First National Corporation Reports First Quarter 2022
First National Corporation Reports First Quarter 2022

STRASBURG, Va., April 26, 2022 (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 $3.7 million, or $0.60 per basic and diluted share, for the first quarter of 2022. This compares to net income of $2.4 million, or $0.50 per basic and diluted share, for the first quarter of 2021, which included merger expenses of $405 thousand, or $320 thousand, net of tax. Merger expenses had a $0.07 per share impact to basic and diluted earnings per share in the first quarter of 2021.

FIRST QUARTER HIGHLIGHTS

Key highlights of the first quarter of 2022 are as follows. Comparisons are to the corresponding period in the prior year unless otherwise stated:

  • Return on average assets increased to 1.06%, up from 1.00%
  • Return on average equity increased to 13.40%, up from 11.53%
  • Total assets increased by $389.5 million, or 38%
  • Noninterest-bearing deposits increased $125.5 million, or 43%
  • Loans increased $198.2 million, or 31%
  • Loans, excluding PPP loans, increased $21.3 million, or 11% annualized, since December 31, 2021
  • Net interest income increased $3.0 million, or 40%
  • Wealth management revenue increased $160 thousand, or 25%
  • Service charges on deposits increased $167 thousand, or 38%

“We are pleased with loan growth and profitability in the first quarter,” said Scott Harvard, president and chief executive officer of First National. “The Company is seeing benefits from its strategic expansion initiatives last year, including loan growth and noninterest income growth. The Banks wealth management division also contributed to higher profitability for the quarter with revenue that increased 25% over the same period one year ago. Loan demand continues to be steady in spite of rising rates, and our small business customers appear to have weathered the pandemic well and are now more focused on inflation and wage pressures.

NET INTEREST INCOME

Net interest income increased $3.0 million, or 40%, to $10.5 million for the first quarter of 2022, compared to the same period of 2021. The increase resulted from a $2.9 million, or 36% increase in total interest and dividend income and a $107 thousand, or 18%, decrease in total interest expense. Net interest income was favorably impacted by a $415.1 million, or 44%, increase in average earning assets, which was partially offset by an 8-basis point decrease in the net interest margin to 3.19% when comparing the periods.

Accretion of PPP income, net of costs, and accretion of discounts on purchased loans, net of premiums, were included in interest and fees on loans. Accretion of PPP income totaled $323 thousand in the first quarter of 2022, compared to $599 thousand for the same period of 2021. Accretion of discounts on purchased loans totaled $367 thousand in the first quarter of 2022. There were no purchased loans in the first quarter of 2021, and as a result, there was no accretion of discounts on purchased loans during the period.

PROVISION FOR LOAN LOSSES

There was no provision for loan losses for the first quarter of 2022. During the quarter, an increase in the general reserve component of the allowance for losses was offset by net recoveries of loans previously charged off and a decrease in the specific reserve component of the allowance for loan losses. Net recoveries totaled $118 thousand for the quarter. There were no specific reserves on impaired loans at March 31, 2022, compared to $55 thousand of specific reserves at December 31, 2021. The allowance for loan losses totaled $5.8 million, or 0.70% of total loans at March 31, 2022, compared to 0.69% of total loans at December 31, 2021. There was no provision for loan losses for the same period of 2021.

ASSET QUALITY

Loans 30 to 89 days past due and accruing totaled $2.1 million, or 0.25% of total loans at March 31, 2022, compared to $906 thousand, or 0.14% of total loans one year ago. Accruing substandard loans decreased to $336 thousand at March 31, 2022, an improvement from $1.3 million one year ago. Nonperforming assets decreased to $3.9 million, or 0.27% of total assets at March 31, 2022, compared to $6.8 million, or 0.66% of total assets at March 31, 2021. Nonperforming assets were comprised of $2.1 million of nonaccrual loans and $1.8 million of other real estate owned. There were $1.5 million of commercial rental properties included in other real estate owned, which were acquired through the merger with The Bank of Fincastle (“Fincastle”) in 2021.

During the fourth quarter of 2020 and during the first half of 2021, the Bank modified terms of certain loans for customers negatively impacted by the pandemic. The modifications lowered borrower’s loan payments with interest only payments for periods ranging between 6 and 24 months. Modified loan balances decreased from $11.5 million at December 31, 2021, to $8.9 million at March 31, 2022. All modified loans were to businesses in the lodging sector, were included in the Bank’s commercial real estate loan portfolio and were performing under their modified terms at March 31, 2022.

