Market Overview

First National Corporation Announces Fourth Quarter and Full Year Results

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STRASBURG, Va., Jan. 25, 2017 (GLOBE NEWSWIRE) -- First National Corporation (the "Company" or "First National") (OTC: FXNC) today reported net income available to common shareholders of $1.7 million and earnings per share of $0.34 for the fourth quarter ended December 31, 2016.  This was an $862 thousand increase when compared to earnings for the fourth quarter of 2015, which totaled $813 thousand or $0.17 per share.  The increase in net income available to common shareholders resulted primarily from an $867 thousand decrease in noninterest expenses, a $315 thousand increase in net interest income and a $128 thousand decrease in the effective dividend on preferred stock.  These changes were offset by a $377 thousand increase in income tax expense and a $71 thousand decrease in noninterest income.  

For the year ended December 31, 2016, net income available to common shareholders totaled $5.9 million or $1.20 per share.  This was an increase of $4.4 million compared to earnings for the prior year, which totaled $1.5 million or $0.31 per share.  The increase in earnings resulted primarily from a $2.5 million increase in net interest income, a $2.1 million decrease in noninterest expenses, a $151 thousand increase in noninterest income and a $1.1 million decrease in the effective dividend on preferred stock.  These changes were offset by a $1.4 million increase in income tax expense.

Select highlights for the fourth quarter include:

  • Return on equity increased to 13.08%, compared to 7.01% for fourth quarter of 2015
     
  • Net income available to common shareholders increased $862 thousand, or 106%, compared to the fourth quarter of 2015
     
  • The efficiency ratio improved to 67.17%, compared to 78.42% for the fourth quarter of 2015
     
  • Noninterest expense decreased for the sixth consecutive quarter, and decreased $867 thousand, or 13%, compared to the fourth quarter of 2015
     
  • Assets per employee increased to $4.5 million, compared to $3.6 million at the end of the fourth quarter of 2015
     
  • Net interest income increased $315 thousand, or 6%, compared to the fourth quarter of 2015
     
  • Net loans increased $15.5 million during the quarter, and increased $47.3 million, or 11%, over the prior year 
     
  • Noninterest-bearing demand deposits increased $11.0 million, or 7%, over the prior year.

"Since closing on the branch deposit acquisition in the second quarter of 2015, our banking team has successfully executed on two primary drivers of value of the transaction," said Scott Harvard, president and chief executive officer of First National. Harvard added, "The first driver was to deploy the newly acquired funds into loans. Loans, net of the allowance for loan losses, increased by $47.3 million during 2016, which followed total loan growth of $61.8 million in 2015. The second primary driver was to gain efficiencies from the larger balance sheet. For the year ended December 31, 2015, the year of the acquisition, the efficiency ratio was 80.92%. Our team was able to improve the efficiency ratio to 71.08% for the year ended December 31, 2016 by reducing non-interest expenses $2.1 million and by increasing revenues $2.7 million. Productivity improved with total assets per employee increasing 25% from $3.6 million to $4.5 million during the year as a result of right sizing our branch network, reducing staffing, and doing more with less by utilizing technology and improving processes."

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 $908 thousand for the year ended December 31, 2015.  The Company did not incur integration costs during 2016.

At December 31, 2016, deposits from the acquired branches totaled $174.8 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.  The cost of funds for the fourth quarter of 2016 for acquired branches was 0.22%, compared to the total cost of funds of the Company of 0.31%.  The mix of deposits, which was comprised of a significant amount of noninterest-bearing deposits, remained consistent from the acquisition date through the end of 2016.  The Bank assembled an experienced lending team in its south region that made a meaningful contribution to loan growth during 2015 and 2016.

BALANCE SHEET

Total assets of First National increased $4.1 million during the quarter to $716.7 million at December 31, 2016, and increased $24.4 million compared to one year ago.  Loans, net of the allowance for loan losses, increased $15.5 million during the quarter to $480.7 million, and increased $47.3 million, or 11%, compared to December 31, 2015. While net loans increased over the prior periods, the total of securities and interest-bearing deposits in banks decreased $12.3 million during the quarter to $180.7 million, and decreased $23.8 million compared to one year ago. 

