FIRST NATIONAL CORPORATION
Financial Statements
(Form 10-Q)
March 31, 1996
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MARCH 31, 1996 Commission File Number 0-13663
FIRST NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0799315
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
345 JOHN C. CALHOUN DRIVE, SE, ORANGEBURG, SC 29115
(Address of principal executive offices) (Zip Code)
(803) 534-2175
Registrant's telephone number, including area code
NOT APPLICABLE
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 report) and (2) has been subject
to such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of issuer's class of
securities.
CLASS OUTSTANDING as of March 31, 1996
Common Stock, $5 par value 2,247,636
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FIRST NATIONAL CORPORATION
INDEX
Part I: Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet -
March 31, 1996 and December 31, 1995
Consolidated Statement of Income -
Three Months Ended
March 31, 1996 and 1995
Consolidated Statement of Cash Flows -
Three Months Ended
March 31, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II: Other Information
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
<PAGE>
PART I - FINANCIAL INFORMATION
Item l. Financial Statements
FIRST NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS 3-31-96 12-31-95
(Dollars in thousands)
Cash and due from banks $ 23,023 $ 24,144
Federal funds sold 16,000 0
Investment securities - Note 2
Securities held-to-maturity (fair value of
$87,491 in 1996 and $96,594 in 1995) 87,063 95,660
Securities available-for-sale, at fair value 62,940 55,836
Total Investment securities 150,003 151,496
Loans - Note 3 254,927 250,423
Less: Unearned income 2,471 2,540
Allowance for loan losses - Note 4 3,933 3,703
Loans, net 248,523 244,180
Premises and equipment 8,461 8,250
Intangible assets 3,417 3,489
Other real estate - Note 6 60 151
Other assets 4,485 4,612
TOTAL ASSETS $453,972 $436,322
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Consolidated Balance Sheets - Continued.......
LIABILITIES & STOCKHOLDERS' EQUITY
3-31-96 12-31-95
(Dollars in thousands)
LIABILITIES:
Deposits in domestic offices:
Noninterest-bearing $ 58,532 $ 56,735
Interest-bearing - Note 7 320,666 311,580
Total deposits 379,198 368,315
Federal funds purchased & securities
sold under agreement to repurchase 31,290 25,833
Other liabilities 2,881 2,397
TOTAL LIABILITIES 413,369 396,545
Commitments & contingent liabilities - Note 8
STOCKHOLDERS' EQUITY:
Common stock - $5 par value; authorized
5,000,000 shares; issued and outstanding
2,247,636 shares in 1996, and 2,244,339
shares in 1995 - Note 9 11,238 11,222
Additional paid-in capital 16,288 16,260
Retained earnings 13,234 12,241
Unrealized gain (loss) on securities available-
for-sale, net of applicable deferred income
taxes (157) 54
TOTAL STOCKHOLDERS' EQUITY 40,603 39,777
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $453,972 $436,322
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FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months Ended
03-31-96 03-31-95
(Dollars in thousands,
except per share data)
Interest income:
Interest & fees on loans $5,916 $5,065
Interest & dividends on investment sec.:
Taxable income 1,576 1,324
Non-taxable income 460 384
Dividends on stock 6 6
Interest on federal funds sold 196 133
Total Interest income 8,154 6,912
Interest expense:
Interest on deposits 3,068 2,449
Interest on federal funds purchased &
securities sold under agreements to
repurchase 352 257
Total Interest Expense 3,420 2,706
Net Interest Income 4,734 4,206
Provision for loan losses - Note 4 220 120
Net interest income after provision
for loan losses 4,514 4,086
Noninterest income:
Service charges on deposit accounts 986 718
Other service charges commissions, fees 319 262
Investment securities gains (losses) 2
Other operating income 8 11
Total noninterest income 1,313 993
Noninterest expense:
Salaries & employee benefits 2,044 1,890
Occupancy expense of bank premises-net 274 218
Furniture & equipment expense - net 294 255
Amortization expense-Intangible assets 155 76
FDIC Insurance premium 178
Other expense 1,112 864
Total noninterest expense 3,879 3,481
Income before income taxes 1,948 1,598
Applicable income taxes 551 458
Net Income $1,397 $1,140
Net income per common share - Note 10 $0.62 $0.51
Cash dividends per common share $0.18 $0.165
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FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
3 Months Ended 3 Months Ended
03-31-96 03-31-95
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 1,397 $ 1,140
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 357 272
Provision for loan losses 220 120
Provision for deferred taxes 123 16
Increase (decrease) in reserve
for income taxes - current 496 407
(Gain) loss on sale of premises
and equipment 0 (3)
(Increase) decrease in interest
receivables (22) 169
Increase (decrease) in accumulated
premium amortization and discount
accretion - net (361) 30
Increase (decrease) in interest
payable 19 101
(Increase) decrease in miscellaneous
assets 32 (39)
(Increase) decrease in prepaid
assets 247 (124)
Increase (decrease) in other
liabilities (43) (231)
Total adjustments 1,068 718
Net cash provided by operating
activities 2,465 1,858
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Consolidated Statements of Cash Flows - Continued.......
