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Previous: JMB INCOME PROPERTIES LTD X, 10-Q, 1998-05-14 |
Next: HYCOR BIOMEDICAL INC /DE/, 10-Q, 1998-05-14 |
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, 1998
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, 1998: 780,821
FIRST NATIONAL CORPORATION
INDEX
Part 1. Financial Information
<TABLE>
<S> <C> <C> <C>
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
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
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 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(Except Per Share Amounts)
Three Months Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Interest Income
Interest and Fees on Loans $2,567 $2,212
Interest on Federal Funds Sold 4 13
Interest on Deposits in Banks 6 8
Interest and Dividends on Investment Securities
Available for Sale
Taxable 499 360
Non Taxable 89 92
Held to Maturity
Taxable 19 42
Non Taxable 0 0
------------ -----------
Total Interest Income 3,183 2,727
Interest Expense
Interest on Savings Deposits and Interest
Bearing Demand Deposits 756 549
Interest on Time Deposits of $100,000 or more 162 161
Interest on All Other Time Deposits 555 576
Interest on Federal Funds Purchased 16 3
Interest on Note Payable 116 23
--------- ----------
Total Interest Expense 1,605 1,312
-------- -------
Net Interest Income 1,578 1,415
-------- -------
Provision for Loan Losses 69 45
---------- ---------
Net Interest Income After Provisions
for Loan Losses 1,509 1,370
Other Operating Income
Service Charges 142 120
Profits on Securities Available for Sale 12 10
Other Operating Income 124 122
-------- --------
Total Operating Income 278 252
Other Operating Expenses
Salaries and Employee Benefits 662 582
Occupancy Expense 65 53
Equipment Expense 123 124
Other 401 353
-------- --------
Total Operating Expenses 1,251 1,112
Income Before Income taxes 536 510
Income Taxes 162 149
--------- ---------
Net Income $374 $361
========= ========
Per Share Data
Earnings Per Common Share,basic $0.48 $0.47
========= ========
Earnings Per Common Share,diluted $0.48 $0.47
========= ========
Cash Dividends 0.215 0.175
========= =========
<FN>
The Accompanying Notes Are An Integral Part Of These Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
March 31, 1998 December 31, 1997
<S> <C> <C>
ASSETS
Cash and due from banks $3,192 $3,623
Federal Funds Sold 3,463 0
Investment Securities
Available for Sale 44,114 40,037
Held to Maturity 987 1,662
Loans Net of Unearned Discount 119,170 113,606
Less: Allowance for Loan Losses 1,140 1,112
--------- ---------
Net Loans 118,030 112,494
Bank Premises and Equipment 3,918 3,934
Interest Receivable 1,003 1,148
Other Real Estate 969 919
Other Assets 1,173 772
-------- -------
Total Assets $176,849 $164,589
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand Deposits
Non-Interest Bearing $18,082 $16,969
Interest Bearing 15,781 15,910
Savings Deposits 53,256 52,380
Certificates of Deposit of $100,000 and over 12,135 12,243
All Other Time Deposits 42,049 42,260
---------- ----------
Total Deposits $141,303 $139,762
-------- --------
Federal Funds Purchased 0 1,417
Federal Home Loan Bank Advance 17,756 6,461
Accrued Expenses 1,414 766
--------- ---------
Total Liabilities $160,473 $148,406
-------- --------
Stockholders' Equity
Common Stock, Par Value $5 per Share;
Authorized 2,000,000 Shares
777,547 Shares Issued and Outstanding $3,888 $3,888
Surplus 1,187 1,187
Accumulated Other Comprehensive Income 322 335
Undivided Profits 10,979 10,772
--------- ---------
Total Stockholders' Equity $16,376 $16,182
------- -------
Total Liabilities and Stockholders' Equity $176,849 $164,589
======== ========
<FN>
The Accompanying Notes Are An Integral Part of These Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
THREE MONTHS ENDED
March 31, 1998 March 31, 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $374 $361
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 118 100
Provision for loan losses 69 45
Change in assets and liabilities:
(Increase) in interest receivables 145 1
(Increase) in other assets (402) (236)
Increase in accrued expenses 647 331
------ ------
Net Cash Provided by Operating Activities $951 $602
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities-available for sale $2,409 $3,277
Proceeds from maturities and principal payments on securities-available for sale5,826 613
Purchases of securities-available for sale (12,435) (5,354)
Proceeds from maturities and principal payments on securities-held to maturity 673 299
Purchases of bank premises and equipment (80) (541)
Net (increase) in loans (5,564) (1,268)
(Increase) in federal funds sold (3,463) (1,337)
------- -------
Net Cash (Used in) Investing Activities ($12,634) ($4,311)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts,
and savings accounts 1,861 6,721
Net increase (decrease) in certificates of deposit (320) 773
