EX-99 2 ex99.htm Exhibit 99.1

EXHIBIT 99.1

   

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FIRST NATIONAL

CORPORATION


Contact:  M. Shane Bell, EVP/CFO


sbell@firstbank-va.com

News Release

(540) 465-9121

October 21, 2005



FIRST NATIONAL CORPORATION ANNOUNCES 60% INCREASE IN THIRD QUARTER EARNINGS


FOR IMMEDIATE RELEASE (Strasburg, Virginia) --- First National Corporation (OTCBB: FXNC) reported third quarter earnings of $1.6 million or $0.55 per basic and diluted share.  This is a 60.1% increase compared to earnings of $1.0 million or $0.35 per basic and diluted share for the third quarter of 2004.  This was a result of growth in the loan portfolio and significant improvements in the net interest margin and operating efficiency.  Return on assets was 1.41% compared to 1.05% in 2004 and return on equity was 22.71% compared to 16.14% the same quarter a year ago.


Net interest income increased 25.2% to $4.3 million for the third quarter of 2005 compared to $3.4 million for the third quarter of 2004.  This increase was primarily attributable to an 18.6% increase in average interest-earning assets and a 19 basis point increase in the net interest margin to 4.04% for the third quarter of 2005, compared to 3.85% for the same period of 2004.  Increasing interest rates over the last twelve months combined with an asset sensitive balance sheet had a positive impact on the net interest margin when comparing the periods.


Noninterest income increased 22.8% to $1.3 million for the third quarter of 2005 compared to $1.0 million for the same period in 2004.  Fees for other customer services increased to $405 thousand for the third quarter of 2005, compared to $279 thousand for the same period in 2004.  This was a result of an increase in ATM and check card fees and the addition of the Trust and Asset Management Department in 2005.  Noninterest expense increased 9.5% to $3.0 million for the third quarter of 2005 compared to $2.7 million for the same period in 2004.   Salaries and employee benefits increased 19.8% over the comparable period in 2004 as a result of salary increases and the addition of the trust department.


Asset quality improved in the third quarter of 2005.  Nonperforming assets decreased in the third quarter and nonaccrual loans remained at a relatively low level.  Net charge-offs were $15 thousand for the third quarter of 2005, compared to $107 thousand for the comparable period of 2004.  These improvements resulted in a lower loan loss provision of $169 thousand for the third quarter of 2005 compared to $220 thousand for the same period in 2004.  The allowance for loan losses totaled $3.4 million or 0.92% of total loans at September 30, 2005, compared to $2.9 million or 0.94% of total loans at September 30, 2004.  


For the nine months ended September 30, 2005, net income was $4.0 million or $1.35 per basic and diluted share. This is a 33.2% increase over the $3.0 million in net income or $1.02 per basic and diluted share for the same period in 2004.  Return on assets was 1.22% compared to 1.08% in 2004 and return on equity was 19.44% compared to 16.30% in 2004.


Net interest income increased 22.1% to $11.9 million for the nine months ended September 30, 2005 from $9.7 million for the same period in 2004.  The increase was primarily attributable to an 18.7% increase in average interest-earning assets over the same period.  The net interest margin increased 11 basis points to 3.94% for the nine months ended September 30, 2005, compared to 3.83% for the same period in 2004.


Noninterest income decreased slightly to $3.3 million for the nine months ended September 30, 2005, compared to $3.4 million for the same period in 2004.  This decrease was a result of the sale of property in 2004 which generated a gain of $454 thousand.  This decrease was offset by an increase in fees for other customer services.  Noninterest expense increased 8.0% to $8.7 million for the nine months ended September 30, 2005, compared to $8.1 million for the same period in 2004.  This was a result of an increase in salaries and employee benefits.  

 

The Company notes to investors that past results of operations do not necessarily indicate future results.  Certain factors that affect the Company’s operations and business environment are subject to uncertainties that could in turn affect future results.  These factors are identified in the Quarterly Report on Form 10-Q for the period ended June 30, 2005, which can be accessed from the Company’s website at www.firstbank-va.com.


First National Corporation, headquartered in Strasburg, Virginia, is the financial holding company of First Bank. First Bank is a full service community bank offering traditional banking, trust and investment services from nine retail bank branches in the northern Shenandoah Valley region of Virginia, including Shenandoah County, Warren County, Frederick County and the City of Winchester.  First Bank also owns First Bank Financial Services, Inc., which invests in partnerships that provide investment services and title insurance.


