FIRST NATIONAL CORPORATION
Financial Statements
(Form 10-Q)
June 30, 1997
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended JUNE 30, 1997 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.)
950 JOHN C. CALHOUN DRIVE, SE, ORANGEBURG, SC 29115
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 534-2175
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 June 30, 1997
Common Stock, $2.50 par value 5,134,773
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FIRST NATIONAL CORPORATION
INDEX
Part I: Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet -
June 30, 1997 and December 31, 1996
Consolidated Statement of Income -
Three and Six Months Ended
June 30, 1997 and 1996
Consolidated Statement of Cash Flows -
Six Months Ended
June 30, 1997 and 1996
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 of Form 8-K
(A) Exhibit 3 - Articles of Incorporation
(B) Exhibit 27 - Financial Data Schedule
(C) Reports on Form 8-K: None
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PART I - FINANCIAL INFORMATION
Item l. FINANCIAL STATEMENTS
FIRST NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS 6-30-97 12-31-96
(In Thousands) (In Thousands)
Cash and due from banks $29,896 $28,824
Federal funds sold 507 0
Investment securities - Note 2
Securities held-to-maturity (fair value
of $52,968 in 1997 and $65,504 in 1996) 52,620 65,197
Securities available-for-sale, at fair
value 121,500 95,684
Total investment securities 174,120 160,881
Loans - Note 3 326,847 296,865
Less: Unearned income 3,671 3,246
Allowance for loan losses-Note 4 5,178 4,705
Loans, net 317,998 288,914
Premises and equipment 10,658 10,848
Intangible assets 2,746 2,962
Other real estate - Note 6 43 63
Other assets 6,484 5,140
TOTAL ASSETS $542,452 $497,632
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Consolidated Balance Sheet - Continued.......
LIABILITIES & STOCKHOLDERS' EQUITY 6-30-97 12-31-96
(In Thousands) (In Thousands)
Liabilities:
Deposits in domestic offices:
Noninterest bearing $69,154 $67,232
Interest-bearing - Note 7 378,586 346,921
TOTAL DEPOSITS 447,740 414,153
Federal funds purchased & securities
sold under agreement to repurchase 40,310 32,547
Other liabilities 3,430 2,586
TOTAL LIABILITIES 491,480 449,286
Commitments & Contingent liabilities - Note 8
Shareholders' equity:
Common stock - $2.50 par value; authorized
40,000,000 shares; issued and outstanding
5,134,773 shares in 1997 and 5,100,048
shares in 1996 - Note 9 12,837 12,750
Additional paid-in capital 23,018 22,856
Retained earnings 15,065 12,790
Unrealized gain (loss) on securities
available-for-sale, net of applicable
deferred income taxes 52 (50)
TOTAL SHAREHOLDERS' EQUITY 50,972 48,346
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $542,452 $497,632
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FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months Ended 6 Months Ended
06-30-97 06-30-96 06-30-97 06-30-96
(In Thousands) (In Thousands)
Interest income:
Interest and fees on loans $7,424 $6,149 $14,323 $12,065
Interest & dividends on investment sec.:
Taxable income 2,223 1,691 4,250 3,267
Non-taxable income 379 394 788 854
Dividends on stock 11 7 28 13
Interest on federal funds sold 185 132 392 328
Total Interest income 10,222 8,373 19,781 16,527
Interest expense:
Interest on deposits 3,841 3,016 7,345 6,084
Interest on federal funds purchased &
securities sold under agreement to
repurchase 513 340 978 692
Total interest expense 4,354 3,356 8,323 6,776
Net Interest Income 5,868 5,017 11,458 9,751
Provisions for loan losses - Note 4 314 300 598 520
Net interest income after provisions
for loan losses 5,554 4,717 10,860 9,231
Noninterest income:
Service charges on deposit accounts 1,045 1,012 2,050 1,998
Other service charges commissions, fees 433 272 923 591
Gains (losses) on investment securities 2 2 2 2
Other operating income 12 8 22 16
Total noninterest income 1,492 1,294 2,997 2,607
Noninterest expense:
Salaries & employee benefits 2,550 2,168 4,977 4,212
Occupancy expense of bank premises -
net 299 244 625 518
Furniture & equipment expense - net 348 316 734 610
Amortization expense-Intangible assets 166 158 311 313
Other expense 1,288 1,063 2,502 2,175
Total noninterest expense 4,651 3,949 9,149 7,828
Income before income taxes 2,395 2,062 4,708 4,010
Applicable income taxes 753 663 1,461 1,214
Net Income $1,642 $1,399 $3,247 $2,796
Net income per common share - Note 10 $0.32 $0.29 $0.64 $0.59
Cash dividends per common share $0.095 $0.09 $0.19 $0.18
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FIRST NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
6 Months Ended 6 Months Ended
06-30-97 06-30-96
(In Thousands) (In Thousands)
Cash flows from operating activities:
Net income $ 3,247 $ 2,796
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 867 737
Provision for loan losses 598 520
Increase (decrease) in reserve
for income taxes-current 116 (266)
(Increase) decrease in interest
receivables (596) (111)
Increase (decrease) in accumulated
premium amortization and discount
accretion - net (37) 107
Increase (decrease) in interest
payable 260 (86)
(Increase) decrease in miscellaneous
assets (36) (116)
(Increase) decrease in prepaid
assets (672) 314
Increase (decrease) in other
liabilities 285 326
Total adjustments 785 1,425
Net cash provided by operating
activities $ 4,032 $ 4,221
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Consolidated Statement of Cash Flows - Continued.......