3 Months Ended 3 Months Ended
03-31-96 03-31-95
( Dollars in thousands)
Cash flows from investing activities:
Proceeds from maturities of investment
securities held-to-maturity 25,556 9,530
Purchase of investment securities
held-to-maturity (1,048) (4,206)
Proceeds from maturities of investment
securities available-for-sale 4,316 307
Purchase of investment securities
available-for-sale (27,731) (310)
Net (increase) decrease in customer
loans (4,646) (6,249)
Additions to premises and equipment (413) (241)
Proceeds from sale of premises and
equipment 0 3
Recoveries from loans previously charged
off 83 142
(Increase) decrease in funds sold (16,000) (17,925)
Net cash used in investing
activities (19,883) (18,949)
Cash flows from financing activities:
Net increase in demand deposits, NOW
accounts, savings accounts and
certificates of deposit 11,071 2,419
Sale of common stock 172 41
Net increase (decrease) in federal funds
purchased and securities sold under
agreement to repurchase 5,458 14,283
Dividends paid (404) (336)
Net cash provided by financing
activities 16,297 16,407
Net increase (decrease) in cash and cash
equivalents (1,121) (684)
Cash and cash equivalents at beginning of
year $24,144 $23,046
Cash and cash equivalents at end of period $23,023 $22,362
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FIRST NATIONAL CORPORATION
Note 1 - Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year
ended December 31, 1995. All dollar amounts are stated in
thousands, except per share data.
Note 2 - Investment Securities:
The following is the amortized cost and fair value of investment
securities held-to-maturity at March 31, 1996 and December 31,
1995:
<TABLE>
<CAPTION>
03-31-96 12-31-95
Gross Gross Gross Gross
Amort Unreal Unreal Fair Amort Unreal Unreal Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U S Treasury
securities 28,285 76 (54) 28,307 34,323 203 (65) 34,461
Obligations of
U S government
agencies & corps 22,079 109 (225) 21,963 23,875 212 (86) 24,001
Obligations of state
and political
subdivisions 36,699 610 (88) 37,221 37,462 714 (44) 38,132
Total 87,063 795 (367) 87,491 95,660 1,129 (195) 96,594
</TABLE>
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Note 2 - Continued...
The following is the amortized cost and fair value of securities
available-for-sale at March 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
03-31-96 12-31-95
Gross Gross Gross Gross
Amort Unreal Unreal Fair Amort Unreal Unreal Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U S Treasury
securities 19,174 34 (45) 19,163 15,448 188 0 15,636
Obligations of
U S government
agencies & corps 43,538 79 (315) 43,302 39,826 188 (289) 39,725
Other securities 475 475 475 475
Total 63,187 113 (360) 62,940 55,749 376 (289) 55,836
</TABLE>
Investment securities with an aggregate amortized cost of $63,073
on 3-31-96, and $55,126 on 12-31-95, were pledged to secure public
deposits and for other purposes as required and permitted by law.
