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First National Corporation Announces 30% Increase in Earnings

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STRASBURG, Va., July 26, 2016 (GLOBE NEWSWIRE) -- First National Corporation (the "Company" or "First National") (OTC: FXNC) today reported earnings of $1.4 million and earnings per share of $0.29 for the second quarter ended June 30, 2016, a 30% increase compared to $1.1 million or $0.22 per share for the first quarter of 2016.  Earnings for the second quarter of 2015 were $116 thousand or $0.02 per share. 

For the six months ended June 30, 2016, reported earnings totaled $2.5 million or $0.51 per share, compared to $331 thousand or $0.07 per share for the six months ended June 30, 2015.  Year-to-date earnings for 2016 were positively impacted by higher revenues from net interest income and noninterest income, combined with lower noninterest expenses.  In addition, net income available to common shareholders was favorably impacted by the elimination of dividends on preferred stock.  Year-to-date earnings for 2015 were negatively impacted by integration expenses totaling $877 thousand related to the acquisition of six bank branches and the assumption of $186.8 million of deposit liabilities.  

Select highlights for the second quarter include: 

  • Return on equity increased to 11.90%, compared to 9.39% for the first quarter of 2016, and 2.97% for the second quarter of 2015
  • Net income available to common shareholders increased $334 thousand, or 30%, to $1.4 million compared to the first quarter of 2016, and increased $1.3 million compared to the second quarter of 2015
  • The efficiency ratio improved to 71.64% for the quarter, compared to 77.32% in the prior quarter and 83.52% in the second quarter of 2015
  • Noninterest expense decreased $234 thousand, or 4%, compared to the first quarter of 2016, and decreased $972 thousand, or 14%, compared to the second quarter of 2015
  • Assets per employee increased to $4.2 million, compared to $3.5 million at the end of the second quarter of 2015
  • Net interest income increased $97 thousand, or 2%, compared to the first quarter of 2016, and increased $728 thousand, or 14%, compared to the second quarter of 2015
  • Net loans increased $11.3 million, or 3%, during the quarter, and increased $74.2 million, or 19%, over the prior year 
  • Noninterest income increased $169 thousand, or 9%, compared to the first quarter of 2016, and decreased $197 thousand, or 9%, compared to the second quarter of 2015 

"We continue to be pleased with the progress being made in our Company since the deposit and branch acquisition that was consummated in the second quarter of 2015," said Scott C. Harvard, president and chief executive officer of First National.  Harvard added, "While we firmly believed the transaction was a significant strategic accomplishment, we recognized that it would take successful execution to drive the long term benefits to the Company.  The Company's performance trends quarter over quarter since the acquisition reflect effective plan execution to date.  Last year, the Company embarked on efficiency initiatives that focused on better use of technology and eliminating unnecessary processes and paperwork across the bank.  The initiatives lead to improved customer service, higher productivity and reduced expenses.  The bank consolidated one branch at the end of 2015 and has announced a second branch closure that will occur at the end of July 2016.  Employee productivity has increased significantly as evidenced by the assets-to-employee ratio of $4.2 million at June 30, 2016, compared to $3.5 million one year ago.  Successful execution of the deposit acquisition also included deliberate and disciplined deployment of the acquired funds into loan assets. Through the second quarter of this year, we have deployed over 30% of the acquired deposits into loans, positively impacting revenues and earnings, while liquidity remains available for potential loan and earnings growth.  I couldn't be prouder of our entire team as we begin to reap the benefits of their efforts." 

BRANCH ACQUISITION 

On April 17, 2015, First Bank (the "Bank"), the Company's banking subsidiary, completed the acquisition of six banking offices with approximately $186.8 million of deposits in the Shenandoah Valley and central Virginia regions from Bank of America, N.A. (the "Acquisition" or "Branch Acquisition").  The Company incurred integration costs related to the Acquisition, including legal and professional fees, supplies, data processing and postage expenses that totaled $458 thousand for the second quarter of 2015, and $877 thousand for the six month period ended June 30, 2015.  The Company did not incur integration costs during 2016. 

