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First National Corporation Reports Third Quarter 2020 Net Income

First National Corporation
·31 min read

STRASBURG, Va., Oct. 29, 2020 (GLOBE NEWSWIRE) -- First National Corporation (the “Company” or “First National”) (NASDAQ: FXNC), the bank holding company of First Bank (the “Bank”), reported unaudited consolidated net income of $1.8 million, or $0.36 per diluted share, for the third quarter of 2020, which resulted in a return on average assets of 0.74% and a return on average equity of 8.52%. This compares to net income of $2.5 million, or $0.50 per diluted share, and a return on average assets of 1.27% and a return on average equity of 13.31% for the third quarter of 2019. Provision for loan losses of $1.5 million was included in net income for the three-month period ending September 30, 2020, compared to no provision for loan losses for the same period in 2019.

For the nine months ending September 30, 2020, net income totaled $5.7 million, or $1.17 per diluted share, which resulted in a return on average assets of 0.86% and a return on average equity of 9.49%. This compares to net income of $6.8 million, or $1.38 per diluted share, and a return on average assets of 1.19% and a return on average equity of 12.85% for the same period of 2019. Provision for loan losses of $3.2 million and $200 thousand was included in net income for the nine-month periods ending September 30, 2020 and 2019, respectively.

Highlights for the third quarter of 2020:

  • Net interest income increased $503 thousand, or 7%

  • Wealth management revenue increased $96 thousand, or 20%

  • Fees for other customer services increased $146 thousand, or 82%

  • Salaries and employee benefits decreased $58 thousand, or 2%

  • Tangible book value increased 12% to $16.92 per share compared to $15.11 one year ago

  • Loans in the Bank’s deferred payment program decreased to $22.6 million, or 3% of total loans

  • Nonperforming assets totaled $7.0 million, an increase of $5.4 million

  • Provision for loan losses totaled $1.5 million, compared to no provision for same quarter of 2019

“We are pleased the Bank generated solid financial performance in the third quarter with higher net interest income, higher noninterest income and lower noninterest expenses,” said Scott Harvard, president and chief executive officer of First National.” Harvard continued, “While net income was impacted by a provision for loan losses totaling $1.5 million, we believe the provision reflected our diligent ongoing management of credits in the current credit cycle, including specific reserves established for impaired loans to companies that experienced business interruptions attributable to the pandemic. We are also pleased with the significant reduction of loans in the Bank’s deferred loan program, which totaled 3% of total loans at the end of the third quarter, compared to 28% of total loans at June 30, 2020.”

“We continue to be impressed by the efforts of our bankers to adapt to the unusual environment created by the pandemic and are proud of the improvement in net interest income, noninterest income and expense management as a result of their efforts.”

COVID-19 PANDEMIC UPDATE

Operations

During the third quarter, the Bank continued to follow its Pandemic Plan that strives to protect the health of its employees and customers, while continuing to deliver essential banking services. The Bank entered phase two of its Pandemic Plan on July 1, 2020 and re-opened branch lobbies with limited hours for in-person transactions without appointments while it continued to deliver banking services through branch drive throughs, ATMs, and mobile and internet banking platforms.

Paycheck Protection Program

The Bank participated as a lender in the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) to support local small businesses and non-profit organizations. During the second and third quarters of 2020, the Bank originated $76.6 million of PPP loans, received $2.5 million of loan fees, and incurred $535 thousand of loan origination costs. The loan fees are being accreted into earnings evenly over the life of the loans, net of the loan costs, through interest and fees on loans. At September 30, 2020, PPP loan balances totaled $73.7 million with 99% of the loan balances maturing in the second quarter of 2022 and 1% of loan balances maturing in the third quarter of 2025. At September 30, 2020, customers with PPP loan balances totaling $11.3 million had requested debt forgiveness but have not yet received notifications of forgiveness decisions from the SBA.

