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First National Corporation Announces Fourth Quarter and Annual Earnings

STRASBURG, Va., Jan. 29, 2015 (GLOBE NEWSWIRE) -- First National Corporation (the "Company") (OTCQB:FXNC), the parent company of First Bank (the "Bank"), reported annual and quarterly earnings. Net income totaled $7.6 million and net income available to common shareholders totaled $6.5 million, or $1.32 per basic and diluted share, for the year ended December 31, 2014. For the fourth quarter, net income totaled $3.7 million and net income available to common shareholders totaled $3.4 million, or $0.68 per basic and diluted share.

Operating Highlights for 2014

  • Return on average assets was 1.45%
  • Net interest margin was 3.86%
  • Four consecutive quarters of loan growth
  • Service charge revenue increased 17% to $2.6 million
  • Wealth management revenue increased 13% to $1.9 million
  • Non-performing assets decreased by 33%
  • Expanded into Harrisonburg and Staunton with mortgage division and loan production offices
  • Entered into an agreement to acquire six branch banking offices in Virginia
  • Book value per common share increased from $7.96 to $9.17

"We are proud of the Company's financial performance and expansion progress during 2014. Our bankers generated four consecutive quarters of loan growth, improved the Bank's net interest margin, maintained strong noninterest income and improved asset quality while entering new markets and launching a new mortgage division," said Scott C. Harvard, President and CEO of the Company and the Bank. Harvard continued, "We look forward to further expansion and growth of the Bank with the planned acquisition of six bank offices located throughout the Shenandoah Valley and Central Virginia."

Fourth Quarter Earnings

Net income totaled $3.7 million for the fourth quarter of 2014 compared to $7.4 million for the same period of 2013, which included a $4.8 million favorable impact to the income tax provision from elimination of the valuation allowance on net deferred tax assets. The return on average assets was 2.81% for the quarter compared to 5.55% for the same quarter one year ago, and the return on average equity was 25.03% compared to 62.96%.

Net interest income increased $256 thousand to $4.8 million for the fourth quarter, compared to $4.5 million for the same period one year ago, and the net interest margin was 3.96% compared to 3.68%. Noninterest income totaled $2.4 million for the fourth quarter, which was a $678 thousand, or 38% increase compared to the same quarter one year ago. The increase was primarily attributable to net gains on sale of securities of $765 thousand during the fourth quarter of 2014. Revenues from wealth management, service charges on deposits, and ATM and check card fees were relatively stable when compared to the same period one year ago.

Noninterest expenses totaled $4.9 million for the fourth quarter, which was a $1.4 million, or 22% decrease compared to the same period one year ago. The decrease in expenses was mostly attributable to salaries and employee benefit costs that decreased $185 thousand, FDIC assessments that decreased $104 thousand and expenses from other real estate owned that decreased $531 thousand during the fourth quarter of 2014. The decrease in expenses was also attributable to non-recurring items in the fourth quarter of 2013, which included $655 thousand of costs related to a lease termination.

The Bank recorded a recovery of loan losses totaling $3.2 million during the quarter, which resulted in a total allowance for loan losses of $6.7 million or 1.77% of total loans at December 31, 2014. The recovery was primarily a result of a decrease in the general allocation from an improvement in the historical loss experience and improved asset quality. The recovery of loan losses totaled $3.0 million and the allowance for loan losses totaled $10.6 million, or 2.98% of total loans, at December 31, 2013.

Annual Earnings

Net income totaled $7.6 million for the year ended December 31, 2014, compared to $9.9 million for the same period one year ago. The return on average assets was 1.45% compared to 1.85% for the same period one year ago, and the return on average equity was 13.49% compared to 21.87%.

Net interest income totaled $18.6 million for the period, compared to $18.4 million for the same period one year ago, and the net interest margin was 3.86% compared to 3.72%. Noninterest income totaled $7.4 million, which was a $513 thousand or 7% increase compared to $6.9 million for the prior year. The increase in noninterest income was mostly attributable to revenue from service charges on deposits that was $368 thousand or 17% higher, and revenue from the wealth management division that was $219 thousand or 13% higher than the prior year.