At June 30, 2016, deposits in the acquired branches totaled $175.2 million, which was 94% of the deposit balances assumed in the Acquisition.  The branch acquisition had a positive impact on the cost of funds for the Company.  Excluding amortization of the time deposit valuation allowance, the cost of funds for the second quarter of 2016 for acquired branches was 0.22%, compared to the total cost of funds of the Company of 0.30% for the same period.  The mix of deposits, which was comprised of a significant amount of noninterest-bearing deposits, remained consistent from the acquisition date through June 30, 2016.  The Bank assembled an experienced lending team in its south region that made a meaningful contribution to loan growth during 2015 and in the first half of 2016. 

BALANCE SHEET 

Total assets of First National increased $10.3 million during the quarter to $711.3 million at June 30, 2016, and increased $15.5 million compared to June 30, 2015.  Loans, net of the allowance for loan losses, increased $11.3 million, or 3%, during the quarter to $459.8 million, and increased $74.2 million, or 19%, compared to one year ago.  While net loans increased over the prior periods, securities and interest-bearing deposits in banks combined decreased $357 thousand during the quarter to $194.3 million, and decreased $56.2 million compared to balances one year ago.  

Total deposits decreased $2.8 million during the quarter to $630.3 million, and were $9.5 million higher than total deposits one year ago.  When comparing the deposit portfolios at June 30, 2016, March 31, 2016 and June 30, 2015, there was no significant change in its composition with noninterest-bearing demand deposits, savings and interest-bearing demand deposits, and time deposits comprising 25%, 54% and 21% of total deposits, respectively. 

Total shareholders' equity increased $1.6 million during the quarter to $49.3 million.  Tangible common equity totaled $47.3 million at June 30, 2016, compared to $45.6 million at March 31, 2016 and $42.1 million at June 30, 2015.  The Company exceeded its target capital levels at quarter-end.  

NET INTEREST INCOME 

Net interest income increased $97 thousand, or 2%, to $5.8 million for the quarter, compared to $5.7 million in the first quarter of 2016, and increased $728 thousand, or 14%, compared to $5.1 million for the second quarter of 2015.  

Total interest income increased $87 thousand during the quarter to $6.3 million, compared to the first quarter of 2016 and increased $886 thousand, or 16%, compared to the second quarter of 2015.  Interest income increased when compared to the first quarter of 2016 from growth in average earning assets.  Compared to the second quarter of 2015, growth in interest income resulted primarily from higher average balances of loans and securities. 

Total interest expense decreased $10 thousand during the quarter compared to the first quarter of 2016, and increased $158 thousand, or 49%, compared to the second quarter of 2015.  Comparing the second quarter of 2016 to the same period one year ago, the increase in interest expense resulted primarily from interest on deposits and interest on subordinated debt.  There was no subordinated debt on the Company's balance sheet during the second quarter of 2015; therefore, there was no related interest expense during that period. 

NONINTEREST INCOME 

Noninterest income increased $169 thousand, or 9%, to $2.1 million, compared to $1.9 million for the first quarter of 2016, and decreased $197 thousand when compared to the second quarter of 2015.  

When compared to the first quarter of 2016, the increase in noninterest income was primarily attributable to higher revenue from service charges on deposit accounts.   The decrease in noninterest income compared to the same period one year ago was primarily attributable to a $201 thousand bargain purchase gain included in other operating income in the second quarter of 2015, which resulted from the Acquisition. 

NONINTEREST EXPENSE 

Noninterest expense decreased $234 thousand, or 4%, to $5.9 million for the quarter compared to $6.1 million for the first quarter of 2016, and decreased $972 thousand, or 14%, compared to the second quarter of 2015.  The decrease in expenses when compared to the first quarter of 2016 was primarily attributable to reductions in legal and professional fees, occupancy, and equipment expense. 

Comparing current period results to the second quarter of 2015, the 14% decrease in total noninterest expense was attributable to lower salaries and employee benefit expense, other real estate owned and other operating expenses.  The decrease was also attributable to integration expenses from the Acquisition incurred in the second quarter of 2015 totaling $458 thousand.  Integration expenses were primarily included in legal and professional, supplies expense, data processing expense, and postage expense. 

