Market Overview

First National Corporation Announces Second Quarter Earnings

Share:

STRASBURG, Va., July 31, 2015 (GLOBE NEWSWIRE) -- First National Corporation (the "Company") (OTC: FXNC), the parent company of First Bank (the "Bank"), reported net income of $444 thousand, or $0.03 per basic and diluted share, for the quarter ended June 30, 2015. Net income for the quarter was impacted by $458 thousand of one-time expenses and increased operating costs related to the acquisition of six branch banking operations. The branch acquisition was completed on April 17 and included the assumption of $186 million in deposit liabilities along with certain assets.

Operating Highlights

  • Total assets increased from $530.4 million to $695.8 million
  • The number of bank offices increased from 10 to 16 due to the branch acquisition
  • The Bank hired a Regional President to lead its newly formed south region
  • Cost of funds improved from 0.39% to 0.21%
  • Net interest income increased by 9% to $5.1 million
  • Leverage ratio remained over 10.00%

"During the second quarter, the Company successfully completed the acquisition of six full service branches in the Shenandoah Valley and central Virginia and assumed $186 million in deposits," said Scott C. Harvard, President and CEO of the Company. Harvard continued, "While total deposits assumed were materially less than originally projected, we believe the transaction represents inexpensive and reliable core funding for the foreseeable future. By acquiring longer term core funding, the Company absorbed significant one-time costs associated with the transaction that impacted financial performance in both the first and second quarter. Management remains confident the transaction is the right strategic move for the Company to build value going forward. We were especially pleased that the cost of funds of the acquired deposits was lower than originally projected, as were the costs associated with the transaction. Because the deposits were materially lower than expected at the closing date, capital levels remained high following the transaction, which positions the Company to be opportunistic either through additional acquisitions or by restructuring capital to enhance future earnings per share. Challenges remain for the Company to enhance efficiency of operations by taking advantage of the larger balance sheet and by improving our use of technology to the benefit of our new and legacy customers. We continue to be impressed with the team of associates who have joined the First Bank team and pleased with the addition of Butch Smiley as the new Regional President of the south region.

"We were disappointed with the loan volume from the First Mortgage division, but were pleased with the volume generated by the Bank's commercial lenders. Although new loan production from commercial lenders remained fairly robust during the quarter, several large loan relationships paid off, which negatively impacted loan portfolio growth. While loan growth is essential to the success of the recent acquisition, the Bank is committed to high standards of loan underwriting and is unwilling to compromise those standards for the sake of growth alone. We intend to stay committed to those standards and remain optimistic about the ability of our loan team to pick up where they left off in the first quarter.

"Since the acquisition, we have seen a moderate decline for five of the six branches with one branch experiencing increases in deposit balances. Total deposits of the acquired branches decreased by $10 million, or 6%, to $176 million at June 30, 2015 compared to $186 million at the acquisition date. The legacy branches continue to grow low cost core non-time deposit balances built on relationships. The lower cost of all deposits contributed to a higher net interest margin than anticipated for the quarter in spite of lower loan balances.

"Lastly, we continued to see improvement in asset quality metrics. Loan delinquencies over 30 days were at their lowest levels in years as were non-performing assets, and the Bank's classified asset ratio continued to improve by declining to 27%."

Second Quarter Earnings

Net income totaled $444 thousand for the second quarter of 2015 compared to $1.5 million for the same period of 2014. The return on average assets was 0.27% for the quarter compared to 1.16% for the same quarter one year ago, and the return on average equity was 2.97% compared to 11.05%. Net income was impacted by one-time acquisition expenses that totaled $458 thousand, as well as increased expenses from higher staffing levels needed to support the growth strategy of the Company and the larger balance sheet. Over the last twelve months, the Company began executing its growth strategy with the branch acquisition, the addition of seasoned community bankers in new markets, and the creation and operation of the First Mortgage division to diversify revenue. The acquisition increased the number of bank offices from 10 to 16 in the Shenandoah Valley and central Virginia, and increased the Bank's deposit balances by $186 million at closing of the deal. The new mortgage division also added two office locations in the cities of Harrisonburg and Staunton, Virginia. These initiatives had the largest impact on noninterest income and expenses when comparing the second quarter of 2015 to the same period of 2014.