Note 3 - Loans:
The following is a summary of loans at: 3-31-96 12-31-95
Commercial, financial & agricultural 44,133 42,000
Real Estate - construction 6,095 5,792
Real estate - mortgage 151,074 148,853
Consumer 52,418 52,670
All other 1,207 1,108
Total loans, gross 254,927 250,423
As of 3-31-96 and December 31, 1995 the aggregate dollar amount of
loans to related parties; principally, directors and executive
officers, their immediate families and their business interests,
was $9,963 and $7,342 respectively. The following is an analysis
of the activity with respect to loans to related parties for the
three months ended 3-31-96:
Balance, beginning of period 7,342
Add:
New loans 3,652
Deduct:
Payments 1,031
Other changes
Balance, end of period 9,963
<PAGE>
Note 4 - Allowance for Loan Losses:
Amount
03-31-96 12-31-95
Balance, beginning of period (year) 3,703 3,194
Add:
Recoveries 83 356
Provisions for loan losses charged
to income 220 844
Total 4,006 4,394
Deduct:
Loans charged off 73 691
Balance, end of period (year) 3,933 3,703
The allowance for loan losses is maintained at a level which, in
management's judgment is adequate to absorb credit losses inherent
in the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan
portfolio, including the nature of the portfolio, credit
concentrations, trends in historical loss experience, specific
impaired loans, and economic conditions. Allowances for impaired
loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased
by a provision for loan losses, which is charged to expense, and
reduced by charge-offs, net of recoveries.
For impairment recognized in accordance with Statement of Financial
Accounting Standards No. 114 (SFAS 114), "Accounting by Creditors
for Impairment of a Loan", the entire change in present value of
expected cash flows is reported as bad debt expense in the same
manner in which impairment initially was recognized or as a
reduction in the amount of bad debt expense that otherwise would be
reported.
Note 5 - Adoption of Statement of Financial Accounting Standards No. 114
and No. 118:
Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards No. 114 (SFAS 114), "Accounting by
Creditors for Impairment of a Loan", and Statement of Financial
Accounting Standards No. 118 (SFAS 118), "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures".
These statements require creditors to account for impaired loans,
except for those loans that are accounted for at fair value or at
the lower of cost or fair value, at the present value of the
expected future cash flows discounted to the loan's effective
interest rate.
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Note 5 - Continued...
The Company determines when loans become impaired through its
normal loan administration and review functions. Those loans
identified as substandard or doubtful as a result of the loan
review process are potentially impaired loans. A loan is impaired
when, based on current information and events, it is probable that
a creditor will be unable to collect all principal and interest
amounts due according to the contractual terms of the loan
agreement. A loan is not impaired during a period of delay in
payment if the Company expects to collect all amounts due,
including interest accrued at the contractual interest rate, for
the period of delay.
In accordance with these standards, the Company does not apply SFAS
114 and SFAS 118 to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment. These groups
include the Company's credit card, residential mortgage, overdraft
protection, home equity lines, accounts receivable financing, and
consumer installment loans.
The Company's adoption of these accounting standards did not have
a material effect on the financial condition and results of
operations of the Company.
In accordance with SFAS 114, historical information has not been
restated to reflect the application of this standard.
Note 6 - Other Real Estate:
Real estate acquired in satisfaction of a loan and in-substance
foreclosures are reported in other assets. In-substance
foreclosures are properties in which the borrower has little or no
equity in the collateral. Properties acquired by foreclosure or
deed in lieu of foreclosure and in-substance foreclosures are
transferred to Other Real Estate Owned ("OREO") and recorded at
the lower of the outstanding loan balance at the time of
acquisition or the estimated market value. Market value is
determined on the basis of the properties being disposed of in the
normal course of business and not on a liquidation or distress
basis. Loan losses arising from the acquisition of such properties
are charged against the allowance for loan losses. Gains or losses
arising from the sale of OREO are reflected in current operations.
Note 7 - Interest Bearing Deposits:
Certificates of deposit in excess of $100,000 totaled $34,576 and
$31,203 at March 31, 1996 and December 31, 1995 respectively.
<PAGE>
Note 8 - Commitments and Contingent Liabilities:
In the normal course of business, the Company makes various
commitments and incurs certain contingent liabilities, which are
not reflected in the accompanying financial statements. The
commitments and contingent liabilities include guarantees,
commitments to extend credit and standby letters of credit. At
March 31, 1996, commitments to extend credit and standby letters of
credit aggregated $46,190. The Company does not anticipate any
material losses as a result of these transactions.
Note 9 - Common Stock:
As of December 31, 1995, the common stock outstanding was
2,244,339. During the first quarter, the Company granted options to
purchase an aggregate of 3,525 shares under the incentive stock
option plan and also issued 4,584 shares to the dividend
reinvestment plan. The Company purchased and retired 4,812 shares
during the first quarter of 1996. As of March 31, 1996, the common
stock outstanding was 2,247,636 shares.
