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Previous: TRANSFINANCIAL HOLDINGS INC, NT 10-Q, EX-99, 2000-11-14 |
Next: FIRST NATIONAL CORP /VA/, 10-Q, EX-27, 2000-11-14 |
<PAGE>
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 September 30, 2000
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 November 3, 2000: 791,431
================================================================================
<PAGE>
FIRST NATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements Page No.
<S> <C>
Consolidated Statements of Income 3,4
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 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(Except Per Share Amounts)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
September 30, 2000 September 30, 1999
<S> <C> <C>
Interest Income
Interest and Fees on Loans $3,589 $3,095
Interest on Federal Funds Sold 66 1
Interest on Deposits in Banks 30 0
Interest and Dividends on Securities
Available for Sale
Taxable 459 711
Non Taxable 209 114
------ ------
Total Interest Income 4,353 3,921
Interest Expense
Interest on Savings Deposits and Interest
Bearing Demand Deposits 898 833
Interest on Time Deposits of $100,000 or more 270 174
Interest on All Other Time Deposits 767 605
Interest on Federal Funds Purchased 1 30
Interest on Long-term Debt 549 374
------ ------
Total Interest Expense 2,485 2,016
------ ------
Net Interest Income 1,868 1,905
------ ------
Provision for Loan Losses 123 135
------ ------
Net Interest Income After Provisions
for Loan Losses 1,745 1,770
Other Operating Income
Service Charges 231 170
Profits on Securities Available for Sale -- 14
Other Operating Income 138 124
------ ------
Total Operating Income 369 308
Other Operating Expenses
Salaries and Employee Benefits 732 685
Occupancy Expense 82 81
Equipment Expense 124 139
Other 422 441
------ ------
Total Operating Expenses 1,360 1,346
Income Before Income taxes 754 732
Income Taxes 230 225
------ ------
Net Income $ 524 $ 507
====== ======
Per Share Data
Earnings Per Common Share, basic $ 0.66 $ 0.64
====== ======
Earnings Per Common Share, diluted $ 0.66 $ 0.64
====== ======
Cash Dividends 0.290 0.260
====== ======
</TABLE>
The Accompanying Notes Are An Integral Part Of These Statements
3
<PAGE>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(Except Per Share Amounts)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30, 2000 September 30, 1999
<S> <C> <C>
Interest Income
Interest and Fees on Loans $10,271 $ 8,800
Interest on Federal Funds Sold 86 59
Interest on Deposits in Banks 38 14
Interest and Dividends on Securities
Available for Sale
Taxable 1,654 2,077
Non Taxable 373 310
------- -------
Total Interest Income 12,422 11,260
Interest Expense
Interest on Savings Deposits and Interest
Bearing Demand Deposits 2,501 2,334
Interest on Time Deposits of $100,000 or more 686 501
Interest on All Other Time Deposits 1,939 1,905
Interest on Federal Funds Purchased 63 59
Interest on Long-term Debt 1,607 906
------- -------
Total Interest Expense 6,796 5,705
------- -------
Net Interest Income 5,626 5,555
------- -------
Provision for Loan Losses 369 360
------- -------
Net Interest Income After Provisions
for Loan Losses 5,257 5,195
Other Operating Income
Service Charges 604 475
Profits on Securities Available for Sale -- 14
Other Operating Income 420 335
------- -------
Total Operating Income 1,024 824
Other Operating Expenses
Salaries and Employee Benefits 2,214 1,982
Occupancy Expense 256 236
Equipment Expense 361 377
Other 1,339 1,295
------- -------
Total Operating Expenses 4,170 3,890
Income Before Income taxes 2,111 2,129
Income Taxes 632 660
------- -------
Net Income $ 1,479 $ 1,469
======= =======
Per Share Data
Earnings Per Common Share, basic $ 1.86 $ 1.86
======= =======
Earnings Per Common Share, diluted $ 1.86 $ 1.86
======= =======
Cash Dividends 0.870 0.780
======= =======
</TABLE>
The Accompanying Notes Are An Integral Part Of These Statements
4
<PAGE>
FIRST NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
(Unaudited)
September 30, 2000 December 31, 1999
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,011 $ 4,108
Federal Funds Sold 3,045 --
Securities Available for Sale 44,374 45,129
Loans Net of Unearned Discount 163,785 150,760
Less: Allowance for Loan Losses 1,741 1,447
-------- --------
Net Loans 162,044 149,313
Bank Premises and Equipment 4,322 4,700
Interest Receivable 1,307 1,166
Other Real Estate 5 343
Other Assets 2,235 1,859
-------- --------
Total Assets $223,343 $206,618
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand Deposits
Non-Interest Bearing $ 21,028 $ 18,656
Interest Bearing 17,981 17,995
Savings Deposits 59,237 61,943
