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First National Corporation Announces Third Quarter Profit

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STRASBURG, Va., Oct. 29, 2012 /PRNewswire/ -- First National Corporation (the "Company") (OTCBB: FXNC), the parent company of First Bank (the "Bank"), announced today its third consecutive profitable quarter.

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

Scott C. Harvard, President and CEO of the Company and the Bank commented, "The third quarter was one of continued improvement for our banking company.  Improved asset quality, continued profitability, and higher capital levels are positive indications that our banking team is on the right track.  In addition, we were pleased to exit the TARP program during the quarter through an auction that found strong interest from private investors and allowed the Treasury to exit with a tidy profit."

Highlights for the Third Quarter

  • First National exited TARP program, U. S. Department of the Treasury no longer owns shares
  • Third consecutive profitable quarter
  • Net interest margin was 3.78%
  • Nonperforming assets decreased 49% from the same quarter one year ago and 11% from the second quarter of 2012
  • Provision for loan losses decreased to $805 thousand compared to $5.6 million from the same quarter one year ago
  • Allowance for loan losses totaled $14.0 million or 3.69% of total loans
  • Bank capital ratios continued to exceed well capitalized guidelines

Earnings

For the three month period ended September 30, 2012, net income totaled $688 thousand, compared to a net loss of $2.9 million for the third quarter of 2011.  Net income available to common shareholders totaled $462 thousand or $0.09 per basic and diluted share, a significant improvement over the net loss available to common shareholders of $3.1 million, or $1.05 per basic and diluted share for the same quarter one year ago.  The earnings improvement was primarily attributable to an improvement in asset quality, which resulted in a decrease in the provision for loan losses to $805 thousand in the third quarter of 2012, compared to $5.6 million for the same period of 2011.  In addition, the provision for other real estate owned decreased $901 thousand to $26 thousand for the third quarter of 2012, compared to $927 thousand for the same period of 2011. Return on average assets was 0.52% and return on average equity was 6.11% for the third quarter of 2012, compared to (2.11%) and (23.78%), respectively, for the third quarter of 2011.

Net interest income totaled $4.7 million for the third quarter of 2012, compared to $5.0 million for the same period one year ago.  The net interest margin was 3.78%, compared to 3.98% for the same period one year ago.  Noninterest income increased 9% to $1.6 million, compared to the same period one year ago. The increase was primarily a result of gains on sale of securities.  Decreases in revenues from service charges on deposit accounts and ATM and check card fees were partially offset by increases from gains on sales of loans, and increases from trust and investment advisory fees when comparing the periods.

Noninterest expense decreased 14% to $4.7 million for the third quarter of 2012, compared to $5.4 million for the same period in 2011, primarily from reduced provision for other real estate owned.

First National Exits TARP Program

In August, the Treasury sold its preferred stock in First National Corporation to private investors. The Treasury invested $13.9 million in the Company in 2009.  Since that time, interest payments and auction proceeds paid to the Treasury totaled approximately $15.5 million.  

Asset Quality

The provision for loan losses was $805 thousand, which resulted in a total allowance for loan losses of $14.0 million or 3.69% of total loans at September 30, 2012.  This compared to a provision for loan losses of $5.6 million and an allowance for loan losses of $18.5 million, or 4.52% of total loans, at the end of the same quarter in 2011. Nonperforming assets decreased 49% to $14.3 million at September 30, 2012, compared to $28.3 million at September 30, 2011. The reduction was primarily attributable to non-accrual loans decreasing from $22.7 million at the end of the third quarter of 2011 to $9.0 million at the end of the third quarter of 2012. Other real estate owned decreased by $253 thousand to $5.3 million. Net charge-offs for the period declined to $755 thousand from $851 thousand in the third quarter of 2011.

Year-to-Date Performance

For the nine months ended September 30, 2012, net income totaled $1.9 million compared to net loss of $2.8 million for the same period in 2011.  After the effective dividend on preferred stock, net income available to common shareholders was $1.2 million, or $0.33 per basic and diluted share, compared to net loss available to common shareholders of $3.5 million, or $1.18 per basic and diluted share, for the same period in 2011.

Net interest income was $14.6 million compared to $15.1 million for same period in 2011.  The net interest margin was 3 basis points lower and average interest-earning assets were $15.7 million lower when comparing the two periods.  The net interest margin was 3.93%, compared to 3.96% for the same period in 2011. The provision for loan losses totaled $3.5 million compared to $9.4 million for the same period in 2011. 