Net interest income increased $429 thousand to $5.1 million for the second quarter compared to $4.6 million for the same period one year ago, which was driven by loan balances that were $24.2 million higher than one year ago. The net interest margin was 3.29% compared to 3.81% for the second quarter of 2014. The lower net interest margin was expected to be impacted by the deposit acquisition and resulted from the significant increase in interest-bearing deposits in banks and securities, which was funded by cash received from the branch acquisition. Total noninterest income was $2.3 million for the period compared to $1.7 million for the same quarter one year ago. Revenue from service charges on deposit accounts increased by $109 thousand, or 17%, ATM and check card fees increased by $132 thousand, or 36%, and other operating income increased by $229 thousand. The increases in revenue from service charges on deposit accounts and ATM and check card fees were driven by the increase in the number of deposit accounts following the branch expansion. Other operating income increased primarily from a $201 thousand gain recorded from the purchase of the six bank branch offices from Bank of America.

Noninterest expense increased to $6.9 million for the quarter compared to $4.5 million for the same period in the prior year. The additional expenses were primarily a result of the execution of the Company's growth strategy, which included the expansion of its banking franchise into new markets and the creation of new business lines to increase and diversify revenue. One-time acquisition expenses related to the branch expansion totaled $458 thousand during the second quarter of 2015, which included costs for legal and professional fees, supplies, data processing and postage. In addition to the one-time costs, salaries and employee benefit expenses increased by $1.0 million to $3.6 million for the second quarter. The Bank added new positions to accommodate the larger balance sheet and organization, which included a Regional President and two Market Executives for its new south region. Amortization expense increased by $192 thousand to $196 thousand from the new core deposit intangible from the acquired deposits, and expenses from other real estate owned increased by $222 thousand when comparing the periods.

The Bank recorded a recovery of loan losses totaling $100 thousand during the quarter, primarily from a lower required general reserve. The allowance for loan losses was $6.1 million, or 1.56% of total loans at June 30, 2015. This compared to a recovery of loan losses of $400 thousand and an allowance for loan losses of $10.0 million, or 2.72% of total loans, at the end of the second quarter of 2014.

Year-to-Date Earnings

Net income totaled $988 thousand for the six months ended June 30, 2015, compared to $2.7 million for the same period of 2014. The return on average assets was 0.34% for the period compared to 1.03% for the same period one year ago, and the return on average equity was 3.32% compared to 9.81% for the same period in 2014.

Net interest income increased $635 thousand to $9.7 million for the period, compared to $9.1 million for the same period one year ago. The increase was attributable to higher loan balances during the first six months of 2015 compared to the first half of 2014. The net interest margin was 3.58% compared to 3.77% for the same period of 2014. The lower net interest margin resulted from the significant increase in interest-bearing deposits in banks and securities, which was funded by cash received from the branch acquisition. Noninterest income increased by $559 thousand, or 17% when comparing the periods. Revenues from ATM and check card fees increased $146 thousand, or 21%, net gains on sale of loans increased $105 thousand, and other operating income increased by $231 thousand mostly from a gain recorded from the branch acquisition.

Noninterest expense increased $3.2 million, or 35%, to $12.3 million for the period compared to $9.2 million for the same period in the prior year. One-time branch acquisition expenses totaled $877 thousand during the six months ended June 30, 2015. Salaries and employee benefit costs increased by $1.7 million to $6.7 million and equipment expense increased by $104 thousand to $703 thousand for the period in order to accommodate the larger organization. Amortization expense increased $192 thousand related to the core deposit intangible from the deposit acquisition, and expenses from other real estate owned increased $155 thousand compared to the same period one year ago.

The Bank recorded a recovery of loan losses totaling $100 thousand for the period compared to a recovery of loan losses of $600 thousand for the same period one year ago. The recovery of loan losses for the first six months of 2015 was primarily attributable to a lower required general reserve.