NONINTEREST INCOME

Noninterest income increased $568 thousand, or 27%, to $2.7 million for the three-month period ended March 31, 2022, compared to the same period of 2021. Wealth management fees increased $160 thousand, or 25%, and was attributable to an increase in assets under management from growth in account values and from an increase in the number of clients served by the wealth management division. Service charges on deposits increased $167 thousand, or 38%, ATM and check card fees increased $149 thousand, or 25%, income from bank-owned life insurance increased $31 thousand, or 27%, and fees for other customer services increased $51 thousand, or 28%, comparing the same periods. The increases were primarily attributable to the acquisition of Fincastle.

NONINTEREST EXPENSE

Noninterest expense increased $2.0 million, or 30%, to $8.6 million for the three-month period ended March 31, 2022, compared to the same period one year ago. The increase was primarily attributable to a $1.6 million, or 44% increase in salaries and employee benefits, a $125 thousand, or 28%, increase in occupancy expense, a $128 thousand, or 30%, increase in equipment expense, and a $227 thousand, or 38%, increase in other operating expense. These increases were partially offset by a $404 thousand decrease in legal and professional fees. The increases were primarily attributable to the increase in the number of employees, branch offices and customers that resulted from the acquisition of Fincastle and the acquisition of the loan portfolio, branch assets and addition of the employees from SmartBank. Merger expenses totaled $20 thousand and $405 thousand for the three-month periods ending March 31, 2022, and 2021, respectively. The decrease in legal and professional fees was primarily attributable to merger related costs in the first quarter of 2021.

BALANCE SHEET

Total assets of First National increased $389.5 million, or 38%, to $1.4 billion at March 31, 2022, compared to $1.0 billion at March 31, 2021. Interest-bearing deposits in banks decreased $34.5 million, or 21%, while total securities increased $193.6 million, or 111%, and loans increased $198.2 million, or 31%. Loans, excluding Paycheck Protection Program (“PPP”) loans, increased $262.0 million, or 46%. PPP loans decreased by $63.8 million over the last twelve months and totaled $2.5 million at March 31, 2022. 

Total liabilities increased $368.9 million, or 39%, to $1.3 billion at March 31, 2022, compared to $942.2 million one year ago. The increase in total liabilities was primarily attributable to significant growth in deposits. Total deposits increased $376.8 million, or 41%, to $1.3 billion. Noninterest-bearing demand deposits increased $125.5 million, or 43%, savings and interest-bearing demand deposits increased $208.0 million, or 40%, and time deposits increased $43.3 million, or 44%. Subordinated debt decreased to $5.0 million at March 31, 2022, compared to $10.0 million one year ago, from the redemption of subordinated debt with an interest rate of 6.75%.

Shareholders’ equity increased $20.6 million, or 24%, to $106.6 million at March 31, 2022, compared to one year ago, from an $8.7 million increase in retained earnings and a $27.8 million combined increase in common stock and surplus. The increase in common stock and surplus was primarily attributable to the Company’s acquisition of Fincastle on July 1, 2021. These increases were partially offset by $15.9 million decrease in accumulated other comprehensive income, which resulted from a change in market interest rates that impacted securities available for sale reported at fair value. The Bank was considered well-capitalized at March 31, 2022.

The acquisition of Fincastle had a significant impact on balance sheet growth. On July 1, 2021, the acquisition date, Fincastle had total assets of $267.9 million, interest-bearing deposits in banks of $43.5 million, total securities of $12.0 million, loans, net of the allowance for loan losses, of $191.5 million, and total deposits of $236.3 million.

The acquisition of the SmartBank loan portfolio impacted the composition of the balance sheet. On September 30, 2021, the acquisition date, SmartBank’s Richmond-area branch loan portfolio totaled $82.6 million. The Bank funded the acquisition of the loan portfolio with cash, which decreased interest-bearing deposits in banks during the third quarter.

ACQUISITION OF THE BANK OF FINCASTLE

On July 1, 2021, the Company completed the acquisition of The Bank of Fincastle for an aggregate purchase price of $33.8 million of cash and stock (the “Merger”). Fincastle was merged with and into First Bank. The former Fincastle branches operated as The Bank of Fincastle, a division of First Bank, until their systems were converted on October 16, 2021. The Company incurred merger expenses of $20 thousand and $405 thousand for the three-month periods ending March 31, 2022, and 2021, respectively. The Company does not expect to incur additional merger expenses in future periods.