Noninterest expenses decreased $2.0 million, or 9%, to $18.8 million for the year compared to $20.8 million for the prior year. The decrease was attributable to expenses from other real estate owned, which decreased by $1.3 million and FDIC assessments that decreased by $430 thousand. The decrease in noninterest expenses was also attributable to non-recurring items in 2013, including lease termination costs totaling $864 thousand. These decreases in expenses were partially offset by increases in bank franchise tax, marketing, and data processing.

The Bank recorded a recovery of loan losses totaling $3.9 million for the year, compared to a recovery of loan losses totaling $425 thousand for the prior year. The recovery was primarily a result of a decrease in the general allocation from an improvement in the historical loss experience and improved asset quality.

Balance Sheet

Assets totaled $518.2 million at December 31, 2014. Gross loans increased by $21.3 million or 6%, to $378.4 million during the year while securities decreased $20.4 million to $84.7 million. Growth of the loan portfolio was led by residential real estate loans with balances that increased $21.8 million during the year, followed by multi-family and commercial real estate loans with balances that increased by $6.0 million. These increases were partially offset by a $4.6 million decrease in construction loan balances during the year. Changes in the earning asset mix had a favorable impact on the net interest margin during 2014.

Noninterest-bearing demand deposits increased $12.1 million, while time deposits and other borrowings decreased $22.0 million and $6.0 million, respectively. The Bank had less reliance on wholesale funding at December 31, 2014 when compared to the prior year. Changes in the funding mix also had a favorable impact on the net interest margin during 2014.

Capital and Asset Quality

Substandard loans decreased by $7.7 million or 33%, to $15.8 million at the end of the year compared to $23.5 million at the end of the prior year. Nonperforming assets, which includes other real estate owned, decreased 33% to $9.9 million at December 31, 2014 compared to $14.7 million one year ago. Other real estate owned decreased to $1.9 million compared to $3.0 million at the end of the prior year.

Total shareholders' equity increased $6.0 million to $59.6 million at December 31, 2014, compared to $53.6 million one year ago. The book value per common share was $9.17 at the end of the year compared to $7.96 at the prior year end. Regulatory capital ratios were higher than previous periods, with the total risk-based capital ratio increasing to 19.93% compared to 18.21% at the prior year end.

Caution about Forward Looking Statements

Certain information contained in this discussion may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to the Company's future operations and are generally identified by phrases such as "the Company expects," "the Company believes" or words of similar import. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. For details on factors that could affect expectations, see the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, and other filings with the Securities and Exchange Commission.

About the Company

First National Corporation, headquartered in Strasburg, Virginia, is the bank holding company of First Bank, a community bank that first opened for business in 1907. The Bank offers loan, deposit, and wealth management products and services from 12 office locations located throughout the Shenandoah Valley region of Virginia. Banking services are also accessed from the Bank's website, www.fbvirginia.com, and from a network of ATMs located throughout its market area. The Bank operates divisions under the names First Mortgage and First Bank Wealth Management. First Bank also owns First Bank Financial Services, Inc., which invests in entities that provide investment services and title insurance.