Balance Sheet

Assets increased by $165.4 million to $695.8 million at June 30, 2015 compared to March 31, 2015, as a result of the branch acquisition. Interest-bearing deposits in banks increased $97.6 million to $99.3 million, securities available for sale increased by $21.6 million to $112.5 million, securities held to maturity increased by $37.3 million, and premises and equipment increased by $5.0 million to $21.3 million. Although the significant change in the earning asset mix decreased the net interest margin, the balance sheet growth generated higher net interest income when comparing the second quarter of 2015 to the same period in 2014.

Total deposits increased by $182.1 million to $620.9 million at June 30, 2015. Noninterest-bearing demand deposits increased $37.9 million, savings and interest-bearing demand deposits increased $90.4 million, and time deposits increased $53.9 million during the second quarter. The increases in all deposit categories during the quarter resulted from the branch acquisition. As a result of the changes in the funding mix, the Company experienced a lower cost to fund earning assets.

Capital and Asset Quality

Asset quality continued to improve as substandard loans decreased by $9.4 million or 46%, to $10.9 million at the end of the second quarter compared to $20.3 million for the same quarter one year ago. Nonperforming assets, which includes other real estate owned, decreased 33% to $9.1 million at June 30, 2015 compared to $13.4 million one year ago.

Total shareholders' equity increased $2.8 million to $59.4 million at June 30, 2015, compared to $56.7 million one year ago. The book value per common share was $9.13 at the end of the second quarter. All regulatory capital ratios, except for the leverage ratio, were higher than the same period one year ago. The leverage ratio decreased to 10.06% from asset growth that occurred with the branch acquisition. The total risk-based capital ratio was 18.28% at June 30, 2015.

About the Company

First National Corporation, headquartered in Strasburg, Virginia, is the bank holding company of First Bank, a community bank that first opened for business in 1907. The Bank offers loan, deposit, and wealth management products and services from 18 office locations located throughout the Shenandoah Valley and central regions of Virginia. Banking services are also accessed from the Bank's website, www.fbvirginia.com, and from a network of ATMs located throughout its market area. The Bank operates divisions under the names First Mortgage and First Bank Wealth Management. First Bank also owns First Bank Financial Services, Inc., which invests in entities that provide investment services and title insurance.

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, 2014, and other filings with the Securities and Exchange Commission.

FIRST NATIONAL CORPORATION  
Quarterly Performance Summary  
(in thousands, except share and per share data)  
  (unaudited)  
  For the Quarter Ended  
Income Statement June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
 
Interest income            
Interest and fees on loans $  4,688 $  4,540 $  4,623 $  4,536 $    4,403  
Interest on deposits in banks 68 5 5 3 14  
Interest on securities 618 422 566 622 657  
Dividends on restricted securities  18  21  20    20      21  
Total interest income  $  5,392 $   4,988 $   5,214 $   5,181 $     5,095  
             
Interest expense            
Interest on deposits $    266 $    300 $    327 $    343 $    372  
Interest on federal funds purchased 1 1 1 2 --  
Interest on trust preferred capital notes 55 54 55 55 54  
Interest on other borrowings     2      1      26      30      30  
Total interest expense $    324 $     356 $    409 $    430 $    456  
             
Net interest income $  5,068 $   4,632 $   4,805 $   4,751 $    4,639  
Recovery of loan losses   (100)   --   (3,150)    (100)     (400)  
Net interest income after recovery of loan losses $ 5,168 $ 4,632 $ 7,955 $ 4,851 $   5,039  
             
Noninterest income            
Service charges on deposit accounts $   752 $   547 $   644 $   655 $     643  
ATM and check card fees 497 349 352 367 365  
Wealth management fees 499 503 465 494 472  
Fees for other customer services 183 107 90 94 126  
Income from bank owned life insurance 91 74 101 103 89  
Net gains (losses) on sale of securities -- (52) 765 (91) 22  
Net gains on sale of loans 50 55 23 -- --  
Other operating income    237     8     9     32      8  
Total noninterest income $  2,309 $   1,591 $   2,449 $   1,654 $     1,725  
             