Loan Payment Deferral Program

In response to the unknown impact of the pandemic on the economy and customers, the Bank created and implemented a loan payment deferral program for individual and business customers beginning in the first quarter of 2020 and provided the opportunity to defer monthly payments for 90 days. Loans participating in the program totaled $22.6 million, or 3% of total loans at September 30, 2020, which was a significant reduction compared to $182.6 million, or 28% of the Bank’s loan balances at June 30, 2020. Interest income continued to accrue to the Bank during the deferral periods.

Asset Quality Impact

The pandemic is expected to have an unfavorable impact on the financial condition of the Bank’s loan customers, and as a result, the Bank has continued the process of identifying credit risk with the goal of mitigating the risk and minimizing future loan charge-offs. Certain sectors of the commercial real estate loan portfolio, including retail shopping, lodging and leisure are expected to experience elevated financial pressure. Those sectors comprised approximately 5%, 5% and 2% of the loan portfolio, respectively, excluding PPP loans at September 30, 2020. The magnitude of the potential decline in the Bank’s loan quality will likely depend on the duration of the pandemic and the extent that the Bank’s customers experience business interruptions. The Bank recorded a provision for loan losses of $1.5 million for the third quarter of 2020, including specific reserves placed on impaired loans impacted by the pandemic. This compared to no provision for loan losses in the third quarter of 2019.

Capital

The stock repurchase plan remained suspended during the third quarter. The Company updates its enterprise risk assessment and capital plans quarterly, and as a result, issued $5.0 million of subordinated debt in June 2020. The purpose of the issuance was primarily to further strengthen holding company liquidity and to remain a source of strength for the Bank in the event of a severe economic downturn. The Company may also use the proceeds of the issuance for general corporate purposes, including the potential repayment of the Company’s existing subordinated debt, which becomes callable in January 2021. The Company declared and paid dividends of $0.11 per share in the third quarter that was unchanged from the dividends declared and paid during the first and second quarters of 2020.

BALANCE SHEET

Total assets of First National increased $165.5 million, or 21%, to $942.7 million at September 30, 2020, compared to $777.2 million at September 30, 2019. Total securities decreased $515 thousand, while loans, net of the allowance for loan losses, increased $74.3 million, or 13%. The growth in the loan portfolio included PPP loans that totaled $73.7 million at the end of the third quarter.

Total liabilities increased $158.6 million, or 23%, to $860.5 million at September 30, 2020, compared to $701.9 million one year ago. The increase in total liabilities was primarily attributable to significant growth in deposits. Total deposits increased $152.8 million, or 22%, to $838.4 million and subordinated debt increased by $5.0 million to $10.0 million at September 30, 2020. Noninterest-bearing demand deposits increased $66.9 million, or 35%, savings and interest-bearing demand deposits increased $104.0 million, or 28%, while time deposits decreased $18.1 million, or 15%. The origination of PPP loans also contributed to the deposit growth as many customers deposited proceeds of the loans in their deposit accounts at the Bank. Although proceeds from PPP loan originations during the second and third quarters contributed to the increase in deposits, the Bank also experienced a significant amount of deposit growth that was not related to PPP loan proceeds. Total deposits increased $152.8 million, while PPP loans totaled $73.7 million at September 30, 2020.

Subordinated debt increased to $10.0 million at September 30, 2020 from a $5.0 million issuance in the second quarter of 2020. The Company issued the debt at a 5.50% fixed-to-floating rate subordinated note due 2030 to an institutional investor. The Note was structured to qualify as Tier 2 capital under bank regulatory guidelines, and the proceeds from the sale of the Note may be utilized to support capital levels at the Bank in the event of a severe economic downturn or for general corporate purposes, including the potential repayment of the Company’s other subordinated debt, which becomes callable in January 2021.

