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 June 30, 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 July 31, 1998: 786,936
<PAGE>
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 5
Consolidated Statements of Cash Flows 6
Consolidated Statements of Changes in Stockholders' Equity 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Part II. Other Information
Item 1 Legal Proceedings 14
Item 4. Submission of Matters to a vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 16
</TABLE>
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(Except Per Share Amounts)
Three Months Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
Interest Income
Interest and Fees on Loans $2,703 $2,318
Interest on Federal Funds Sold 29 22
Interest on Deposits in Banks 8 7
Interest and Dividends on Investment Securities
Available for Sale
Taxable 576 455
Non Taxable 91 88
Held to Maturity
Taxable 8 39
Non Taxable 0 0
------------ -----------
Total Interest Income 3,415 2,929
Interest Expense
Interest on Savings Deposits and Interest
Bearing Demand Deposits 761 628
Interest on Time Deposits of $100,000 or more 166 170
Interest on All Other Time Deposits 562 584
Interest on Federal Funds Purchased 5 1
Interest on Note Payable 253 23
--------- ----------
Total Interest Expense 1,747 1,406
-------- -------
Net Interest Income 1,668 1,523
Provision for Loan Losses 69 45
---------- ---------
Net Interest Income After Provisions
for Loan Losses 1,599 1,478
Other Operating Income
Service Charges 159 127
Profits on Securities Available for Sale 124 (2)
Other Operating Income 172 124
-------- --------
Total Operating Income 455 249
Other Operating Expenses
Salaries and Employee Benefits 673 591
Occupancy Expense 70 56
Equipment Expense 122 141
Other 443 349
-------- --------
Total Operating Expenses 1,308 1,137
Income Before Income taxes 746 590
Income Taxes 239 182
--------- ---------
Net Income $507 $408
========= ========
Per Share Data
Earnings Per Common Share,basic $0.65 $0.53
========= ========
Earnings Per Common Share,diluted $0.65 $0.53
========= ========
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 STATEMENTS OF INCOME
(In Thousands of Dollars)
(Except Per Share Amounts)
Six Months Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
Interest Income
Interest and Fees on Loans $5,270 $4,530
Interest on Federal Funds Sold 33 35
Interest on Deposits in Banks 14 15
Interest and Dividends on Investment Securities
Available for Sale
Taxable 1,075 815
Non Taxable 180 180
Held to Maturity
Taxable 27 81
Non Taxable 0 0
------------ -----------
Total Interest Income 6,599 5,656
Interest Expense
Interest on Savings Deposits and Interest
Bearing Demand Deposits 1,517 1,177
Interest on Time Deposits of $100,000 or more 328 331
Interest on All Other Time Deposits 1,117 1,160
Interest on Federal Funds Purchased 21 4
Interest on Note Payable 369 46
--------- ----------
Total Interest Expense 3,352 2,718
-------- -------
Net Interest Income 3,247 2,938
Provision for Loan Losses 138 90
---------- ---------
Net Interest Income After Provisions
for Loan Losses 3,109 2,848
Other Operating Income
Service Charges 301 247
Profits on Securities Available for Sale 136 8
Other Operating Income 296 246
-------- --------
Total Operating Income 733 501
Other Operating Expenses
Salaries and Employee Benefits 1,335 1,173
Occupancy Expense 135 109
Equipment Expense 245 265
Other 844 702
-------- --------
Total Operating Expenses 2,559 2,249
Income Before Income taxes 1,283 1,100
Income Taxes 401 331
--------- ---------
Net Income $882 $769
========= ========
Per Share Data
Earnings Per Common Share,basic $1.12 $0.99
========= ========
Earnings Per Common Share,diluted $1.12 $0.99
========= ========
Cash Dividends 0.43 0.35
======== ========
<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)
June 30, 1998 December 31, 1997
<S> <C> <C>
ASSETS
Cash and due from banks $5,171 $3,623
Federal Funds Sold 4,743 0
Investment Securities
Available for Sale 47,150 40,037
Held to Maturity 318 1,662
Loans Net of Unearned Discount 123,225 113,606
Less: Allowance for Loan Losses 1,157 1,112
--------- ---------
Net Loans 122,068 112,494
Bank Premises and Equipment 3,859 3,934
Interest Receivable 1,152 1,148
Other Real Estate 343 919
Other Assets 1,248 772
-------- -------
Total Assets $186,052 $164,589