Total deposits increased $4.8 million during the quarter to $645.6 million, and were $18.5 million higher than one year ago.  When comparing the composition of the deposit portfolio at December 31, 2016 to one year ago, noninterest-bearing demand deposits increased from 25% to 26% of total deposits, while time deposits decreased from 22% to 20%. 

Shareholders' equity totaled $50.7 million at December 31, 2016 compared to $46.0 million one year ago.  Tangible common equity totaled $49.2 million at the end of 2016, compared to $43.6 million at December 31, 2015.  The Company exceeded its target regulatory capital ratios at year-end. 

NET INTEREST INCOME

For the fourth quarter ended December 31, 2016, net interest income increased $315 thousand, or 6%, to $5.9 million, compared to $5.6 million for the fourth quarter of 2015. 

Total interest income increased $405 thousand, or 7%, to $6.4 million for the fourth quarter of 2016, compared to the same period of 2015.  Interest income increased from growth in total average earning assets and from a change in the composition of earning assets.  The change in asset mix resulted from an increase in average loan balances to 72% of average earning assets for the fourth quarter of 2016, up from 65% for the same quarter of 2015.  While loan balances increased, the average balance of interest-bearing deposits in banks and securities decreased to 28% of average earning assets, down from 35% when comparing the same periods.

Total interest expense increased $90 thousand, or 21%, to $513 thousand for the fourth quarter of 2016 compared to the same period of 2015.  The increase in interest expense resulted primarily from interest on deposits and interest on subordinated debt.  The Company had subordinated debt for only a portion of the fourth quarter of 2015, compared to a full quarter in 2016.   

For the year ended December 31, 2016, net interest income increased $2.5 million, or 12%, to $23.3 million, compared to $20.7 million for the year ended December 31, 2015. 

Total interest income increased $3.1 million, or 14%, to $25.2 million for the year ended December 31, 2016, compared to the same period of 2015.  Interest income increased from growth in total average earning assets and from a change in the composition of earning assets.  The change in asset mix resulted from an increase in average loan balances to 71% of average earning assets for year ended December 31, 2016, up from 67% one year ago.  While loan balances increased, the average balance of interest-bearing deposits in banks and securities decreased to 29% of average earning assets, down from 33% when comparing the same periods.

Total interest expense increased $541 thousand, or 38%, to $2.0 million for the year ended December 31, 2016 compared to the same period of 2015.  The increase in interest expense resulted primarily from a full year of interest on subordinated debt as well as higher interest expense on deposits.  The Company had subordinated debt for only a portion of the fourth quarter of 2015, compared to the full year of 2016.  

NONINTEREST INCOME

For the fourth quarter ended December 31, 2016, noninterest income decreased $71 thousand, or 3%, to $2.1 million, compared to $2.2 million for the fourth quarter of 2015.  There were no significant changes in revenue from service charges on deposit accounts or ATM and check card fees.  Wealth management fees decreased $143 thousand when comparing the same periods, while other operating income increased $39 thousand.  The decrease in wealth management fees resulted from the elimination of brokerage services on January 1, 2016. 

For the year ended December 31, 2016, noninterest income increased $151 thousand, or 2%, to $8.5 million, compared to $8.3 million for the year ended December 31, 2015.  Service charges on deposit accounts increased $470 thousand, or 15%, and ATM and check card fees increased $142 thousand, or 7%, over the prior year.  The increases were attributed to the increase in deposits when comparing the periods.  Wealth management fees decreased $613 thousand, or 31%, when comparing 2016 to 2015. 

NONINTEREST EXPENSE

Noninterest expense decreased $867 thousand, or 13%, to $5.6 million for the fourth quarter of 2016 compared to the same period of 2015.  Several expense categories decreased when comparing the same periods, including salaries and employee benefits, which decreased $584 thousand, or 17%, and legal and professional fees, which decreased $212 thousand, or 47%.  The decrease in salaries and employee benefits resulted primarily from lower salaries and wages, insurance and pension expense, which decreased $213 thousand, $204 thousand and $159 thousand, respectively.  Salaries and wage expense was lower than the same period in 2015 from a reduction in the number of employees.  Insurance expense decreased as a result of changes to the Company's health insurance plan for 2016 as expense was impacted by the actual amount of claims submitted by employees during the year, as opposed to a fixed cost of insurance for 2015.  Pension expense decreased when comparing the periods as a result of an amendment to the defined benefit pension plan and the Company's intention to terminate the plan.  Under the amendment, benefit accruals ceased as of November 30, 2016.  Legal and professional fees were higher for the fourth quarter of 2015 primarily from consulting expenses incurred from an efficiency initiative that began during 2015. 