Certificates of Deposit of $100,000 and over 16,688 12,993
All Other Time Deposits 55,084 41,835
-------- --------
Total Deposits $170,018 $153,422
Federal Funds Purchased - 1,547
Short-term debt 15,000 -
Long-term debt 18,549 33,622
Accrued Expenses 1,367 851
-------- --------
Total Liabilities $204,934 $189,442
-------- --------
Stockholders' Equity
Common Stock, Par Value $5 per Share;
Authorized 2,000,000 Shares, 794,631 and 793,991
Shares Issued and Outstanding $ 3,973 $ 3,970
Surplus 1,543 1,531
Accumulated Other Comprehensive (Loss) (912) (1,342)
Retained Earnings 13,805 13,017
-------- --------
Total Stockholders' Equity $ 18,409 $ 17,176
-------- --------
Total Liabilities and Stockholders' Equity $223,343 $206,618
======== ========
</TABLE>
The Accompanying Notes Are An Integral Part of These Statements
5
<PAGE>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30, 2000 September 30, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,479 $ 1,469
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 298 330
Provision for loan losses 369 360
Change in assets and liabilities
(Increase) in interest receivables (141) (52)
(Increase) in other assets (323) (90)
Increase in accrued expenses 516 253
-------- --------
Net Cash Provided by Operating Activities $ 2,198 $ 2,270
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of Other Real Estate Owned $ 343 $ 0
Proceeds from sale of securities-available for sale 0 4,115
Proceeds from maturities and principal payments on securities-available for sale 1,407 5,065
Purchases of securities-available for sale 0 (14,048)
Proceeds from maturities and principal payments on securities-held to maturity 0 19
Purchases of bank premises and equipment (200) (398)
Net (increase) in loans (13,100) (17,243)
(Increase) Decrease in federal funds sold (3,045) 2,859
-------- --------
Net Cash (Used in) Investing Activities $(14,595) $(19,631)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
and savings accounts (348) 6,938
Net increase in certificates of deposit 16,944 776
Net (decrease) in long-term borrowings (73) (3,064)
Net increase in short-term borrowings 0 8,000
Net proceeds from issuance of common stock 15 107
Cash dividends paid (691) (616)
Net increase (decrease) in federal funds purchased (1,547) 5,078
-------- --------
Net Cash Provided by Financing Activities $ 14,300 $ 17,219
-------- --------
Increase (Decrease) in Cash and Cash Equivalents $ 1,903 $ (142)
CASH AND CASH EQUIVALENTS:
Beginning 4,108 5,026
-------- --------
Ending $ 6,011 $ 4,884
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 6,666 $ 5,748
======== ========
Income Taxes $ 686 $ 635
======== ========
</TABLE>
The Accompanying Notes Are An Integral Part of These Statements
6
<PAGE>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Comprehensive Retained Comprehensive
Stock Surplus Income (Loss) Earnings Income Total
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1998 $ 3,945 $ 1,417 $ 347 $11,892 $17,601
Comprehensive income:
Net income 1,469 1,469 1,469
Other comprehensive income
net of tax:
Unrealized loss on securities
available for sale (1,412) (1,412)
Reclassification adjustment (9) (9)
-------
Other comprehensive income, net of tax (1,421) (1,421)
-------
Total comprehensive income 48
=======
Issuance of authorized common stock
Dividend reinvestment plan 11 58 69
Exercise of incentive stock options 8 30 38
Cash dividends declared (616) (616)
------- ------- ------- ------- -------
Balances, September 30, 1999 $ 3,964 $ 1,505 $(1,074) $12,745 $17,140
======= ======= ======= ======= =======
Balances, December 31, 1999 3,970 $ 1,531 $(1,342) $13,017 $17,176
Comprehensive income:
Net Income 1,479 1,479 1,479
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 430 430
Reclassification adjustment 0 0
-------
Total comprehensive income, net of tax 430 430
-------
Total comprehensive income 1,909
=======
Issuance of authorized common stock
Exercised Options 3 12 15
Cash dividends declared (691) (691)
------- ------- ------- ------- -------
Balances, September 30, 2000 $ 3,973 $ 1,543 $ (912) $13,805 $18,409
======= ======= ======= ======= =======
</TABLE>
The Accompanying Notes Are An Integral Part of These Statements
7
<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, 1999. In the opinion
of the company's management, the financial statements reflect all adjustments
necessary to present fairly the results of operations for the nine month periods
ended September 30, 2000 and 1999, the company's financial position at September
30, 2000 and December 31, 1999, and the cash flows for the nine month periods
ended September 30, 2000 and 1999. These adjustments are of a normal recurring
nature.
