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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, 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 May 9, 2000: 794,131
<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
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Part II. Other Information
Item 1 Legal Proceedings 13
Item 4. Submission of Matters to a vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 15
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(Except Per Share Amounts)
<CAPTION>
Three Months Ended
March 31, 2000 March 31, 1999
<S> <C> <C>
Interest Income
Interest and Fees on Loans $3,271 $2,772
Interest on Federal Funds Sold 0 48
Interest on Deposits in Banks 8 6
Interest and Dividends on Investment Securities
Available for Sale
Taxable 601 633
Non Taxable 82 90
Total Interest Income 3,962 3,549
Interest Expense
Interest on Savings Deposits and Interest
Bearing Demand Deposits 780 725
Interest on Time Deposits of $100,000 or more 205 156
Interest on All Other Time Deposits 555 657
Interest on Federal Funds Purchased 27 --
Interest on Long-term Debt 489 258
-------- -------
Total Interest Expense 2,056 1,796
-------- -------
Net Interest Income 1,906 1,753
-------- -------
Provision for Loan Losses 123 123
-------- -------
Net Interest Income After Provisions
for Loan Losses 1,783 1,630
Other Operating Income
Service Charges 177 151
Profits on Securities Available for Sale -- --
Other Operating Income 112 128
-------- --------
Total Operating Income 289 279
Other Operating Expenses
Salaries and Employee Benefits 744 633
Occupancy Expense 92 76
Equipment Expense 118 126
Other 462 424
-------- --------
Total Operating Expenses 1,416 1,259
Income Before Income taxes 656 650
Income Taxes 216 201
--------- ---------
Net Income $440 $449
========= ========
Per Share Data
Earnings Per Common Share, basic $0.55 $0.57
========= ========
Earnings Per Common Share, diluted $0.55 $0.57
========= ========
Cash Dividends 0.290 0.260
========= =========
</TABLE>
The Accompanying Notes Are An Integral Part Of These Statements
3
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<CAPTION>
March 31, 2000 December 31, 1999
ASSETS
<S> <C> <C>
Cash and due from banks $4,300 $4,108
Federal Funds Sold -- --
Investment Securities
Available for Sale 44,530 45,129
Held to Maturity -- --
Loans Net of Unearned Discount 154,277 150,760
Less: Allowance for Loan Losses 1,527 1,447
--------- ---------
Net Loans 152,750 149,313
Bank Premises and Equipment 4,671 4,700
Interest Receivable 1,163 1,166
Other Real Estate 343 343
Other Assets 2,068 1,859
--------- ---------
Total Assets $209,825 $206,618
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand Deposits
Non-Interest Bearing $18,378 $18,656
Interest Bearing 17,771 17,995
Savings Deposits 56,433 61,943
Certificates of Deposit of $100,000 and over 15,213 12,993
All Other Time Deposits 44,887 41,835
--------- ----------
Total Deposits $152,682 $153,422
Federal Funds Purchased 5,000 1,547
Federal Home Loan Bank Advance 33,598 33,622
Accrued Expenses 1,201 851
--------- ---------
Total Liabilities $192,481 $189,442
--------- ---------
Stockholders' Equity
Common Stock, Par Value $5 per Share;
Authorized 2,000,000 Shares, 794,131 and 793,991
Shares Issued and Outstanding $3,971 $3,970
Surplus 1,534 1,531
Accumulated Other Comprehensive Income (1,388) (1,342)
Undivided Profits 13,227 13,017
--------- ---------
Total Stockholders' Equity $17,344 $17,176
--------- ---------
Total Liabilities and Stockholders' Equity $209,825 $206,618
======== ========
</TABLE>
The Accompanying Notes Are An Integral Part of These Statements
4
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<CAPTION>
THREE MONTHS ENDED
March 31, 2000 March 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 440 $ 449
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 96 106
Provision for loan losses 123 123
Change in assets and liabilities
(Decrease) in interest receivables 3 12
(Increase) in other assets (308) (145)
Increase in accrued expenses 403 517
------- --------
Net Cash Provided by Operating Activities $ 757 $ 1,062
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities-available for sale $ -- $ --
Proceeds from maturities and principal payments on
securities-available for sale 599 2,808
Purchases of securities-available for sale 0 (12,492)
Proceeds from maturities and principal payments on securities-held to maturity 0 19
Purchases of bank premises and equipment (67) (72)