Noninterest expense decreased $2.1 million, or 8%, to $23.5 million for the year ended December 31, 2016, compared to $25.6 million for the same period of 2015.  Several expense categories decreased when comparing the same periods, including salaries and employee benefits, which decreased $901 thousand, or 7%, legal and professional fees, which decreased $452 thousand, or 34%, and supplies expense, which decreased $333 thousand, or 43%.  The decrease in salaries and employee benefits resulted primarily from lower salaries and wage expense, insurance expense and pension expense, which decreased $501 thousand, $314 thousand and $125 thousand, respectively.  Legal and professional fees were higher for the year ended December 31, 2015 primarily from legal fees related to integration costs incurred during the Branch Acquisition and consulting expenses incurred from an efficiency initiative.  Supplies expense was higher for the year ended December 31, 2015, primarily from integration costs incurred during the Branch Acquisition.

ASSET QUALITY/LOAN LOSS PROVISION

Nonperforming assets decreased to $1.8 million, or 0.25% of total assets, down from $6.5 million or 0.94% of total assets one year ago.  Loans past due between 30 and 89 days and still accruing was 0.53% of total loans, compared to 0.32% at December 31, 2015.  The allowance for loan losses totaled $5.3 million at December 31, 2016 and $5.5 million at December 31, 2015, representing 1.09% and 1.26% 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 14 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 Statement December 31,
 2016
  September 30,
 2016
    June 30,
 2016
  March 31,
 2016
  December 31,
2015
Interest income                    
Interest and fees on loans $ 5,556     $ 5,500     $ 5,370     $ 5,236     $ 5,056  
Interest on deposits in banks   55       73       62       48       63  
Interest on securities   794       749       825       888       884  
Dividends on restricted securities   21       20       21       19       18  
Total interest income $ 6,426     $ 6,342     $ 6,278     $ 6,191     $ 6,021  
Interest expense                                      
Interest on deposits $ 353     $ 338     $ 329     $ 333     $ 302  
Interest on federal funds purchased   -       -       -       3       -  
Interest on subordinated debt   91       91       89       90       62  
Interest on junior subordinated debt   69       65       64       61       59  
Interest on other borrowings   -       1       -       5       -  
Total interest expense $ 513     $ 495     $ 482     $ 492     $ 423  
Net interest income $ 5,913     $ 5,847     $ 5,796     $ 5,699     $ 5,598  
Provision for loan losses   -       -       -       -       -  
Net interest income after provision for loan losses $ 5,913     $ 5,847     $ 5,796     $ 5,699     $ 5,598  
Noninterest income                                      
Service charges on deposit accounts $ 877     $ 941     $ 914     $ 780     $ 846  
ATM and check card fees   505       529       515       488       520  
Wealth management fees   353       339       334       336       496  
Fees for other customer services   154       143       137       147       143  
Income from bank owned life insurance   109       123       107       86       103  
Net gains (losses) on sales of securities   (2 )     4       -       6       (3 )
Net gains on sale of loans   42       50       31       21       43  
Other operating income   89       182       74       79       50  
Total noninterest income $ 2,127     $ 2,311     $ 2,112     $ 1,943     $ 2,198  
Noninterest expense                                      
Salaries and employee benefits $ 2,907     $ 3,183     $ 3,415     $ 3,444     $ 3,491  
Occupancy   364       380       365       424       400  
Equipment   402       406       394       432       398  
Marketing   210       125       120       107       94  
Supplies   138       108       103       101       93  
Legal and professional fees   238       179       156       311       450  
ATM and check card fees   211       229       221       205       200  
FDIC assessment   72       106       126       122       119  
Bank franchise tax   90       89       90       103       130  
Telecommunications expense   112       110       115       114       120  
Data processing expense   159       160       146       128       157  
Postage expense   56       56       57       69       71  
Amortization expense   179       187       198       207       216  
Other real estate owned expense (income), net   -       1       (49 )     (72 )     92  
Net loss on disposal of premises and equipment   -       8       -       -       -  
Other operating expense   507       526       426       422       481  
Total noninterest expense $ 5,645     $ 5,853     $ 5,883     $ 6,117     $ 6,512  
Income before income taxes $ 2,395     $ 2,305     $ 2,025     $ 1,525     $ 1,284  
Income tax expense   720       611       592       426       343  
Net income $ 1,675     $ 1,694     $ 1,433     $ 1,099     $ 941  
Effective dividend on preferred stock   -       -       -       -       128  
Net income available to common shareholders $ 1,675     $ 1,694     $ 1,433     $ 1,099     $ 813  
Common Share and Per Common Share Data                                      
Net income, basic $ 0.34     $ 0.34     $ 0.29     $ 0.22     $ 0.17  
Weighted average shares, basic   4,927,728       4,925,753       4,924,702       4,920,315       4,913,985  
Net income, diluted $ 0.34     $ 0.34     $ 0.29     $ 0.22     $ 0.17  
Weighted average shares, diluted   4,933,572       4,929,922       4,926,859       4,923,117       4,916,804  
Shares outstanding at period end   4,929,403       4,926,546       4,925,599       4,924,539       4,916,130  
Tangible book value at period end $ 9.98     $ 9.99     $ 9.61     $ 9.25     $ 8.87  
Cash dividends $ 0.03     $ 0.03     $ 0.03     $ 0.03     $ 0.025  
                                       


FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
 
    (unaudited)
  For the Quarter Ended
  December 31,
 2016
  September 30,
 2016
  June 30,
 2016
  March 31,
 2016
  December 31,
2015
Key Performance Ratios                  
Return on average assets   0.94 %     0.95 %     0.82 %     0.64 %     0.54 %
Return on average equity   13.08 %     13.44 %     11.90 %     9.39 %     7.01 %
Net interest margin   3.60 %     3.57 %     3.62 %     3.63 %     3.53 %
Efficiency ratio (1)   67.17 %     68.57 %     71.62 %     77.32 %     78.42 %
                   
Average Balances                  
Average assets $ 711,507     $ 710,005     $ 705,707     $ 693,783     $ 692,263  
Average earning assets   663,982       661,624       654,535       643,358       640,880  
Average shareholders' equity   50,944       50,160       48,443       47,066       53,264  
                   
Asset Quality                  
Loan charge-offs $ 337     $ 195     $ 136     $ 120     $ 418  
Loan recoveries   48       71       350       116       367  
Net charge-offs (recoveries)   289       124       (214 )     4       51  
Non-accrual loans   1,520       3,521       4,057       4,258       3,854  
Other real estate owned, net   250       250       442       2,112       2,679  
Nonperforming assets   1,770       3,771       4,499       6,370       6,533  
Loans 30 to 89 days past due, accruing   2,583       2,036       1,979       1,743       1,418  
Loans over 90 days past due, accruing   116       59       11       124       92  
Troubled debt restructurings, accruing   -       88       -       -       317  
Special mention loans   13,073       14,238       13,392       13,796       16,372  
Substandard loans, accruing   8,056       8,273       9,610       10,068       10,265  
                   
Capital Ratios (2)                  
Total capital $ 65,584     $ 65,759     $ 64,375     $ 62,440     $ 61,513  
Tier 1 capital   60,263       60,149       58,641       56,920       55,989  
Common equity tier 1 capital   60,263       60,149       58,641       56,920       55,989  
Total capital to risk-weighted assets   13.45 %     13.90 %     13.66 %     13.50 %     13.86 %
Tier 1 capital to risk-weighted assets   12.36 %     12.72 %     12.45 %     12.30 %     12.62 %
Common equity tier 1 capital to risk-weighted assets   12.36 %     12.72 %     12.45 %     12.30 %     12.62 %
Leverage ratio   8.48 %     8.48 %     8.33 %     8.22 %     8.12 %
                   