Shareholders’ equity increased $6.9 million, or 9%, to $82.3 million at September 30, 2020, compared to one year ago, from a $6.4 million increase in retained earnings and a $2.3 million increase in accumulated other comprehensive income. These increases were partially offset by $1.7 million decrease in common stock and surplus, which resulted from stock repurchases in the first quarter of 2020 under the Company’s stock repurchase plan.

The Company’s stock repurchase plan was suspended near the end of the first quarter of 2020 due to the potential impact of the pandemic on the economy and the Bank’s customers. The plan remained suspended during the second and third quarters of 2020. The Company paid a cash dividend to common shareholders during the third quarter of $0.11 per share, which was unchanged from the first and second quarters of 2020. The Bank was considered well-capitalized at September 30, 2020.

PERFORMANCE ANALYSIS OF THE THREE-MONTH PERIOD

Net interest income increased $503 thousand, or 7%, to $7.6 million for the third quarter of 2020, compared to the same period of 2019. The increase resulted from a $514 thousand, or 40%, decrease in total interest expense, which was partially offset by an $11 thousand decrease in total interest and dividend income. The net interest margin decreased 46 basis points to 3.41%. The decrease in the net interest margin was offset by growth in average earning assets of $158.3 million, or 22%, and resulted in an increase in net interest income.

The decrease in interest expense was primarily a result of the $548 thousand, or 50%, decrease in interest expense on deposits, which was attributable to reduced interest rates paid on deposits. The impact of the $83.6 million, or 17% increase in average interest-bearing deposits was offset by a 49-basis point decrease in the cost of interest-bearing deposits. A 59-basis point reduction of the cost of interest-bearing checking accounts and a 103-basis point reduction of the cost of money market accounts made the largest contributions to the decrease in interest expense.

The decrease in total interest and dividend income resulted from an 81-basis point decrease in the yield on earning assets, which was partially offset by a $158.3 million, or 22%, increase in average earning assets. The decrease in the yield on earning assets resulted from a 19-basis point decrease in the yield on securities, a 48-basis point decrease in the yield on loans, and a 206-basis point decrease in the yield on interest-bearing deposits in banks. The loan yield was negatively impacted by PPP loans earning a 1.00% interest rate. Additionally, the mix of earning assets had an unfavorable impact on the yield on average earning assets as lower yielding interest-bearing deposits in banks increased from 2% to 12% of average earning assets.

Noninterest income increased slightly to $2.2 million compared to the same period of 2019. ATM and check card fees were $83 thousand higher, primarily from an annual incentive payment received during the third quarter from the Bank’s card services provider. The incentive payment is typically received in the fourth quarter. Wealth management fees increased $96 thousand, or 20%, from a larger amount of assets under management. Fees for other customer services were $146 thousand, or 82% higher from an increase in brokered mortgage loan activity. These increases were partially offset by a $311 thousand, or 41%, decrease in service charges on deposits. The Bank first experienced a significant decrease in service charges on deposits in the second quarter of 2020 from lower overdraft fee income, which continued to underperform in the third quarter compared to historical levels. Bank management believes the decrease in overdraft fee income was a result of the significant increase in deposit balances and a decrease in consumer spending.

Noninterest expense decreased $51 thousand, or 1%, to $6.1 million, compared to the same period one year ago. The decrease was primarily attributable to a $58 thousand, or 2%, decrease in salaries and employee benefits, an $80 thousand, or 56%, decrease in marketing expense, a $38 thousand decrease in amortization expense, and a $131 thousand, or 17%, decrease in other operating expense. The decrease in salaries and employee benefits resulted from a decrease in the number of employees as certain vacated employee positions were not replaced. Marketing expense decreased from reduced spending on marketing campaigns. Other operating expense decreased primarily from a decrease in debit card fraud losses and loan collection expense. The decrease in loan collection expense resulted from the recovery of collection costs during the quarter that were incurred in a prior period. These decreases were partially offset by increases in occupancy, equipment, supplies, legal and professional fees, ATM and check card expense, FDIC assessment, and bank franchise tax.