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand Deposits
Non-Interest Bearing $17,103 $16,969
Interest Bearing 16,203 15,910
Savings Deposits 54,912 52,380
Certificates of Deposit of $100,000 and over 13,768 12,243
All Other Time Deposits 48,303 42,260
---------- ----------
Total Deposits $150,289 $139,762
-------- --------
Federal Funds Purchased 0 1,417
Federal Home Loan Bank Advance 17,743 6,461
Accrued Expenses 1,226 767
--------- ---------
Total Liabilities $169,258 $148,407
-------- --------
Stockholders' Equity
Common Stock, Par Value $5 per Share;
Authorized 2,000,000 Shares
786,023 Shares Issued and Outstanding $3,930 $3,888
Surplus 1,346 1,187
Accumulated Other Comprehensive Income 199 335
Undivided Profits 11,319 10,772
--------- ---------
Total Stockholders' Equity $16,794 $16,182
------- -------
Total Liabilities and Stockholders' Equity $186,052 $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)
SIX MONTHS ENDED
June 30, 1998 June 30, 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $882 $769
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 251 224
Provision for loan losses 138 90
Change in assets and liabilities:
(Increase) in interest receivables (4) (153)
(Increase) in other assets (475) (286)
Increase in accrued expenses 460 405
------ ------
Net Cash Provided by Operating Activities $1,252 $1,049
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities-available for sale $6,383 $6,708
Proceeds from maturities and principal payments on securities-
available for sale 8,598 2,312
Purchases of securities-available for sale (22,385) (13,067)
Proceeds from maturities and principal payments on securities-
held to maturity 1,342 639
Purchases of bank premises and equipment (112) (833)
Net (increase) in loans (9,619) (7,220)
(Increase) in federal funds sold (4,743) (66)
Proceeds on sale of other real estate 576 0
-------- -------------
Net Cash (Used in) Investing Activities ($19,960) ($11,527)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts,
and savings accounts 2,959 8,702
Net increase in certificates of deposit 7,567 2,418
Net increase (decrease) in long-term borrowings 11,282 (9)
Net proceeds from issuance of common stock 201 29
Cash dividends paid (336) (271)
Net (decrease) in federal funds purchased (1,417) (315)
------- -----------
Net Cash Provided by Financing Activities $20,256 $10,554
------- ---------
Increase in Cash and Cash Equivalents $1,548 $76
CASH AND CASH EQUIVALENTS:
Beginning 3,623 3,511
----- -----
Ending $5,171 $3,587
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $625 $690
===== =====
Income Taxes $346 $247
===== =====
<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)
Six Months Ended June 30, 1998 and 1997
Accumulated
Other
Common Capital Comprehensive 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 769 769 769
Other comprehensive income
net of tax:
Unrealized gains on securities
available for sale 169 169
Reclassification adjustment
for gains realized in net income 8 8
--------
Other comprehensive income,net of tax 177 177
------
Total comprehensive income 946
Issuance of authorized common stock
dividend reinvestment plan $7 $22 29
Cash dividends declared (271) (271)
------------ ----------- ----------- -------- --------
Balances, June 30, 1997 $3,879 $1,155 $208 $10,299 $15,541
====== ====== ==== ======= =======
Balances, December 31, 1997 3,888 $1,187 $335 $10,772 $16,182
Comprehensive income:
Net Income 882 882 882
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale (272) (272)
Reclassification adjustment
for gains realized in net income 136 136
-------
Total comprehensive income, net of tax (136) (136)
--------
Total comprehensive income 746
Issuance of authorized common stock
dividend reinvestment plan 4 15 19
exercise of incentive stock options 38 144 182
Cash dividends declared (335) (335)
------------ ---------- ----------- -------- ---------
Balances, June 30, 1998 $3,930 $1,346 $199 $11,319 $16,794
====== ====== ==== ======= =======
<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 six month and
three month periods ended June 30, 1998 and 1997, the company's financial
position at June 30, 1998 and December 31, 1997, and the cash flows for the six
month periods ended June 30, 1998 and 1997. These adjustments are of a normal
recurring nature.
