STRASBURG, Va., April 23, 2019 (GLOBE NEWSWIRE) -- First National Corporation (the “Company” or “First National”) (NASDAQ:FXNC) reported net income of $2.3 million, or $0.46 per diluted share, for the first quarter of 2019, compared to $2.7 million or $0.54 per diluted share for the first quarter of 2018.  The decrease in net income resulted primarily from a $648 thousand decrease in noninterest income, which included a $456 thousand decrease in income from bank-owned life insurance. Net interest income increased by $352 thousand, or 5%, compared to the first quarter of 2018.  On April 18, 2019, the Company began trading on the Nasdaq Capital Market stock exchange under the symbol FXNC.

Key accomplishments in the first quarter of 2019:

• Total assets reached $775 million
  
• Return on average equity of 13.47%
  
• Return on average assets of 1.21%
  
• Net interest margin of 3.97%
  
• Loan growth of $7.6 million for the quarter
  
• Deposit growth of $13.7 million for the quarter

“The Company continued to deliver superior financial performance in the first quarter,” said Scott Harvard, president and chief executive officer of First National. Harvard added, “We are pleased to report an increase in net interest income over the same quarter one year ago, which was driven by high quality loan growth and an improved net interest margin. While asset quality continues to be excellent, we are mindful of how late we may be in the current economic cycle and remain committed to adhering to consistent underwriting of today’s credits.”

BALANCE SHEET

Total assets of First National increased $7.2 million to $775.1 million, compared to $767.9 million at March 31, 2018. The earning asset composition changed favorably as loans, net of the allowance for loan losses, increased $29.9 million, or 6%, while securities and interest-bearing deposits in banks decreased $25.9 million, or 13%, when comparing the periods.

Total deposits decreased $8.6 million to $684.2 million, compared to $692.8 million at March 31, 2018. The deposit portfolio composition remained stable as noninterest-bearing deposits were 28% and 27% of total deposits at March 31, 2019 and 2018, respectively.

Shareholders’ equity increased $10.0 million to $69.7 million at March 31, 2019, compared to $59.7 million one year ago, primarily from an increase in retained earnings. Tangible common equity totaled $69.3 million at the end of the first quarter, an increase of 18% compared to $58.9 million at March 31, 2018. The Company’s wholly-owned banking subsidiary, First Bank, was considered well-capitalized based on regulatory requirements at the end of the year.

ANALYSIS OF THE THREE-MONTH PERIOD

Net interest income increased $352 thousand, or 5%, to $6.9 million for the quarter ended March 31, 2019, compared to $6.5 million for the first quarter of 2018. The increase resulted from a higher net interest margin and higher average earning asset balances. Average earning asset balances increased 1%, and the net interest margin increased 18 basis points to 3.97% for the quarter ended March 31, 2019, compared to 3.79% for the same period in 2018. The increase in the net interest margin resulted from a 38 basis point increase in the yield on average earning assets, which was partially offset by a 20 basis point increase in interest expense as a percent of average earning assets.

The higher yield on average earning assets was primarily attributable to an increase in yields on loans, securities and interest-bearing deposits in banks.  The increase in interest expense was primarily attributable to higher interest rates paid on deposits, as the cost of total interest-bearing deposits increased by 28 basis points, which compared favorably to increases of 100 basis points in the target federal funds rate during 2018.

Noninterest income decreased $648 thousand to $2.0 million, compared to $2.6 million for the same period of 2018. The decrease was primarily attributable to a $456 thousand decrease in bank owned life insurance and a $194 thousand decrease in other income.  The decrease in bank owned life insurance revenue was a result of a death benefit recorded in the first quarter of 2018. The decrease in other operating income was primarily attributable to the termination of the Company’s pension plan and the subsequent distribution of plan assets in the prior year, which resulted in a one-time increase in other operating income of $126 thousand during the first quarter of 2018. The decreases were partially offset by a $30 thousand, or 7%, increase in wealth management fees.