Note 2. Securities as of September 30, 2000 and December 31, 1999 are summarized
below:
<TABLE>
<CAPTION>
(000 Omitted)
September 30, 2000 December 31, 1999
------------------ -----------------
Unrealized Unrealized
Cost Market Gain (Loss) Cost 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 36,581 35,324 ($1,257) 38,337 36,636 ($ 1701)
Obligation of State and
Political Subdivisions 6,827 6,658 ($169) 6,826 6,445 ($381)
Corporate Securities 1 52 $51 1 49 $48
Other Securities 2,347 2,340 ($7) 1,999 1,999 $0
------- ------- ------ ------- ------- ------
Total Securities Available
for Sale $45,756 $44,374 ($1,382) $47,163 $45,129 ($2,034)
</TABLE>
8
<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>
<CAPTION>
(000 Omitted)
September 30, 2000 December 31, 1999
<S> <C> <C>
Real estate loans:
Construction and land development $ 8,104 10,205
Secured by farm land 1,844 1,489
Secured by 1-4 family residential 36,229 58,712
Other real estate loans 45,215 20,971
Loans to farmers (except those secured by real estate) 534 466
Commercial and industrial loans
(except those secured by real estate) 35,661 26,441
Loans to individuals for personal expenditures 35,025 31,829
All other loans 1,179 670
--------------------------------
Total loans $ 163,791 150,783
Less unearned income reflected in loans 6 23
--------------------------------
Loans, net of unearned income $ 163,785 150,760
================================
</TABLE>
The Bank had loans in a Nonaccrual category of $34,125 on December 31, 1999
and $120,000 on September 30, 2000.
Note 4. Allowance for Loan Losses
Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
For the Nine Months Ended
(000 Omitted)
September 30, 2000 September 30, 1999
<S> <C> <C>
Balance at Beginning of Period $ 1,447 $ 1,226
Charge-Offs (121) (295)
Recoveries 46 59
--------- ------------
Net Charge-Offs (75) (236)
Provision for Loan Losses 369 360
--------- ------------
Balance at End of Period $ 1,741 $ 1,350
========= ============
</TABLE>
9
<PAGE>
FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
133, "Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 2000. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Corporation will adopt this accounting standard as required by
January 1, 2001. The Statement will require the Corporation to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. Because the Corporation does not use derivatives,
management does not anticipate that the adoption of the Statement will have any
effect on the Corporation's earnings or financial position.
10
<PAGE>
FIRST NATIONAL CORPORATION
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
--------
Net income for the first three quarters of 2000, ended September 30, was
$1.48 million compared to $1.47 million in the first three quarters of 1999.
This represents an increase of less than 1% from the previous period and is
attributable to an increase in net interest income during the first nine months
of 2000. Interest and fees on loans increased $1.16 million during the period,
while interest on deposits increased $1.09 million resulting in an increase in
net interest income of $71 thousand. The provision to the allowance for loan
losses increased from the previous period by $9 thousand. Total other operating
expenses increased $280 thousand, principally in the salary and benefit area.
Total non-interest income increased $200 thousand during the period, mostly, in
the service charges area.
Yields, Rates and Net Interest Margin
-------------------------------------
Interest rates on loans have increased moderately during 2000 and, in
comparison with the first nine months of 1999, the yield on the loan portfolio
has increased 13 basis points from 8.61% in 1999 to 8.74% in 2000. At the same
time the cost of interest bearing deposits increased from 4.46% in the first
three quarters of 1999 to 4.91% in the same period of 2000. While the yield on
earning assets increased 35 basis points from 7.88% in 1999 to 8.23% in 2000,
the cost of interest bearing liabilities increased 53 basis points from 4.63% in
1999 to 5.16% in 2000. This resulted in a decrease in the bank's interest rate
spread from 3.25% in 1999 to 3.07% in 2000. Interest expense as a percentage of
average earning assets increased from 3.93% in 1999 to 4.45% in 2000. The
bank's net interest margin decreased from 3.94% in 1999 to 3.78% in 2000.