Noninterest expense            
Salaries and employee benefits $  3,597 $  3,125 $  2,855 $  2,668 $   2,554  
Occupancy 339 317 315 303 278  
Equipment  422 281 293 299 295  
Marketing 163 97 77 114 126  
Stationery and supplies 229 345 75 84 94  
ATM and check card fees 190 155 168 167 163  
FDIC assessment 64 67 70 90 122  
Bank franchise tax 130 122 105 106 105  
Telecommunications expense 100 85 81 75 73  
Data processing expense 226 187 140 129 134  
Postage expense 80 117 51 50 49  
Amortization expense 196 4 4 4 4  
Other real estate owned, net 152 (36) (151) (23) (70)  
Other operating expense  536  409  468  437    374  
Total noninterest expense $  6,855 $  5,487 $   4,871 $   4,753 $   4,548  
             
Income before income taxes $  622 $  736 $  5,533 $  1,752 $   2,216  
Income tax expense      178     192    1,837    505    674  
Net income $   444 $   544 $   3,696 $   1,247 $   1,542  
Effective dividend and accretion on preferred stock 328 329 328 329 261  
Net income available to common shareholders $  116 $  215 $  3,368  $  918 $   1,281  
             
Common Share and Per Common Share Data          
Net income, basic $   0.03 $   0.04 $   0.68 $   0.19 $   0.26  
Weighted average shares, basic 4,909,775 4,906,981 4,903,748 4,902,716 4,901,599  
Net income, diluted $ 0.03 $  0.04 $   0.68 $   0.19 $   0.26  
Weighted average shares, diluted 4,911,298 4,911,044 4,903,748 4,902,716 4,901,599  
Shares outstanding at period end 4,910,826 4,909,714 4,904,577 4,903,612 4,902,582  
Book value at period end $   9.13 $   9.31 $   9.17 $   8.77 $   8.58  
Cash dividends $ 0.025 $ 0.025 $ 0.025 $ 0.025 $   0.025  
 
FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
  (unaudited)
  For the Quarter Ended
  June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
Key Performance Ratios          
Return on average assets 0.27% 0.43% 2.81% 0.95% 1.16%
Return on average equity 2.97% 3.67% 25.03% 8.64% 11.05%
Net interest margin 3.29% 3.96% 3.96% 3.92% 3.81%
Efficiency ratio (1) 92.54% 87.20% 76.61% 72.74% 71.94%
           
Average Balances          
Average assets $  671,199 $    516,259 $    521,889 $     521,622 $   531,250
Average earning assets 625,197 480,490 487,591 487,541 496,304
Average shareholders' equity 59,957 60,040 58,583 57,217 55,965
           
Asset Quality          
Loan charge-offs $  671 $ 112 $ 80 $   302 $   306
Loan recoveries 129 165 231 112 429
Net charge-offs (recoveries) 542 (53) (151) 190 (123)
Non-accrual loans 6,666 7,170 8,000 8,673 11,221
Other real estate owned, net 2,407 1,949 1,888 1,807 2,221
Nonperforming assets 9,073 9,119 9,888 10,480 13,443
Loans over 90 days past due, still accruing 600 71 -- 2,148 325
Troubled debt restructurings, accruing 324 782 790 796 978
Special mention loans 21,278 22,550 23,259 18,411 19,807
Substandard loans, accruing 10,928 15,741 15,792 20,088 20,315
Doubtful loans -- -- -- -- --
           
Capital Ratios          
Total capital $ 72,362 $ 72,764 $ 71,941 $     66,445 $   64,302
Tier 1 capital 67,400 67,918 67,217 61,693 59,586
Common equity tier 1 capital 67,400 67,918 67,217 61,693 59,586
Total capital to risk-weighted assets 18.28% 18.86% 19.14% 17.71% 17.28%
Tier 1 capital to risk-weighted assets 17.03% 17.61% 17.88% 16.44% 16.02%
Common equity tier 1 capital to risk-weighted assets 17.03% 17.61% 17.88% 16.44% 16.02%
Leverage ratio 10.06% 13.17% 12.90% 11.85% 11.26%
           