ACQUISITION OF THE SMARTBANK LOAN PORTFOLIO

On September 30, 2021, the Bank acquired $82.6 million of loans and certain branch assets from SmartBank related to their Richmond area branch, located in Glen Allen, Virginia. Additionally, an experienced team of bankers based out of the SmartBank location transitioned to become employees of First Bank in the fourth quarter of 2021. First Bank did not assume any deposit liabilities from SmartBank in connection with the transaction and SmartBank closed their branch operation on December 31, 2021. The Bank continued to operate its loan production office from the former branch location.

SMALL BUSINESS ADMINISTRATIONS PPP

The Bank participated as a lender in the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program to support local small businesses and non-profit organizations by providing forgivable loans. The Bank accretes loan fees received from the SBA, net of loan origination costs, into income evenly over the life of the loans through interest and fees on loans. PPP loans totaled $2.5 million at March 31, 2022, with $52 thousand scheduled to mature in the second and third quarters of 2022, and $2.4 million scheduled to mature in the first and second quarters of 2026.

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, a loan production office, a customer service center in a retirement community, and 20 bank branch office locations located throughout the Shenandoah Valley, the central regions of Virginia, the Roanoke Valley, 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.

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, 2021, and other filings with the Securities and Exchange Commission.

CONTACTS

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

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

    (unaudited)  
    For the Quarter Ended  
    March 31,     December 31,     September 30,     June 30,     March 31,  
    2022     2021     2021     2021     2021  
Income Statement                                        
Interest income                                        
Interest and fees on loans   $ 9,496     $ 9,365     $ 9,215     $ 7,074     $ 7,143  
Interest on deposits in banks     70       64       79       37       33  
Interest on federal funds sold           2       8              
Interest on securities                                        
Taxable interest     1,132       920       766       697       717  
Tax-exempt interest     305       299       242       215       180  
Dividends     21       23       21       22       22  
Total interest income   $ 11,024     $ 10,673     $ 10,331     $ 8,045     $ 8,095  
Interest expense                                        
Interest on deposits   $ 340     $ 355     $ 369     $ 328     $ 363  
Interest on subordinated debt     69       155       156       154       154  
Interest on junior subordinated debt     67       68       68       68       66  
Total interest expense   $ 476     $ 578     $ 593     $ 550     $ 583  
Net interest income   $ 10,548     $ 10,095     $ 9,738     $ 7,495     $ 7,512  
Provision for (recovery of) loan losses           350             (1,000 )      
Net interest income after provision for (recovery of) loan losses   $ 10,548     $ 9,745     $ 9,738     $ 8,495     $ 7,512  
Noninterest income                                        
Service charges on deposit accounts   $ 609     $ 625     $ 547     $ 447     $ 442  
ATM and check card fees     750       894       753       682       601  
Wealth management fees     803       716       696       657       643  
Fees for other customer services     233       176       279       150       182  
Brokered mortgage fees     94       123       155       157       104  
Income from bank owned life insurance     144       152       161       100       113  
Net gains on securities available for sale                             37  
Net gains on sale of loans held for sale                       18       7  
Net gains on disposal of premises and equipment           15                    
Other operating income     78       260       57       224       14  
Total noninterest income   $ 2,711     $ 2,961     $ 2,648     $ 2,435     $ 2,143  
Noninterest expense                                        
Salaries and employee benefits   $ 5,124     $ 5,099     $ 5,446     $ 3,693     $ 3,555  
Occupancy     572       510       500       399       447  
Equipment     559       527       519       433       431  
Marketing     151       179       243       138       106  
Supplies     136       168       176       77       88  
Legal and professional fees     333       731       586       483       737  
ATM and check card expense     303       317       329       268       231  
FDIC assessment     152       112       87       78       69  
Bank franchise tax     216       172       153       172       168  
Data processing expense     236       1,271       465       216       204  
Amortization expense     5       4       5       5       14  
Other real estate owned expense, net     28       12       14              
Net losses on disposal of premises and equipment     2                          
Other operating expense     827       924       903       668       600  
Total noninterest expense   $ 8,644     $ 10,026     $ 9,426     $ 6,630     $ 6,650  
Income before income taxes   $ 4,615     $ 2,680     $ 2,960     $ 4,300     $ 3,005  
Income tax expense     886       497       562       958       569  
Net income   $ 3,729     $ 2,183     $ 2,398     $ 3,342     $ 2,436  