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
(unaudited)
For the Quarter Ended
Income Statement December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
Interest income
Interest and fees on loans $ 4,623 $ 4,536 $ 4,403 $ 4,215 $ 4,422
Interest on deposits in banks 5 3 14 16 16
Interest on securities available for sale 566 622 657 657 636
Dividends on restricted securities 20 20 21 21 19
Total interest income $ 5,214 $ 5,181 $ 5,095 $ 4,909 $ 5,093
Interest expense
Interest on deposits $ 327 $ 343 $ 372 $ 400 $ 458
Interest on federal funds purchased 1 2 -- -- --
Interest on trust preferred capital notes 55 55 54 54 56
Interest on other borrowings 26 30 30 29 30
Total interest expense $ 409 $ 430 $ 456 $ 483 $ 544
Net interest income $ 4,805 $ 4,751 $ 4,639 $ 4,426 $ 4,549
Recovery of loan losses (3,150) (100) (400) (200) (2,950)
Net interest income after recovery of loan losses $ 7,955 $ 4,851 $ 5,039 $ 4,626 $ 7,499
Noninterest income
Service charges on deposit accounts $ 644 $ 655 $ 643 $ 630 $ 654
ATM and check card fees 352 367 365 335 354
Wealth management fees 465 494 472 484 463
Fees for other customer services 90 94 126 87 89
Income from bank owned life insurance 101 103 89 74 159
Gains on sale of loans 23 -- -- -- 22
Net gains (losses) on sale of securities 765 (91) 22 -- --
Other operating income 9 32 8 6 30
Total noninterest income $ 2,449 $ 1,654 $ 1,725 $ 1,616 $ 1,771
Noninterest expense
Salaries and employee benefits $ 2,855 $ 2,668 $ 2,554 $ 2,509 $ 3,040
Occupancy 315 303 278 315 302
Equipment 293 299 295 304 319
Marketing 77 114 126 109 41
Stationery and supplies 75 84 94 80 66
Legal and professional fees 320 250 247 202 340
ATM and check card fees 168 167 163 163 166
FDIC assessment 70 90 122 172 174
Bank franchise tax 105 106 105 94 70
Other real estate owned, net (151) (23) (70) 31 380
Telecommunications 81 75 73 71 71
Data processing 140 129 134 115 99
Net losses on disposal of premises and equipment -- -- -- 2 601
Loss on lease termination -- -- -- -- 54
Other operating expense 523 491 427 446 509
Total noninterest expense $ 4,871 $ 4,753 $ 4,548 $ 4,613 $ 6,232
Income before income taxes $ 5,533 $ 1,752 $ 2,216 $ 1,629 $ 3,038
Income tax provision (benefit) 1,837 505 674 483 (4,352)
Net income $ 3,696 $ 1,247 $ 1,542 $ 1,146 $ 7,390
Effective dividend and accretion on preferred stock 328 329 261 220 228
Net income available to common shareholders $ 3,368 $ 918 $ 1,281 $ 926 $ 7,162
Common Share and Per Common Share Data
Net income, basic and diluted $ 0.68 $ 0.19 $ 0.26 $ 0.19 $ 1.46
Shares outstanding at period end 4,904,577 4,903,612 4,902,582 4,901,464 4,901,464
Weighted average shares, basic and diluted 4,903,748 4,902,716 4,901,599 4,901,464 4,901,464
Book value at period end $ 9.17 $ 8.77 $ 8.58 $ 8.24 $ 7.96
Cash dividends $ 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
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
Key Performance Ratios
Return on average assets 2.81% 0.95% 1.16% 0.88% 5.55%
Return on average equity 25.03% 8.64% 11.05% 8.53% 62.96%
Net interest margin 3.96% 3.92% 3.81% 3.72% 3.68%
Efficiency ratio (1) 76.61% 72.74% 71.94% 74.87% 81.40%
Average Balances
Average assets $ 521,889 $ 521,622 $ 531,250 $ 525,304 $ 528,475
Average earning assets 487,591 487,541 496,304 490,521 496,619
Average shareholders' equity 58,583 57,217 55,965 54,427 46,569
Asset Quality
Loan charge-offs $ 80 $ 302 $ 306 $ 239 $ 192
Loan recoveries 231 112 429 79 1,911
Net charge-offs (recoveries) (151) 190 (123) 160 (1,719)
Non-accrual loans 8,000 8,673 11,221 11,696 11,678
Other real estate owned, net 1,888 1,807 2,221 2,992 3,030
Nonperforming assets 9,888 10,480 13,443 14,688 14,708
Loans over 90 days past due, still accruing -- 2,148 325 111 49
Troubled debt restructurings, accruing 932 796 978 986 829
Special mention loans 23,259 18,411 19,807 20,606 19,660
Substandard loans, accruing 15,792 20,088 20,315 21,917 23,470
Doubtful loans -- -- -- -- --
Capital Ratios
Tier 1 capital $ 70,312 $ 66,325 $ 64,732 $ 63,041 $ 61,800
Total capital 75,045 71,084 69,455 67,687 66,437
Total capital to risk-weighted assets 19.93% 18.92% 18.64% 18.49% 18.21%