Recent Developments
--------------------
First Bank was one of sixty-five banks seeking to collectively purchase a
general insurance agency(s) through membership in the Virginia Bankers Insurance
Center. The bank has purchased an interest in Banker's Title Shenandoah, a title
insurance company. First Bank introduced "internet banking" with a bill-payer
feature on September 1, 2000.
Stock Repurchase
----------------
On September 6, 2000, the Board of Directors approved the repurchase of up
to 5% of the outstanding common shares of First National Corporation. This stock
buyback is one of the steps that will increase shareholder value and serve as a
prudent use of the company's capital. The repurchased shares will be held as
unissued stock and will be available for general corporate purposes.
11
<PAGE>
FIRST NATIONAL CORPORATION
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
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 $ 341,451 $ 37,448 14.62% $ 212,211 $ 13,606 8.55%
Securities:
Taxable 37,555,831 1,780,636 6.32% 46,970,008 2,076,916 5.90%
Tax-exempt (1) 6,823,394 372,759 7.28% 8,157,979 469,358 7.67%
------------ ----------- ----- ------------- ---------- -----
Total Securities 44,379,225 2,153,395 6.47% 55,127,987 2,546,274 6.16%
Loans (net of earned income): (2)
Taxable 156,661,616 10,219,804 8.70% 136,302,478 8,794,194 8.60%
Tax-exempt (1) 459,095 78,267 22.73% 103,557 9,415 12.12%
------------ ----------- ----- ------------- ---------- -----
Total Loans 157,120,711 10,298,071 8.74% 136,406,035 8,803,609 8.61%
Fed funds sold and repurchase
agreements 1,810,168 86,285 6.36% 1,613,168 58,848 4.86%
------------ ----------- ----- ------------- ----------- -----
Total earning assets 203,651,555 12,575,199 8.23% 193,359,401 11,422,337 7.88%
Less: allowance for Loan Losses (1,577,382) (1,254,933)
Total nonearning assets 12,361,443 10,941,326
------------ -------------
Total Assets $214,435,616 $ 203,045,794
============ =============
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits:
Checking $ 11,899,158 $ 111,874 1.25% $ 10,546,731 $ 114,549 1.45%
Money market savings 5,983,399 138,792 3.09% 6,789,478 152,626 3.00%
Regular savings 57,945,068 2,250,518 5.18% 63,519,961 2,066,684 4.34%
Certificates of deposit:
Less than $100,000 47,882,962 1,939,064 5.40% 48,356,781 1,902,573 5.25%
$100,000 and more 15,574,754 685,583 5.87% 12,452,098 500,638 5.36%
------------ ----------- ----- ------------- ---------- -----
Total interest bearing deposits 139,285,341 5,125,831 4.91% 141,665,049 4,740,070 4.46%
Fed funds purchased 1,295,084 62,648 6.45% 1,406,930 58,677 5.56%
Long term borrowings 34,908,761 1,607,206 6.14% 21,337,971 906,455 5.66%
----------- ----------- ----- ------------- ---------- -----
Total interest bearing liabilities 175,489,186 6,795,685 5.16% 164,409,950 5,705,202 4.63%
Noninterest bearing liabilities
Demand deposits 19,787,414 19,638,677
Other liabilities 1,486,910 1,463,434
------------ -------------
Total liabilities 196,763,510 185,512,061
Stockholders' equity 17,672,106 17,533,733
------------ -------------
Total liabilities and stockholders' equity $214,435,616 $ 203,045,794
============ =============
Net Interest income $ 5,779,514 $5,717,135
=========== ==========
Interest rate spread 3.07% 3.25%
Interest expense as a percent of average
earning assets 4.45% 3.93%
Net interest margin 3.78% 3.94%
</TABLE>
(1) Income and yields are reported on a taxable-equivalent basis assuming a
federal tax rate of 34% in 1999 and 2000.
(2) Loans placed on a nonaccrual status are reflected in the balances.
(3) Annualized
12
<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 September 30, 2000 neither the Corporation nor the Bank was a party
to any legal proceedings.
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Not Applicable
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Financial Data Schedule
Filed electronically as a separate document.
(b) Reports on form 8-K
None.
13
<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 November 13, 2000 /s/ Stephen C. Pettit
------------------------- -----------------------------------
Stephen C. Pettit, Comptroller
(Principal Accounting Officer and
Duly Authorized Officer)
14
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