Balance Sheet                  
Cash and due from banks $ 10,106     $ 8,955     $ 10,518     $ 10,250     $ 8,247  
Interest-bearing deposits in banks   30,986       47,902       40,225       29,077       31,087  
Securities available for sale, at fair value   94,802       88,323       94,566       99,019       105,559  
Securities held to maturity, at carrying value   53,398       55,263       57,401       64,963       66,519  
Restricted securities, at cost   1,548       1,548       2,058       1,548       1,391  
Loans held for sale   337       1,053       1,819       523       323  
Loans, net of allowance for loan losses   480,746       465,224       459,812       448,556       433,475  
Other real estate owned, net of valuation allowance   250       250       442       2,112       2,679  
Premises and equipment, net   20,785       20,852       21,126       21,366       21,389  
Accrued interest receivable   1,746       1,631       1,612       1,741       1,661  
Bank owned life insurance   13,928       13,808       13,935       13,828       11,742  
Core deposit intangibles, net   1,551       1,730       1,917       2,115       2,322  
Other assets      6,539           6,133          5,917          5,945           5,927   
Total assets $   716,722     $    712,672     $   711,348     $   701,043     $    692,321  
                                         
Noninterest-bearing demand deposits $ 168,076     $ 168,204     $ 159,278     $ 161,783     $ 157,070  
Savings and interest-bearing demand deposits   349,067       340,884       337,589       334,599       328,945  
Time deposits     128,427          131,654         133,479         136,736          141,101  
Total deposits $ 645,570     $ 640,742     $ 630,346     $ 633,118     $ 627,116  
Other borrowings   -       -       12,000       -       -  
Subordinated debt   4,930       4,926       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     6,195          6,742         5,544         6,029          5,060  
Total liabilities $   665,974     $    661,689     $   662,090     $   653,343     $    646,368  
                                       



FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
    (unaudited)
  For the Quarter Ended
  December 31,
 2016
  September 30,
 2016
  June 30,
 2016
  March 31,
 2016
  December 31,
2015

                                                           
Balance Sheet (continued)                                                          
Preferred stock $ -     $ -     $ -     $ -     $ -  
Common stock   6,162       6,158       6,157       6,156       6,145  
Surplus   7,093       7,046       7,021       6,996       6,956  
Retained earnings   39,749       38,223       36,676       35,391       34,440  
Accumulated other comprehensive loss, net     (2,256 )        (444 )       (596 )       (843 )        (1,588 )
Total shareholders' equity $   50,748     $    50,983     $   49,258     $   47,700     $    45,953  
Total liabilities and shareholders' equity $   716,722     $    712,672     $   711,348     $   701,043     $    692,321  
                                                           
Loan Data                                                          
Mortgage loans on real estate:                                                          
Construction and land development $ 34,699     $ 34,518     $ 33,232     $ 31,505     $ 33,135  
Secured by farm land   688       695       706       931       964  
Secured by 1-4 family residential   198,763       196,492       196,295       196,165       189,286  
Other real estate loans   210,522       202,148       199,456       190,375       180,483  
Loans to farmers (except those secured by real estate)   1,316       737       492       473       3,056  
Commercial and industrial loans (except those secured by real estate)   28,665       25,114       24,229       23,742       20,992  
Consumer installment loans   4,611       4,283       4,083       3,854       4,055  
Deposit overdrafts   264       260       334       312       257  
All other loans     6,539          6,587         6,719         6,719          6,771  
Total loans $ 486,067     $ 470,834     $ 465,546     $ 454,076     $ 438,999  
Allowance for loan losses     (5,321 )        (5,610 )       (5,734 )       (5,520 )        (5,524 )
Loans, net $   480,746     $    465,224     $   459,812     $   448,556     $    433,475  
                                                           
Reconciliation of Tax-Equivalent Net Interest Income                                                          
GAAP measures:                                                  
Interest income – loans $ 5,556     $ 5,500     $ 5,370     $ 5,236     $ 5,056  
Interest income – investments and other   870       842       908       955       965  
Interest expense – deposits   (353 )     (338 )     (329 )     (333 )     (302 )
Interest expense – other borrowings   -       (1 )     -       (5 )     -  
Interest expense – subordinated debt   (91 )     (91 )     (89 )     (90 )     (62 )
Interest expense – junior subordinated debt   (69 )     (65 )     (64 )     (61 )     (59 )
Interest expense – federal funds purchased     - 
         -           -          (3  )        -   
Total net interest income $ 5,913
    $    5,847     $  5,796     $    5,699     $  5,598  
Non-GAAP measures:                                                          
Tax benefit realized on non-taxable interest income – loans $ 24     $ 26     $ 25     $ 25     $ 26  
Tax benefit realized on non-taxable interest income – municipal securities   72
         70          73          76          71  
Total tax benefit realized on non-taxable interest income $ 96
    $    96     $    98     $    101     $  97  
Total tax-equivalent net interest income $ 6,009
    $    5,943     $    5,894     $    5,800     $  5,695  
                                                           


FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
 
  (unaudited)
  For the Year Ended
Income Statement December 31,
 2016
  December 31,
 2015
Interest income      
Interest and fees on loans $ 21,662     $ 19,138  
Interest on deposits in banks   238       197  
Interest on securities   3,256       2,753  
Dividends on restricted securities   81       77  
Total interest income $ 25,237     $ 22,165  
Interest expense              
Interest on deposits   1,353       1,150  
Interest on federal funds purchased   3       2  
Interest on subordinated debt   361       62  
Interest on junior subordinated debt   259       224  
Interest on other borrowings   6       3  
Total interest expense $ 1,982     $ 1,441  
Net interest income $ 23,255     $ 20,724  
Recovery of loan losses   -       (100 )
Net interest income after recovery of loan losses $ 23,255     $ 20,824  
Noninterest income              
Service charges on deposit accounts   3,512       3,042  
ATM and check card fees   2,037       1,895  
Wealth management fees   1,362       1,975  
Fees for other customer services   581       606  
Income from bank owned life insurance   425       373  
Net gains (losses) on sales of securities   8       (55 )
Net gains on sale of loans   144       201  
Other operating income   424       305  
Total noninterest income $ 8,493     $ 8,342  
Noninterest expense              
Salaries and employee benefits $ 12,949     $ 13,850  
Occupancy   1,533       1,452  
Equipment   1,634       1,501  
Marketing   562       530  
Supplies   450       783  
Legal and professional fees   884       1,336  
ATM and check card fees   866       781  
FDIC assessment   426       384  
Bank franchise tax   372       513  
Telecommunications expense   451       436  
Data processing expense   593       700  
Postage expense   238       341  
Amortization expense   771       642  
Other real estate owned (income) expense, net   (120 )     352  
Net loss on disposal of premises and equipment   8       -  
Other operating expense   1,881       1,954  
Total noninterest expense $ 23,498     $ 25,555  
               
Income before income taxes $ 8,250     $ 3,611  
Income tax expense   2,349       956  
Net income $ 5,901     $ 2,655  
Effective dividend on preferred stock   -       1,113  
Net income available to common shareholders $ 5,901     $ 1,542  
               
Net income, basic $ 1.20     $ 0.31  
Weighted average shares, basic   4,924,636       4,910,608  
Net income, diluted $ 1.20     $ 0.31  
Weighted average shares, diluted   4,928,184       4,913,174  
Shares outstanding at period end   4,929,403       4,916,130  
Tangible book value at period end $ 9.98     $ 8.87  
Cash dividends $ 0.12     $ 0.10  
               


FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
 
  (unaudited)
  For the Year Ended
  December 31,
 2016
  December 31,
2015
Key Performance Ratios      
Return on average assets   0.84 %     0.41 %
Return on average equity   12.01 %     4.58 %
Net interest margin   3.61 %     3.52 %
Efficiency ratio (1)   71.08 %     80.92 %
                         
Average Balances                        
Average assets $ 705,170     $ 642,978  
Average earning assets   655,913       597,763  
Average shareholders' equity   49,117       57,928  
                         
Asset Quality                        
Loan charge-offs $ 788     $ 1,838  
Loan recoveries   585       744  
Net charge-offs   203       1,094  
                     
Reconciliation of Tax-Equivalent Net Interest Income                        
GAAP measures:                        
Interest income – loans $ 21,662     $ 19,138  
Interest income – investments and other   3,575       3,027  
Interest expense – deposits   (1,353 )     (1,150 )
Interest expense – other borrowings   (6 )     (3 )
Interest expense – subordinated debt   (361 )     (62 )
Interest expense – junior subordinated debt   (259 )     (224 )
Interest expense – federal funds purchased   (3
)     (2 )
Total net interest income $ 23,255
    $ 20,724  
Non-GAAP measures:              
Tax benefit realized on non-taxable interest income – loans $ 100     $ 105  
Tax benefit realized on non-taxable interest income – municipal securities   291
      204  
Total tax benefit realized on non-taxable interest income $ 391
    $ 309  
Total tax-equivalent net interest income $ 23,646     $ 21,033  
                 

(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 tables above for tax-equivalent net interest income and reconciliations 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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