UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23976
FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1232965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
112 West King Street, Strasburg, Virginia 22657
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 465-9121
NONE
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 Months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class: Common stock, $5.00 par value
Outstanding as of April 30, 1997: 775,071
<PAGE>
FIRST NATIONAL CORPORATION
INDEX
Part 1. Financial Information
Item 1 Financial Statements Page No.
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes
in Stockholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10
Part II. Other Information
Item 1 Legal Proceedings 12
Item 4. Submission of Matters to a vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(Except Per Share Amounts)
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1996
<S> <C> <C>
Interest Income
Interest and Fees on Loans $2,212 $2,031
Interest on Federal Funds Sold 13 13
Interest on Deposits in Banks 8 8
Interest and Dividends on Investment Securities
Available for Sale
Taxable 360 329
Non Taxable 92 99
Held to Maturity
Taxable 42 78
Non Taxable 0 0
----------- -----------
Total Interest Income 2,727 2,558
Interest Expense
Interest on Savings Deposits and Interest
Bearing Demand Deposits 549 449
Interest on Time Deposits of $100,000 or more 161 146
Interest on All Other Time Deposits 576 614
Interest on Federal Funds Purchased 3 2
Interest on Note Payable 23 28
---------- ----------
Total Interest Expense 1,312 1,239
------- -------
Net Interest Income 1,415 1,319
------- -------
Provision for Loan Losses 45 30
--------- ----------
Net Interest Income After Provisions
for Loan Losses 1,370 1,289
Other Operating Income
Service Charges 120 114
Profits on Securities Available for Sale 10 0
Other Operating Income 122 84
-------- ---------
Total Non-interest Income 252 198
Other Operating Expenses
Salaries and Employee Benefits 582 555
Occupancy Expense 53 60
Equipment Expense 124 123
Other 353 291
-------- ---------
Total Operating Expenses 1,112 1,029
Income Before Income taxes 510 458
Income Taxes 149 131
--------- ---------
Net Income $361 $327
======== ========
Per Share Data
Net Income $0.47 $0.42
======== ========
Cash Dividends 0.175 0.15
========= ========
<FN>
The Accompanying Notes Are An Integral Part Of These Statements
</FN>
</TABLE>
3
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
ASSETS
Cash and due from banks $6,854 $3,511
Federal Funds Sold 1,337 0
Investment Securities
Available for Sale 32,056 30,709
Held to Maturity 2,733 3,033
Loans Net of Unearned Discount 100,599 99,395
Less: Allowance for Loan Losses 1,012 974
-------- --------
Net Loans 99,587 98,421
Bank Premises and Equipment 3,771 3,320
Interest Receivable 890 891
Other Real Estate 890 804
Other Assets 772 536
-------- -------
Total Assets $148,890 $141,225
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand Deposits
Non-Interest Bearing $16,662 $14,409
Interest Bearing 18,270 16,507
Savings Deposits 39,805 37,100
Certificates of Deposit of $100,000 and over 12,539 12,130
All Other Time Deposits 44,203 43,839
-------- --------
Total Deposits $131,479 $123,985
-------- --------
Federal Funds Purchased 0 315
Federal Home Loan Bank Advance 1,477 1,481
Accrued Expenses 938 607
-------- --------
Total Liabilities $133,894 $126,388
-------- --------
Stockholders' Equity
Common Stock, Par Value $5 per Share;
Authorized 2,000,000 Shares
775,071 Shares Issued and Outstanding $3,875 $3,872
Surplus 1,143 1,133
Unrealized Gain (Loss) on Securities
Available for Sale, Net (49) 31
Undivided Profits 10,027 9,801
-------- --------
Total Stockholders' Equity $14,996 $14,837
------- -------
Total Liabilities and Stockholders' Equity $148,890 $141,225
======== ========
<FN>
The Accompanying Notes Are An Integral Part of These Statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<CAPTION>
THREE MONTHS ENDED
March 31, 1997 March 31, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $361 $327
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 100 129
Provision for loan losses 45 30
Change in assets and liabilities:
(Increase) decrease in interest receivables 1 (1)
(Increase) in other assets (236) (250)
Increase in accrued expenses 331 248
------ ------
Net Cash Provided by Operating Activities $602 $483
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities-available for sale $3,277 $0
Proceeds from maturities and principal payments
on securities-available for sale 613 3,045
Purchases of securities-available for sale (5,354) 0
Proceeds from maturities and principal payments
on securities-held to maturity 299 1,200