<TABLE>
<CAPTION>
Note 2. Securities as of June 30, 1998 and December 31, 1997 are summarized below:
(000 Omitted)
June 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 38,881 38,970 $89 31,961 32,162 $201
Obligation of State and Political
Subdivisions 6,727 6,940 $213 6,478 6,785 $307
Other Securities 1,240 1,240 $0 1,090 1,090 $0
--------- --------- ------ --------- ----------- ------
Total Securities Available for Sale $46,848 $47,150 $302 $39,529 $40,037 $508
Securities Held to Maturity
U. S. Treasury Securities $0 $0 $0 $0 $0 $0
U. S. Agency Securities 318 318 $0 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 $318 $318 $0 $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)
June 30, 1998 December 31, 1997
<S> <C> <C>
Real estate loans:
Construction and land development $3,777 $3,583
Secured by farm land 834 947
Secured by 1-4 family residential 48,121 45,133
Other real estate loans 18,355 17,126
Loans to farmers (except those secured by real estate) 621 647
Commercial and industrial loans
(except those secured by real estate) 23,156 19,576
Loans to individuals for personal expenditures 27,859 26,574
All other loans 738 461
--------- ------------
Total loans $123,464 $114,047
Less unearned income reflected in loans 239 441
--------- ------------
Loans, net of unearned income $123,225 $113,606
======== ========
<FN>
The Bank had loans in a Nonaccrual category of $23,642 on December 31, 1997 and $ 251,000 on June 30, 1998.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Note 4. Allowance for Loan Losses
Analysis of the Allowance for Loan Losses
For the Six Months Ended
(000 Omitted)
June 30, 1998 June 30, 1997
<S> <C> <C>
Balance at Beginning of Period $1,112 $974
Charge-Offs 102 33
Recoveries 9 5
------- -------
Net Charge-Offs 93 28
Provision for Loan Losses 138 90
-------- --------
Balance at End of Period $1,157 $1,036
======== ======
</TABLE>
<PAGE>
FIRST NATIONAL CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Net income for the first half of 1998 was $882 thousand compared to $769
thousand in 1997. This represents an increase of 14.7% which is attributable to
an increase in net interest income during the first half of 1998 and to gains
realized on the sale of securities during this period. Total interest income,
increased $943 thousand during the period, while total interest expense
increased $634 thousand resulting in an increase in net interest income of $309
thousand. Total other operating expenses increased $310 thousand, slightly
faster than total operating income, net of profits on securities available for
sale, which increased $104 thousand. In an effort to offset several nonrecurring
expenses, a portion of the securities portfolio was sold and reinvested with no
reduction in yield and only a slight increase in duration but resulting in
income of $136 thousand. Management increased the provision to the allowance for
loan losses by $48 thousand as a result of growth in the loan portfolio during
the period and in anticipation of continued growth.
Yields, Rates and Net Interest Margin
Interest rates on loans have decreased slightly during the first half of
1998 and in comparison with the same period last year, the yield on the loan
portfolio declined from 8.96% in 1997 to 8.88% in 1998. At the same time the
cost of interest bearing deposits increased from 4.71% in the first six months
of 1997 to 4.82% in the same period of 1998. While the yield on earning assets
declined 14 basis points from 8.35% in 1997 to 8.21% in 1998, the cost of
interest bearing liabilities increased 16 basis points from 4.74% in 1997 to
4.90% in 1998. This resulted in a decrease in the bank's interest rate spread
from 3.62% in 1997 to 3.31% in 1998. Interest expense as a percentage of average
earning assets increased from 3.94% in 1997 to 4.11% in 1998. The bank's net
interest margin decreased from 4.41% in 1997 to 4.10% in 1998.
