2014

First National Corporation Announces Earnings

STRASBURG, Va., Jan. 29, 2014 /PRNewswire/ -- First National Corporation (the "Company") (OTCBB: FXNC), the parent company of First Bank (the "Bank"), reported record annual and quarterly earnings.  Net income totaled $10.0 million, or $1.85 per basic and diluted share, for the year ended December 31, 2013.  For the fourth quarter of 2013, net income totaled $7.5 million, or $1.49 per basic and diluted share.

(Logo: http://photos.prnewswire.com/prnh/20120213/PH52225LOGO )

Operating Highlights for 2013

Earnings:

  • Net income of $10.0 million
  • Reversal of valuation allowance on net deferred tax assets decreased income tax expense by $4.8 million
  • Return on average assets 1.87%
  • Return on average equity 22.16%

Asset Quality:

  • Substandard loans (accruing) decreased 49%
  • Recovery of loan losses totaled $425 thousand

Capital:

  • Total shareholders' equity increased $8.8 million to $53.7 million
  • Book value per share increased from $6.22 to $7.98
  • Total risk-based capital increased from 15.34% to 18.25%

"We are pleased to announce record earnings for the year and the fourth quarter," said Scott C. Harvard, President and CEO of the Company and the Bank.  "Thanks to the hard work of our entire team, the financial condition of the Bank has improved to the point that we were able to reverse the valuation allowance on deferred tax assets, resulting in a boost to fourth quarter and annual earnings of $4.8 million."

Fourth Quarter Earnings

Net income totaled $7.5 million for the fourth quarter of 2013, compared to $943 thousand for the same period of 2012.  The significant increase in earnings was primarily a result of the reversal of the valuation allowance on net deferred tax assets which decreased income tax expense by $4.8 million.  In addition, the Company recorded a recovery of loan losses totaling $3.0 million, compared to provision for loan losses of $100 thousand for the same quarter of 2012.  Return on average assets was 5.65% compared to 0.72% for the fourth quarter of 2012.  Return on average equity was 64.03% for the fourth quarter of 2013 compared to 8.37% for the fourth quarter of 2012. 

Net interest income totaled $4.5 million for the quarter, compared to $4.7 million for the same period one year ago.  Noninterest income increased $182 thousand, or 11% compared to the same period of 2012, primarily from a 17% increase in service charges on deposits and a 25% increase in wealth management fee income. 

Noninterest expense totaled $6.0 million for the quarter compared to $5.1 million for the same period in the prior year.  Noninterest expense, excluding lease termination costs of $655 thousand and pension settlement costs of $284 thousand, was unchanged at $5.1 million for the fourth quarter of 2013 compared to the same quarter in 2012.  Other operating expenses increased $760 thousand compared to the same period of 2012, primarily from the decision to terminate a land lease, initially executed for branch expansion, which impacted current year earnings and eliminated expense in future periods.  Salaries and employee benefits increased $503 thousand compared to the same period of 2012, primarily as a result of higher pension costs related to the retirement of several long time employees with years of service ranging up to 40 years.  The reversal of the valuation allowance on net deferred tax assets resulted in income tax benefit totaling $4.3 million for the fourth quarter of 2013 compared to income tax expense of $76 thousand in the same period of 2012.

Pre-provision pre-tax earnings, excluding non-recurring items, increased 9% to $1.2 million for the quarter compared to $1.1 million for the same period in the prior year.  Lease termination costs of $655 thousand and pension settlement costs of $284 thousand comprised the non-recurring items for the fourth quarter of 2013. 

Annual Earnings

Net income totaled $10.0 million for year ended December 31, 2013 compared to $2.8 million for the same period one year ago. Return on average assets was 1.87% and return on average equity was 22.16% for the year ended December 31, 2013, compared to 0.53% and 6.80%, respectively, for the same period in 2012.

Net interest income totaled $18.4 million compared to $19.3 million for 2012.  Noninterest income totaled $6.9 million for 2013 compared to $7.2 million for 2012.  Noninterest income, excluding a gain on termination of a director retirement plan of $543 thousand in 2013, and gains on sale of securities of $1.3 million in 2012, increased 8% to $6.4 million compared to $5.9 million for the same period one year ago. The increase was primarily driven by wealth management fees and revenues from bank owned life insurance.