Note 10 - Earnings Per Share:
Earnings per share are calculated on the weighted-average of number
of shares of common stock outstanding, giving retroactive effect to
stock dividends and stock splits. The number of weighted-average
shares outstanding at March 31, 1996, was 2,247,329 and 2,240,081
at December 31, 1995.
Dividends per share are calculated using the current equivalent of
number of common shares outstanding at the time of the dividend
based on the Compnay's shares outstanding.
<PAGE>
FIRST NATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion relates to financial statements contained in
this report. For further information refer to the Management's Discussion
and Analysis of Financial Condition and Results of Operations appearing in
the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
For the first quarter of 1996, First National Corporation (" the
Corporation ") had consolidated net income of $1,397,000, an increase of 22.5
percent over the $1,140,000 earned in the first quarter of 1995. Earnings
per share amounted to $0.62 for the three months ended March 31, 1996, a 21.6
percent increase over the $0.51 per share earned in the first quarter of
1995.
Net Interest Income
For the first three months of 1996, net interest income was $4,734,000
compared to $4,206,000 for the same period in 1995. This is an increase of
$528,000 or 12.6 percent. The increase resulted from a 17.6 percent increase
in loan outstandings, net of unearned income when compared to the first three
months of 1995.
The yield on a major portion of the Company's earning assets adjusts
simultaneously with changes in the general level of interest rates. In the
first three months of 1995, the year to date taxable equivalent yield on
earning assets was 7.95 percent. During the same period in 1996, the yield
decreased to 7.86 percent or a decrease of 9 basis points. The cost of the
liabilities used to support these earning assets increased 18 basis points
from 3.74 percent in 1995 to 3.92 percent in 1996. Interest rates paid on
interest-bearing liabilities increased more rapidly than yields on earning
assets due to the Company's negative asset/liability position.
First quarter net interest margin decreased from 4.84 percent in 1995 to
4.54 percent in 1996. The impact of interest-free funds for the same period
decreased from .63 percent to .61 percent or a decrease of 2 basis points.
The largest category of earning assets is loans. At the end of the
first quarter 1996, loans outstanding, less unearned income, were
$252,456,000 compared to $247,883,000 at December 31, 1995. This represents
an increase of $4,573,000 or 1.8 percent. For the three months ended March
31, 1996 interest and fees on loans was $5,916,000 compared to $5,065,000 for
the comparable period in 1995, an increase of $851,000 or 16.8 percent.
<PAGE>
Management's Discussion Continued...
The major volume increase in the loan portfolio was in commercial loans.
For the first three month period ended March 31, 1996, commercial loans
increased $2,133,000 or 5.1 percent when compared to December 31, 1995.
This increase in the loan portfolio was brought about due to a renewed
confidence in overall economic trends. The Company has no foreign loans nor
loans for highly leveraged transactions.
For the three months ended March 31, 1996, loans averaged $249,699,000
and yielded 9.18 percent on a taxable equivalent basis compared to
$227,556,000 with a taxable equivalent yield of 9.36 percent or a decrease
of 19 basis points for the year ended December 31, 1995.
Investment securities are the second largest category of earning assets.
Investment securities are utilized by the Company as a vehicle for the
employment of excess funds, to provide liquidity, to fund loan demand or
deposit liquidation, and to pledge as collateral for certain deposit and
purchased funds.
At March 31, 1996, investment securities were $150,003,000 compared to
$151,496,000 at December 31, 1995. This is a decrease of $1,493,000 or 1.0
percent. Funds generated in the reduction of the investment portfolio were
used to fund the Company's loan growth.
For the three months ended March 31, 1996, investment income was
$2,042,000 compared with $1,714,000 for the comparable period in 1995, a net
increase of $328,000 or 19.1 percent. Management attributes this increase in
income to a higher volume of investment securities.
For the first quarter 1996, securities averaged $150,301,000 and yielded
5.83 percent on a taxable equivalent basis, compared to $142,614,000 with a
yield of 5.85 percent for the year ended December 31, 1995, resulting in a 2
basis point decrease in yield.