PERFORMANCE ANALYSIS OF THE NINE-MONTH PERIOD

Net interest income increased $1.1 million, or 5%, to $22.0 million for the nine-month period ending September 30, 2020, compared to the same period of 2019. The increase resulted from a $911 thousand, or 25%, decrease in total interest expense, and a $165 thousand, or 1%, increase in total interest and dividend income. The net interest margin decreased 33 basis points to 3.58%. The decrease in the net interest margin was offset by growth in average earning assets of $105.3 million, or 15%, and resulted in an increase in net interest income.

The decrease in total interest expense resulted primarily from an $883 thousand decrease in interest expense on deposits, which was attributable to reduced interest rates paid on deposits. The impact of the $58.1 million or 12%, increase in average interest-bearing deposits was offset by a 30-basis point decrease in the cost of interest-bearing deposits. A 49-basis point reduction of the cost of interest-bearing checking accounts and a 65-basis point reduction of the cost of money market accounts made the largest contributions to the decrease in interest expense.

The increase in total interest and dividend income resulted from a $105.3 million, or 15%, increase in average earning assets, which was partially offset by a 56-basis point decrease in the yield on earning assets. The decrease in the yield on earning assets resulted from a 22-basis point decrease in the yield on securities, a 36-basis point decrease in the yield on loans, and a 189-basis point decrease in the yield on interest-bearing deposits in banks. The loan yield was negatively impacted by PPP loans earning a 1.00% interest rate. Additionally, the mix of earning assets had an unfavorable impact on the yield on average earning assets as lower yielding interest-bearing deposits in banks increased from 3% to 8% of average earning assets.

Noninterest income decreased $138 thousand, or 2%, to $6.1 million, compared to the same period of 2019, primarily from a $698 thousand, or 32%, decrease in service charges on deposits. The Bank first experienced a significant decrease in service charges on deposits in the second quarter of 2020 from lower overdraft fee income, which continued to underperform in the third quarter compared to historical levels. Bank management believes the decrease in overdraft fee income was a result of the significant increase in deposit balances and a decrease in consumer spending. This decrease was partially offset by a $62 thousand, or 4%, increase in ATM and check card fees, a $238 thousand, or 17%, increase in wealth management fees, and a $262 thousand, or 52%, increase in fees for other customer services. ATM and check card fees were higher from an annual incentive payment received during the third quarter from the Bank’s card service provider. The incentive payment is typically received in the fourth quarter. Wealth management fees increased from higher amounts of assets under management. Fees for other customer services were higher from an increase in brokered mortgage loan activity.

Noninterest expense decreased $622 thousand, or 3%, to $17.9 million, compared to the same period one year ago. The decrease was attributable to a $265 thousand, or 3%, decrease in salaries and employee benefits, a $280 thousand, or 54%, decrease in marketing expense, a $114 thousand decrease in amortization expense, and a $326 thousand, or 15%, decrease in other operating expense. The decrease in salaries and employee benefits resulted primarily from the deferral of $535 thousand of salary costs to originate PPP loans during the second and third quarters of 2020. Marketing expense decreased from a combination of reduced spending on marketing campaigns during 2020 and elevated expenses during 2019 from the timing of marketing initiatives in the prior year. Other operating expense decreased primarily from lower debit card fraud losses, education and training expenses, travel costs, loan servicing fees, registration and licensing costs, and dues and subscriptions. The decreases in the noninterest expense categories were partially offset by increases in supplies, legal and professional fees, ATM and check card expense, FDIC assessment, bank franchise tax, and data processing expense.

ASSET QUALITY/LOAN LOSS PROVISION

Provision for loan losses totaled $1.5 million for the third quarter of 2020, which resulted in a total allowance for loan losses of $7.8 million, or 1.20% of total loans. Excluding PPP loans, the allowance for loan losses totaled 1.34% of total loans at September 30, 2020. This compared to no provision for loan losses for the same period of 2019 and an allowance for loan losses of $4.9 million, or 0.86% of total loans at September 30, 2019.