Net increase (decrease) in long-term borrowings 11,294 (4)
Net proceeds from issuance of common stock 0 13
Cash dividends paid (167) (136)
Net (decrease) in federal funds purchased (1,416) (315)
------- --------
Net Cash Provided by Financing Activities $11,252 $7,052
------- --------
Increase (Decrease) in Cash and Cash Equivalents $431 $3,343
CASH AND CASH EQUIVALENTS:
Beginning 3,623 3,511
-------- --------
Ending $3,192 $6,854
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $308 $315
======= =======
Income Taxes $0 $0
======== ======
<FN>
The Accompanying Notes Are An Integral Part of These Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
Three Months Ended March 31, 1998 and 1997
Accumulated
Other
Common Capital Comprenensive Retained Comprehensive
Stock Surplus Income Earnings Income Total
<S> <C> <C> <C> <C> <C> <C>
Balances , December 31, 1996 $3,872 $1,133 $31 $9,801 $14,837
Comprehensive income:
Net income 362 362 362
Other comprehensive income
net of tax:
Unrealized loss on securities
available for sale (90) (90)
Reclassification adjustment 10 10
------
Other comprehensive income,net of tax (80) (80)
-------
Total comprehensive income 282
Issuance of authorized common stock
dividend reinvestment plan $3 $10 13
Cash dividends declared (136) (136)
------------ ----------- ----------- -------- --------
Balances, March 31, 1997 $3,875 $1,143 ($49) $10,027 $14,996
====== ====== ===== ======= =======
Balances, December 31, 1997 3,888 $1,187 $335 $10,772 $16,182
Comprehensive income:
Net Income 374 374 374
Other comprehensive income,
net of tax:
Unrealized loss on securities
available for sale (25) (25)
Reclassification adjustment
for gains realized in net income 12 12
------
Total comprehensive income, net of tax (13) (13)
-------
Total comprehensive income 361
Cash dividends declared (167) (167)
------------ ---------- ----------- -------- ---------
Balances, March 31, 1998 $3,888 $1,187 $322 $10,979 $16,376
====== ====== ==== ======= =======
<FN>
The Accompanying Notes Are An Integral Part of These Statements
</FN>
</TABLE>
<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, 1997. 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, 1998 and 1997, the company's financial position at March
31, 1998 and December 31, 1997, and the cash flows for the three month periods
ended March 31, 1998 and 1997. These adjustments are of a normal recurring
nature.
<TABLE>
<CAPTION>
Note 2. Securities as of March 31, 1998 and December 31, 1997 are summarized below:
(000 Omitted)
March 31, 1998 December 31, 1997
-------------- -----------------
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 35,664 35,851 $187 31,961 32,162 $201
Obligation of State and Political
Subdivisions 6,720 7,021 $301 6,478 6,785 $307
Other Securities 1,242 1,242 $0 1,090 1,090 $0
--------- --------- ------ --------- ----------- ------
Total Securities Available for Sale $43,626 $44,114 $488 $39,529 $40,037 $508
Securities Held to Maturity
U. S. Treasury Securities $0 $0 $0 $0 $0 $0
U. S. Agency Securities 987 989 $2 1,662 1,662 $0
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 $987 $989 $2 $1,662 $1,662 $0
</TABLE>
<PAGE>
FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Note 3. The consolidated loan portfolio, stated at face amount, is composed of
the following:
(000 Omitted)
March 31, 1998 December 31, 1997
<S> <C> <C>
Real estate loans:
Construction and land development $5,365 $3,583
Secured by farm land 822 947
Secured by 1-4 family residential 45,393 45,133
Other real estate loans 18,293 17,126
Loans to farmers (except those secured by real estate) 637 647
Commercial and industrial loans
(except those secured by real estate) 21,196 19,576
Loans to individuals for personal expenditures 27,323 26,574
All other loans 470 461
--------- ------------
Total loans $119,499 $114,047
Less unearned income reflected in loans 329 441
--------- ------------
Loans, net of unearned income $119,170 $113,606
======== ========
<FN>
The Bank had loans in a Nonaccrual category of $23,642 on December 31, 1997
and $ 37,000 on March 31, 1998.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Note 4. Allowance for Loan Losses
Analysis of the Allowance for Loan Losses
For the Three Months Ended
(000 Omitted)
March 31, 1998 March 31, 1997
<S> <C> <C>
Balance at Beginning of Period $1,112 $974
Charge-Offs 44 11
Recoveries 2 4
------- -------
Net Charge-Offs 42 7
Provision for Loan Losses 69 45
------- --------
Balance at End of Period $1,140 $1,012
======== ======
</TABLE>
<PAGE>
FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. New Accounting Pronouncements
During June of 1997, the FASB issued FASB No. 131, "Disclosures about
Segments of an Enterprise and Related Information." FASB No. 131 establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement becomes effective for financial statements for periods beginning
after December 31, 1997.