As of March 31, 1996 the Company had unrealized gains in the U S
Treasury and agency portfolio of $298,000 and in the municipal portfolio
$610,000. Also at March 31, 1996, the Company had an unrealized loss of
$639,000 in the U S Treasury and agency portfolio and an $88,000 unrealized
loss in the municipal portfolio.
At year end 1993, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" for the investment portfolio, and showed a net unrealized loss at
March 31, 1996 of approximately $247,000 on the $62,712,000 of securities
denoted as available-for-sale.
<PAGE>
Management's Discussion Continued...
Although securities classified as available-for-sale may be sold from
time to time to meet liquidity or other needs, it is not the normal activity
of the Company to trade the investment portfolio. Management has the intent
and the ability to hold securities on a long-term basis or until maturity.
During the first three months of 1996, interest-bearing liabilities
averaged $350,683,000 and carried an average rate of 3.92 percent. This
compares to an average level of $316,629,000 with an average rate of 3.96
percent at December 31, 1995 or a decrease of 4 basis points. Approximately
half of these interest-bearing liabilities have fixed rates. They are
expected to be renewed at prevailing market rates as they mature.
Provision for Loan Losses
The provision for loan losses for the three month period ended March 31,
1996 was $220,000 compared to $120,000 for the same period in 1995 which
represents a 83.3 percent increase. The increase in the provision for loan
losses was due to several factors. These factors include continued strong
loan growth. The allowance for loan losses was $3,933,000 or 1.56 percent of
outstanding loans at March 31, 1996 compared to 1.49 percent of outstanding
loans at year-end 1995.
To determine the adequacy of the allowance for loan losses, management
performs an internal loan analysis which indicates the estimated loan losses.
Management feels that the allowance for loan losses in adequately funded.
Other real estate owned includes certain real estate acquired as a
result of foreclosure as well as amounts reclassified as in-substance
foreclosures. For the period ended March 31, 1995, other real estate owned
was $60,000 compared to $151,000 at December 31, 1995. This decrease
resulted from the sale of several real estate properties.
Management anticipates that the level of charge-offs for 1996 will be
near or below the levels of 1995. The loan loss allowance is considered
adequate by management. However, changes in economic conditions in the
Company's market area could affect these levels.
NonInterest Income and Expense
Noninterest income for the first quarter of 1996 was $1,313,000 compared
to $993,000 for the same period in 1995, representing an increase of $320,000
or 32.2 percent. During the first quarter of 1996, service charges and fees
showed a significant increase. This was primarily due to the increase in
service fees on deposit accounts implemented during the fourth quarter of
1995. Other service charges, commissions and fees for the first quarter of
1996 increased $57,000 or 21.8 percent compared to the same period in 1995.
This increase can be primarily attributed to the increase in the real estate
mortgage loan origination fee income.
<PAGE>
Management's Discussion Continued...
Noninterest expense for the first quarter of 1996 was $3,879,000
compared to $3,481,000, an increase of $398,000 or 11.4 percent. Salaries
and employee benefits for the three month period ended March 31, 1996,
increased $154,000 or 8.2 percent compared to the same period in 1995.
Amortization expense on intangible assets increased $79,000 or 103.9 percent
over the same period in 1995. This is the direct result of acquiring two
branches from NationsBank in June 1995. Other expenses increased $248,000 or
28.7 percent for the three month period ended March 31, 1996 when compared to
the same period in 1995. This increase in other expenses is distributed
among the following expense categories: advertising, insurance, office and
printing supplies, postage, telephone and line charges, and other expenses.
Net Income
Net income was up 22.5 percent for the first three months of 1996 when
compared to the same period in 1995. The $528,000 or 12.6 percent increase
in net interest income and the $320,000 or 32.2 percent increase in
noninterest income for the first quarter ended March 31, 1996 were the
primary factors in the growth in net income.
Capital Resources and Liquidity
To date the capital needs of the Company have been met through the
retention of earnings less cash dividends. At the end of the first quarter
1996, stockholder's equity was $40,603,000 compared to $39,777,000 at
December 31, 1995.