ASSET QUALITY/LOAN LOSS PROVISION 

Credit quality continued to improve during the quarter as nonperforming assets decreased $1.9 million to 0.63% of total assets, compared to 0.91% at March 31, 2016, and 1.30% at June 30, 2015.  Loans past due between 30 and 89 days and still accruing was 0.43% of total loans, compared to 0.38% at March 31, 2016 and 0.38% at June 30, 2015. 

The Bank did not record provision for loan losses in the first or second quarters of 2016.  In the second quarter of 2015, the Bank recorded a recovery of loan losses of $100 thousand.  Net recoveries totaled $214 thousand in the second quarter of 2016, compared to net charge-offs of $4 thousand for the first quarter of 2016 and net charge-offs of $542 thousand for the second quarter of 2015.  Provision for loan losses was not required in the second quarter of 2016, primarily due to net recoveries of loans charged-off in prior periods and a decrease in the specific reserve component of the allowance for loan losses.  The allowance for loan losses totaled $5.7 million at June 30, 2016, $5.5 million at March 31, 2016, and $6.1 million at June 30, 2015, representing 1.23%, 1.22%, and 1.56% of total loans, respectively.  

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, 2015, and other filings with the Securities and Exchange Commission. 

ABOUT FIRST NATIONAL CORPORATION 

First National Corporation (OTC: FXNC) is the parent company and bank holding company of First Bank, a community bank that first opened for business in 1907 in Strasburg, Virginia.  The Bank offers loan and deposit products and services through its website, www.fbvirginia.com, its mobile banking platform, a network of ATMs located throughout its market area, two loan production offices, a customer service center in a retirement community, and 15 bank branch office locations located throughout the Shenandoah Valley and central regions of Virginia.  In addition to providing traditional banking services, the Bank operates a wealth management division under the name First Bank Wealth Management.  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 StatementJune 30,
 2016
 March 31,
 2016
 December 31,
2015
 September 30,
2015
 June 30,
2015
Interest income         
Interest and fees on loans$  5,370  $  5,236  $  5,056  $  4,854  $  4,688 
Interest on deposits in banks 62   48   63   61   68 
Interest on securities 825   888   884   829   618 
Dividends on restricted securities   21   19   18   20              18 
Total interest income $  6,278  $  6,191  $  6,021  $  5,764  $  5,392 
Interest expense                   
Interest on deposits$   329  $  333  $  302  $  282  $  266 
Interest on federal funds purchased -   3   -   -   1 
Interest on subordinated debt 89   90   62   -   - 
Interest on junior subordinated debt 64   61   59   56   55 
Interest on other borrowings   -     5     -     -     2 
Total interest expense$  482  $  492  $  423  $  338  $  324 
Net interest income$  5,796  $  5,699  $  5,598  $  5,426  $  5,068 
Recovery of loan losses   -     -     -     -     (100)
Net interest income after recovery of loan losses$5,796  $5,699  $5,598  $5,426  $5,168 
Noninterest income                   
Service charges on deposit accounts$  914  $  780  $  846  $  897  $  752 
ATM and check card fees 515   488   520   529   497 
Wealth management fees 334   336   496   477   499 
Fees for other customer services 137   147   143   172   184 
Income from bank owned life insurance 107   86   103   106   90 
Net gains (losses) on sales of securities -   6   (3)  -   - 
Net gains on sale of loans 31   21   43   53   50 
Other operating income   74     79     50     10     237 
Total noninterest income$  2,112  $  1,943  $  2,198  $  2,244  $  2,309 
Noninterest expense         
Salaries and employee benefits$  3,415  $  3,444  $  3,491  $  3,637  $  3,597 
Occupancy 365   424   400   396   339 
Equipment  394   432   398   400   422 
Marketing 120   107   94   176   163 
Supplies 103   101   93   116   229 
Legal and professional fees 156   311   450   243   431 
ATM and check card fees 221   205   200   236   190 
FDIC assessment 126   122   119   134   64 
Bank franchise tax 90   103   130   131   130 
Telecommunications expense 115   114   120   131   100 
Data processing expense 146   128   157   130   226 
Postage expense 57   69   71   73   80 
Amortization expense 198   207   216   226   196 
Other real estate owned (income) expense, net (49)  (72)  92   144   152 
Other operating expense   426     422      481     528     536 
Total noninterest expense$  5,883  $  6,117  $  6,512  $  6,701  $  6,855 
          
