First National Corporation Reports Third Quarter 2023 Financial Results


STRASBURG, Va., Oct. 26, 2023 (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 $3.1 million and diluted earnings per common share of $0.50 for the three-months ending September 30, 2023. This compared to net income of $3.5 million and diluted earnings per common share of $0.56 for the three-month period ending June 30, 2023, and net income of $4.5 million and diluted earnings per common share of $0.71 for the third quarter of 2022.

THIRD QUARTER HIGHLIGHTS

Key highlights of the third quarter ended September 30, 2023, are as follows. Comparisons are to the linked quarterly period ended June 30, 2023, unless otherwise stated:

  • Net interest margin stabilized at 3.35%
  • Noninterest-bearing demand deposits comprised 33% of total deposits
  • Deposits were stable at $1.2 billion
  • Loans increased $22.3 million, or 10% annualized
  • Efficiency ratio of 70.67%
  • Return on average equity of 10.96%
  • Return on average assets of 0.91%
  • Nonperforming assets increased to 0.23% of total assets
  • Tangible book value per common share totaled $17.38, up $2.07 from one year ago

“We are pleased with the Companys performance during the third quarter considering we operated in a challenging interest rate environment, said Scott C. Harvard, president, and chief executive officer of First National. The interest margin stabilized during the period as higher earning asset yields offset the higher cost of funds. The Banks deposit portfolio, which is comprised of a high percentage of noninterest-bearing deposits, also mitigated pressure on deposit costs during the period. Although nonaccrual loans increased during the quarter, we believe that asset quality remains excellent, with nonperforming assets remaining at historically low levels. Loan growth continued at an annualized pace of 10% during the third quarter, bolstered by the addition of new bankers. We will continue to remain vigilant around credit quality, as well as loan and deposit pricing, as we navigate the impact of Federal Reserve actions on the economy.”

NET INTEREST INCOME

Net interest income decreased by $62 thousand, or 1%, to $10.7 million for the third quarter of 2023, compared to the linked second quarter of 2023. Total interest income increased by $345 thousand and was offset by an increase in total interest expense of $407 thousand.

The $345 thousand increase in interest income was attributable to a $754 thousand, or 6%, increase in interest income and fees on loans, which was partially offset by a $421 thousand, or 55%, decrease in interest income on deposits in banks. The increase in interest income on loans was attributable to a 14-basis point increase in the yield on loans and a 2% increase in average loan balances compared to the linked quarter. The decrease in interest income on deposits in banks was attributable to a $31.9 million, or 56%, decrease in average balances of interest-bearing deposits in banks compared to the linked quarter.

The $407 thousand increase in interest expense was attributable to a $408 thousand, or 12%, increase in interest expense on deposits. The higher interest expense on deposits was attributable to a 20-basis point increase in the cost of interest-bearing deposits to 1.82%, and was partially offset by an $8.3 million, or 1%, decrease in the average balance of interest-bearing deposits. The increase in the cost of deposits was primarily a result of changes in the composition of the deposit portfolio. During the third quarter, savings and interest-bearing demand deposits decreased, while time deposits increased.

The net interest margin stabilized at 3.35% as the cost of funds increased 14-basis points, which was almost entirely offset by a 12-basis point increase in the yield on earning assets. Although the interest rate environment continued to be challenging during the period, the net interest margin stabilized as the rising cost of deposits slowed to a pace that was aligned with rising earning asset yields.

Net accretion of discounts on loans acquired through business combinations was included in interest income and fees on loans and totaled $61 thousand in the third quarter of 2023, compared to $194 thousand in the second quarter of 2023.

NONINTEREST INCOME

Noninterest income totaled $3.1 million for the third quarter of 2023, which was a $169 thousand, or 6%, increase compared to the second quarter of 2023. Service charges on deposits, ATM and check card fees, wealth management fees, and income from bank-owned life insurance increased over the linked quarter and were partially offset by a decrease in fees for other customer services.
  
