8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

___________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 23, 2019

___________

FIRST NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Virginia (State or other jurisdiction of incorporation)	0-23976 (Commission File Number)		54-1232965 (IRS Employer Identification No.)
112 West King Street Strasburg, Virginia (Address of principal executive offices)		22657 (Zip Code)

Registrant’s telephone number, including area code: (540) 465-9121

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.02Results of Operations and Financial Condition.

On April 23, 2019, the First National Corporation (the “Company”) issued a press release reporting its financial results for the period ended March 31, 2019.  A copy of the press release is being furnished as an exhibit to this report and is incorporated by reference into this Item 2.02.

Item 9.01Financial Statements and Exhibits.

(d)    Exhibits.  The following exhibit is being furnished pursuant to Item 2.02 above.  

Exhibit No.Description

99.1Press Release dated April 23, 2019

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

FIRST NATIONAL CORPORATION

(Registrant)

Date:  April 29, 2019            By: /s/ M. Shane Bell

M. Shane Bell

Executive Vice President

and Chief Financial Officer

EX-99.1

Exhibit 99.1

First National Corporation Announces First Quarter Earnings

STRASBURG, Va., April 23, 2019 --- 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 an 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. HarvardM. Shane Bell

President and CEOExecutive Vice President and CFO

(540) 465-9121(540) 465-9121

sharvard@fbvirginia.comsbell@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.