Noninterest expense totaled $20.6 million for the year compared to $19.1 million for the prior year.  Noninterest expense, excluding lease termination costs of $864 thousand and pension settlement costs of $284 thousand, increased 1% to $19.4 million for the year ended December 31, 2013, compared to $19.1 million for the same period in 2012.  Salaries and employee benefits, including pension expense, increased $836 thousand compared to the prior year.  Other operating expenses increased $905 thousand compared to the same period one year ago. This increase was primarily attributable to the Bank's decision to terminate two land leases, initially executed for branch expansion, which impacted current year earnings and eliminated expense in future periods.  Income tax benefit totaled $4.8 million for the year ended December 31, 2013, compared to income tax expense of $965 thousand for the prior year, primarily as a result of the reversal of the valuation allowance on the Company's net deferred tax assets.

Pre-provision pre-tax earnings, excluding non-recurring items and gains on sale of securities, totaled $5.4 million for the year compared to $6.0 million for the prior year.  Lease termination costs of $864 thousand, pension settlement costs of $284 thousand, and a gain on termination of a director retirement plan totaling $543 thousand comprised the non-recurring items for 2013.  Gains on sale of securities totaled $1.3 million in 2012. 

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, 2012, 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 Three Months Ended


(unaudited)

For the Year Ended

Income Statement

December 31,
2013


December 31,
2012


December 31,
2013


December 31,
2012

Interest and dividend income








  Interest and fees on loans

$           4,422


$         5,061


$         18,844


$         21,062

  Interest on federal funds sold

-


-


-


12

  Interest on deposits in banks

16


11


61


30

  Interest and dividends on securities available for sale:








    Taxable interest

557


382


1,870


1,924

    Tax-exempt interest

79


99


307


327

    Dividends

19


20


75


77

Total interest and dividend income

$           5,093


$         5,573


$         21,157


$         23,432









Interest expense








  Interest on deposits

$              458


$            833


$          2,368


$           3,707

  Interest on trust preferred capital notes

56


56


222


238

  Interest on other borrowings

30


30


119


222

Total interest expense

$              544


$            919


$         2,709


$           4,167









Net interest income

$           4,549


$         4,654


$       18,448


$         19,265

Provision for (recovery of) loan losses

(2,950)


100


(425)


3,555

Net interest income after provision for loan losses

$           7,499


$         4,554


$       18,873


$         15,710









Noninterest income








  Service charges on deposit accounts

$              654


$            558


$           2,204


$           2,127

  ATM and check card fees

354


352


1,425


1,481

  Wealth management fees

463


371


1,696


1,450

  Fees for other customer services

89


107


391


390

  Gains on sale of loans

22


71


193


214

  Gains on sale of securities available for sale

-


-


-


1,285

  Losses on sale of premises and equipment, net

-


-


-


2

  Other operating income

189


130


1,022


225

Total noninterest income

$           1,771


$         1,589


$           6,931


$           7,174









Noninterest expense








  Salaries and employee benefits

$           2,938


$         2,435


$         10,426


$           9,590

  Occupancy

302


347


1,282


1,343

  Equipment         

319


301


1,208


1,208

  Marketing

41


137


345


430

  Stationery and supplies

66


74


288


308

  Legal and professional fees

336


234


971


975

  ATM and check card fees

166


169


668


649

  FDIC assessment

174


176


884


709

  Other real estate owned, net

288


607


1,023


1,355

  Other operating expense

1,404


644


3,457


2,552

Total noninterest expense

$           6,034


$         5,124


$         20,552


$         19,119









Income before income taxes

$           3,236


$         1,019


$           5,252


$           3,765

Income tax provision (benefit)

(4,285)


76


(4,753)


965

Net income

$           7,521


$            943


$         10,005


$           2,800

Effective dividend and accretion on preferred stock

228


226


912


903

Net income available to common shareholders

$           7,293


$            717


$           9,093


$           1,897









Common Share and Per Common Share Data








Net income, basic and diluted

$             1.49


$           0.15


$             1.85


$             0.48

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


4,901,464


4,901,464


3,944,506

Book value at period end

$             7.98


$            6.22


$             7.98


$             6.22

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 Year Ended


December 31,
2013


December 31,

 2012


December 31,
2013


December 31,

 2012

Key Performance Ratios








Return on average assets

5.65%


0.72%


1.87%


0.53%

Return on average equity

64.03%


8.37%


22.16%


6.80%

Net interest margin

3.68%


3.75%


3.72%


3.89%

Efficiency ratio (1)