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

    (unaudited)  
    For the Quarter Ended  
    March 31,     December 31,     September 30,     June 30,     March 31,  
    2022     2021     2021     2021     2021  
Common Share and Per Common Share Data                                        
Earnings per common share, basic   $ 0.60     $ 0.35     $ 0.39     $ 0.69     $ 0.50  
Weighted average shares, basic     6,238,973       6,226,838       6,220,456       4,868,901       4,863,823  
Earnings per common share, diluted   $ 0.60     $ 0.35     $ 0.38     $ 0.69     $ 0.50  
Weighted average shares, diluted     6,245,704       6,235,907       6,229,524       4,873,286       4,872,097  
Shares outstanding at period end     6,249,784       6,228,176       6,226,418       4,870,459       4,868,462  
Tangible book value at period end (4)   $ 16.54     $ 18.28     $ 18.11     $ 18.21     $ 17.65  
Cash dividends   $ 0.14     $ 0.12     $ 0.12     $ 0.12     $ 0.12  
                                         
Key Performance Ratios                                        
Return on average assets     1.06 %     0.63 %     0.71 %     1.31 %     1.00 %
Return on average equity     13.40 %     7.44 %     8.64 %     15.33 %     11.53 %
Net interest margin     3.19 %     3.13 %     3.06 %     3.10 %     3.27 %
Efficiency ratio (1)     64.36 %     64.69 %     64.86 %     63.65 %     64.53 %
                                         
Average Balances                                        
Average assets   $ 1,430,524     $ 1,366,855     $ 1,337,247     $ 1,026,583     $ 988,324  
Average earning assets     1,352,311       1,289,977       1,272,969       976,842       937,199  
Average shareholders’ equity     112,822       116,511       110,153       87,442       85,708  
                                         
Asset Quality                                        
Loan charge-offs   $ 106     $ 185     $ 111     $ 1,085     $ 66  
Loan recoveries     224       111       80       64       67  
Net charge-offs (recoveries)     (118 )     74       31       1,021       (1 )
Non-accrual loans     2,130       2,304       2,158       2,102       6,814  
Other real estate owned, net     1,767       1,848       1,848              
Nonperforming assets (3)     3,897       4,152       4,006       2,102       6,814  
Loans 30 to 89 days past due, accruing     2,105       3,235       2,707       550       906  
Loans over 90 days past due, accruing     52             7       5        
Troubled debt restructurings, accruing                              
Special mention loans                              
Substandard loans, accruing     311       315       319       322       1,343  
                                         
Capital Ratios (2)                                        
Total capital   $ 128,567     $ 125,934     $ 128,197     $ 95,856     $ 94,044  
Tier 1 capital     122,739       120,224       122,763       90,391       86,717  
Common equity tier 1 capital     122,739       120,224       122,763       90,391       86,717  
Total capital to risk-weighted assets     14.44 %     14.76 %     14.42 %     16.25 %     16.05 %
Tier 1 capital to risk-weighted assets     13.79 %     14.09 %     13.81 %     15.32 %     14.80 %
Common equity tier 1 capital to risk-weighted assets     13.79 %     14.09 %     13.81 %     15.32 %     14.80 %
Leverage ratio     8.61 %     8.82 %     9.22 %     8.78 %     8.78 %

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

    (unaudited)  
    For the Quarter Ended  
    March 31,     December 31,     September 30,     June 30,     March 31,  
    2022     2021     2021     2021     2021  
Balance Sheet                                        
Cash and due from banks   $ 19,989     $ 18,725     $ 19,182     $ 13,913     $ 11,940  
Interest-bearing deposits in banks     129,801       157,281       95,459       114,334       164,322  
Federal funds sold                 80,589              
Securities available for sale, at fair value     284,893       289,495       266,600       222,236       159,742  
Securities held to maturity, at amortized cost     81,640       33,441       10,046       10,898       13,424  
Restricted securities, at cost     1,908       1,813       1,813       1,631       1,631  
Loans, net of allowance for loan losses     830,595       819,408       816,977       611,883       630,716  
Other real estate owned, net     1,767       1,848       1,848              
Premises and equipment, net     22,278       22,403       22,401       18,876       19,087  
Accrued interest receivable     4,056       3,903       3,823       2,662       2,609  
Bank owned life insurance     24,438       24,294       24,141       18,128       18,029  
Goodwill     3,030       3,030       4,011              
Core deposit intangibles, net     150       154       159             5  
Other assets     13,117       13,641       8,740       10,032       6,625  
Total assets   $ 1,417,662     $ 1,389,436     $ 1,355,789     $ 1,024,593     $ 1,028,130  
                                         