NONINTEREST EXPENSE

Noninterest expense increased $626 thousand, or 7%, in the third quarter of 2023, compared to the linked quarter. The increase was primarily attributable to a $316 thousand, or 6%, increase in salaries and employee benefits, a $106 thousand increase in other operating expenses, and a $234 thousand increase in other real estate owned (income) expense. While other real estate owned expense totaled only $15 thousand for the third quarter, the Bank recorded a gain on the sale of other real estate owned during the prior period, which resulted in $219 thousand of other real estate income for the prior period ending June 30, 2023.  The increase in salaries and employee benefits was attributable to an increase in the number of employees and higher variable compensation during the third quarter.

ASSET QUALITY

Overview

Nonperforming assets (“NPAs”) as a percentage of total assets increased to 0.23% on September 30, 2023, compared to 0.05% on June 30, 2023, and 0.15% one year ago on September 30, 2022. Loans past due greater than 30 days and still accruing interest as a percentage of total loans also increased to 0.19% at September 30, 2023, compared to 0.13% at June 30, 2023, and 0.27% at September 30, 2022. Net charge-offs totaled $83 thousand in the third quarter of 2023, compared to net recoveries of $96 thousand in the second quarter of 2023, and net charge offs of $111 thousand in the third quarter of 2022. The allowance for credit losses on loans totaled $8.9 million, or 0.93% of total loans at September 30, 2023, compared to $8.9 million, or 0.95% of total loans at June 30, 2023, and $6.3 million, or 0.69% of total loans at September 30, 2022.

Nonperforming Assets

NPAs increased to $3.1 million at September 30, 2023, compared to $722 thousand at June 30, 2023, and $2.1 million at September 30, 2022, which represented 0.23%, 0.05%, and 0.15% of total assets, respectively. The increase in NPAs during the third quarter of 2023 was related to two individually evaluated loan relationships. The following table provides a detailed summary of NPA balances at the periods ended (dollars in thousands):

  September 30, 2023  June 30, 2023  September 30, 2022 
Nonaccrual loans $3,116  $677  $566 
Other real estate owned, net  -   45   1,578 
Total nonperforming assets $3,116  $722  $2,144 

Past Due Loans

Loan past due greater than 30 days and still accruing interest increased to $1.8 million, or 0.19% of total loans at September 30, 2023, compared to $1.2 million, or 0.13% of total loans at June 30, 2023, and $2.4 million, or 0.27%, of total loans at September 30, 2022. Of the total past due loans still accruing interest, $370 thousand was past due 90 days or more at September 30, 2023, compared to $226 thousand at June 30, 2023, and $306 thousand at September 30, 2022.

Net Charge-offs (Recoveries)

Net charge-offs totaled $83 thousand for the third quarter of 2023, compared to net recoveries of $96 thousand for the second quarter of 2023, and net charge-offs of $111 thousand for the third quarter of 2022. 

Provision for Credit Losses

The Bank recorded a $100 thousand provision for credit losses in the third quarter of 2023, which was comprised of a $121 thousand provision for credit losses on loans, an $8 thousand recovery of credit losses on unfunded commitments, and an $13 thousand recovery of credit losses on held-to-maturity securities. This compared to a provision for credit losses of $100 thousand for the linked second quarter of 2023, and a provision for loan losses of $200 thousand for the third quarter of 2022.

Allowance for Credit Losses on Loans

At September 30, 2023, the allowance for credit losses on loans totaled $8.9 million, which was unchanged from the allowance on June 30, 2023, and an increase of $2.6 million over the allowance totaling $6.3 million on September 30, 2022. The allowance was unchanged compared to the linked quarter as an increase in the specific reserve component was offset by a decrease in the general reserve component. The specific reserve increased from two new individually evaluated loan relationships, while the general reserve decreased from lower expected losses and from an improvement to a qualitative factor.  The Bank improved the portfolio nature and volume qualitative factor, which was initially used to recognize the inherent risk of loans acquired in the third quarter of 2021 through business combinations. The Bank determined this qualitative adjustment was no longer considered necessary as of September 30, 2023.