Noninterest income increased 30% to $5.6 million compared to the same period one year ago, primarily as a result of gains on sale of securities.  Revenues from fees for other customer services and gains on sales of loans increased while ATM and check card income and service charges on deposit accounts decreased slightly when comparing the periods.

Noninterest expense decreased 3% to $14.0 million compared to the same period in 2011, primarily from reduced provision for other real estate owned.  Net gains on sale of other real estate owned totaled $297 thousand for the nine months ended September 30, 2012, compared to $28 thousand for the same period in 2011.  The provision for other real estate owned totaled $595 thousand for the nine months ended September 30, 2012, compared to $1.1 million for the same period in 2011. 

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, 2011, 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 in the northern Shenandoah Valley region of Virginia, including Shenandoah County, Warren County, Frederick County and the City of Winchester.   First Bank also owns First Bank Financial Services, Inc., which invests in entities that provide investment services and title insurance.

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


 

FIRST NATIONAL CORPORATION

Quarterly Performance Summary

 (in thousands, except share and per share data)





(unaudited)

For the Three Months Ended



(unaudited)

For the Nine Months Ended

Income Statement

9/30/2012



9/30/2011



9/30/2012



9/30/2011

Interest and dividend income















  Interest and fees on loans

$        5,189



$        5,666



$          16,001



$       17,317

  Interest on federal funds sold

3



2



12



13

  Interest on deposits in banks

11



2



19



15

  Interest and dividends on securities available for sale:















    Taxable interest

494



595



1,542



1,618

    Tax-exempt interest

55



121



228



365

    Dividends

19



16



57



50

Total interest and dividend income

$        5,771



$        6,403



$          17,859



$       19,378

















Interest expense















  Interest on deposits

$           928



$        1,204



$            2,874



$         3,810

  Interest on trust preferred capital notes

60



109



182



327

  Interest on other borrowings

47



42



192



175

Total interest expense

$        1,035



$        1,355



$            3,248



$         4,312

















Net interest income

$        4,736



$        5,048



$          14,611



$       15,066

Provision for loan losses

805



5,575



3,455



9,395

Net interest income (loss) after provision for loan losses

$        3,931



$        (527)



$          11,156



$         5,671

















Noninterest income















  Service charges on deposit accounts

$           544



$           590



$            1,569



$         1,626

  ATM and check card fees

369



391



1,129



1,172

  Trust and investment advisory fees

365



350



1,079



1,076

  Fees for other customer services

78



84



283



231

  Gains on sale of loans

51



25



143



94

  Gains on sale of securities available for sale

167



-



1,285



41

  Gains on sale of premises and equipment

2



-



2



-

  Other operating income

33



33



95



58

Total noninterest income

$        1,609



$        1,473



$            5,585



$         4,298

















Noninterest expense















  Salaries and employee benefits

$        2,398



$        2,299



$            7,155



$         6,867

  Occupancy

333



347



996



1,019

  Equipment         

294



325



907



973

  Marketing

120



109



293



314

  Stationery and supplies 

67



88



234



254

  Legal and professional fees

293



276



741



746

  ATM and check card fees

161



162



480



492

  FDIC assessment

176



181



533



588

  Gains on sale of other real estate owned, net

(47)



(36)



(297)



(28)

  Provision for other real estate owned

26



927



595



1,103

  Other real estate owned expense

99



133



450



325

  Other operating expense

737



577



1,908



1,806

Total noninterest expense

$        4,657



$        5,388



$          13,995



$       14,459

















Income (loss) before income taxes

$           883



$     (4,442)



$            2,746



$       (4,490)

Income tax provision (benefit)

195



(1,556)



889



(1,662)

Net income (loss)

$           688



$     (2,886)



$            1,857



$       (2,828)

Effective dividend and accretion on preferred stock

226



224



677



670

Net income (loss) available to common shareholders

$           462



$     (3,110)



$            1,180



$       (3,498)

















Common Share and Per Common Share Data















Net income (loss), basic and diluted

$        0.09



$      (1.05)



$              0.33



$         (1.18)

Shares outstanding at period end

4,901,464



2,955,649



4,901,464



2,955,649

Weighted average shares, basic and diluted

4,901,464



2,955,649



3,623,191



2,952,568

Book value at period end

$        6.21



$       10.75



$              6.21



$         10.75

Cash dividends

$              -



$               -



$                    -



$           0.20


 