79.76%


71.68%


74.43%


70.07%









Average Balances








Average assets

$       528,508


$       524,409


$       533,732


$       527,256

Average earning assets

496,619


500,075


502,736


500,895

Average shareholders' equity

46,601


44,828


45,149


41,201









Asset Quality








Loan charge-offs

$               193


$           1,210


$           4,493


$           3,793

Loan recoveries

1,911


136


2,486


376

Net charge-offs (recoveries)

(1,718)


1,074


2,007


3,417

Non-accrual loans

11,678


8,393


11,678


8,393

Other real estate owned, net

3,122


5,590


3,122


5,590

Nonperforming assets

14,800


13,983


14,800


13,983

Loans over 90 days past due, still accruing

49


228


49


228

Troubled debt restructurings (accruing)

829


1,570


829


1,570

Special mention loans

20,240


26,614


20,240


26,614

Substandard loans (accruing)

22,909


44,620


22,909


44,620

Doubtful loans

-


-


-


-














 

December 31,

2013


December 31,

 2012

Capital Ratios








Tier 1 capital





$        61,962


$         54,897

Total capital





66,599


59,876

Total capital to risk-weighted assets





18.25%


15.34%

Tier 1 capital to risk-weighted assets





16.98%


14.07%

Leverage ratio





11.78%


10.47%









Balance Sheet








Cash and due from banks





$          5,767


$           7,266

Interest-bearing deposits in banks





25,741


23,762

Securities available for sale, at fair value





103,301


89,456

Restricted securities, at cost





1,804


1,974

Loans held for sale





-


503

Loans, net of allowance for loan losses





346,449


370,519

Premises and equipment, net





16,642


18,589

Interest receivable





1,302


1,459

Other assets





21,909


19,169

  Total assets





$       522,915


$       532,697









Noninterest-bearing demand deposits





$         92,901


$         85,118

Savings and interest-bearing demand deposits





234,054


221,601

Time deposits





123,756


160,198

  Total deposits





$       450,711


$       466,917

Other borrowings





6,052


6,076

Trust preferred capital notes





9,279


9,279

Other liabilities





3,182


5,536

  Total liabilities





$       469,224


$       487,808









 


FIRST NATIONAL CORPORATION

Quarterly Performance Summary

(in thousands, except share and per share data)




(unaudited)


December 31,

2013


December 31,

 2012

Balance Sheet (continued)




Preferred stock

$           14,564


$          14,409

Common stock

6,127


6,127

Surplus

6,813


6,813

Retained earnings

27,492


18,399

Accumulated other comprehensive loss, net

(1,305)


(859)

  Total shareholders' equity

$           53,691


$          44,889





  Total liabilities and shareholders' equity

$         522,915


$        532,697





Loan Data




Mortgage loans on real estate:




  Construction and land development

$           34,060


$          43,524

  Secured by farm land

1,264


5,795

  Secured by 1-4 family residential

141,961


134,964

  Other real estate loans

144,704


168,425

Loans to farmers (except those secured by real estate)

3,418


2,238

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

19,385


20,833

Consumer installment loans

4,935


6,991

Deposit overdrafts

279


153

All other loans

7,087


671

  Total loans

$         357,093


$        383,594

Allowance for loan losses

10,644


13,075

Loans, net

$         346,449


$        370,519














(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 $4,612 and $4,713 for the three months ended December 31, 2013 and 2012, respectively, and $18,688 and $19,463 for the year ended December 31, 2013 and 2012, respectively. Adjusted noninterest income was $1,771 and $1,589 for the three months ended December 31, 2013 and 2012, respectively, and $6,388 and $5,887 for the year ended December 31, 2013 and 2012, respectively. Adjusted noninterest expense was $5,091 and $4,517 for the three months ended December 31, 2013 and 2012, respectively, and $18,665 and $17,764 for the year ended December 31, 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   
President and CEO 
(540) 465-9121
sharvard@fbvirginia.com

M. Shane Bell
Executive Vice President and CFO
(540) 465-9121
sbell@fbvirginia.com  

SOURCE First National Corporation



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