Future Operations
Management anticipates continued growth in both the loan portfolio and in
customer deposit balances as a result of continuing calling efforts by
commercial loan officers. This expectation of growth is predicated on an
assumption of continuing economic expansion during the future. There are no
plans to open additional branches in the near future, however management will
explore any opportunities in the bank's market area as they arise.
Year 2000 Compliance
The Corporation is dependent on the utilization of data processing hardware
and software in the conduct of business. The majority of the banking business is
processed on a core banking system and related communications networks which
consist of a combination of computer hardware and various software packages
which are licensed to the Bank by third party vendors. In addition there are
several other personal computers and software packages in use throughout the
Bank. The year 2000 problem could affect any of these systems and produce an
adverse affect on the operations of the Bank.
<PAGE>
FIRST NATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management became aware of this potential problem in 1997 and initiated an
assessment of all software and hardware to determine whether these system would
function properly in the year 2000. As a result of this assessment, management
has been informed by its vendor that the core banking software will be year 2000
compliant. In order to confirm compliance, testing will be conducted before the
end of 1998. The Corporation has determined that it will have to replace or
modify certain other units of hardware or software for other systems to be year
2000 compliant. The modification of several of these systems will take the form
of an upgrade to hardware and/or software at an earlier date than would normally
have been planned.
Officers of the Bank have begun communication with all large commercial
borrowers since they pose a credit risk to the Bank if their business is
disrupted due to a year 2000 compliance issue. Responses from commercial
customers will be evaluated as part of the credit review process.
Management plans to complete the majority of the year 2000 project by
December 31, 1998. Total projected expenditures are not expected to exceed
$200,000 and would result in an increase in depreciation expense of less than
$30,000 per year over an expected five year depreciable life.
The Corporation has set a goal to be substantially year 2000 compliant by
year end 1998 in accordance with the mandate from its regulators. Since
uncertainties remain about whether or not all third party vendors and all large
commercial borrowers will be year 2000 complaint, the financial impact of year
2000 compliance on the Corporation's assets, earnings and liquidity cannot be
fully determined at this time.
New Accounting Pronouncements
Effective January 1, 1998 the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. Financial statements for prior periods have been
restated as required.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers Disclosures about Pensions
and other Post Retirement Benefits." This statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. This statement
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures. Restatement of
disclosures for earlier periods is required. This statement is effective for the
Corporation's financial statements for the year ended December 361, 1998.
In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires companies to record derivatives
on the balance sheet as assets and liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting. This statement is not expected to have a material impact on the
Corporation's financial statements. This statement is effective for fiscal years
beginning after June 15, 1999, with earlier adoption encouraged. The Corporation
will adopt this accounting standard as required by January 1, 2000.
FIRST NATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (`SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. This SOP requires that entities capitalize certain
internal-use software costs once certain criteria are met. This statement is not
expected to have a material impact on the Corporation's financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," which requires the costs of start-up activities and
organization costs to be expensed as incurred. This statement is effective for
the fiscal year 1999 financial statements. This statement is not expected to
have a material impact on the Corporation's financial statements.