Noninterest expense increased $232 thousand, or 4%, to $6.1 million for the first quarter, compared to the same period one year ago. Legal and professional fees increased $50 thousand, which resulted primarily from an increase in investment advisory costs of the wealth management department, and audit fees related to new requirements for internal controls over financial reporting. The increase in investment advisory expense correlated with the increase in wealth management revenue when comparing the periods. Telecommunications expense increased $47 thousand as a result of a refund of overbilled services that favorably impacted the first quarter of 2018. Occupancy expense increased $38 thousand primarily from expenses associated with closing of one branch office and improvements to an existing branch office. These increases were partially offset by decreases in expense categories, including amortization expense, postage expense and FDIC assessments.

ASSET QUALITY/LOAN LOSS PROVISION

There was no provision for loan losses recorded for the first quarter of 2019, compared to $100 thousand for the first quarter 2018. Net charge-offs totaled $63 thousand for the first quarter of 2019 compared to $154 thousand for the same period of 2018.  Nonperforming assets totaled $1.9 million, or 0.25% of total assets at March 31, 2019, compared to $682 thousand, or 0.09% of total assets, one year ago. The allowance for loan losses totaled $4.9 million, or 0.90% of total loans, and $5.3 million, or 1.01% of total loans, at March 31, 2019 and 2018, 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, 2018, 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 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.

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 

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

	(unaudited) For the Quarter Ended
	March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018				March 31, 2018
Income Statement
Interest income
Interest and fees on loans	$	6,996			$	7,106			$	6,917			$	6,546			$	6,305
Interest on deposits in banks	110				105				88				186				160
Interest on securities
Taxable interest	737				771				797				776				680
Tax-exempt interest	156				153				156				156				145
Dividends on restricted securities	24				24				23				22				22
Total interest income	$	8,023			$	8,159			$	7,981			$	7,686			$	7,312
Interest expense
Interest on deposits	$	922			$	798			$	702			$	665			$	590
Interest on subordinated debt	89				91				91				89				89
Interest on junior subordinated debt	111				105				105				101				86
Interest on other borrowings	2				—				—				—				—
Total interest expense	$	1,124			$	994			$	898			$	855			$	765
Net interest income	$	6,899			$	7,165			$	7,083			$	6,831			$	6,547
Provision for loan losses	—				500				—				—				100
Net interest income after provision for loan losses	$	6,899			$	6,665			$	7,083			$	6,831			$	6,447
Noninterest income
Service charges on deposit accounts	$	701			$	814			$	818			$	784			$	762
ATM and check card fees	517				642				540				555				519
Wealth management fees	437				443				423				409				407
Fees for other customer services	175				154				143				151				153
Income from bank owned life insurance	103				97				107				77				559
Net gains (losses) on securities	—				(1		)		—				—				—
Net gains on sale of loans	22				23				39				15				9
Other operating income	30				107				108				76				224
Total noninterest income	$	1,985			$	2,279			$	2,178			$	2,067			$	2,633
Noninterest expense
Salaries and employee benefits	$	3,443			$	3,306			$	3,371			$	3,227			$	3,383
Occupancy	438				424				387				387				400
Equipment	420				410				396				420				423
Marketing	141				155				123				161				109
Supplies	73				91				75				88				80
Legal and professional fees	241				343				229				223				191
ATM and check card expense	216				178				217				211				203
FDIC assessment	69				68				78				66				82
Bank franchise tax	130				117				118				118				115
Telecommunications expense	83				79				83				98				36
Data processing expense	173				173				168				170				162
Postage expense	48				51				42				42				61
Amortization expense	90				99				108				120				131
Other real estate owned expense (income), net	—				—				2				1				(23		)
Net loss on disposal of premises and equipment	—				—				2				—				—
Other operating expense	533				587				551				532				513
Total noninterest expense	$	6,098			$	6,081			$	5,950			$	5,864			$	5,866
Income before income taxes	$	2,786			$	2,863			$	3,311			$	3,034			$	3,214
Income tax expense	525				542				635				583				527
Net income	$	2,261			$	2,321			$	2,676			$	2,451			$	2,687