Net (increase) in loans (3,560) (935)
(Increase) in federal funds sold 0 551
------- --------
Net Cash (Used in) Investing Activities $(3,028) ($10,121)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
and savings accounts (6,012) 5,069
Net increase in certificates of deposit 5,272 1,630
Net increase (decrease) in long-term borrowings (24) 981
Net proceeds from issuance of common stock 4 24
Cash dividends paid (230) (205)
Net (increase) in federal funds purchased 3,453 --
------- --------
Net Cash Provided by Financing Activities $2,463 $7,499
------ --------
Increase (Decrease) in Cash and Cash Equivalents $192 $(1,560)
CASH AND CASH EQUIVALENTS:
Beginning 4,108 5,026
---------- --------
Ending $ 4,300 $3,466
======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 2,059 $ 1,762
========= =========
Income Taxes $ 0 $ 0
========= == ======
</TABLE>
The Accompanying Notes Are An Integral Part of These Statements
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
Three Months Ended March 31, 2000 and 1999
<CAPTION>
Accumulated
Other
Common Capital Comprehensive Retained Comprehensive
Stock Surplus Income 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 449 449 449
Other comprehensive income
net of tax:
Unrealized loss on securities
Available for sale (267) (267)
Reclassification adjustment 0 0
-----
Other comprehensive income, net of tax (267) (267)
-----
Total comprehensive income 182
=====
Issuance of authorized common stock
dividend reinvestment plan 4 20 24
Cash dividends declared (205) (205)
------ ------ ---- ------- -------
Balances, March 31, 1999 $3,949 $1,437 $80 $12,136 $17,602
====== ====== ==== ======= =======
Balances, December 31, 1999 3,970 $1,531 $(1,342) $13,017 $17,176
Comprehensive income:
Net Income 440 440 440
Other comprehensive income,
net of tax:
Unrealized loss on securities
available for sale (46) (46)
Reclassification adjustment
for gains realized in net income 0 0
-----
Total comprehensive income, net of tax (46) (46)
-----
Total comprehensive income 394
=====
Issuance of authorized common stock
Exercised Options 1 3 4
Cash dividends declared (230) (230)
------ ------ ---- ------- -------
Balances, March 31, 2000 $3,971 $1,534 $(1,388) $13,227 $17,344
====== ====== ===== ======= =======
</TABLE>
The Accompanying Notes Are An Integral Part of These Statements
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, 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 three month
periods ended March 31, 2000 and 1999 the company's financial position at March
31, 2000 and December 31, 1999, and the cash flows for the three month periods
ended March 31, 2000 and 1999. These adjustments are of a normal recurring
nature.
Note 2. Securities as of March 31, 2000 and December 31, 1999 are summarized
below:
<TABLE>
<CAPTION>
(000 Omitted)
March 31, 2000 December 31, 1999
-------------- -----------------
Unrealized Unrealized
Cost Market Gain (Loss) Cost Market Gain (Loss)
---- ------ ----------- ---- ------ -----------
Securities Available For Sale
<S> <C> <C> <C> <C> <C> <C>
U. S. Treasury Securities $0 $0 $0 $0 $0 $0
U. S. Agency Securities 37,807 35,970 ($1,837) 38,337 36,636 ($1701)
Obligation of State and Political
Subdivisions 6,826 6,520 ($306) 6,826 6,445 ($381)
Corporate Securities 1 41 $40 1 49 $48
Other Securities 1,999 1,999 $0 1,999 1,999 $0
-------- -------- ------ --------- ---------- -----------
Total Securities Available for Sale $46,633 $44,530 ($2,103) $47,163 $45,129 ($2,034)
</TABLE>
7
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. The consolidated loan portfolio, stated at face amount, is composed of
the following:
<CAPTION>
(000 Omitted)
March 31, 2000 December 31, 1999
<S> <C> <C>
Real estate loans:
Construction and land development $8,118 10,205
Secured by farm land 1,874 1,489
Secured by 1-4 family residential 36,475 58,712
Other real estate loans 42,361 20,971
Loans to farmers (except those secured by real estate) 510 466
Commercial and industrial loans
(except those secured by real estate) 32,074 26,441
Loans to individuals for personal expenditures 32,002 31,829
All other loans 876 670
-----------------------------------
Total loans $154,290 150,783
Less unearned income reflected in loans 13 23
----------------------------------
Loans, net of unearned income $154,277 150,760
==================================
The Bank had loans in a Nonaccrual category of $34,125 on December 31,
1999 and $ 56,923 on March 31, 2000.