Income before income taxes$  2,025  $  1,525  $  1,284  $  969  $  622 
Income tax expense   592     426     343     243     178 
Net income$  1,433  $  1,099  $  941  $  726  $  444 
Effective dividend and accretion on preferred stock  -    -   128   328   328 
Net income available to common shareholders$1,433  $1,099  $813  $398  $116 
Common Share and Per Common Share Data         
Net income, basic$  0.29  $  0.22  $  0.17  $  0.08  $  0.02 
Weighted average shares, basic 4,924,702   4,920,315   4,913,985   4,911,604   4,909,775 
Net income, diluted$  0.29  $  0.22  $  0.17  $  0.08  $   0.02 
Weighted average shares, diluted 4,927,045   4,923,117   4,916,804   4,913,461   4,911,298 
Shares outstanding at period end 4,925,599   4,924,539   4,916,130   4,912,662   4,910,826 
Tangible book value at period end$   9.61  $  9.25  $  8.87  $  8.80  $  8.56 
Cash dividends$  0.03  $   0.03  $   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,
 2016
 March 31,
 2016
 December 31,
2015
 September 30,
2015
 June 30,
2015
Key Performance Ratios         
Return on average assets 0.82%  0.64%  0.54%  0.42%  0.27%
Return on average equity 11.90%  9.39%  7.01%  4.80%  2.97%
Net interest margin 3.62%  3.63%  3.53%  3.40%  3.29%
Efficiency ratio (1) 71.64%  77.32%  78.42%  81.38%  83.52%
          
Average Balances         
Average assets$  705,707   $  693,783  $  692,263  $  691,121  $  671,199 
Average earning assets 654,535   643,358   640,880   642,234   625,197 
Average shareholders' equity 48,443   47,066   53,264   60,043   59,957 
          
Asset Quality         
Loan charge-offs$  136  $  120  $  418  $  637  $  671 
Loan recoveries 350   116   367   83   129 
Net charge-offs (recoveries) (214)  4   51   554   542 
Non-accrual loans 4,057   4,258   3,854   4,930   6,666 
Other real estate owned, net 442   2,112   2,679   2,760   2,407 
Nonperforming assets 4,499   6,370   6,533   7,690   9,073 
Loans 30 to 89 days past due, accruing 1,979   1,743   1,418   2,084   1,487 
Loans over 90 days past due, accruing 11   124   92   147   600 
Troubled debt restructurings, accruing -   -   317   321   324 
Special mention loans 13,392   13,796   16,372   15,706   21,278 
Substandard loans, accruing 9,610   10,068   10,265   10,496   10,927 
          
Capital Ratios (2)         
Total capital$  64,375  $  62,440  $  61,513  $  60,232  $  72,362 
Tier 1 capital 58,641   56,920   55,989   55,066   67,400 
Common equity tier 1 capital 58,641   56,920   55,989   55,066   67,400 
Total capital to risk-weighted assets 13.66%  13.50%  13.86%  14.59%  18.28%
Tier 1 capital to risk-weighted assets 12.45%  12.30%  12.62%  13.34%  17.03%
Common equity tier 1 capital to risk-weighted assets 12.45%  12.30%  12.62%  13.34%  17.03%
Leverage ratio 8.33%  8.22%  8.12%  7.99%  10.06%
          
Balance Sheet         
Cash and due from banks$  10,518  $  10,250  $  8,247  $  9,890  $  11,870 
Interest-bearing deposits in banks 40,225   29,077   31,087   66,956   99,274 
Securities available for sale, at fair value 94,566   99,019   105,559   109,166   112,468 
Securities held to maturity, at carrying value 57,401   64,963   66,519   54,276   37,343 
Restricted securities, at cost 2,058   1,548   1,391   1,391   1,391 
Loans held for sale 1,819   523   323   471   1,978 
Loans, net of allowance for loan losses 459,812   448,556   433,475   400,838   385,592 
Other real estate owned, net of valuation allowance 442   2,112   2,679   2,760   2,407 
Premises and equipment, net 21,126   21,366   21,389   21,493   21,277 
Accrued interest receivable 1,612   1,741   1,661   1,543   1,423 
Bank owned life insurance 13,935   13,828   11,742   11,627   11,521 
Core deposit intangibles, net 1,918   2,115   2,322   2,539   2,765 
Other assets   5,916     5,945     5,927     5,945     6,518 
Total assets$  711,348  $  701,043  $  692,321  $  688,895  $  695,827 
          