The higher provision for loan losses was primarily attributable to an increase in the specific reserve component of the allowance for loan losses, which was partially offset by a decrease in the general reserve component. The increase in the specific reserve component of the allowance for loan losses resulted from a reserve placed on a newly identified impaired loan and an increase in a reserve on an existing impaired loan. The general reserve component decreased primarily from adjustments to qualitative factors as loans participating in the Bank’s loan payment deferral program decreased significantly and economic conditions continued to improve in the third quarter. Net charge-offs of loans also contributed to the provision for loan losses, which totaled $19 thousand for the third quarter of 2020, compared to $83 thousand for the same period of 2019.

Loans that were 30 to 89 days past due and accruing totaled $885 thousand, or 0.14% of total loans at September 30, 2020 compared to $902 thousand, or 0.16% of total loans one year ago. Accruing substandard loans totaled $3.8 million at September 30, 2020 and 2019. Nonperforming assets consisted only of non-accrual loans, which totaled $7.0 million, or 0.74% of total assets at September 30, 2020, compared to $1.6 million, or 0.20% of total assets one year ago.

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. Forward-looking statements involve a number of risks and uncertainties, including the rapidly changing uncertainties related to the COVID-19 pandemic and its potential adverse effect on the economy, our employees and customers, and our financial performance. For details on other 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, 2019, and other filings with the Securities and Exchange Commission.

ABOUT FIRST NATIONAL CORPORATION

First National Corporation (NASDAQ: 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, one loan production office, a customer service center in a retirement community, and 14 bank branch office locations located throughout the Shenandoah Valley, the central regions of Virginia and in the city of Richmond. 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.

CONTACTS

Scott C. Harvard

M. Shane Bell

President and CEO

Executive Vice President and CFO

(540) 465-9121

(540) 465-9121

shavard@fbvirginia.com

sbell@fbvirginia.com

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

(unaudited)

For the Quarter Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Income Statement

Interest income

Interest and fees on loans

$

7,568

$

7,416

$

7,203

$

7,333

$

7,429

Interest on deposits in banks

25

16

118

163

97

Interest on securities

Taxable interest

575

636

670

627

645

Tax-exempt interest

152

151

151

156

157

Dividends

23

26

26

27

26

Total interest income

$

8,343

$

8,245

$

8,168

$

8,306

$

8,354

Interest expense

Interest on deposits

$

541

$

676

$

962

$

1,042

$

1,089

Interest on federal funds purchased

1

Interest on subordinated debt

160

91

90

91

90

Interest on junior subordinated debt

68

67

90

98

103

Total interest expense

$

769

$

834

$

1,142

$

1,231

$

1,283

Net interest income

$

7,574

$

7,411

$

7,026

$

7,075

$

7,071

Provision for loan losses

1,500

800

900

250

Net interest income after provision for loan losses

$

6,074

$

6,611

$

6,126

$

6,825

$

7,071

Noninterest income

Service charges on deposit accounts

$

446

$

348

$

681

$

753

$

757

ATM and check card fees

669

550

519

654

586

Wealth management fees

573

512

525

496

477

Fees for other customer services

323

237

207

181

177

Income from bank owned life insurance

131

99

115

123

131

Net gains (losses) on securities

38

1

Net gains on sale of loans

3

26

31

89

34

Other operating income

18

1

21

44

29

Total noninterest income

$

2,201

$

1,773

$

2,099

$

2,341

$

2,191

Noninterest expense

Salaries and employee benefits

$

3,498

$

3,022

$

3,589

$

3,193

$

3,556

Occupancy

433

409

402

415

398

Equipment

439

418

410

406

410

Marketing

63

74

106

128

143

Supplies

112

103

89

88

86

Legal and professional fees

262

301

279

311

231

ATM and check card expense

259

223

245

231

225

FDIC assessment

52

60

30

(53

)