The following table provides the changes in the allowance for credit losses on loans for the three-month periods ended (dollars in thousands):

  September 30, 2023  June 30, 2023  September 30, 2022 
Allowance for credit losses on loans, beginning of period $8,858  $8,717  $6,202 
Net (charge-offs) recoveries  (83)  96   (110)
Provision for credit losses on loans  121   45   200 
Allowance for credit losses on loans, end of period $8,896  $8,858  $6,292 

The allowance for credit losses on loans as a percentage of total loans totaled 0.93% on September 30, 2023, compared to 0.95% at June 30, 2023, and 0.69% at September 30, 2022. Additionally, the net discount on loans acquired through business combinations totaled $2.0 million at September 30, 2023, $2.1 million at June 30, 2023, and $2.7 million at September 30, 2022. The net discount on purchased loans was not included in the allowance for credit losses on loans.  

Allowance for Credit Losses on Unfunded Commitments

The allowance for credit losses on unfunded commitments totaled $189 thousand at September 30, 2023, compared to $197 thousand at June 30, 2023. The recovery of credit losses on unfunded commitments totaled $8 thousand for the third quarter of 2023 and was included in the $100 thousand provision for credit losses reported on the Company’s consolidated income statement.

Allowance for Credit Losses on Securities

The allowance for credit losses on securities totaled $131 thousand at September 30, 2023, compared to $144 thousand on June 30, 2023. Recovery of credit losses on securities totaled $13 thousand for the third quarter of 2023 and was included in the $100 thousand provision for credit losses reported on the Company’s consolidated income statement.

LIQUIDITY

Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, unpledged securities held-to-maturity, at par, eligible to be pledged to the Federal Reserve Bank through its Bank Term Funding Program, and available lines of credit totaled $532.1 million at September 30, 2023, and $561.7 million at June 30, 2023.

The Bank maintains liquidity to fund loan growth and to meet potential demand from deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $346.9 million at September 30, 2023, and $343.0 million at June 30, 2023. Excluding municipal deposits, the estimated amount of uninsured customer deposits totaled $268.4 million at September 30, 2023, and $257.7 million at June 30, 2023.

BALANCE SHEET

At September 30, 2023, assets totaled $1.4 billion, which was an $8.0 million decrease from the linked quarter ended June 30, 2023. The asset composition changed slightly as interest bearing deposits in banks and securities decreased $21.4 million and $10.3 million, respectively, while loans, net of the allowance for credit losses, increased $22.3 million.

Total assets decreased $17.4 million, or 1%, compared to total assets at September 30, 2022. Interest bearing deposits in banks and total securities decreased by $20.0 million and $33.2 million, respectively, and were partially offset by a $43.4 million increase in loans, net of the allowance for credit losses.

Loans, net of the allowance for credit losses, totaled $943.6 million at September 30, 2023, which was a $22.3 million, or 10% annualized, increase from June 30, 2023, and a $43.4 million, or 5%, increase over September 30, 2022. The growth in loans over the periods did not have a significant impact on the composition of the loan portfolio. The loan portfolio was primarily comprised of loans secured by one-to-four family residential real estate, loans secured by commercial real estate, and commercial and industrial loans, which totaled 36%, 45%, and 12% of the loan portfolio, respectively, at September 30, 2023.

Deposits totaled $1.2 billion at September 30, 2023, and decreased $7.2 million from the linked quarter ended June 30, 2023. The deposit composition changed as noninterest-bearing demand deposits increased $7.6 million, and time deposits increased $8.2 million, while savings and interest-bearing demand deposits decreased $23.0 million during the period. 

Deposits decreased $30.9 million when compared to deposits one year ago as of September 30, 2022. The deposit composition changed over the prior year as noninterest-bearing demand deposits decreased from 34% to 33% of total deposits, savings and interest-bearing deposits decreased from 55% to 52% of total deposits, and time deposits increased from 11% to 15% of total deposits over the period.

Shareholders’ equity totaled $112.0 million at September 30, 2023, which was a decrease of $881 thousand from June 30, 2023. The decrease in total shareholders’ equity was primarily attributable to a $2.2 million increase in retained earnings, which was offset by a $3.3 million increase in accumulated other comprehensive loss, net. The Company declared and paid cash dividends of $0.15 per common share during the third quarter of 2023, which was unchanged from the first and second quarters of 2023. The Company’s common equity to total assets ratio and its tangible common equity to tangible assets ratio decreased slightly at September 30, 2023, compared to June 30, 2023, and increased compared to the capital ratios at September 30, 2022. The Bank is considered well-capitalized.