Noninterest-bearing demand deposits$  159,278  $  161,783  $  157,070  $  149,178  $  147,790 
Savings and interest-bearing demand deposits 337,589   334,599   328,945   318,510   322,239 
Time deposits   133,479     136,736     141,101     146,219     150,853 
Total deposits$  630,346  $  633,118  $  627,116  $  613,907  $  620,882 
Other borrowings 12,000   -   -   7   13 
Subordinated debt 4,921   4,917   4,913   -   - 
Junior subordinated debt 9,279   9,279   9,279   9,279   9,279 
Accrued interest payable and other liabilities   5,544     6,029     5,060     5,303     6,214 
Total liabilities$  662,090  $  653,343  $  646,368  $  628,496  $  636,388 

  

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
        
          
   (unaudited)
 For the Quarter Ended
 June 30,
20
16
 March 31,
 2016
 December 31,
2015
 September 30,
2015
 June 30,
2015
          
Balance Sheet (continued)         
Preferred stock$  -  $  -  $  -  $  14,595  $  14,595 
Common stock 6,157   6,156   6,145   6,141   6,139 
Surplus 7,021   6,996   6,956   6,922   6,899 
Retained earnings 36,676   35,391   34,440   33,917   33,642 
Accumulated other comprehensive loss, net   (596)    (843)    (1,588)    (1,176)    (1,836)
Total shareholders' equity$  49,258  $  47,700  $  45,953  $  60,399  $  59,439 
Total liabilities and shareholders' equity$  711,348  $  701,043  $  692,321  $  688,895  $  695,827 
          
Loan Data         
Mortgage loans on real estate:         
Construction and land development$  33,232  $  31,505  $  33,135  $  29,935  $  32,009 
Secured by farm land 706   931   964   984   1,025 
Secured by 1-4 family residential 196,295   196,165   189,286   179,419   173,265 
Other real estate loans 199,456   190,375   180,483   164,677   154,371 
Loans to farmers (except those secured by real estate) 492   473   3,056   3,014   2,645 
Commercial and industrial loans (except those secured by real estate) 24,229   23,742   20,992   16,936   16,674 
Consumer installment loans 4,083   3,854   4,055   4,165   4,341 
Deposit overdrafts 334   312   257   421   419 
All other loans  6,719     6,719     6,771     6,862     6,972 
Total loans$ 465,546  $  454,076  $  438,999  $  406,413  $  391,721 
Allowance for loan losses  (5,734)    (5,520)    (5,524)    (5,575)    (6,129)
Loans, net$ 459,812  $  448,556  $  433,475  $  400,838  $  385,592 
          
Reconciliation of Tax-Equivalent Net Interest Income        
GAAP measures:         
Interest income – loans $    5,370  $  5,236  $  5,056  $  4,854  $  4,688 
Interest income – investments and other 908   955   965   910   704 
Interest expense – deposits (329)  (333)  (302)  (282)  (266)
Interest expense – other borrowings -   (5)  -   -   (2)
Interest expense – subordinated debt (89)  (90)  (62)  -   - 
Interest expense – junior subordinated debt (64)  (61)  (59)  (56)    (55)
Interest expense – other     -     (3)    -     -      (1)
Total net interest income$    5,796  $  5,699  $  5,598  $  5,426  $  5,068 
Non-GAAP measures:         
Tax benefit realized on non-taxable interest income – loans$    25  $   25  $  26  $  26  $  27 
Tax benefit realized on non-taxable interest income – municipal securities       73      76     71     60     40 
Total tax benefit realized on non-taxable interest income$     98  $  101  $  97  $  86  $  67 
Total tax-equivalent net interest income$     5,894  $  5,800  $  5,695  $  5,512  $  5,135 
                          