(6

)

Bank franchise tax

162

161

153

136

136

Data processing expense

191

188

184

179

174

Amortization expense

33

42

52

61

71

Other real estate owned expense (income), net

1

Net losses (gains) on disposal of premises and equipment

(9

)

14

Other operating expense

631

612

614

694

762

Total noninterest expense

$

6,135

$

5,613

$

6,144

$

5,804

$

6,186

Income before income taxes

$

2,140

$

2,771

$

2,081

$

3,362

$

3,076

Income tax expense

386

528

376

646

583

Net income

$

1,754

$

2,243

$

1,705

$

2,716

$

2,493


FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

(unaudited)

For the Quarter Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Common Share and Per Common Share Data

Net income, basic

$

0.36

$

0.46

$

0.34

$

0.55

$

0.50

Weighted average shares, basic

4,854,144

4,849,719

4,950,887

4,968,574

4,966,641

Net income, diluted

$

0.36

$

0.46

$

0.34

$

0.55

$

0.50

Weighted average shares, diluted

4,854,649

4,849,719

4,955,970

4,972,535

4,969,126

Shares outstanding at period end

4,858,217

4,852,187

4,849,692

4,969,716

4,968,277

Tangible book value at period end

$

16.92

$

16.63

$

16.17

$

15.50

$

15.11

Cash dividends

$

0.11

$

0.11

$

0.11

$

0.09

$

0.09

Key Performance Ratios

Return on average assets

0.74

%

1.00

%

0.85

%

1.36

%

1.27

%

Return on average equity

8.52

%

11.30

%

8.72

%

14.10

%

13.31

%

Net interest margin

3.41

%

3.59

%

3.77

%

3.79

%

3.87

%

Efficiency ratio (1)

62.35

%

60.34

%

66.50

%

60.50

%

65.65

%

Average Balances

Average assets

$

944,390

$

899,301

$

806,609

$

795,391

$

780,376

Average earning assets

889,127

836,741

755,173

745,721

730,865

Average shareholders’ equity

81,894

79,845

78,659

76,424

74,291

Asset Quality

Loan charge-offs

$

115

$

176

$

328

$

281

$

156

Loan recoveries

96

88

78

53

73

Net charge-offs

19

88

250

228

83

Non-accrual loans

6,974

1,480

1,522

1,459

1,566

Other real estate owned, net

Nonperforming assets

6,974

1,480

1,522

1,459

1,566

Loans 30 to 89 days past due, accruing

885

1,094

2,901

2,372

902

Loans over 90 days past due, accruing

6

1

86

97

113

Troubled debt restructurings, accruing

4,313

Special mention loans

510

2,034

6,058

6,069

1,458

Substandard loans, accruing

3,804

8,616

4,368

3,410

3,758

Capital Ratios (2)

Total capital

$

89,155

$

88,109

$

86,849

$

85,439

$

83,591

Tier 1 capital

81,883

81,813

81,265

80,505

78,679

Common equity tier 1 capital

81,883

81,813

81,265

80,505

78,679

Total capital to risk-weighted assets

15.34

%

15.20

%

14.98

%

14.84

%

14.57

%

Tier 1 capital to risk-weighted assets

14.09

%

14.11

%

14.02

%

13.99

%

13.71

%

Common equity tier 1 capital to risk-weighted assets

14.09

%

14.11

%

14.02

%

13.99

%

13.71

%

Leverage ratio

8.67

%

9.08

%

10.08

%

10.13

%

10.09

%


FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

(unaudited)

For the Quarter Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Balance Sheet