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

	(unaudited) For the Quarter Ended
	March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018				March 31, 2018
Common Share and Per Common Share Data
Net income, basic	$	0.46			$	0.47			$	0.54			$	0.49			$	0.54
Weighted average shares, basic	4,960,264				4,957,055				4,955,162				4,952,712				4,949,112
Net income, diluted	$	0.46			$	0.47			$	0.54			$	0.49			$	0.54
Weighted average shares, diluted	4,964,134				4,960,597				4,958,162				4,954,265				4,952,373
Shares outstanding at period end	4,963,487				4,957,694				4,956,925				4,953,356				4,952,575
Tangible book value at period end	$	13.97			$	13.35			$	12.72			$	12.31			$	11.89
Cash dividends	$	0.09			$	0.05			$	0.05			$	0.05			$	0.05
Key Performance Ratios
Return on average assets	1.21		%		1.22		%		1.41		%		1.29		%		1.45		%
Return on average equity	13.47		%		14.15		%		16.89		%		16.23		%		18.47		%
Net interest margin	3.97		%		4.05		%		4.02		%		3.86		%		3.79		%
Efficiency ratio (1)	67.23		%		62.99		%		62.68		%		64.17		%		62.39		%
Average Balances
Average assets	$	757,910			$	753,112			$	750,619			$	762,626			$	751,164
Average earning assets	709,690				706,323				703,894				715,163				704,947
Average shareholders’ equity	68,089				65,077				62,882				60,592				58,979
Asset Quality
Loan charge-offs	$	228			$	374			$	295			$	294			$	206
Loan recoveries	165				82				57				61				52
Net charge-offs	63				292				238				233				154
Non-accrual loans	1,915				3,172				2,738				2,330				682
Other real estate owned, net	—				—				—				68				—
Nonperforming assets	1,915				3,172				2,738				2,398				682
Loans 30 to 89 days past due, accruing	1,002				1,446				2,707				3,408				2,602
Loans over 90 days past due, accruing	133				235				261				549				773
Troubled debt restructurings, accruing	259				264				269				273				278
Special mention loans	1,910				2,078				2,718				3,988				5,365
Substandard loans, accruing	3,132				3,522				1,216				3,798				9,003
Capital Ratios (2)
Total capital	$	80,780			$	74,697			$	72,807			$	71,026			$	69,435
Tier 1 capital	75,834				69,688				68,006				65,987				64,163
Common equity tier 1 capital	75,834				69,688				68,006				65,987				64,163
Total capital to risk-weighted assets	14.49		%		13.62		%		13.25		%		13.47		%		13.52		%
Tier 1 capital to risk-weighted assets	13.60		%		12.71		%		12.38		%		12.52		%		12.50		%
Common equity tier 1 capital to risk-weighted assets	13.60		%		12.71		%		12.38		%		12.52		%		12.50		%
Leverage ratio	10.01		%		9.26		%		9.07		%		8.66		%		8.55		%