The effects of this Statement on the Company's consolidated financial
statements is not expected to be material.
<PAGE>
FIRST NATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Net income for the quarter was $374 thousand compared to $361 thousand in
the first quarter of 1997. This represents an increase of 3.6% which is
attributable to an increase in net interest income during the first quarter of
1998. Interest and fees on loans, the largest component of interest income,
increased $355 thousand during the period, while interest on deposits, the
largest component of interest expense, increased $187 thousand resulting in an
increase in net interest income of $163 thousand. Management increased the
provision to the allowance for loan losses by $24 thousand as a result of growth
in the loan portfolio. Total other noninterest expenses increased $139 thousand,
slightly faster than total other noninterest income which increased $26
thousand.
Yields, Rates and Net Interest Margin
Interest rates on loans have remained relatively stable during 1997 and in
comparison with the first quarter of 1997, the yield on the loan portfolio
declined from 8.90% in 1997 to 8.88% in 1998. At the same time the cost of
interest bearing deposits increased from 4.66% in the first quarter of 1997 to
4.84% in the same period of 1998. While the yield on earning assets declined 3
basis points from 8.26% in 1997 to 8.23% in 1998, the cost of interest bearing
liabilities increased 21 basis points from 4.69% in 1997 to 4.90% in 1998. This
resulted in a decrease in the bank's interest rate spread from 3.57% in 1997 to
3.33% in 1998. Interest expense as a percentage of average earning assets
increased from 3.90% in 1997 to 4.09% in 1998. The bank's net interest margin
decreased from 4.36% in 1997 to 4.14% in 1998.
Future Operations
At the end of March, Ronald F. Miller resigned as President of First
National Corporation and First Bank. Mr. Miller left the company to pursue
other business opportunities and his leadership will be missed.
During January, First Bank opened a loan production office in down town
Winchester to house a commercial lending operation. Since Winchester has the
largest concentration of business in the bank's trade area, this was seen as an
important step to increase the commercial loan portfolio and to service our
growing customer base in the Winchester-Frederick County market.
Two new ATM's will be added to the First Bank ATM network during May. The
drive-up ATM at the Ward's Plaza branch will become operational and an in store
ATM will be installed at the Apple Mountain Store in Linden. These locations
will expand the 24 hour banking services provided by the bank to its customers.