Purchases of bank premises and equipment (541) (40)
Net (increase) in loans (1,268) (4,456)
(Increase) in federal funds sold (1,337) (1,243)
------- --------
Net Cash (Used in) Investing Activities ($4,311) ($1,494)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts,
and savings accounts 6,721 1,645
Net increase (decrease) in certificates of deposit 773 (1,606)
Net (decrease) in long-term borrowings (4) (4)
Net proceeds from issuance of common stock 13 0
Cash dividends paid (136) (115)
Net (decrease) in federal funds purchased (315) (382)
-------- -------
Net Cash Provided by (Used In) Financing Activities $7,052 ($462)
-------- -------
Increase (Decrease) in Cash and Cash Equivalents $3,343 ($1,473)
CASH AND CASH EQUIVALENTS:
Beginning 3,511 4,314
------ ------
Ending $6,854 $2,841
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $315 $383
====== ======
Income Taxes $0 $0
====== ======
<FN>
The Accompanying Notes Are An Integral Part of These Statements
</FN>
</TABLE>
5
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
Three Months Ended March 31 1997 and 1996
<CAPTION>
Unrealized
Gain / Loss on
Common Securities Available Retained
Stock Surplus For Sale Earnings Total
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995 $3,859 $1,090 $71 $8,888 $13,908
Net Income --- --- --- 326 326
Unrealized Gain on Securities Available
for Sale --- --- (122) --- (122)
Cash Dividends --- --- --- (115) (115)
------ ------ ------ ------ -------
Balances, March 31, 1996 $3,859 $1,090 ($51) $9,099 $13,997
====== ====== ===== ====== =======
Balances , December 31, 1996 $3,872 $1,133 $31 $9,801 $14,837
Issuance of 665 shares of common stock
Dividend Reinvestment Plan $3 $10 --- --- 13
Net Income --- --- --- 362 362
Increase In unrealized loss on securities
available for sale --- --- (80) --- (80)
Cash dividends --- --- --- (136) (136)
------ ------ ----- -------- --------
Balances, March 31, 1997 $3,875 $1,143 ($49) $10,027 $14,996
====== ====== ===== ======= =======
<FN>
The Accompanying Notes Are An Integral Part of These Statements
</FN>
</TABLE>
6
<PAGE>
FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying consolidated financial statements of First National
Corporation and its subsidiaries have not been audited by independent
accountants, except for the balance sheet at December 31, 1996 In the opinion of
the company's management, the financial statements reflect all adjustments
necessary to present fairly the results of operations for the three month
periods ended March 31, 1997 and 1996, the company's financial position at March
31, 1997 and December 31, 1996, and the cash flows for the three month periods
ended March 31, 1997 and 1996. These adjustments are of a normal recurring
nature.
Note 2. Securities as of March 31, 1997 and December 31, 1996 are summarized
below:
<TABLE>
<CAPTION>
(000 Omitted)
March 31, 1997 December 31, 1996
-------------- -----------------
Unrealized Unrealized
Book Market Gain (Loss) Book Market Gain (Loss)
<S> <C> <C> <C> <C> <C> <C>
Securities Available For Sale
U. S. Treasury Securities $0 $0 $0 $0 $0 $0
U. S. Agency Securities 24,774 24,576 ($198) 23,070 23,089 $19
Obligation of State and Political
Subdivisions 6,281 6,404 $123 6,530 6,559 $29
Other Securities 1,076 1,076 $0 1,061 1,061 $0
--------- --------- ------ --------- ----------- ------
Total Securities Available for Sale $32,131 $32,056 ($75) $30,661 $30,709 $48
Securities Held to Maturity
U. S. Treasury Securities $0 $0 $0 $0 $0 $0
U. S. Agency Securities 2,733 2,725 ($8) 3,033 3,031 ($2)
Obligation of State and Political
Subdivisions 0 0 $0 0 0 $0
Other Securities 0 0 $0 0 0 $0
---------- ---------- ------ ---------- ---------- ----
Total Securities Held to Maturity $2,733 $2,725 ($8) $3,033 $3,031 ($2)
</TABLE>
7
<PAGE>
FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. The consolidated loan portfolio, stated at face amount, is composed of
the following:
<TABLE>
(000 Omitted)
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
Real estate loans:
Construction and land development $2,267 $2,127
Secured by farm land 1,008 993
Secured by 1-4 family residential 43,982 43,615
Other real estate loans 17,283 16,959
Loans to farmers (except those secured by real estate) 831 770
Commercial and industrial loans
(except those secured by real estate) 13,655 13,548
Loans to individuals for personal expenditures 22,237 21,397
All other loans 257 1,075
--------- ---------
Total loans $101,520 $100,484
Less unearned income reflected in loans 921 1,089
--------- ---------
Loans, net of unearned income $100,599 $99,395
======== =======
</TABLE>
The Bank had loans in a Nonaccrual category of $12,827 on December 31, 1996
and $ 21,000 on March 31, 1997.