In connection with its sponsorship of the organization of the National
Bank of York County, the Company plans to borrow $4,500,000 to purchase all
of the stock of and thereby capitalize, the National Bank of York County, and
has entered into an unsecured line of credit for this purpose. The Company
plans to make an offering of its common stock to repay as much of such
borrowing as possible. Preliminary approval of the national bank charter was
granted by the OCC on February 21, 1996, and conditional approval of deposit
insurance was issued by the FDIC on April 5, 1996. An application to acquire
the stock of the new bank was filed by the Company on April 23, 1996.
<PAGE>
Management's Discussion Continued...
The Company and subsidiary are subject to certain risk-based capital
guidelines. These ratios measure the relationship of capital to a
combination of balance sheet and off balance sheet risks. The values of both
balance sheet and off balance sheet items will be adjusted to reflect credit
risk. Under the guidelines of the Board of Governors of the Federal Reserve
System, which are substantially similar to the Office of the Comptroller of
the Currency guidelines, as of December 31, 1995 Tier 1 capital must be at
least 4 percent of risk-weighted assets, while total capital must be 8
percent of risk-weighted assets. The Tier 1 capital ratio at March 31, 1996
was 15.3 percent compared to 15.3 percent at December 31, 1995. The total
capital ratio was 16.5 percent at March 31, 1996 compared to 16.6 percent at
December 31, 1995.
In conjunction with the risk-based capital ratio, applicable regulatory
agencies have also prescribed a leverage capital ratio in evaluating capital
strength and adequacy. The minimum leverage ratio required for banks is
between 3 percent and 5 percent, depending on the institution's composite
rating as determined by its regulators. At March 31, 1996, First National
Corporation's leverage ratio was 9.1 percent, compared to 9.1 percent at
December 31, 1995. First National Corporation's ratio exceeds the minimum
standards by substantial margins.
Liquidity is the ability of the Company to meet its cash flow
requirements which arise primarily from withdrawal of deposits, extension of
credit and payment of operating expenses. Asset liquidity is maintained by
the maturity structure of loans, investment securities and other short-term
investments. Management has policies and procedures governing the length of
time to maturity on loans and investments. Normally changes in the earning
asset mix are of a longer term nature and are not utilized for day-to-day
Corporation liquidity needs.
The Company's liabilities provide liquidity on a day-to-day basis.
Daily liquidity needs are met from deposit levels or from the Company's use
of federal funds purchased and securities sold under agreement to repurchase.
Additional liquidity can be secured from lines of credit extended to the
Company from its correspondent banks. Management feels that its liquidity
position is adequate.
<PAGE>
PART II - OTHER INFORMATION
Item l. Legal Proceedings:
Neither First National Corporation nor its subsidiary, First National
Bank, is a part to nor is any of their property the subject of any
material or other pending legal proceedings, other than ordinary
routine proceedings incidental to their business.
Item 2. Changes in Securities:
Not Applicable
Item 3. Defaults Upon Senior Securities:
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders:
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 10.1 - Restricted stock agreement between C. John Hipp, III
and First National Corporation, dated March 28, 1996.
(b) Exhibit 27 - Financial Data Schedule
(c) Reports on Form 8-K: None
<PAGE>
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
Date: C. John Hipp, III
------------------------------------
President and Chief Executive Officer
Date: W. Louis Griffith
-------------------------------------
Principal Accounting Officer and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
10.1 Restricted stock agreement between Attached
C. John Hipp, III and First National
Corporation, dated March 28, 1996.
27 Financial Data Schedule Attached
<PAGE>
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT dated March 28, 1996, is
between FIRST NATIONAL CORPORATION, a South Carolina corporation
(the "Corporation"), and C. JOHN HIPP, III, an individual residing
in Orangeburg County, South Carolina ("EMPLOYEE").
SECTION 1. PURPOSE. The purpose of this Restricted Stock
Agreement is to recognize and reward Employee for his service as
President and Chief Executive Officer of the Corporation rendered
prior to the date of this Agreement; Employee has been instrumental
and successful in developing, expanding and increasing the business
and earnings of the Corporation.
SECTION 2. GRANT OF RESTRICTED STOCK. As of the date hereof,
the Corporation grants and issues to Employee 5,185 shares of
common stock, $5.00 par value, of the Corporation (the "Shares").
The Shares shall be duly paid and nonassessable and shall be
subject to the restrictions and limitations set forth herein.