<PAGE>
<TABLE>
<CAPTION>
FIRST NATIONAL CORPORATION
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
Three Months Ended March 31,
1998 1997
Annual Annual
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(3) Balance Expense Rate(3)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Balances at correspondent banks
- interest bearing $398,561 $5,910 5.93% $213,486 $8,085 15.15%
Securities:
Taxable 33,724,641 517,507 6.14% 27,219,206 402,547 5.92%
Tax-exempt (1) 6,521,469 135,056 8.28% 6,455,389 139,921 8.67%
----------- ------- ----- ----------- ------- -----
Total Securities 40,246,110 652,563 6.49% 33,674,595 542,468 6.44%
Loans (net of earned income): (2)
Taxable 115,556,924 2,563,362 8.87% 99,224,688 2,205,872 8.89%
Tax-exempt (1) 173,423 5,097 11.76% 342,520 9,414 10.99%
------------------------ ------ ----------------------- ------
Total Loans 115,730,347 2,568,459 8.88% 99,567,208 2,215,987 8.90%
Fed funds sold and repurchase
agreements 749,889 4,147 2.21% 1,063,589 12,614 4.74%
----------------------- ----- ------------------------ -----
Total earning assets 157,124,907 3,231,079 8.23% 134,518,878 2,778,453 8.26%
Less: allowance for Loan Losses (1,133,756) (990,478)
Total nonearning assets 9,584,889 8,971,154
------------ --------------
Total Assets $165,576,040 $142,499,554
============ ============
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits:
Checking $9,304,571 $51,615 2.22% $9,331,681 $51,293 2.20%
Money market savings 6,246,306 52,527 3.36% 6,848,577 56,683 3.31%
Regular savings 52,092,289 652,669 5.01% 38,013,418 440,728 4.64%
Certificates of deposit:
Less than $100,000 42,254,673 554,617 5.25% 43,986,481 576,754 5.24%
$100,000 and more 11,874,652 162,273 5.47% 12,125,661 160,758 5.30%
---------- ------- ----- ----------------------- -----
Total interest bearing deposits 121,772,491 1,473,701 4.84% 110,305,818 1,286,216 4.66%
Fed funds purchased 1,071,367 15,760 5.88% 214,422 3,196 5.96%
Long term borrowings 8,154,929 115,817 5.68% 1,479,729 22,789 6.16%
--------- ------- ----------------------------- -----
Total interest bearing liabilities 130,998,787 1,605,278 4.90% 111,999,969 1,312,201 4.69%
Noninterest bearing liabilities
Demand deposits 16,330,343 14,707,286
Other liabilities 1,967,707 1,070,256
------------- ---------------
Total liabilities 149,296,837 127,777,511
Stockholders' equity 16,279,203 14,722,043
------------- --------------
Total liabilities and stockholders' equity $165,576,040 $142,499,554
============ ============
Net Interest income 1,625,801 1,466,252
========= =========
Interest rate spread 3.33% 3.57%
Interest expense as a percent of average
earning assets 4.09% 3.90%
Net interest margin 4.14% 4.36%
<FN>
(1) Income and yields are reported on a taxable-equivalent basis assuming a
federal tax rate of 34% in 1997 and 1998.
(2) Loans placed on a nonaccrual status are reflected in the balances.
(3) Annualized
</FN>
</TABLE>
<PAGE>
First National Corporation
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of March 31, 1998 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 7, 1998 in Warren County, 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, 1998 for the Corporation's
Annual Meeting of Shareholders held April 7, 1998, filed with the Commission on
March 16, 1998.
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
<PAGE>
First National Corporation
PART II. OTHER INFORMATION
11. Statement re computation of per share earnings.
Not applicable
15. Letter re unaudited interim financial information.
Not applicable
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
<PAGE>
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 14, 1998 /s/ Dana A. Froom
-------------------- ----------------------------
Dana A. Froom, Comptroller
(Principal Accounting Officer and
Duly Authorized Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,171
<INT-BEARING-DEPOSITS> 21
<FED-FUNDS-SOLD> 3,463
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,114
<INVESTMENTS-CARRYING> 987
<INVESTMENTS-MARKET> 989
<LOANS> 119,170
<ALLOWANCE> 1,140
<TOTAL-ASSETS> 176,849
<DEPOSITS> 141,303
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,414
<LONG-TERM> 17,756
0
0
<COMMON> 3,888
<OTHER-SE> 12,488
<TOTAL-LIABILITIES-AND-EQUITY> 176,849
<INTEREST-LOAN> 2,567
<INTEREST-INVEST> 607
<INTEREST-OTHER> 10
<INTEREST-TOTAL> 3,183
<INTEREST-DEPOSIT> 1,473
<INTEREST-EXPENSE> 1,605
<INTEREST-INCOME-NET> 1,578
<LOAN-LOSSES> 69
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 1,251
<INCOME-PRETAX> 536
<INCOME-PRE-EXTRAORDINARY> 536
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 374
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
<YIELD-ACTUAL> 3.19
<LOANS-NON> 37
<LOANS-PAST> 270
<LOANS-TROUBLED> 37
<LOANS-PROBLEM> 1,446
<ALLOWANCE-OPEN> 911
<CHARGE-OFFS> 44
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 1,140
<ALLOWANCE-DOMESTIC> 1,140
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
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