Note 4. Allowance for Loan Losses
<TABLE>
Analysis of the Allowance for Loan Losses
For the Three Months Ended
(000 Omitted)
<CAPTION>
March 31, 1996 March 31, 1995
<S> <C> <C>
Balance at Beginning of Period $974 $901
Charge-Offs 11 8
Recoveries 4 2
------- -----
Net Charge-Offs 7 6
Provision for Loan Losses 45 30
------- -----
Balance at End of Period $1,012 $925
======== ====
</TABLE>
8
<PAGE>
FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. New Accounting Pronouncements
FASB Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" was issued in June, 1996 and
establishes, among other things, new criteria for determining whether a transfer
of financial assets in exchange for cash of other consideration should be
accounted for as a sale or as a pledge of collateral in a secured borrowing.
Statement 125 also establishes new accounting requirements for pledged
collateral. As issued, Statement 125 is effective for all transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 1996.
FASB Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125", defers for one year the effective date
(a) paragraph 15 of Statement 125 and (b) for repurchase agreement, dollar-roll,
securities lending, or similar transactions, of paragraph 9-12 and 237(b) of
Statement 125.
The effects of these Statements on the Company's consolidated financial
statements are not expected to be material.
9
<PAGE>
FIRST NATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Net income for the quarter was $361 thousand compared to $327 thousand in
the first quarter of 1996. This represents an increase of 10.4% which is
attributable to an increase in net interest income during the first quarter of
1997. Interest and fees on loans, the largest component of interest income,
increased $181,183 during the period, while interest on deposits, the largest
component of interest expense, increased $77,076 resulting in an increase in net
interest income of $96,153. Management increased the provision to the allowance
for loan losses by $15,000 as a result of growth in the loan portfolio. Total
other noninterest expenses increased $82,333, slightly faster than total other
noninterest income which increased $54,149.
Yields, Rates and Net Interest Margin
Although interest rates on loans remained relatively stable during 1996 and
in most of the first quarter of 1997, the yield on the loan portfolio declined
from 9.00% during the first quarter of 1996 to 8.90% during the first quarter of
1997. At the same time the cost of interest bearing deposits declined from 4.73%
in the first quarter of 1996 to 4.66% in the same period of 1997. While the
yield on earning assets declined 9 basis points from 8.35% in 1996 to 8.26% in
1997, the cost of interest bearing liabilities declined 8 basis points from
4.77% in 1996 to 4.69% in 1997. This resulted in a decrease in the bank's
interest rate spread from 3.58% in 1996 to 3.57% in 1997. Interest expense as a
percentage of average earning assets declined from 3.96% in 1996 to 3.90% in
1997. The bank's net interest margin decreased from 4.40% in 1996 to 4.36% in
1997.
Future Operations
During February, the new three story addition to the main office in
Strasburg was completed and was occupied by the operations, lending and
administrative areas of the bank. The two story portion of the main office
between the lobby and the new addition is being extensively remodeled and is
projected to be completed in mid-May. At that time loan operations, loan
collections, other loan support personnel and the bank's customer investment
services representative will occupy offices in the remodeled building, bringing
all of the bank's departments under the same roof for the first time since the
1970's.
Even though the completed remodeling will be the end of the bank's planned
physical expansion, growth in the loan portfolio and in deposits is expected to
continue, although at a somewhat slower pace than in the last two years. In
addition two new automated teller machines should be installed in the near
future. One at the Ward's Plaza Branch in Winchester and another in the
Shenandoah Memorial Hospital in Woodstock.