QUARTERLY PERFORMANCE SUMMARY

First National Corporation (OTCBB: FXNC)

(in thousands, except share and per share data)

    
 

For the Three Months Ended

For the Nine Months Ended

INCOME STATEMENT

9/30/2005

9/30/2004

9/30/2005

9/30/2004

Interest and dividend income

    

  Interest and fees on loans

$ 6,158

$   4,623

$ 16,870

$ 12,950

  Interest on federal funds sold

5

6

14

10

  Interest on deposits in banks

20

10

55

20

  Interest and dividends on securities available for sale:

    

Taxable interest

523

486

1,545

1,630

Nontaxable interest

100

97

308

293

Dividends

30

31

  104

65

Total interest and dividend income

$ 6,836

$   5,253

$ 18,896

$ 14,968

     

Interest expense

    

  Interest on deposits

$ 1,891

$   1,224

$ 4,972

$   3,617

  Interest on federal funds purchased

28

8

94

33

  Interest on company obligated mandatorily redeemable capital securities


129


88


356


162

  Interest on other borrowings

  504

512

   1,608

 1,436

Total interest expense

$ 2,552

$   1,832

$ 7,030

$   5,248

     

Net interest income

$ 4,284

$   3,421

$ 11,866

$   9,720

Provision for loan losses

  169

220

  580

668

Net interest income after provision for loan losses

$ 4,115

$   3,201

$ 11,286

$   9,052

     

Noninterest income

    

  Service charges

$    676

$  688

$ 1,922

$   2,010

  Fees for other customer services

405

279

1,035

771

  Gains (losses) on sale of premises and equipment

1

--

(10)

435

  Gains on sale of loans

112

37

223

134

  Gains on sale of securities

--

--

18

--

  Other

73

28

99

52

Total noninterest income

$ 1,267

$   1,032

$ 3,287

$   3,402

     

Noninterest expense

    

  Salaries and employee benefits

$ 1,602

$   1,337

$ 4,713

$   3,872

  Occupancy

178

186

535

543

  Equipment

258

223

705

651

  Advertising

83

93

228

293

  Stationery and supplies

114

99

304

281

  Other

  759

795

   2,247

 2,444

Total noninterest expense

$ 2,994

$   2,733

$ 8,732

$   8,084

     

Income before income taxes

$ 2,388

$  1,500

$ 5,841

$   4,370

Provision for income taxes

  777

494

   1,883

 1,398

Net income

$ 1,611

$   1,006

$ 3,958

$   2,972

     

SHARE AND PER SHARE DATA (1)

    

Net income, basic and diluted

$   0.55

$ 0.35

$   1.35

$ 1.02

Shares outstanding at period end

2,922,860

2,924,124

2,922,860

2,924,124

Weighted average shares, basic and diluted

2,922,860

2,924,124

2,923,587

2,924,124

Book value at period end

$   9.82

$ 8.68

$   9.82

$ 8.68

Cash dividends

$   0.11

$ 0.10

$   0.33

$ 0.30


QUARTERLY PERFORMANCE SUMMARY

First National Corporation (OTCBB: FXNC)

(in thousands, except share and per share data)

    
 

For the Three Months Ended

For the Nine Months Ended

 

9/30/2005

9/30/2004

9/30/2005

9/30/2004

KEY PERFORMANCE RATIOS

    

Return on average assets

1.41%

1.05%

1.22%

1.08%

Return on average equity

22.71%

16.14%

19.44%

16.30%

Net interest margin

4.04%

3.85%

3.94%

3.83%

Efficiency ratio (2)

53.23%

60.46%

56.87%

60.67%

     

ASSET QUALITY

    

Loan charge-offs

$    70

$ 127

$ 247

$  389

Loan recoveries

55

20

166

54

Net charge-offs

15

107

81

335

Nonaccrual loans

266

183

266

183

Nonperforming assets

304

536

304

536

Repossessed assets

38

83

38

83

     

AVERAGE BALANCES

    

Total assets

$ 451,985

$    382,414

$    434,174

$ 367,220

Total shareholders’ equity

28,141

24,799

27,221

 24,361

     
 

9/30/2005

9/30/2004

  

CAPITAL RATIOS

    

Tier 1 Capital

$ 36,684

$  32,895

  

Total Capital

40,058

35,775

  

Total Capital to Risk Weighted Assets

10.75%

11.37%

  

Tier 1 Capital to Risk Weighted Assets

9.85%

10.46%

  

Leverage Ratio

8.12%

8.60%

  
     

BALANCE SHEET

    

Cash and due from banks

$ 12,322

$ 6,896

  

Interest-bearing deposits in banks

685

951

  

Federal funds sold

2,321

7,461

  

Securities available for sale, at fair value

62,584

58,034

  

Loans, net of allowance for loan losses

361,758

303,263

  