            

FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
 
   (unaudited)
  For the Six Months Ended 
Income StatementJune 30,
 2016
 June 30,
 2015
Interest income   
Interest and fees on loans$  10,606  $  9,228 
Interest on deposits in banks 110   73 
Interest on securities 1,713   1,040 
Dividends on restricted securities   40     39 
Total interest income $12,469  $  10,380 
Interest expense   
Interest on deposits$  662  $  566 
Interest on federal funds purchased 3   2 
Interest on subordinated debt 179   - 
Interest on junior subordinated debt 125   109 
Interest on other borrowings   5     3 
Total interest expense$  974  $  680 
Net interest income$  11,495  $  9,700 
Recovery of loan losses   -     (100)
Net interest income after recovery of loan losses$1,495  $9,800 
Noninterest income   
Service charges on deposit accounts$  1,694  $  1,299 
ATM and check card fees 1,003   846 
Wealth management fees 670   1,002 
Fees for other customer services 284   291 
Income from bank owned life insurance 193   164 
Net gains (losses) on sales of securities 6   (52)
Net gains on sale of loans 52   105 
Other operating income   153     245 
Total noninterest income$  4,055  $  3,900 
Noninterest expense   
Salaries and employee benefits$  6,859  $  6,722 
Occupancy 789   656 
Equipment  826   703 
Marketing 227   260 
Supplies 204   574 
Legal and professional fees 467   643 
ATM and check card fees 426   345 
FDIC assessment 248   131 
Bank franchise tax 193   252 
Telecommunications expense 229   185 
Data processing expense 274   413 
Postage expense 126   197 
Amortization expense 405   200 
Other real estate owned (income) expense, net (121)  116 
Other operating expense   848     945 
Total noninterest expense$  12,000  $   12,342 
    
Income before income taxes$  3,550  $   1,358 
Income tax expense   1,018     370 
Net income$  2,532  $  988 
Effective dividend and accretion on preferred stock  -     657 
Net income available to common shareholders$2,532  $331 
Common Share and Per Common Share Data   
Net income, basic$  0.51  $  0.07 
Weighted average shares, basic 4,922,509   4,908,386 
Net income, diluted$  0.51  $   0.07 
Weighted average shares, diluted 4,925,082   4,911,179 
Shares outstanding at period end 4,925,599   4,910,826 
Tangible book value at period end$  9.61  $  8.56 
Cash dividends$  0.06  $   0.05 

  

FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
 
 (unaudited)
 For the Six Months Ended
 June 30,
 2016
 June 30,
 2015
Key Performance Ratios   
Return on average assets 0.73%  0.34%
Return on average equity 10.66%  3.32%
Net interest margin 3.62%  3.58%
Efficiency ratio (1) 74.43%  82.12%
    
Average Balances   
Average assets$  699,736  $  594,099 
Average earning assets 648,947   553,243 
Average shareholders' equity 47,762   59,954 
    
Asset Quality   
Loan charge-offs$  256  $  783 
Loan recoveries 466   294 
Net charge-offs (recoveries) (210)  489 
    
Reconciliation of Tax-Equivalent Net Interest Income  
GAAP measures:   
Interest income – loans$    10,606  $  9,228 
Interest income – investments and other  1,863   1,152 
Interest expense – deposits (662)  (566)
Interest expense – other borrowings (5)  (3)
Interest expense – subordinated debt (179)  - 
Interest expense – junior subordinated debt (125)  (102)
Interest expense – other     (3)    (2)
Total net interest income$     11,495  $  9,700 
    
Non-GAAP measures:   
Tax benefit realized on non-taxable interest income – loans$    50  $   53 
Tax benefit realized on non-taxable interest income – municipal securities        149      73 
Total tax benefit realized on non-taxable interest income$    199  $   126 
Total tax-equivalent net interest income$    11,694   $  9,826 
            

(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, amortization of intangibles, acquisition and integration related expenses, and gains and 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 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. 

(2) All capital ratios reported are for the Bank.  

CONTACTS 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

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