Balance Sheet          
Cash and due from banks $ 11,870 $ 7,529 $ 6,043 $   6,862 $   6,587
Interest-bearing deposits in banks 99,274 1,645 18,802 3,885 12,735
Securities available for sale, at fair value 112,468 90,855 83,292 104,710 108,884
Securities held to maturity, at carrying value 37,343 -- -- -- --
Restricted securities, at cost 1,391 1,999 1,366 1,636 1,636
Loans held for sale 1,978 -- 328 181 --
Loans, net of allowance for loan losses 385,592 391,746 371,692 364,974 357,484
Other real estate owned, net of valuation allowance 2,407 1,949 1,888 1,807 2,221
Premises and equipment, net 21,277 16,298 16,126 16,175 16,305
Accrued interest receivable 1,423 1,256 1,261 1,327 1,258
Bank owned life insurance 11,521 11,431 11,357 11,244 11,141
Other assets  9,283   5,701  6,010       6,609      7,072
Total assets $  695,827 $   530,409 $   518,165 $    519,410 $    525,323
           
Noninterest-bearing demand deposits $  147,790 $   109,927 $   104,986 $   103,019 $    99,396
Savings and interest-bearing demand deposits 322,239 231,885 237,618 224,655 235,929
Time deposits    150,853     96,974     101,734     111,245    115,873
Total deposits $  620,882 $    438,786 $    444,338 $     438,919 $    451,198
Federal funds purchased -- 1,955 52 5,325 --
Other borrowings 13 15,020 26 6,033 6,039
Trust preferred capital notes 9,279 9,279 9,279 9,279 9,279
Accrued interest payable and other liabilities   6,214    5,057    4,906   2,232   2,151
Total liabilities $  636,388 $   470,097 $   458,601 $  461,788 $  468,667
 
FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
  (unaudited)
  For the Quarter Ended
  June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
June 30,
2014
           
Balance Sheet (continued)          
Preferred stock $  14,595 $  14,595 $  14,595 $  14,595 $  14,595
Common stock 6,139 6,137 6,131 6,130 6,128
Surplus 6,899 6,881 6,835 6,828 6,821
Retained earnings 33,642 33,649 33,557 30,312 29,516
Accumulated other comprehensive loss, net  (1,836)   (950)    (1,554)    (243)     (404)
Total shareholders' equity $  59,439 $   60,312 $    59,564 $    57,622 $    56,656
Total liabilities and shareholders' equity $  695,827 $  530,409 $   518,165 $   519,410 $   525,323
           
Loan Data          
Mortgage loans on real estate:          
Construction and land development $ 32,009 $ 33,344 $   29,475 $   29,862 $   32,795
Secured by farm land 1,025 1,067 1,129 1,193 1,234
Secured by 1-4 family residential 173,265 172,874 163,727 155,298 151,043
Other real estate loans 154,371 157,829 150,673 153,576 145,249
Loans to farmers (except those secured by real estate) 2,645 2,760 2,975 2,905 3,067
Commercial and industrial loans (except those secured by real estate) 16,674 18,660 18,191 20,038 21,730
Consumer installment loans 4,341 4,713 4,785 4,881 4,859
Deposit overdrafts 419 194 285 248 229
All other loans  6,972  7,076    7,170    6,689    7,284
Total loans $ 391,721 $  398,517 $    378,410 $   374,690 $  367,490
Allowance for loan losses   (6,129)    (6,771)     (6,718)     (9,716)   (10,006)
Loans, net $  385,592 $   391,746 $   371,692 $   364,974 $   357,484
           
Reconciliation of Tax-Equivalent Net Interest Income          
GAAP measures:          
Interest income – loans $ 4,688 $ 4,540 $   4,623 $   4,536 $   4,403
Interest income – investments and other 704 448 591 645 692
Interest expense – deposits (266) (300) (327) (343) (372)
Interest expense – other borrowings (2) (1) (26) (30) (30)
Interest expense – trust preferred capital notes  (55)  (54)  (55)  (55)   (54)
Interest expense – other    (1)    (1)    (1)    (2)    --
Total net interest income $ 5,068 $ 4,632 $   4,805 $   4,751 $   4,639
Non-GAAP measures:          
Tax benefit realized on non-taxable interest income – loans $ 27 $ 26 $   24 $   27 $   28
Tax benefit realized on non-taxable interest income – municipal securities  40   33    42    44    49
Total tax benefit realized on non-taxable interest income $ 67 $ 59 $   66 $   71 $   77
Total tax-equivalent net interest income $ 5,135 $ 4,691 $   4,871 $   4,822 $   4,716
 
FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
  (unaudited)
  For the Six Months Ended
Income Statement June 30,
2015
June 30,
2014
Interest income    
Interest and fees on loans $  9,228 $    8,618
Interest on deposits in banks 73 30
Interest on securities 1,040 1,314
Dividends on restricted securities  39      42
Total interest income  $  10,380 $   10,004
     
Interest expense    
Interest on deposits $    566 $    772
Interest on federal funds purchased 2 --
Interest on trust preferred capital notes 109 108
Interest on other borrowings     3      59
Total interest expense $    680 $    939
     
Net interest income $  9,700 $   9,065
Recovery of loan losses   (100)    (600)
Net interest income after recovery of loan losses $ 9,800 $ 9,665
     
Noninterest income    
Service charges on deposit accounts $  1,299 $   1,273
ATM and check card fees 846 700
Wealth management fees 1,002 956
Fees for other customer services 290 213
Income from bank owned life insurance 165 163
Net gains (losses) on sale of securities (52) 22
Net gains on sale of loans 105 --
Other operating income  245       14
Total noninterest income $  3,900 $   3,341
     
Noninterest expense    
Salaries and employee benefits $  6,722 $   5,063
Occupancy 656 593
Equipment  703 599
Marketing 260 235
Stationery and supplies 574 174 
Legal and professional fees 643 449
ATM and check card fees 345 326
FDIC assessment 131 294
Bank franchise tax 252 199
Telecommunications expense 185 144
Data processing expense 413 249
Postage expense 197 89
Amortization expense 200 8
Other real estate owned, net 116 (39)
Net loss on disposal of premises and equipment -- 2
Other operating expense   945  776
Total noninterest expense $  12,342 $   9,161
     
Income before income taxes $  1,358 $   3,845
Income tax expense     370    1,157
Net income $  988 $   2,688
Effective dividend and accretion on preferred stock     657      481
Net income available to common shareholders $  331 $   2,207
     
Common Share and Per Common Share Data  
Net income, basic $  0.07 $   0.45
Weighted average shares, basic 4,908,386 4,901,532
Net income, diluted $ 0.07 $   0.45
Weighted average shares, diluted 4,911,148 4,901,532
Shares outstanding at period end 4,910,826 4,902,582
Book value at period end $  9.13 $   8.58
Cash dividends $   0.05 $ 0.025
 
FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
  (unaudited)
  For the Six Months Ended
  June 30,
2015
June 30,
2014
Key Performance Ratios    
Return on average assets 0.34% 1.03%
Return on average equity 3.32% 9.81%
Net interest margin 3.58% 3.77%
Efficiency ratio (1) 90.05% 73.36%
     
Average Balances    
Average assets $   594,099 $  528,321
Average earning assets 553,243 493,429
Average shareholders' equity 59,954 55,229
     
Asset Quality    
Loan charge-offs $  783 $ 545
Loan recoveries 294 507
Net charge-offs (recoveries) 489 38
     
Reconciliation of Tax-Equivalent Net Interest Income    
GAAP measures:    
Interest income – loans $   9,228 $ 8,618
Interest income – investments and other 1,152 1,386
Interest expense – deposits (566) (772)
Interest expense – other borrowings (3) (59)
Interest expense – trust preferred capital notes  (109)  (108)
Interest expense – other     (2)      --
Total net interest income $   9,700 $ 9,065
Non-GAAP measures:    
Tax benefit realized on non-taxable interest income – loans $   53 $ 56
Tax benefit realized on non-taxable interest income – municipal securities  73   98
Total tax benefit realized on non-taxable interest income $   126 $ 154
Total tax-equivalent net interest income $   9,826 $ 9,219

(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense and net loss 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 bargain purchase gain. 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 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.

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

First National Corporation logo

View Comments and Join the Discussion!