5,371


$         5,880


$         10,778


$       12,088









Interest expense








  Interest on deposits

$              632


$            959


$           1,338


$         1,945

  Interest on trust preferred capital notes

55


60


111


122

  Interest on other borrowings

30


66


59


146

Total interest expense

$              717


$         1,085


$           1,508


$         2,213









Net interest income

$           4,654


$         4,795


$           9,270


$         9,875

Provision for loan losses

2,500


650


2,250


2,650

Net interest income after provision for loan losses

$           2,154


$         4,145


$           7,020


$         7,225









Noninterest income








  Service charges on deposit accounts

$              464


$            523


$              923


$         1,025

  ATM and check card fees

365


387


698


760

  Trust and investment advisory fees

375


368


827


714

  Fees for other customer services

128


107


216


205

  Gains on sale of loans

65


49


124


92

  Gains on sale of securities available for sale

-


1


-


1,118

  Losses on sale of premises and equipment, net

(3)


-


-


-

  Other operating income

640


27


747


62

Total noninterest income

$           2,034


$         1,462


$           3,535


$         3,976









Noninterest expense








  Salaries and employee benefits

$           2,443


$         2,388


$           5,077


$         4,757

  Occupancy

296


337


674


663

  Equipment         

288


307


587


613

  Marketing

113


95


223


173

  Stationery and supplies

81


86


156


167

  Legal and professional fees

219


198


398


448

  ATM and check card fees

168


163


326


319

  FDIC assessment

180


179


521


357

  Other real estate owned, net

376


106


483


670

  Other operating expense

593


575


1,425


1,171

Total noninterest expense

$           4,757


$         4,434


$           9,870


$         9,338









Income (loss) before income taxes

$            (569)


$         1,173


$              685


$         1,863

Income tax provision (benefit)

(830)


479


(559)


694

Net income

$              261


694


$           1,244


1,169

Effective dividend and accretion on preferred stock

230


227


456


451

Net income available to common shareholders

$                31


$            467


$              788


$            718









Common Share and Per Common Share Data








Net income, basic and diluted

$             0.01


$          0.16


$             0.16


$           0.24

Shares outstanding at period end

4,901,464


4,901,464


4,901,464


4,901,464

Weighted average shares, basic and diluted

4,901,464


2,998,414


4,901,464


2,977,032

Book value at period end

$             5.83


$           6.19


$             5.83


$           6.19

Cash dividends

$                   -


$                 -


$                   -


$                 -

 

FIRST NATIONAL CORPORATION

Quarterly Performance Summary

(in thousands, except share and per share data)



(unaudited)

For the Three Months Ended


(unaudited)

For the Six Months Ended



June 30,

2013


June 30,

2012


June 30,

2013


June 30, 

2012


Key Performance Ratios









Return on average assets

0.19%


0.53%


0.47%


0.44%


Return on average equity

2.32%


7.21%


5.57%


6.17%


Net interest margin

3.71%


3.88%


3.75%


4.01%


Efficiency ratio (1)

70.54%


68.70%


74.14%


67.52%











Average Balances









Average assets

$        540,081


$    529,222


$    534,854


$    528,998


Average earning assets

509,940


501,558


504,242


500,617


Average shareholders' equity

45,096


38,700


45,028


38,083











Asset Quality









Loan charge-offs

$            3,067


$          358


$        3,345


$        1,784


Loan recoveries

289


71


498


196


Net charge-offs

2,778


287


2,847


1,588


Non-accrual loans

9,091


10,639


9,091


10,639


Other real estate owned, net

4,084


5,420


4,084


5,420


Nonperforming assets

13,175


16,059


13,175


16,059


Loans over 90 days past due, still accruing

1,889


1,229


1,889


1,229


Troubled debt restructurings (accruing)

838


1,402


838


1,402


Special mention loans

26,432


16,438


26,432


16,438


Substandard loans (accruing)

34,466


53,402


34,466


53,402


Doubtful loans

-


44


-


44














June 30,

2013


June 30, 

2012


Capital Ratios









Tier 1 capital





$              55,773


$      53,633


Total capital





60,623


58,608


Total capital to risk-weighted assets





15.94%


15.07%


Tier 1 capital to risk-weighted assets





14.66%


13.79%


Leverage ratio





10.33%


10.14%











Balance Sheet









Cash and due from banks





$               8,104


$          7,684


Interest-bearing deposits in banks





23,045


29,901


Securities available for sale, at fair value





105,163


87,267


Restricted securities, at cost





1,805


2,408


Loans, net of allowance for loan losses





365,035


370,136


Premises and equipment, net





17,992


19,312


Interest receivable





1,425


1,536


Other assets





18,170


12,986


  Total assets





$            540,739


$      531,230











Noninterest-bearing demand deposits





$              91,946


$         82,868


Savings and interest-bearing demand deposits





232,763


208,004


Time deposits





151,249


167,822


  Total deposits





$            475,958


$       458,694


Other borrowings





6,064


14,088


Trust preferred capital notes





9,279


9,279


Other liabilities





6,377


4,473


  Total liabilities





$            497,678


$       486,534


 



(unaudited)


June 30,

2013


June 30,

 2012

Balance Sheet (continued)




Preferred stock

$           14,485


$          14,335

Common stock

6,127


6,127

Surplus

6,813


6,813

Retained earnings

19,188


17,221

Accumulated other comprehensive income (loss), net

(3,552)


200

  Total shareholders' equity

$           43,061


$          44,696





  Total liabilities and shareholders' equity

$         540,739


$        531,230





Loan Data




Mortgage loans on real estate:




  Construction and land development

$           44,305


$          47,843

  Secured by farm land

1,318


6,105

  Secured by 1-4 family residential

145,628


128,229

  Other real estate loans

158,516


168,107

Loans to farmers (except those secured by real estate)

2,093


2,117

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

17,608


22,820

Consumer installment loans

5,973


7,823

Deposit overdrafts

99


87

All other loans

1,973


1,004

  Total loans

$         377,513


$        384,135

Allowance for loan losses

12,478


13,999

Loans, net

$         365,035


$        370,136














(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned expenses and the loss on land lease termination by the sum of net interest income on a tax equivalent basis and noninterest income excluding gains and losses on sales of securities and premises and equipment and the gain on termination of the split dollar liability.  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 for 2013 and 2012 was 34%. Net interest income on a tax equivalent basis was $4,717 and $4,839 for the three months ended June 30, 2013 and 2012, respectively, and $9,384 and $9,979 for the six months ended June 30, 2013 and 2012, respectively. Adjusted noninterest income was $2,037 and $1,461 for the three months ended June 30, 2013 and 2012, respectively, and $3,535 and $2,858 for the six months ended June 30, 2013 and 2012, respectively. 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

sharvard@fbvirginia.com

sbell@fbvirginia.com

 

SOURCE First National Corporation



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