6 Months Ended 6 Months Ended
06-30-97 06-30-96
(In Thousands) (In Thousands)
Cash flows from investing activities:
Proceeds from maturities of investment
securities held-to-maturity $15,034 $39,218
Purchase of investment securities
held-to-maturity (2,422) (4,180)
Proceeds from maturities of investment
securities available-for-sale 9,929 9,312
Purchase of investment securities
available-for-sale (35,577) (41,588)
Net (increase) decrease in customer
loans (29,869) (13,860)
Additions to premises and equipment (365) (1,535)
Recoveries from loans previously charged
off 187 277
(Increase) decrease in funds sold (507) (7,550)
Net cash used in investing
activities (43,590) (19,906)
Cash flows from financing activities:
Net increase in demand deposits, NOW
accounts, savings accounts and
certificates of deposit 33,587 7,785
Purchase of treasury stock 0 (61)
Sale of common stock 250 312
Net increase (decrease) in federal funds
purchased and securities sold under
agreement to repurchase 7,764 6,861
Proceeds Issuance of Debt 0 2,000
Dividends paid (971) (811)
Net cash provided by financing
activities 40,630 16,086
Net increase (decrease) in cash and
cash equivalents 1,072 401
Cash and cash equivalents at beginning
of year 28,824 24,144
Cash and cash equivalents at end of
reporting period $29,896 $24,545
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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 and six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1997. 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, 1996. 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 June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
06-30-97 12-31-96
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 7,684 27 0 7,711 13,794 50 (2) 13,842
Obligations of
U S government
agencies & corps 14,663 48 (66) 14,645 16,825 70 (167) 16,728
Obligations of state
and political
subdivisions 30,273 409 (70) 30,612 34,578 432 (76) 34,934
Total 52,620 484 (136) 52,968 65,197 552 (245) 65,504
</TABLE>
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NOTE 2 - Continued...
The following is the amortized cost and fair value of securities
available-for-sale at June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
06-30-97 12-31-96
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 30,021 76 (62) 30,035 24,094 27 (62) 24,059
Obligations of
U S government
agencies & corps 90,784 309 (238) 90,855 71,061 224 (270) 71,015
Other securities 610 0 0 610 610 0 0 610
Total 121,415 385 (300) 121,500 95,765 251 (332) 95,684
</TABLE>
Investment securities with an aggregate amortized cost of $89,056
on June 30, 1997, and $65,885 on December 31, 1996, 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: 6-30-97 12-31-96
Commercial, financial & agricultural 56,977 46,392
Real Estate - construction 10,299 9,625
Real estate - mortgage 189,950 178,544
Consumer, net of unearned 65,950 59,058
Total loans 323,176 293,619
As of June 30, 1997 and December 31, 1996 the aggregate dollar
amount of loans to related parties; principally, directors and
executive officers, their immediate families and their business
interests, was $12,088 and $7,945 respectively. The following is
an analysis of the activity with respect to loans to related
parties for the six months ended June 30, 1997:
Balance, beginning of period 8,970
Add:
New loans 8,051
Deduct:
Payments 5,036
Other changes 103
Balance, end of period 12,088
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NOTE 4 - Allowance for Loan Losses:
Amount
06-30-97 12-31-96
Balance, beginning of period (year) 4,705 3,703
Add:
Recoveries 186 374
Provisions for loan losses charged
to income 598 1,319
Total 5,489 5,396
Deduct:
Loans charged off 311 691
Balance, end of period (year) 5,178 4,705
The allowance for loan losses is maintained at a level which, in
management's judgement 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 bank 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 is reported in other
assets. Properties acquired by foreclosure or deed in lieu of
foreclosure 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 losses. Gains or losses
arising from the sale of OREO are reflected in current operations.
<PAGE>
NOTE 7 - Interest Bearing Deposits:
Certificates of deposit in excess of $100,000 totaled $45,347 and
$38,616 at June 30, 1997 and December 31, 1996 respectively.