Premises and equipment, net

13,168

11,728

  

Interest receivable

1,515

1,226

  

Other assets

 3,856

 3,709

  

  Total assets

$ 458,209

$ 393,268

  
     

Noninterest-bearing demand deposits

$ 85,053

$   74,166

  

Savings and interest-bearing demand deposits

147,625

127,544

  

Time deposits

 139,673

   110,915

  

  Total deposits

$ 372,351

$ 312,625

  
     

Other borrowings

$ 47,227

$   45,245

  

Company obligated mandatorily redeemable capital securities

8,248

8,248

  

Accrued expenses and other liabilities

 1,677

 1,760

  

  Total liabilities

$ 429,503

$ 367,878

  
     
     


QUARTERLY PERFORMANCE SUMMARY

First National Corporation (OTCBB: FXNC)

(in thousands, except share and per share data)

  
 


9/30/2005


9/30/2004

BALANCE SHEET (continued)

  

Common stock

$   3,653

$ 3,655

Surplus

1,465

1,465

Retained earnings

23,655

19,775

Accumulated other comprehensive income (loss), net

 (67)

  495

  Total shareholders’ equity

$ 28,706

$ 25,390

   

  Total liabilities and shareholders’ equity

$   458,209

$   393,268

   

LOAN DATA

  

Mortgage loans on real estate:

  

  Construction

$ 42,289

$ 37,425

  Secured by farm land

2,195

2,309

  Secured by 1-4 family residential

98,580

91,238

  Other real estate loans

143,871

104,157

Loans to farmers (except those secured by real estate)

1,911

389

Commercial and industrial loans (except those secured by real estate)

40,851

36,612

Consumer installment loans

30,058

31,893

Deposit overdrafts

280

259

All other loans

 5,097

   1,861

  Total loans

$   365,132

$   306,143

Allowance for loan losses

 3,374

   2,880

Loans, net

$   361,758

$   303,263

   
   

(1) Share and per share data for prior periods have been restated to give retroactive effect of the Company’s two-for-one stock split declared March 18, 2005.  The stock split was payable on April 29, 2005 to shareholders of record March 30, 2005.

  
   

(2) The efficiency ratio is computed by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income excluding securities gains and losses.  This is a non-GAAP financial measure that we believe provides investors with important information regarding operational efficiency.  Such information is not in accordance with generally accepted accounting principles (GAAP) and should not be construed as such.  Net interest income on a tax equivalent basis was $4,358 and $3,488 for the three months ended September 30, 2005 and 2004, respectively and $12,086 and $9,923 for the nine months ended September 30, 2005 and 2003, respectively.  Noninterest income excluding securities gains and losses was $1,268 and $1,032 for the three months ended September 30, 2005 and 2004, respectively and $3,269 and $3,402 for the nine months ended Septemb er 30, 2005 and 2004, respectively.  Management believes 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.

  


FIRST NATIONAL CORPORATION

Consolidated Average Balances, Yields and Rates

Three Months Ended September 30, 2005 and 2004

(dollars in thousands)

 

Three months ended September 30,

 

2005

2004

  

Interest

  

Interest

 


ASSETS

Average

Balance

Income/

Expense

Yield/

Rate (3)

Average

Balance

Income/

Expense

Yield/

Rate (3)

Balances at correspondent

      

 banks – interest-bearing

$ 690

$  20

11.33%

$  1,385

$  9

2.65%

Securities:

      

  Taxable

54,246

553

 4.04%

49,837

517

 4.13%

  Tax-exempt (1)

9,545

151

 6.30%

8,951

147

 6.53%

  Total securities

63,791

704

 4.38%

58,788

664

4.50%

Loans: (2)

      

  Taxable

359,057

6,114

6.76%

295,477

4,588

6.18%

  Tax-exempt (1)

3,436

  67

 7.73%

3,341

  53

 6.26%

  Total loans

362,493

6,181

6.76%

298,818

4,641

6.18%

Federal funds sold

662

5

 2.89%

1,722

7

 1.50%

 Total earning assets

427,636

6,910

 6.41%

360,713

5,321

5.87%

Less: allowance for loan losses

(3,307)

  

(2,844)

  

Total nonearning assets

  27,656

  

  24,545

  

   Total assets

$   451,985

  

$   382,414

  
       

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Interest-bearing deposits:

      

 Checking

$  64,158

$   318

1.97%

$    67,833

$ 227

 1.33%

 Money market savings

13,277

47

 1.39%

11,451

24

 0.82%

 Savings

70,116

399

 2.26%

46,816

102

0.86%

 Certificates of deposit:

      