FIRST NATIONAL CORPORATION

Quarterly Performance Summary

(in thousands, except share and per share data)











(unaudited)

For the Three Months Ended



(unaudited)

For the Nine Months Ended



9/30/2012



9/30/2011



9/30/2012



9/30/2011

Key Performance Ratios















Return on average assets

0.52%



(2.11%)



0.47%



(0.69%)

Return on average equity

6.11%



(23.78%)



6.18%



(7.75%)

Net interest margin

3.78%



3.98%



3.93%



3.96%

Efficiency ratio (1)

75.27%



68.16%



71.90%



68.45%

















Average Balances















Average assets

$       526,908



$    541,794



$        528,239



$    547,593

Average earning assets

502,418



511,141



501,268



516,956

Average shareholders' equity

44,816



48,142



40,115



48,798

















Asset Quality















Loan charge-offs

$              799



$           903



$            2,583



$        7,137

Loan recoveries

44



52



240



208

Net charge-offs

755



851



2,343



6,929

Non-accrual loans

8,998



22,707



8,998



22,707

Other real estate owned, net

5,323



5,576



5,323



5,576

Nonperforming assets

14,321



28,283



14,321



28,283

Loans over 90 days past due, still accruing

2,176



673



2,176



673

Troubled debt restructurings (accruing)

1,578



6,192



1,578



6,192

Special mention loans

21,719



28,519



21,719



28,519

Substandard loans (accruing)

46,308



49,334



46,308



49,334

Doubtful loans

-



8,555



-



8,555
























9/30/2012



9/30/2011

Capital Ratios















Tier 1 capital









$      54,138



$      51,609

Total capital









59,036



57,005

Total capital to risk-weighted assets









15.43%



13.62%

Tier 1 capital to risk-weighted assets









14.15%



12.33%

Leverage ratio









10.28%



9.56%

















Balance Sheet















Cash and due from banks









$        6,655



$        6,409

Interest-bearing deposits in banks









19,564



16,316

Securities available for sale, at fair value









95,839



85,460

Restricted securities, at cost









1,973



2,889

Loans, net of allowance for loan losses









366,703



390,706

Premises and equipment, net









19,181



19,657

Interest receivable









1,581



1,660

Other assets









10,186



18,424

















  Total assets









$    521,682



$    541,521

















Noninterest-bearing demand deposits









$      83,916



$      81,836

Savings and interest-bearing demand deposits









207,058



190,388

Time deposits









165,984



185,798

  Total deposits









$    456,958



$    458,022

Other borrowings









6,082



25,106

Trust preferred capital notes









9,279



9,279

Other liabilities









4,540



3,099

  Total liabilities









$    476,859



$    495,506


















 

FIRST NATIONAL CORPORATION

Quarterly Performance Summary

(in thousands, except share and per share data)







(unaudited)



9/30/2012



9/30/2011

Balance Sheet (continued)







Preferred stock

$           14,372



$          14,229

Common stock

6,127



3,695

Surplus

6,813



1,644

Retained earnings

17,683



24,859

Accumulated other comprehensive income (loss), net

(172)



1,588

  Total shareholders' equity

$           44,823



$          46,015









  Total liabilities and shareholders' equity

$         521,682



$        541,521









Loan Data







Mortgage loans on real estate:







  Construction and land development

$           44,725



$          49,310

  Secured by farm land

5,924



5,987

  Secured by 1-4 family residential

128,354



120,014

  Other real estate loans

169,198



189,499

Loans to farmers (except those secured by real estate)

2,067



2,293

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

22,149



30,356

Consumer installment loans

7,452



10,487

Deposit overdrafts

109



165

All other loans

774



1,097

  Total loans

$         380,752



$        409,208

Allowance for loan losses

14,049



18,502

Loans, net

$         366,703



$        390,706

























(1) The efficiency ratio is computed by dividing noninterest expense excluding the provision for other real estate owned and gains and losses on other real estate owned 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.  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 2012 and 2011 was 34%.  Net interest income on a tax equivalent basis was $4,772 and $5,124 for the three months ended September 30, 2012 and 2011, respectively, and $14,750 and $15,294 for the nine months ended September 30, 2012 and 2011.  Noninterest income excluding gains and losses on sales of securities and premises and equipment was $1,440 and $1,485 for the three months ended September 30, 2012 and 2011, respectively, and $4,298 and $4,257 for the nine months ended September 30, 2012 and 2011, 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.

SOURCE First National Corporation





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