The following table provides capital ratios at the periods ended:

  September 30, 2023  June 30, 2023  September 30, 2022 
Total capital ratio (2)  14.80%  14.85%  14.18%
Tier 1 capital ratio (2)  13.86%  13.93%  13.52%
Common equity Tier 1 capital ratio (2)  13.86%  13.93%  13.52%
Leverage ratio (2)  9.97%  9.72%  9.27%
Common equity to total assets (5)  8.20%  8.21%  7.19%
Tangible common equity to tangible assets (5) (6)  7.98%  8.00%  6.95%

STOCK REPURCHASE PLAN

The Board of Directors authorized a stock repurchase plan to purchase up to $5.0 million of its common stock during the fourth quarter of 2022. During the third quarter of 2023, the Company repurchased 3,674 shares of its common stock for a total of $62 thousand at a weighted average price of $16.78 per share. For the nine months ended September 30, 2023, the Company repurchased 37,532 shares of its common stock for a total of $568 thousand at a weighted average price of $15.14 per share. There were no stock repurchases during the prior year ending December 31, 2022.

NON-GAAP FINANCIAL MEASURES

In addition to financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company uses certain non-GAAP financial measures that provide useful information for financial and operational decision making, evaluating trends, and comparing financial results to other financial institutions. The non-GAAP financial measures presented in this document include fully taxable equivalent interest income, the net interest margin, the efficiency ratio, and tangible common equity to tangible assets.
 
The Company believes certain non-GAAP financial measures enhance the understanding of its business and performance. Non-GAAP financial measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP and may not be comparable to those reported by other financial institutions. A reconciliation of tax-exempt net interest income is included at the end of this release.

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 owns an interest in an entity that provides title insurance services. 

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, 2022, 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 
  September 30,  June 30,  March 31,  December 31,  September 30, 
  2023  2023  2023  2022  2022 
Income Statement                    
Interest income                    
Interest and fees on loans $12,640  $11,886  $11,512  $11,502  $10,759 
Interest on deposits in banks  338   759   344   522   380 
Interest on securities                    
Taxable interest  1,323   1,306   1,339   1,381   1,323 
Tax-exempt interest  304   307   306   308   307 
Dividends  26   28   27   27   23 
Total interest income $14,631  $14,286  $13,528  $13,740  $12,792 
Interest expense                    
Interest on deposits $3,810  $3,402  $2,216  $1,593  $927 
Interest on subordinated debt  69   69   69   69   70 
Interest on junior subordinated debt  69   67   67   68   68 
Interest on other borrowings     3          
Total interest expense $3,948  $3,541  $2,352  $1,730  $1,065 
Net interest income $10,683  $10,745  $11,176  $12,010  $11,727 
Provision for credit losses  100   100      1,250   200 
Net interest income after provision for credit losses $10,583  $10,645  $11,176  $10,760  $11,527 
Noninterest income                    
Service charges on deposit accounts $733  $683  $646  $662  $708 
ATM and check card fees  976   848   800   838   915 
Wealth management fees  811   749   776   706   739 
Fees for other customer services  122   220   196   238   180 
Brokered mortgage fees  38   35      21   72 
Income from bank owned life insurance  175   135   149   155   166 
Net losses on securities available for sale           (2,004)   
Gain on sale of other investment           2,885    
Other operating income  198   214   211   631   247 
Total noninterest income $3,053  $2,884  $2,778  $4,132  $3,027 
Noninterest expense                    
Salaries and employee benefits $5,505  $5,189  $5,346  $5,325  $5,174 
Occupancy  534   524   528   562   539 
Equipment  598   571   587   575   546 
Marketing  204   248   268   228   211 
Supplies  128   147   148   144   117 
Legal and professional fees  439   422   343   339   361 
ATM and check card expense  440   425   400   388   332 
FDIC assessment  161   212   106   70   109 
Bank franchise tax  262   262   254   238   238 
Data processing expense  266   252   202   289   243 
Amortization expense  5   4   5   4   5 
Other real estate owned (income) expense, net  15   (219)  3   (189)  14 
Other operating expense  1,227   1,121   1,010   1,007   1,194 
Total noninterest expense $9,784  $9,158  $9,200  $8,980  $9,083 
Income before income taxes $3,852  $4,371  $4,754  $5,912  $5,471 
Income tax expense  731   866   905   1,132   1,017 
Net income $3,121  $3,505  $3,849  $4,780  $4,454 
                     