Note 4. Allowance for Loan Losses
Analysis of the Allowance for Loan Losses
<CAPTION>
For the Three Months Ended
(000 Omitted)
March 31, 2000 March 31, 1999
Balance at Beginning of Period $1,447 $1,226
Charge-Offs 53 196
Recoveries 10 11
-------- -------
Net Charge-Offs 43 185
Provision for Loan Losses 123 123
-------- ---------
Balance at End of Period $1,527 $1,164
======== ======
</TABLE>
8
<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 has not determined whether to adopt the new statement
early. 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 new Statement will have any effect on the Corporation's
earnings or financial position.
9
<PAGE>
FIRST NATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
- --------
Net income for the first quarter of 2000 was $440 thousand compared to $449
thousand in the first quarter of 1999. This represents a decrease of 2% and is
attributable to an increase in legal and professional fees in the first quarter
of 2000 which were incurred for several deposit feasibility studies. Interest
and fees on loans, the largest component of interest income, increased $499
thousand during the period, while interest on deposits, the largest component of
interest expense, increased $2 thousand resulting in an increase in net interest
income of $153 thousand. The provision to the allowance for loan losses remained
the same as the previous period at $123 thousand. Other operating expenses
increased $157 thousand. Most of the increase in other operating expenses was
due to increased salaries and employee benefits in 2000 as compared to 1999.
Total other operating income increased $10 thousand during the period.
Yields, Rates and Net Interest Margin
- -------------------------------------
Interest rates on loans have remained relatively stable during 2000 and in
comparison with the first quarter of 1999, the yield on the loan portfolio
increased from 8.56% in 1999 to 8.60% in 2000. At the same time the cost of
interest bearing deposits increased from 4.45% in the first quarter of 1999 to
4.56% in the same period of 2000. While the yield on earning assets increased 35
basis points from 7.77% in 1999 to 8.12% in 2000, the cost of interest bearing
liabilities increased 23 basis points from 4.59% in 1999 to 4.82% in 2000. This
resulted in an increase in the bank's interest rate spread from 3.18% in 1999 to
3.30% in 2000. Interest expense as a percentage of average earning assets
increased from 3.88% in 1999 to 4.17% in 2000. The bank's net interest margin
increased from 3.89% in 1999 to 3.95% in 2000.
Future Operations
- -----------------
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 will introduce "internet banking" with a bill-payer feature
beginning in mid 2000.
Year 2000 Information
- ---------------------
The Corporation encountered no year 2000 related problems at the end of
the year or during the transition on December 31, 1999. Management does not
anticipate problems in the coming year regarding this unique and historical
event.
The bank complied with all of the FFIEC requests, from the assessment
of operating systems to the replacement or modification of programs or PCs not
compliant with Y2K. These systems were tested and all contingency plans were in
place for unexpected occurrences.
First Bank spent a total of $212,224 on the Year 2000 project, which
included hardware replacements, new software, testing, and contingency planning.
Without these expenditures and the diligent efforts of all employees, January 1,
2000 may not have been so peaceful. We are now, more than ever, ready to bring
the Bank into the new millennium with new products and more enhanced services.