Noninterest-bearing demand deposits   $ 417,776     $ 413,188     $ 411,527     $ 290,571     $ 292,280  
Savings and interest-bearing demand deposits     734,051       689,998       652,624       528,002       526,012  
Time deposits     141,065       145,566       148,419       95,732       97,765  
Total deposits   $ 1,292,892     $ 1,248,752     $ 1,212,570     $ 914,305     $ 916,057  
Subordinated debt     4,994       9,993       9,993       9,992       9,992  
Junior subordinated debt     9,279       9,279       9,279       9,279       9,279  
Accrued interest payable and other liabilities     3,934       4,373       7,041       2,335       6,876  
Total liabilities   $ 1,311,099     $ 1,272,397     $ 1,238,883     $ 935,911     $ 942,204  
                                         
Preferred stock   $     $     $     $     $  
Common stock     7,812       7,785       7,783       6,088       6,086  
Surplus     32,298       31,966       31,889       6,295       6,214  
Retained earnings     79,845       76,990       75,554       73,901       71,144  
Accumulated other comprehensive (loss) income, net     (13,392 )     298       1,680       2,398       2,482  
Total shareholders’ equity   $ 106,563     $ 117,039     $ 116,906     $ 88,682     $ 85,926  
Total liabilities and shareholders’ equity   $ 1,417,662     $ 1,389,436     $ 1,355,789     $ 1,024,593     $ 1,028,130  
                                         
Loan Data                                        
Mortgage real estate loans:                                        
Construction and land development   $ 49,308     $ 55,721     $ 45,120     $ 25,035     $ 25,720  
Secured by farmland     3,555       3,708       3,748       495       507  
Secured by 1-4 family residential     290,408       291,990       294,216       235,158       236,870  
Other real estate loans     380,635       361,213       358,895       244,960       248,357  
Loans to farmers (except those secured by real estate)     937       985       857       232       436  
Commercial and industrial loans (except those secured by real estate)     102,745       98,820       104,807       102,734       117,109  
Consumer installment loans     4,602       4,963       6,577       5,179       5,684  
Deposit overdrafts     205       175       172       174       112  
All other loans     4,028       7,543       8,019       3,381       3,407  
Total loans   $ 836,423     $ 825,118     $ 822,411     $ 617,348     $ 638,202  
Allowance for loan losses     (5,828 )     (5,710 )     (5,434 )     (5,465 )     (7,486 )
Loans, net   $ 830,595     $ 819,408     $ 816,977     $ 611,883     $ 630,716  

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

    (unaudited)  
    For the Quarter Ended  
    March 31,     December 31,     September 30,     June 30,     March 31,  
    2022     2021     2021     2021     2021  
Reconciliation of Tax-Equivalent Net Interest Income                                        
GAAP measures:                                        
Interest income – loans   $ 9,496     $ 9,365     $ 9,215     $ 7,074     $ 7,143  
Interest income – investments and other     1,528       1,308       1,116       971       952  
Interest expense – deposits     (340 )     (355 )     (369 )     (328 )     (363 )
Interest expense – subordinated debt     (69 )     (155 )     (156 )     (154 )     (154 )
Interest expense – junior subordinated debt     (67 )     (68 )     (68 )     (68 )     (66 )
Total net interest income   $ 10,548     $ 10,095     $ 9,738     $ 7,495     $ 7,512  
Non-GAAP measures:                                        
Tax benefit realized on non-taxable interest income – loans   $ 5     $ 8     $ 8     $ 8     $ 8  
Tax benefit realized on non-taxable interest income – municipal securities     81       80       64       57       48  
Total tax benefit realized on non-taxable interest income   $ 86     $ 88     $ 72     $ 65     $ 56  
Total tax-equivalent net interest income   $ 10,634     $ 10,183     $ 9,810     $ 7,560     $ 7,568  

(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, amortization of intangibles, gains and losses on disposal of premises and equipment, and merger related expenses 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.

(3) Nonperforming assets are comprised of nonaccrual loans and other real estate owned, net of selling costs.

(4) Tangible book value is calculated by subtracting goodwill and other intangibles from total shareholders’ equity.

 

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