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, 
  2023  2023  2023  2022  2022 
Common Share and Per Common Share Data                    
Earnings per common share, basic $0.50  $0.56  $0.61  $0.76  $0.71 
Weighted average shares, basic  6,256,663   6,269,668   6,273,913   6,262,821   6,257,040 
Earnings per common share, diluted $0.50  $0.56  $0.61  $0.76  $0.71 
Weighted average shares, diluted  6,271,351   6,277,161   6,281,116   6,272,409   6,264,107 
Shares outstanding at period end  6,260,934   6,250,613   6,281,935   6,264,912   6,262,381 
Tangible book value at period end (4) $17.38  $17.55  $17.30  $16.79  $15.31 
Cash dividends $0.15  $0.15  $0.15  $0.14  $0.14 
                     
Key Performance Ratios                    
Return on average assets  0.91%  1.02%  1.15%  1.37%  1.27%
Return on average equity  10.96%  12.56%  14.20%  18.38%  17.27%
Net interest margin  3.35%  3.36%  3.60%  3.70%  3.58%
Efficiency ratio (1)  70.67%  68.37%  65.50%  59.56%  61.10%
                     
Average Balances                    
Average assets $1,355,113  $1,372,781  $1,351,630  $1,386,841  $1,393,308 
Average earning assets  1,275,112   1,290,828   1,267,830   1,297,223   1,309,794 
Average shareholders’ equity  112,987   111,917   109,924   103,132   102,341 
                     
Asset Quality                    
Loan charge-offs $143  $110  $975  $135  $181 
Loan recoveries  60   206   60   40   70 
Net charge-offs (recoveries)  83   (96)  915   95   111 
Non-accrual loans  3,116   677   1,591   2,673   566 
Other real estate owned, net     45   185   185   1,578 
Nonperforming assets (3)  3,116   722   1,776   2,858   2,144 
Loans 30 to 89 days past due, accruing  1,395   970   1,816   1,532   2,117 
Loans over 90 days past due, accruing  370   226   47      306 
Special mention loans     2,754      1,959   3,183 
Substandard loans, accruing  1,683   418   296   301   304 
                     
Capital Ratios (2)                    
Total capital $146,163  $144,278  $141,501  $139,549  $134,882 
Tier 1 capital  136,947   135,079   132,784   132,103   128,590 
Common equity tier 1 capital  136,947   135,079   132,784   132,103   128,590 
Total capital to risk-weighted assets  14.80%  14.88%  14.85%  14.60%  14.18%
Tier 1 capital to risk-weighted assets  13.86%  13.93%  13.94%  13.82%  13.52%
Common equity tier 1 capital to risk-weighted assets  13.86%  13.93%  13.94%  13.82%  13.52%
Leverage ratio  9.97%  9.72%  9.70%  9.57%  9.27%
                     

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, 
  2023  2023  2023  2022  2022 
Balance Sheet                    
Cash and due from banks $17,168  $17,697  $17,950  $20,784  $22,809 
Interest-bearing deposits in banks  32,931   54,379   59,851   46,130   52,976 
Securities available for sale, at fair value  148,175   156,745   162,355   162,907   176,403 
Securities held to maturity, at amortized cost (net of allowance for credit losses)  149,948   151,677   151,301   153,158   154,894 
Restricted securities, at cost  2,077   1,803   1,803   1,908   1,908 
Loans, net of allowance for credit losses  943,603   921,336   909,250   913,076   900,222 
Other real estate owned, net     45   185   185   1,578 
Premises and equipment, net  21,363   21,556   21,637   21,876   21,693 
Accrued interest receivable  4,502   4,248   4,389   4,543   4,247 
Bank owned life insurance  24,734   24,559   24,424   24,531   24,375 
Goodwill  3,030   3,030   3,030   3,030   3,030 
Core deposit intangibles, net  122   127   131   136   140 
Other assets  18,567   17,022   16,026   17,119   19,320 
Total assets $1,366,220  $1,374,224  $1,372,332  $1,369,383  $1,383,595 
                     