Tier 1 capital to risk-weighted assets 18.67% 17.65% 17.38% 17.22% 16.94%
Leverage ratio 13.47% 12.74% 12.22% 12.05% 11.75%
Balance Sheet
Cash and due from banks $ 6,043 $ 6,862 $ 6,587 $ 7,106 $ 5,767
Interest-bearing deposits in banks 18,802 3,885 12,735 27,017 25,741
Securities available for sale, at fair value 83,292 104,710 108,884 110,561 103,301
Restricted securities, at cost 1,366 1,636 1,636 1,636 1,804
Loans held for sale 328 181 -- -- --
Loans, net of allowance for loan losses 371,692 364,974 357,484 349,250 346,449
Other real estate owned, net of valuation allowance 1,888 1,807 2,221 2,992 3,030
Premises and equipment, net 16,126 16,175 16,305 16,470 16,642
Accrued interest receivable 1,261 1,327 1,258 1,305 1,302
Bank owned life insurance 11,357 11,244 11,141 11,052 10,978
Other assets 6,010 6,609 7,072 7,206 7,876
Total assets $ 518,165 $ 519,410 $ 525,323 $ 534,595 $ 522,890
Noninterest-bearing demand deposits $ 104,986 $ 103,019 $ 99,396 $ 101,813 $ 92,901
Savings and interest-bearing demand deposits 237,618 224,655 235,929 239,725 234,054
Time deposits 101,734 111,245 115,873 120,151 123,756
Total deposits $ 444,338 $ 438,919 $ 451,198 $ 461,689 $ 450,711
Federal funds purchased 52 5,325 -- -- --
Other borrowings 26 6,033 6,039 6,046 6,052
Trust preferred capital notes 9,279 9,279 9,279 9,279 9,279
Other liabilities 4,906 2,232 2,151 2,614 3,288
Total liabilities $ 458,601 $ 461,788 $ 468,667 $ 479,628 $ 469,330
FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)
(unaudited)
For the Quarter Ended
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
Balance Sheet (continued)
Preferred stock $ 14,595 $ 14,595 $ 14,595 $ 14,595 $ 14,564
Common stock 6,131 6,130 6,128 6,127 6,127
Surplus 6,835 6,828 6,821 6,813 6,813
Retained earnings 33,557 30,312 29,516 28,286 27,360
Accumulated other comprehensive loss, net (1,554) (243) (404) (854) (1,304)
Total shareholders' equity $ 59,564 $ 57,622 $ 56,656 $ 54,967 $ 53,560
Total liabilities and shareholders' equity $ 518,165 $ 519,410 $ 525,323 $ 534,595 $ 522,890
Loan Data
Mortgage loans on real estate:
Construction and land development $ 29,475 $ 29,862 $ 32,795 $ 33,876 $ 34,060
Secured by farm land 1,129 1,193 1,234 1,257 1,264
Secured by 1-4 family residential 163,727 155,298 151,043 147,541 141,961
Other real estate loans 150,673 153,576 145,249 141,462 144,704
Loans to farmers (except those secured by real estate) 2,975 2,905 3,067 3,060 3,418
Commercial and industrial loans (except those secured by real estate) 18,191 20,038 21,730 20,321 19,385
Consumer installment loans 4,785 4,881 4,859 4,816 4,935
Deposit overdrafts 285 248 229 213 279
All other loans 7,170 6,689 7,284 6,987 7,087
Total loans $ 378,410 $ 374,690 $ 367,490 $ 359,533 $ 357,093
Allowance for loan losses (6,718) (9,716) (10,006) (10,283) (10,644)
Loans, net $ 371,692 $ 364,974 $ 357,484 $ 349,250 $ 346,449
Reconciliation of Tax-Equivalent Net Interest Income
GAAP measures:
Interest income – loans $ 4,623 $ 4,536 $ 4,403 $ 4,215 $ 4,422
Interest income – investments and other 591 645 692 694 671
Interest expense – deposits 327 343 372 400 458
Interest expense – other borrowings 26 30 30 29 30
Interest expense – trust preferred capital notes 55 55 54 54 56
Interest expense – other 1 2 -- -- --
Total net interest income $ 4,805 $ 4,751 $ 4,639 $ 4,426 $ 4,549
Non-GAAP measures:
Tax benefit realized on non-taxable interest income – loans $ 24 $ 27 $ 28 $ 29 $ 22
Tax benefit realized on non-taxable interest income – municipal securities 42 44 49 49 41
Total tax benefit realized on non-taxable interest income $ 66 $ 71 $ 77 $ 78 $ 63
Total tax-equivalent net interest income $ 4,871 $ 4,822 $ 4,716 $ 4,504 $ 4,612
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,
2014
December 31,
2013
Interest and dividend income
Interest and fees on loans $ 17,777 $ 18,844
Interest on federal funds sold -- --
Interest on deposits in banks 38 61
Interest and dividends on securities available for sale:
Taxable interest 2,144 1,870
Tax-exempt interest 358 307
Dividends 82 75
Total interest and dividend income $ 20,399 $ 21,157
Interest expense
Interest on deposits $ 1,442 $ 2,368