SECTION 3. RESTRICTIONS. Prior to the vesting of the Shares
as set forth in SECTION 4 hereof:
(a) the Shares shall not be transferable and shall not
be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of; and
(b) the stock certificate(s) evidencing the Shares
shall contain the following legend:
"The shares represented by this certificate are subject
to the terms of a Restricted Stock Agreement dated as of March 28,
1996, a copy of which is available at the principal office of the
corporation."
Except as expressly stated herein, Employee shall have all
rights as a stockholder with respect to the Shares, commencing as
of the date of issuance thereof and continuing for so long as
Employee remains the record owner of the Shares, including the
rights to receive dividends in cash or other property and other
distributions or rights in respect of the Shares and to vote the
Shares as the record owner thereof.
SECTION 4. VESTING. The restrictions described in Section 3
shall lapse and the Shares shall vest in Employee on the following
dates:
(a) on the third anniversary of the date of issuance
of the Shares, to the extent of 1,296 Shares;
(b) on the fifth anniversary of the date of issuance
of the Shares, to the extent of 1,296 Shares;
<PAGE>
(c) on the seventh anniversary of the date of issuance
of the Shares, to the extent of any and all unvested
Shares as of such date; and
(d) at any time in the event of a Change in Control
(as defined below) of the Corporation or in the event of
Employee's death, to the extent of any and all unvested
Shares as of such date.
"CHANGE OF CONTROL" means and includes any one of the
following events:
(i) the acquisition ("ACQUISITION"), directly or
indirectly, by any "person" ("ACQUIROR") (as such term
"person" is defined for purposes of Section 13(d) and
14(d) of the Securities and Exchange Act of 1934
("EXCHANGE ACT")), other than by (x) the Corporation,
(y) a tax-qualified retirement plan under the Internal
Revenue Code, or (z) any person who on the date hereof
is a director of the Corporation or First National
Bank, Orangeburg, South Carolina, a national banking
association and wholly owned subsidiary of the
Corporation (the "BANK"), or whose shares of stock in
the Corporation are treated as "beneficially owned" (as
such term is defined for purposes of Rule 13d-3 of the
Exchange Act) by any such director, of the beneficial
ownership (as such term is defined for purposes of
Section 13(d)(1) of the Exchange Act) of shares of the
Corporation which, when added to any other shares the
beneficial ownership of which is held by the Acquiror,
shall constitute twenty percent (20%) or more of the
combined voting power of the Corporation's then
outstanding common stock, $5.00 par value; or
(ii) the occurrence of any merger, consolidation or
reorganization to which the Corporation is
a party and pursuant to which the
Corporation (or an entity controlled
thereby) is not a surviving entity, or the
sale of all or substantially all of the
assets of the Corporation or the Bank; or
(iii) the occurrence of a change in control of the
Corporation or the Bank of the nature that would be
required to be reported in response to Item 5(j) of
Schedule 14A of Regulation 14A under the Exchange Act,
or in response to the regulations of the Federal
Reserve Board or the Comptroller of the Currency or any
other federal regulatory agency having authority over
the business operations of the Corporation or the Bank.
<PAGE>
Upon the vesting of any Shares, Employee shall be entitled to
receive replacement stock certificate(s) evidencing such vested
Shares and such certificate(s) shall not contain the legend set
forth in SECTION 3(b).
SECTION 5. FORFEITURE. If, prior to a Change of Control of
the Corporation occurring after the date of this Agreement or prior
to the death of the Employee, the employment of Employee by the
Corporation terminates for any reason (other than death of
Employee), all of the Shares that are not vested under SECTION 4 as
of the date of termination shall be forfeited to the Corporation,
such event being referred to herein as a ("FORFEITURE EVENT").
Upon the occurrence of a Forfeiture Event, Employee shall return
for cancellation all stock certificates representing unvested
Shares, and irrespective of whether such stock certificates are so
returned and cancelled, all unvested Shares shall automatically,
without further action, be cancelled and shall no longer be issued
and outstanding.
SECTION 6. TAXES.
(a) If Employee properly elects, within 30 days of the
date of this Agreement, to include in gross income for federal
income tax purposes an amount equal to the fair market value
(as of the date of issuance) of the Shares granted pursuant to
this Agreement, Employee shall pay to the Corporation in the
year of this Agreement, all federal, state and local taxes
required to be withheld with respect to the grant of the
Shares. If Employee fails to make such tax payments as
required, the Corporation shall, to the extent permitted by
law, have the right to deduct from any payment of any kind
otherwise due to Employee all federal, state and local taxes
of any kind required by law to be withheld with respect to the
Shares.