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

	(unaudited) For the Quarter Ended
	March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018				March 31, 2018
Balance Sheet
Cash and due from banks	$	10,862			$	13,378			$	11,370			$	13,501			$	11,185
Interest-bearing deposits in banks	31,833				15,240				10,068				27,762				58,092
Securities available for sale, at fair value	121,202				99,857				102,748				106,707				93,699
Securities held to maturity, at amortized cost	19,489				43,408				44,239				45,701				46,791
Restricted securities, at cost	1,701				1,688				1,590				1,590				1,590
Loans held for sale	200				419				516				1,195				68
Loans, net of allowance for loan losses	545,529				537,847				535,020				525,894				515,664
Other real estate owned, net of valuation allowance	—				—				—				68				—
Premises and equipment, net	20,282				20,066				19,557				19,633				19,833
Accrued interest receivable	2,143				2,113				2,138				2,073				1,869
Bank owned life insurance	17,094				13,991				13,894				13,787				13,711
Core deposit intangibles, net	382				472				571				679				799
Other assets	4,361				4,490				4,743				4,774				4,553
Total assets	$	775,078			$	752,969			$	746,454			$	763,364			$	767,854
Noninterest-bearing demand deposits	$	189,261			$	181,964			$	186,293			$	196,839			$	189,460
Savings and interest-bearing demand deposits	377,673				369,383				360,988				367,399				378,330
Time deposits	117,290				119,219				119,823				122,291				125,035
Total deposits	$	684,224			$	670,566			$	667,104			$	686,529			$	692,825
Other borrowings	5,000				—				—				—				—
Subordinated debt	4,969				4,965				4,961				4,956				4,952
Junior subordinated debt	9,279				9,279				9,279				9,279				9,279
Accrued interest payable and other liabilities	1,878				1,485				1,459				952				1,105
Total liabilities	$	705,350			$	686,295			$	682,803			$	701,716			$	708,161
Preferred stock	$	—			$	—			$	—			$	—			$	—
Common stock	6,204				6,197				6,196				6,192				6,191
Surplus	7,515				7,471				7,438				7,346				7,312
Retained earnings	56,629				54,814				52,741				50,313				48,109
Accumulated other comprehensive loss, net	(620		)		(1,808		)		(2,724		)		(2,203		)		(1,919		)
Total shareholders’ equity	$	69,728			$	66,674			$	63,651			$	61,648			$	59,693
Total liabilities and shareholders’ equity	$	775,078			$	752,969			$	746,454			$	763,364			$	767,854
Loan Data
Mortgage loans on real estate:
Construction and land development	$	48,948			$	45,867			$	42,982			$	37,350			$	33,941
Secured by farm land	883				880				942				975				848
Secured by 1-4 family residential	217,527				215,945				211,938				211,101				208,338
Other real estate loans	220,513				218,673				223,961				223,387				221,504
Loans to farmers (except those secured by real estate)	806				1,035				937				476				403
Commercial and industrial loans (except those secured by real estate)	45,239				43,570				41,924				40,467				38,850
Consumer installment loans	11,890				12,061				12,301				12,315				12,140
Deposit overdrafts	204				275				249				231				222
All other loans	4,465				4,550				4,587				4,631				4,690
Total loans	$	550,475			$	542,856			$	539,821			$	530,933			$	520,936
Allowance for loan losses	(4,946		)		(5,009		)		(4,801		)		(5,039		)		(5,272		)
Loans, net	$	545,529			$	537,847			$	535,020			$	525,894			$	515,664

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

	(unaudited) For the Quarter Ended
	March 31, 2019				December 31, 2018				September 30, 2018				June 30, 2018				March 31, 2018
Reconciliation of Tax-Equivalent Net Interest Income
GAAP measures:
Interest income – loans	$	6,996			$	7,106			$	6,917			$	6,546			$	6,305
Interest income – investments and other	1,027				1,053				1,064				1,140				1,007
Interest expense – deposits	(922		)		(798		)		(702		)		(665		)		(590		)
Interest expense – subordinated debt	(89		)		(91		)		(91		)		(89		)		(89		)
Interest expense – junior subordinated debt	(111		)		(105		)		(105		)		(101		)		(86		)
Interest expense – other borrowings	(2		)		—				—				—				—
Total net interest income	$	6,899			$	7,165			$	7,083			$	6,831			$	6,547
Non-GAAP measures:
Tax benefit realized on non-taxable interest income – loans	$	11			$	11			$	12			$	11			$	10
Tax benefit realized on non-taxable interest income – municipal securities	41				42				41				41				39
Total tax benefit realized on non-taxable interest income	$	52			$	53			$	53			$	52			$	49
Total tax-equivalent net interest income	$	6,951			$	7,218			$	7,136			$	6,883			$	6,596

 ⁽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. 

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