Cash and due from banks

$

13,349

$

17,717

$

30,551

$

9,675

$

11,885

Interest-bearing deposits in banks

108,857

90,562

17,539

36,110

18,488

Securities available for sale, at fair value

117,132

123,193

128,660

120,983

114,568

Securities held to maturity, at amortized cost

15,101

16,211

17,086

17,627

18,222

Restricted securities, at cost

1,848

1,848

1,848

1,806

1,806

Loans held for sale

170

621

167

1,098

Loans, net of allowance for loan losses

640,591

645,220

576,283

569,412

566,341

Premises and equipment, net

19,548

19,792

19,619

19,747

19,946

Accrued interest receivable

3,156

3,863

2,124

2,065

2,053

Bank owned life insurance

17,792

17,661

17,562

17,447

17,324

Core deposit intangibles, net

43

76

118

170

231

Other assets

5,316

5,777

4,401

4,839

5,231

Total assets

$

942,733

$

942,090

$

816,412

$

800,048

$

777,193

Noninterest-bearing demand deposits

$

256,733

$

253,974

$

197,662

$

189,623

$

189,797

Savings and interest-bearing demand deposits

480,017

470,764

407,555

399,255

376,047

Time deposits

101,645

114,277

115,410

117,564

119,777

Total deposits

$

838,395

$

839,015

$

720,627

$

706,442

$

685,621

Subordinated debt

9,987

9,982

4,987

4,983

4,978

Junior subordinated debt

9,279

9,279

9,279

9,279

9,279

Accrued interest payable and other liabilities

2,816

3,026

3,001

2,125

1,999

Total liabilities

$

860,477

$

861,302

$

737,894

$

722,829

$

701,877

Preferred stock

$

$

$

$

$

Common stock

6,073

6,065

6,062

6,212

6,210

Surplus

6,081

5,967

5,899

7,700

7,648

Retained earnings

66,670

65,451

63,741

62,583

60,314

Accumulated other comprehensive income (loss), net

3,432

3,305

2,816

724

1,144

Total shareholders’ equity

$

82,256

$

80,788

$

78,518

$

77,219

$

75,316

Total liabilities and shareholders’ equity

$

942,733

$

942,090

$

816,412

$

800,048

$

777,193

Loan Data

Mortgage loans on real estate:

Construction and land development

$

27,472

$

31,981

$

40,279

$

43,164

$

45,193

Secured by farmland

533

872

888

900

916

Secured by 1-4 family residential

234,198

234,188

230,980

229,438

226,828

Other real estate loans

249,786

247,623

240,486

235,655

232,151

Loans to farmers (except those secured by real estate)

1,120

711

1,221

1,423

1,461

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

124,157

123,995

54,287

48,730

49,096

Consumer installment loans

7,378

8,401

9,505

10,400

11,040

Deposit overdrafts

194

170

238

374

263

All other loans

3,530

3,575

3,983

4,262

4,305

Total loans

$

648,368

$

651,516

$

581,867

$

574,346

$

571,253

Allowance for loan losses

(7,777

)

(6,296

)

(5,584

)

(4,934

)

(4,912

)

Loans, net

$

640,591

$

645,220

$

576,283

$

569,412

$

566,341


FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

(unaudited)

For the Quarter Ended

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Reconciliation of Tax-Equivalent Net Interest Income

GAAP measures:

Interest income – loans

$

7,568

$

7,416

$

7,203

$

7,333

$

7,429

Interest income – investments and other

775

829

965

973

925

Interest expense – deposits

(541

)

(676

)

(962

)

(1,042

)

(1,089

)

Interest expense – federal funds purchased

(1

)

Interest expense – subordinated debt

(160

)

(91

)

(90

)

(91

)

(90

)

Interest expense – junior subordinated debt

(68

)

(67

)

(90

)

(98

)

(103

)

Total net interest income

$

7,574

$

7,411

$

7,026

$

7,075

$

7,071

Non-GAAP measures:

Tax benefit realized on non-taxable interest income – loans

$

8

$

8

$

10

$

10

$

9

Tax benefit realized on non-taxable interest income – municipal securities

41

40

40

41

43

Total tax benefit realized on non-taxable interest income

$

49

$

48

$

50

$

51

$

52

Total tax-equivalent net interest income

$

7,623

$

7,459

$

7,076

$

7,126

$

7,123


FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)