(b) If Employee does not make the election described
in subparagraph (a) of this section, he shall, on the date as
to which the restrictions described in SECTION 3 shall lapse
as to any Shares, pay to the Corporation all federal, state
and local taxes of any kind required by law to be withheld
with respect to such vested Shares, and if Employee fails to
make such payments as required, the Corporation shall, to the
extent permitted by law, have the right to deduct from any
payment of any kind otherwise due to Employee all federal,
state and local taxes of any kind required by law to be
withheld with respect to such vested Shares.
<PAGE>
SECTION 7. SECURITIES MATTERS.
(a) Employee warrants and represents to the
Corporation that he is acquiring the Shares solely for his
account for investment and not for the account of any other
person and not for distribution, assignment or resale to
others.
(b) The Shares have not been registered under any
federal or state securities law and have been issued under
exemptions that depend, in part, on the intent of Employee not
to sell or transfer such shares in any manner not permitted by
such laws. Notwithstanding anything to the contrary contained
herein, the Shares may not be sold or transferred except upon
registration under all applicable federal and state securities
laws or upon delivery to the Corporation of either (a) a no-
action letter from the state and federal agencies having
jurisdiction thereof, or (b) an opinion of counsel
satisfactory to the Corporation that neither the sale nor the
proposed transfer constitutes a violation of any federal or
state securities law. The stock certificate(s) representing
the Shares shall contain a legend to the effect of the SECTION
7(b).
SECTION 8. MISCELLANEOUS.
(a) This Agreement shall be construed, administered
and governed in all respects under and by the applicable
internal laws of the State of South Carolina, without giving
effect to the principles of conflicts of laws thereof.
(b) This Agreement expresses the entire agreement
between the parties hereto and supersedes any prior or
contemporaneous written or oral understanding or agreement
regarding the subject matter hereof. This Agreement may not
be modified, amended, supplemented or waived except by a
writing signed by the parties hereto, and such writing must
refer specifically to this Agreement.
(c) This Agreement, as amended from time to time,
shall be binding upon, inure to the benefit of and be
enforceable by the heirs, successors and assigns of the
parties hereto; provided however, that this provision shall
not permit any assignment in contravention of the terms
contained elsewhere herein.
(d) Nothing in this Agreement shall confer on Employee
any right to continue in the employ of the Corporation or any
of its affiliates.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first above written.
FIRST NATIONAL CORPORATION,
a South Carolina corporation
By: L. D. Westbury
------------------
EMPLOYEE
C. John Hipp, III
----------------------
C. John Hipp, III
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at March 31, 1996 and the
Consolidated Statement of Income for the three months ended March 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 23,023
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,940
<INVESTMENTS-CARRYING> 87,063
<INVESTMENTS-MARKET> 87,491
<LOANS> 252,456
<ALLOWANCE> 3,933
<TOTAL-ASSETS> 453,972
<DEPOSITS> 379,198
<SHORT-TERM> 31,290
<LIABILITIES-OTHER> 2,881
<LONG-TERM> 0
0
0
<COMMON> 11,238
<OTHER-SE> 29,365
<TOTAL-LIABILITIES-AND-EQUITY> 453,972
<INTEREST-LOAN> 5,916
<INTEREST-INVEST> 2,042
<INTEREST-OTHER> 196
<INTEREST-TOTAL> 8,154
<INTEREST-DEPOSIT> 3,068
<INTEREST-EXPENSE> 3,420
<INTEREST-INCOME-NET> 4,734
<LOAN-LOSSES> 220
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,879
<INCOME-PRETAX> 1,948
<INCOME-PRE-EXTRAORDINARY> 1,397
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,397
<EPS-PRIMARY> .62
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.88
<LOANS-NON> 903
<LOANS-PAST> 241
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,662
<ALLOWANCE-OPEN> 3,703
<CHARGE-OFFS> 73
<RECOVERIES> 83
<ALLOWANCE-CLOSE> 3,933
<ALLOWANCE-DOMESTIC> 3,933
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