Noninterest-bearing demand deposits $403,774  $396,137  $410,019  $427,344  $438,306 
Savings and interest-bearing demand deposits  646,980   670,005   676,875   677,139   693,970 
Time deposits  184,419   176,226   154,631   136,849   133,770 
Total deposits $1,235,173  $1,242,368  $1,241,525  $1,241,332  $1,266,046 
Subordinated debt, net  4,997   4,996   4,996   4,995   4,995 
Junior subordinated debt  9,279   9,279   9,279   9,279   9,279 
Accrued interest payable and other liabilities  4,792   4,721   4,675   5,417   4,198 
Total liabilities $1,254,241  $1,261,364  $1,260,475  $1,261,023  $1,284,518 
                     
Preferred stock $  $  $  $  $ 
Common stock  7,826   7,813   7,842   7,831   7,828 
Surplus  32,840   32,601   32,992   32,716   32,620 
Retained earnings  95,988   93,805   91,239   90,284   86,382 
Accumulated other comprehensive (loss), net  (24,675)  (21,359)  (20,216)  (22,471)  (27,753)
Total shareholders’ equity $111,979  $112,860  $111,857  $108,360  $99,077 
Total liabilities and shareholders’ equity $1,366,220  $1,374,224  $1,372,332  $1,369,383  $1,383,595 
                     
Loan Data                    
Mortgage real estate loans:                    
Construction and land development $50,405  $49,282  $48,610  $51,840  $51,352 
Secured by farmland  7,113   3,563   3,150   3,343   3,432 
Secured by 1-4 family residential  340,773   337,601   334,302   331,421   317,414 
Other real estate loans  426,065   418,409   412,851   415,112   414,072 
Loans to farmers (except those secured by real estate)  667   714   739   900   745 
Commercial and industrial loans (except those secured by real estate)  116,463   112,088   110,198   110,325   111,400 
Consumer installment loans  4,596   4,505   4,206   4,128   4,192 
Deposit overdrafts  368   251   179   197   163 
All other loans  6,049   3,781   3,732   3,256   3,744 
Total loans $952,499  $930,194  $917,967  $920,522  $906,514 
Allowance for credit losses  (8,896)  (8,858)  (8,717)  (7,446)  (6,292)
Loans, net $943,603  $921,336  $909,250  $913,076  $900,222 
                     

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, 
  2023  2023  2023  2022  2022 
Reconciliation of Tax-Equivalent Net Interest Income (7)                    
GAAP measures:                    
Interest income – loans $12,640  $11,886  $11,512  $11,502  $10,759 
Interest income – investments and other  1,991   2,400   2,016   2,238   2,033 
Interest expense – deposits  (3,810)  (3,402)  (2,216)  (1,593)  (927)
Interest expense – subordinated debt  (69)  (69)  (69)  (69)  (70)
Interest expense – junior subordinated debt  (69)  (67)  (67)  (68)  (68)
Interest expense – other borrowings     (3)         
Total net interest income $10,683  $10,745  $11,176  $12,010  $11,727 
Non-GAAP measures:                    
Tax benefit realized on non-taxable interest income – municipal securities $81  $81  $82  $82  $82 
Total tax benefit realized on non-taxable interest income  81   81   82   82   82 
Total tax-equivalent net interest income $10,764  $10,826  $11,258  $12,092  $11,809 
                     