10
<PAGE>
<TABLE>
FIRST NATIONAL CORPORATION
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
Annual Annual
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate(3) Balance Expense Rate(3)
------- ------- ------- ------- ------- -------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Balances at correspondent banks -
interest bearing $169,342 $8,045 19.00% $245,738 $6,484 10.55%
Securities:
Taxable 38,124,407 600,716 6.30% 44,257,866 632,550 5.72%
Tax-exempt (1) 6,816,963 124,233 7.29% 7,047,827 136,912 7.77%
----------- ------- ----- ----------- ------- -----
Total Securities 44,941,370 724,949 6.45% 51,305,693 769,462 6.00%
Loans (net of earned income): (2)
Taxable 152,191,182 3,270,090 8.59% 129,402,662 2,769,565 8.56%
Tax-exempt (1) 74,392 2,255 12.12% 111,475 3,342 11.99%
----------------------- ------ ------------ ---------- ------
Total Loans 152,265,574 3,272,345 8.60% 129,514,137 2,772,907 8.56%
Fed funds sold and repurchase
agreements 8,045 110 5.48% 4,025,256 48,438 4.78%
---------- --------- ---- ------------ --------- -
Total earning assets 197,384,308 4,005,449 8.12% 185,117,824 3,597,292 7.77%
Less: allowance for Loan Losses (1,483,579) (1,254,022)
Total nonearning assets 12,067,617 10,349,476
------------- ---------------
Total Assets $207,968,346 $194,213,278
============ ============
LIABILITIES AND SHAREHOLDER EQUITY
Interest bearing deposits:
Checking $11,909,996 $33,865 1.14% $10,537,969 $42,582 1.62%
Money market savings 5,987,274 44,036 2.94% 6,387,631 48,003 3.01%
Regular savings 58,812,915 702,014 4.77% 60,273,968 635,662 4.22%
Certificates of deposit:
Less than $100,000 43,742,169 555,338 5.08% 49,544,628 656,728 5.30%
$100,000 and more 14,738,083 204,859 5.56% 11,458,861 155,583 5.43%
---------- ------- ----- ------------- --------- -----
Total interest bearing deposits 135,190,437 1,540,112 4.56% 138,203,057 1,538,558 4.45%
Fed funds purchased 1,781,363 27,198 6.11% --- --- 0.00%
Long term borrowings 33,613,862 489,048 5.82% 18,270,301 257,509 5.64%
-------- ---- -------------------- --------- -
Total interest bearing liabilities 170,585,662 2,056,358 4.82% 156,473,358 1,796,067 4.59%
Noninterest bearing liabilities
Demand deposits 18,704,406 18,547,760
Other liabilities 1,349,921 1,485,784
------------- ---------------
Total liabilities 190,639,989 176,506,902
Stockholders' equity 17,328,360 17,706,376
------------- --------------
Total liabilities and stockholders' equity $207,968,349 $194,213,278
============ ============
Net Interest income 1,949,091 1,801,225
========= =========
Interest rate spread 3.30% 3.18%
Interest expense as a percent of average
earning assets 4.17% 3.88%
Net interest margin 3.95% 3.89%
</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
11
<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, 2000 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 4, 2000 in Winchester, Virginia. Information relating to the
solicitation of proxies required by this item is incorporated by reference from
the Corporation's proxy statement dated February 1, 2000 for the Corporation's
Annual Meeting of Shareholders held April 4, 2000, filed with the Commission on
March 16, 2000.
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
12
<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 13, 2000 /s/ Stephen C. Pettit
--------------------------- -----------------------------------
Stephen C. Pettit, Comptroller
(Principal Accounting Officer and
Duly Authorized Officer)
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> DEC-31-2000
<CASH> 4,106
<INT-BEARING-DEPOSITS> 194
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,530
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 154,277
<ALLOWANCE> 1,527
<TOTAL-ASSETS> 209,825
<DEPOSITS> 152,682
<SHORT-TERM> 15,000
<LIABILITIES-OTHER> 1,201
<LONG-TERM> 18,598
0
0
<COMMON> 3,971
<OTHER-SE> 13,373
<TOTAL-LIABILITIES-AND-EQUITY> 209,825
<INTEREST-LOAN> 3,271
<INTEREST-INVEST> 683
<INTEREST-OTHER> 8
<INTEREST-TOTAL> 3,962
<INTEREST-DEPOSIT> 1,540
<INTEREST-EXPENSE> 2,056
<INTEREST-INCOME-NET> 1,906
<LOAN-LOSSES> 123
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,416
<INCOME-PRETAX> 656
<INCOME-PRE-EXTRAORDINARY> 656
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 440
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.55
<YIELD-ACTUAL> 3.95
<LOANS-NON> 57
<LOANS-PAST> 180
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 981
<ALLOWANCE-OPEN> 1,447
<CHARGE-OFFS> 53
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,527
<ALLOWANCE-DOMESTIC> 1,527
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
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