(unaudited)

For the Nine Months Ended

September 30,

September 30,

2020

2019

Income Statement

Interest income

Interest and fees on loans

$

22,187

$

21,625

Interest on deposits in banks

159

340

Interest on securities

Taxable interest

1,881

2,078

Tax-exempt interest

454

472

Dividends

75

76

Total interest income

$

24,756

$

24,591

Interest expense

Interest on deposits

$

2,179

$

3,062

Interest on federal funds purchased

1

Interest on subordinated debt

341

269

Interest on junior subordinated debt

225

322

Interest on other borrowings

2

Total interest expense

$

2,745

$

3,656

Net interest income

$

22,011

$

20,935

Provision for loan losses

3,200

200

Net interest income after provision for loan losses

$

18,811

$

20,735

Noninterest income

Service charges on deposit accounts

$

1,475

$

2,173

ATM and check card fees

1,738

1,676

Wealth management fees

1,610

1,372

Fees for other customer services

767

505

Income from bank owned life insurance

345

333

Net gains (losses) on securities

38

Net gains on sale of loans

60

81

Other operating income

40

71

Total noninterest income

$

6,073

$

6,211

Noninterest expense

Salaries and employee benefits

$

10,109

$

10,374

Occupancy

1,244

1,237

Equipment

1,267

1,239

Marketing

243

523

Supplies

304

250

Legal and professional fees

842

775

ATM and check card expense

727

666

FDIC assessment

142

98

Bank franchise tax

476

402

Data processing expense

563

526

Amortization expense

127

241

Net losses (gains) on disposal of premises and equipment

(9

)

Other operating expense

1,857

2,183

Total noninterest expense

$

17,892

$

18,514

Income before income taxes

$

6,992

$

8,432

Income tax expense

1,290

1,592

Net income

$

5,702

$

6,840


FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)

(unaudited)

For the Nine Months Ended

September 30,

September 30,

2020

2019

Common Share and Per Common Share Data

Net income, basic

$

1.17

$

1.38

Weighted average shares, basic

4,884,805

4,963,571

Net income, diluted

$

1.17

$

1.38

Weighted average shares, diluted

4,886,668

4,966,384

Shares outstanding at period end

4,858,217

4,968,277

Tangible book value at period end

$

16.92

$

15.11

Cash dividends

$

0.33

$

0.27

Key Performance Ratios

Return on average assets

0.86

%

1.19

%

Return on average equity

9.49

%

12.85

%

Net interest margin

3.58

%

3.91

%

Efficiency ratio (1)

63.04

%

66.93

%

Average Balances

Average assets

$

883,741

$

770,777

Average earning assets

827,240

721,899

Average shareholders’ equity

80,228

71,148

Asset Quality

Loan charge-offs

$

619

$

603

Loan recoveries

262

306

Net charge-offs

357

297

Reconciliation of Tax-Equivalent Net Interest Income

GAAP measures:

Interest income – loans

$

22,187

$

21,625

Interest income – investments and other

2,569

2,966

Interest expense – deposits

(2,179

)

(3,062

)

Interest expense – federal funds purchased

(1

)

Interest expense – subordinated debt

(341

)

(269

)

Interest expense – junior subordinated debt

(225

)

(322

)

Interest expense – other borrowings

(2

)

Total net interest income

$

22,011

$

20,935

Non-GAAP measures:

Tax benefit realized on non-taxable interest income – loans

$

26

$

30

Tax benefit realized on non-taxable interest income – municipal securities

121

126

Total tax benefit realized on non-taxable interest income

$

147

$

156

Total tax-equivalent net interest income

$

22,158

$

21,091

(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, amortization of intangibles, 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. 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 21%. 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 First Bank.