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, 
  2023  2022 
Income Statement        
Interest income        
Interest and fees on loans $36,038  $30,218 
Interest on deposits in banks  1,441   701 
Interest on securities        
Taxable interest  3,968   3,750 
Tax-exempt interest  917   921 
Dividends  81   65 
Total interest income $42,445  $35,655 
Interest expense        
Interest on deposits $9,428  $1,680 
Interest on subordinated debt  207   208 
Interest on junior subordinated debt  203   202 
Interest on other borrowings  3    
Total interest expense $9,841  $2,090 
Net interest income $32,604  $33,565 
Provision for credit losses  200   600 
Net interest income after provision for credit losses $32,404  $32,965 
Noninterest income        
Service charges on deposit accounts $2,062  $2,015 
ATM and check card fees  2,624   2,462 
Wealth management fees  2,336   2,302 
Fees for other customer services  538   601 
Brokered mortgage fees  73   224 
Income from bank owned life insurance  459   441 
Other operating income  623   473 
Total noninterest income $8,715  $8,518 
Noninterest expense        
Salaries and employee benefits $16,040  $15,384 
Occupancy  1,586   1,656 
Equipment  1,756   1,725 
Marketing  720   585 
Supplies  423   384 
Legal and professional fees  1,204   1,075 
ATM and check card expense  1,265   982 
FDIC assessment  479   393 
Bank franchise tax  778   692 
Data processing expense  720   700 
Amortization expense  14   15 
Other real estate owned (income) expense, net  (201)  83 
Net losses on disposal of premises and equipment      
Other operating expense  3,358   2,971 
Total noninterest expense $28,142  $26,645 
Income before income taxes $12,977  $14,838 
Income tax expense  2,502   2,820 
Net income $10,475  $12,018 
         

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, 
  2023  2022 
Common Share and Per Common Share Data        
Net income, basic $1.67  $1.92 
Weighted average shares, basic  6,266,707   6,248,847 
Net income, diluted $1.67  $1.92 
Weighted average shares, diluted  6,276,502   6,254,968 
Shares outstanding at period end  6,260,934   6,262,381 
Tangible book value at period end (4) $17.38  $15.31 
Cash dividends $0.45  $0.42 
         
Key Performance Ratios        
Return on average assets  1.03%  1.14%
Return on average equity  12.57%  15.12%
Net interest margin  3.44%  3.57%
Efficiency ratio (1)  68.17%  62.66%
         
Average Balances        
Average assets $1,360,154  $1,415,169 
Average earning assets  1,278,136   1,265,509 
Average shareholders’ equity  111,460   106,285 
         
Asset Quality        
Loan charge-offs $1,228  $394 
Loan recoveries  326   375 
Net charge-offs  902   19 
         
Reconciliation of Tax-Equivalent Net Interest Income (7)        
GAAP measures:        
Interest income – loans $36,038  $30,218 
Interest income – investments and other  6,407   5,437 
Interest expense – deposits  (9,428)  (1,680)
Interest expense – subordinated debt  (207)  (208)
Interest expense – junior subordinated debt  (203)  (202)
Interest expense – other borrowings  (3)   
Total net interest income $32,604  $33,565 
Non-GAAP measures:        
Tax benefit realized on non-taxable interest income – loans $  $8 
Tax benefit realized on non-taxable interest income – municipal securities  244   245 
Total tax benefit realized on non-taxable interest income $244  $253 
Total tax-equivalent net interest income $32,848  $33,818 

(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 on sales of securities and gains on other investments.  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) Capital ratios are for First Bank.

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

(4) Tangible book value is calculated by subtracting goodwill and other intangibles from total shareholders' equity. Tangible book value is a non-GAAP financial measure that management believes provides investors with important information that may be related to the valuation of common stock.

(5) Capital ratios presented are for First National Corporation.

(6)  The ratio of tangible common equity to tangible assets, or TCE ratio, is calculated by dividing consolidated total common shareholders’ equity by consolidated total assets, after reducing both amounts by goodwill and other intangible assets. The TCE ratio is not required by GAAP or by bank regulations, but is a metric used by management to evaluate the adequacy of the Company’s capital levels. Since there is no authoritative requirement to calculate the TCE ratio, our TCE ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non-GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP.

(7) 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.