Interest on federal funds purchased 3 --
Interest on trust preferred capital notes 218 222
Interest on other borrowings 115 119
Total interest expense $ 1,778 $ 2,709
Net interest income $ 18,621 $ 18,448
Recovery of loan losses (3,850) (425)
Net interest income after recovery of loan losses $ 22,471 $ 18,873
Noninterest income
Service charges on deposit accounts $ 2,572 $ 2,204
ATM and check card fees 1,419 1,425
Wealth management fees 1,915 1,696
Fees for other customer services 397 391
Income from bank owned life insurance 367 358
Gains on sale of loans 23 193
Net gains on sale of securities available for sale 696 --
Other operating income 55 664
Total noninterest income $ 7,444 $ 6,931
Noninterest expense
Salaries and employee benefits $ 10,586 $ 10,528
Occupancy 1,211 1,282
Equipment 1,191 1,208
Marketing 426 345
Stationery and supplies 333 288
Legal and professional fees 1,019 975
ATM and check card fees 661 668
FDIC assessment 454 884
Bank franchise tax 410 279
Other real estate owned, net (213) 1,115
Telecommunications 300 283
Data processing 518 376
Net losses on disposal of premises and equipment 2 601
Loss on lease termination -- 263
Other operating expense 1,887 1,655
Total noninterest expense $ 18,785 $ 20,750
Income before income taxes $ 11,130 $ 5,054
Income tax provision (benefit) 3,499 (4,820)
Net income $ 7,631 $ 9,874
Effective dividend and accretion on preferred stock 1,138 913
Net income available to common shareholders $ 6,493 $ 8,961
Common Share and Per Common Share Data
Net income, basic and diluted $ 1.32 $ 1.83
Shares outstanding at period end 4,904,577 4,901,464
Weighted average shares, basic and diluted 4,902,389 4,901,464
Book value at period end $ 9.17 $ 7.96
Cash dividends $ 0.075 $ --
FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)
(unaudited)
For the Year Ended
December 31,
2014
December 31,
2013
Key Performance Ratios
Return on average assets 1.45% 1.85%
Return on average equity 13.49% 21.87%
Net interest margin 3.86% 3.72%
Efficiency ratio 74.03% 74.86%
Average Balances
Average assets $ 525,028 $ 533,724
Average earning assets 490,472 502,736
Average shareholders' equity 56,579 45,139
Asset Quality
Loan charge-offs $ 927 $ 4,492
Loan recoveries 851 2,486
Net charge-offs 76 2,006
Reconciliation of Tax-Equivalent Net Interest Income
GAAP measures:
Interest income – loans $ 17,777 $ 18,844
Interest income – investments and other 2,622 2,313
Interest expense – deposits 1,442 2,368
Interest expense – other borrowings 115 119
Interest expense – trust preferred capital notes 218 222
Interest expense – other 3 --
Total net interest income $ 18,621 $ 18,448
Non-GAAP measures:
Tax benefit realized on non-taxable interest income – loans $ 108 $ 82
Tax benefit realized on non-taxable interest income – municipal securities 184 158
Total tax benefit realized on non-taxable interest income $ 292 $ 240
Total tax-equivalent net interest income $ 18,913 $ 18,688

(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, net losses on disposal of premises and equipment, and loss on land lease termination by the sum of net interest income on a tax equivalent basis and noninterest income excluding gains and losses on sales of securities and gain on termination of postretirement benefit obligation. 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 and yearly tax-equivalent net interest income and a reconciliation of net interest income to tax-equivalent net interest income. The efficiency ratio is a non-GAAP financial measure that management believes provides investors with important information regarding operational efficiency. Such information is not prepared in accordance with U.S. generally accepted accounting principles (GAAP) and should not be construed as such. Management believes, however, such financial information is meaningful to the reader in understanding operational performance, but cautions that such information not be viewed as a substitute for GAAP.

CONTACT: Scott C. Harvard President and CEO (540) 465-9121 sharvard@fbvirginia.com M. Shane Bell Executive Vice President and CFO (540) 465-9121 sbell@fbvirginia.com

Source:First National Corporation