<PAGE>
<TABLE>
<CAPTION>
FIRST NATIONAL CORPORATION
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
Six Months Ended June 30,
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 $250,953 $14,389 11.47% $215,297 $15,429 14.33%
Securities:
Taxable 35,899,705 1,101,374 6.14% 28,682,483 895,350 6.24%
Tax-exempt (1) 6,672,513 273,406 8.19% 6,374,635 272,844 8.56%
----------- ---- ----- ----------- ------- -----
Total Securities 42,572,218 1,374,780 6.46% 35,057,118 1,168,194 6.66%
Loans (net of earned income): (2)
Taxable 118,533,786 5,263,129 8.88% 101,015,112 4,520,106 8.95%
Tax-exempt (1) 170,025 10,056 11.83% 209,562 15,656 14.94%
------------------------ ------ ----------------------- ------
Total Loans 118,703,811 5,273,185 8.88% 101,224,674 4,535,762 8.96%
Fed funds sold and repurchase
agreements 1,485,104 33,290 4.48% 1,300,188 34,573 5.32%
----------------------- ----- ------------------------ ----
Total earning assets 163,012,086 6,695,644 8.21% 137,797,276 5,753,958 8.35%
Less: allowance for Loan Losses (1,147,180) (1,006,696)
Total nonearning assets 10,025,499 9,230,761
------------ --------------
Total Assets $171,890,405 $146,021,342
============ ============
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits:
Checking $9,440,025 $101,537 2.15% $9,570,341 $106,263 2.22%
Money market savings 6,368,754 105,331 3.31% 7,648,627 127,785 3.34%
Regular savings 52,897,577 1,310,015 4.95% 39,503,256 943,074 4.77%
Certificates of deposit:
Less than $100,000 42,311,144 1,116,787 5.28% 44,102,187 1,159,026 5.26%
$100,000 and more 11,976,882 328,151 5.48% 12,322,124 331,458 5.38%
---------- --------- ----- ----------------------- -----
Total interest bearing deposits 122,994,381 2,961,821 4.82% 113,146,534 2,667,606 4.71%
Fed funds purchased 725,041 21,376 5.90% 144,294 4,430 6.14%
Long term borrowings 12,953,804 368,536 5.69% 1,477,266 45,755 6.19%
---------- --------- ----------------------------- -----
Total interest bearing liabilities 136,673,225 3,351,733 4.90% 114,768,094 2,717,791 4.74%
Noninterest bearing liabilities
Demand deposits 17,140,021 15,352,443
Other liabilities 1,492,534 1,041,537
------------- ---------------
Total liabilities 155,305,780 131,162,074
Stockholders' equity 16,584,625 14,859,269
------------- --------------
Total liabilities and stockholders' equity $171,890,405 $146,021,342
============ ============
Net Interest income 3,343,911 3,036,167
========= ========
Interest rate spread 3.31% 3.62%
Interest expense as a percent of average
earning assets 4.11% 3.94%
Net interest margin 4.10% 4.41%
<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 June 30, 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
reconvened on Wednesday, May 6, 1998 at the main office in Strasburg, Virginia.
Information relating to the solicitation of proxies required by this item is
incorporated by reference from the Corporation's proxy statement dated April 16,
1998 for the Corporation's Reconvened Annual Meeting of Shareholders held May 6,
1998, filed with the Commission on April 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 August 13, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,095
<INT-BEARING-DEPOSITS> 75
<FED-FUNDS-SOLD> 4,743
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,150
<INVESTMENTS-CARRYING> 318
<INVESTMENTS-MARKET> 318
<LOANS> 123,225
<ALLOWANCE> 1,157
<TOTAL-ASSETS> 186,052
<DEPOSITS> 150,289
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,226
<LONG-TERM> 17,743
0
0
<COMMON> 3,930
<OTHER-SE> 12,864
<TOTAL-LIABILITIES-AND-EQUITY> 186,052
<INTEREST-LOAN> 5,270
<INTEREST-INVEST> 1,282
<INTEREST-OTHER> 47
<INTEREST-TOTAL> 6,599
<INTEREST-DEPOSIT> 2,962
<INTEREST-EXPENSE> 3,352
<INTEREST-INCOME-NET> 3,247
<LOAN-LOSSES> 138
<SECURITIES-GAINS> 136
<EXPENSE-OTHER> 2,559
<INCOME-PRETAX> 1,283
<INCOME-PRE-EXTRAORDINARY> 1,283
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 882
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
<YIELD-ACTUAL> 8.21
<LOANS-NON> 74
<LOANS-PAST> 207
<LOANS-TROUBLED> 37
<LOANS-PROBLEM> 1,410
<ALLOWANCE-OPEN> 1,112
<CHARGE-OFFS> 102
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 1,157
<ALLOWANCE-DOMESTIC> 1,157
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