10
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
<CAPTION>
Three Months Ended March 31,
1997 1996
Annual Annual
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Balances at correspondent banks
- interest bearing $213,486 $8,085 15.15% $178,993 $8,482 18.95%
Securities:
Taxable 27,219,206 402,547 5.92% 26,804,697 406,954 6.07%
Tax-exempt (1) 6,455,389 139,921 8.67% 6,808,386 150,488 8.84%
----------- ------- ----- ---------- ------- ------
Total Securities 33,674,595 542,468 6.44% 33,613,083 557,442 6.63%
Loans (net of earned income): (2)
Taxable 99,224,688 2,205,872 8.89% 89,824,000 2,019,089 8.99%
Tax-exempt (1) 342,520 9,414 10.99% 676,035 17,898 10.58%
----------------------- ------ ------------ --------- ------
Total Loans 99,567,208 2,215,987 8.90% 90,500,693 2,036,987 9.00%
Fed funds sold and repurchase
agreements 1,063,589 12,614 4.74% 981,659 13,140 5.35%
------------------------ ----- ------------- --------- -----
Total earning assets 134,518,878 2,778,453 8.26% 125,274,428 2,616,051 8.35%
Less: allowance for Loan Losses (990,478) (911,981)
Total nonearning assets 8,971,154 7,441,663
-------------- --------------
Total Assets $142,499,554 $131,804,110
============ ============
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits:
Checking $9,331,681 $51,293 2.20% $9,549,673 $53,359 2.24%
Money market savings 6,848,577 56,683 3.31% 7,289,619 61,672 3.38%
Regular savings 38,013,418 440,728 4.64% 28,969,052 333,980 4.61%
Certificates of deposit:
Less than $100,000 43,986,481 576,754 5.24% 45,867,446 613,279 5.35%
$100,000 and more 12,125,661 160,758 5.30% 10,571,833 146,266 5.53%
------------- ---------- ----- ----------- -------- -----
Total interest bearing deposits 110,305,818 1,286,216 4.66% 102,247,623 1,208,556 4.73%
Fed funds purchased 214,422 3,196 5.96% 93,824 1,893 8.07%
Long term borrowings 1,479,729 22,789 6.16% 1,498,424 28,350 7.57%
-------------- ---------- ------------------- --------- ------
Total interest bearing liabilities 111,999,969 1,312,201 4.69% 103,839,871 1,238,799 4.77%
Noninterest bearing liabilities
Demand deposits 14,707,286 13,263,588
Other liabilities 1,070,256 944,463
--------------- --------------
Total liabilities 127,777,511 118,047,922
Stockholders' equity 14,722,043 13,756,188
-------------- ------------
Total liabilities and stockholders' equity $142,499,554 $131,804,110
============ ============
Net Interest income 1,466,252 1,377,252
========= =========
Interest rate spread 3.57% 3.58%
Interest expense as a percent of average
earning assets 3.90% 3.96%
Net interest margin 4.36% 4.40%
<FN>
(1) Income and yields are reported on a taxable-equivalent basis assuming a
federal tax rate of 34% in 1996 and 1997.
(2) Loans placed on a nonaccrual status are reflected in the balances.
</FN>
</TABLE>
11
<PAGE>
First National Corporation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of March 31, 1997 neither the corporation nor the bank was a party
to any legal proceedings.
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
First National Corporation's annual meeting of shareholders was held on
Tuesday, April 1, 1997 in Woodstock, Virginia. Information relating to the
solicitation of proxies required by this item is incorporated by reference from
the Corporation's proxy statement dated February 28, 1997 for the Corporation's
Annual Meeting of Shareholders held April 1, 1997, filed with the Commission on
February 28, 1997.
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2. Plan of acquisition, reorganization, arrangement, liquidation
or succession.
Not applicable
3. (I) Articles of Incorporation
(ii) Bylaws
There have been no amendments during the quarter.
4. Instruments defining the rights of security holders, including
indentures.
Not applicable
10. Material contracts
Not applicable
11. Statement re computation of per share earnings.
Not applicable
15. Letter re unaudited interim financial information.
Not applicable
12
<PAGE>
First National Corporation
PART II. OTHER INFORMATION
18. Letter re change in accounting principles.
Not applicable
19. Report furnished to security holders.
Not applicable
22. Published report regarding matters submitted to vote of
security holders.
Not applicable
23. Consent of experts and counsel.
Not applicable
24. Power of attorney
Not applicable
27. Financial Data Schedule
Filed electronically as a separate document.
99. Additional Exhibits
Not applicable
(b). Reports on form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First National Corporation
(Registrant)
Date May 9, 1997 /S/ Dana A. Froom
------------------------------ ---------------------------------------
Dana A. Froom, Comptroller
(Principal Accounting Officer and
Duly Authorized Officer)
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,854
<INT-BEARING-DEPOSITS> 173
<FED-FUNDS-SOLD> 1,337
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,056
<INVESTMENTS-CARRYING> 2,733
<INVESTMENTS-MARKET> 2,725
<LOANS> 99,587
<ALLOWANCE> 1,012
<TOTAL-ASSETS> 148,890
<DEPOSITS> 131,479
<SHORT-TERM> 0
<LIABILITIES-OTHER> 938
<LONG-TERM> 1,477
0
0
<COMMON> 3,875
<OTHER-SE> 11,121
<TOTAL-LIABILITIES-AND-EQUITY> 148,890
<INTEREST-LOAN> 2,212
<INTEREST-INVEST> 494
<INTEREST-OTHER> 21
<INTEREST-TOTAL> 2,727
<INTEREST-DEPOSIT> 1,286
<INTEREST-EXPENSE> 1,312
<INTEREST-INCOME-NET> 1,415
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 1,112
<INCOME-PRETAX> 510
<INCOME-PRE-EXTRAORDINARY> 361
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
<YIELD-ACTUAL> 8.26
<LOANS-NON> 21
<LOANS-PAST> 73
<LOANS-TROUBLED> 32
<LOANS-PROBLEM> 3,045
<ALLOWANCE-OPEN> 974
<CHARGE-OFFS> 11
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 1,012
<ALLOWANCE-DOMESTIC> 965
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 47
</TABLE>