  Less than $100,000

76,983

627

3.23%

70,610

553

 3.12%

  Greater than $100,000

55,558

 500

 3.57%

  39,821

318

3.18%

Total interest-bearing deposits

280,092

1,891

2.68%

236,531

1,224

 2.06%

Federal funds purchased

2,474

28

 4.47%

1,914

8

 1.65%

Company obligated mandatorily

      

 redeemable capital securities

8,248

129

6.19%

8,248

89

 4.28%

Other borrowings

49,979

 504

 4.01%

  42,595

512

 4.78%

Total interest-bearing liabilities

340,793

2,552

 2.97%

289,288

1,833

 2.52%

Noninterest-bearing liabilities

      

 Demand deposits

81,122

  

66,784

  

 Other liabilities

 1,928

  

1,543

  

Total liabilities

423,843

  

357,615

  

Shareholders’ equity

28,142

  

  24,799

  

  Total liabilities and

      

   shareholders’ equity

$    451,985

  

$   382,414

  

Net interest income

 

$    4,358

  

$  3,488

 

Interest rate spread

  

 3.44%

  

3.35%

Interest expense as a percent of

     

 average earning assets

  

 2.37%

  

2.02%

Net interest margin

  

4.04%

  

3.85%

       


(1) Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 34%. The tax-equivalent adjustment was $74 thousand and $67 thousand for 2005 and 2004, respectively.

(2) Loans placed on nonaccrual status are reflected in the balances.

(3) Annualized

FIRST NATIONAL CORPORATION

Consolidated Average Balances, Yields and Rates

Nine Months Ended September 30, 2005 and 2004

(dollars in thousands)

 


Nine months ended September 30,

 

2005

2004

  

Interest

  

Interest

 


ASSETS

Average

Balance

Income/

Expense

Yield/

Rate (3)

Average

Balance

Income/

Expense

Yield/

Rate (3)

Balances at correspondent

      

 banks – interest-bearing

$ 777

$  55

9.52%

$  1,222

$  20

2.14%

Securities:

      

  Taxable

53,918

1,649

 4.09%

55,632

1,695

 4.07%

  Tax-exempt (1)

9,673

466

 6.44%

9,060

443

 6.54%

  Total securities

63,591

2,115

 4.45%

64,692

2,138

4.42%

Loans: (2)

      

  Taxable

342,129

16,750

6.55%

275,497

12,847

6.23%

  Tax-exempt (1)

3,552

181

 6.83%

3,309

155

 6.25%

  Total loans

345,681

16,931

6.55%

278,806

13,002

6.23%

Federal funds sold

559

  14

 3.32%

1,164

  11

 1.20%

 Total earning assets

410,608

19,115

 6.22%

345,884

15,171

5.86%

Less: allowance for loan losses

(3,139)

  

(2,698)

  

Total nonearning assets

  26,705

  

  24,034

  

   Total assets

$   434,174

  

$   367,220

  
       

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Interest-bearing deposits:

      

 Checking

$  63,119

$   844

 1.79%

$    64,813

$ 606

1.25%

 Money market savings

13,210

124

 1.25%

10,847

55

0.67%

 Savings

65,019

944

 1.94%

44,796

250

0.75%

 Certificates of deposit:

      

  Less than $100,000

75,343

1,781

3.16%

71,604

1,749

 3.26%

  Greater than $100,000

50,108

  1,279

 3.41%

  38,805

957

3.30%

Total interest-bearing deposits

266,799

4,972

2.49%

230,865

3,617

 2.09%

Federal funds purchased

3,525

93

 3.56%

2,771

33

 1.59%

Company obligated mandatorily

      

 redeemable capital securities

8,248

356

5.77%

5,087

162

 4.27%

Other borrowings

50,450

  1,608

 4.26%

  39,803

1,436

 4.82%

Total interest-bearing liabilities

329,022

7,029

 2.86%

278,526

5,248

 2.52%

Noninterest-bearing liabilities

      

 Demand deposits

75,980

  

62,571

  

 Other liabilities

 1,951

  

1,762

  

Total liabilities

406,953

  

342,859

  

Shareholders’ equity

27,221

  

  24,361

  

  Total liabilities and

      

   shareholders’ equity

$    434,174

  

$   367,220

  

Net interest income

 

$   12,086

  

$  9,923

 

Interest rate spread

  

 3.36%

  

3.34%

Interest expense as a percent of

     

 average earning assets

  

 2.29%

  

2.03%

Net interest margin

  

3.94%

  

3.83%

       


(1) Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 34%. The tax-equivalent adjustment was $220 thousand and $203 thousand for 2005 and 2004, respectively.

(2) Loans placed on nonaccrual status are reflected in the balances.

(3) Annualized