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
June 30, 1997, commitments to extend credit and standby letters of
credit aggregated $61,175. The Company does not anticipate any
material losses as a result of these transactions.
Note 9 - Common Stock:
As of December 31, 1996, the common stock outstanding was
2,550,024. The board of directors of the Company approved a 2 for
1 stock split payable May 30, 1997. During the first and second
quarters, the Company granted options to purchase an aggregate of
34,711 shares under the incentive stock option plan. As of June
30, 1997, the common stock outstanding was 5,134,773 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 June 30, 1997 was 5,108,461 and 4,869,698 at
December 31, 1996.
Dividends per share are calculated using the current equivalent of
number of common shares outstanding at the time of the dividend
based on the Company'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,
1996.
First National Corporation opened its second bank, the National Bank of
York County, on July 11, 1996 in Rock Hill, South Carolina to join its
existing bank, First National Bank, Orangeburg, South Carolina. A second
office of National Bank of York County was opened in Fort Mill, South
Carolina on September 18, 1996.
For the second quarter of 1997, First National Corporation ("the
Corporation") had consolidated net income of $1,642,000, an increase of 17.4
percent over the $1,399,000 earned in the second quarter of 1996. Earnings
per share amounted to $0.32 for the three months ended June 30, 1997, a 10.3
percent increase over the $0.29 per share earned in the second quarter of
1996. Net income for the first six months of 1997 was $3,247,000, an
increase of 16.1 percent over the $2,796,000 earned for the same period in
1996. Earnings per share amounted to $0.64 for the six months ended June 30,
1997, a 8.5 percent increase over the $0.59 per share earned in the first six
months of 1996.
NET INTEREST INCOME
For the second quarter of 1997, net interest income was $5,868,000
compared to $5,017,000 for the same period in 1996. This is an increase of
$851,000 or 17.0 percent. Net interest income for the first six months of
1997 was $11,458,000 compared to $9,751,000 for the same period in 1996.
This represents an increase of $1,707,000 or 17.5 percent. This increase
resulted from a 10.1 percent increase in loan outstandings, net of unearned
income as well as an 8.2 percent increase in investment security
outstandings, when compared to the first six months of 1996.
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 six months of 1996, the year to date taxable equivalent yield on
earning assets was 7.93 percent. During the same period of 1997, the yield
increased to 8.00 percent, or an increase of 7 basis points. The cost of the
liabilities used to support these earning assets increased 13 basis points
from 3.89 percent in 1996 to 4.02 percent in 1997. Interest rates paid on
interest-bearing liabilities increased more rapidly than yields on earning
assets due to the Company's negative asset/liability position.
<PAGE>
Management's Discussion Continued...
For the first six months net interest margins decreased from 4.66
percent in 1996 to 4.62 percent in 1997. The impact of interest-free funds
for the same period increased from .62 percent to .63 percent or an increase
of 1 basis point.
The largest category of earning assets is loans. At the end of the
second quarter 1997, loans outstanding, less unearned income, were
$323,176,000 compared to $293,619,000 at December 31, 1996. This represents
an increase of $29,557,000 or 10.1 percent. For the second quarter ended
June 30, 1997, interest and fees on loans were $7,424,000 compared to
$6,149,000 for the comparable period in 1996, an increase of $1,275,000 or
20.7 percent. For the six months ended June 30, 1997, interest and fees on
loans were $14,323,000 compared with $12,065,000 for the same period in 1996.
This represents an increase of $2,258,000 or 18.7 percent.
The major volume increase in the loan portfolio was in commercial and
agricultural loans. For the first six month period ended June 30, 1997,
commercial loans increased $10,585,000 or 22.8 percent when compared to
December 31, 1996. This increase in the loan portfolio was brought about due
to a renewed confidence in overall economic trends as well as the opening of
the National Bank of York County and the Bluffton branch of First National
Bank. The Company has no foreign loans nor loans for highly leveraged
transactions.
For the six months ended June 30, 1997, loans averaged $289,576,000 and
yielded 9.03 percent on a taxable equivalent basis compared to $261,448,000
with a taxable equivalent yield of 9.11 percent or a decrease of 8 basis
points for the year ended December 31, 1996.
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 June 30, 1997, investment securities were $174,120,000 compared to
$160,881,000 at December 31, 1996. This is an increase of $13,239,000 or 8.2
percent. This increase is the result of management's decision to utilize
excess funds in the investment function in an attempt to increase yields and
profitability.
For the second quarter ended June 30, 1997, investment income was
$2,613,000 compared with $2,092,000 for the comparable period in 1996, a net
increase of $521,000 or 24.9 percent. For the six month period ended June
30, 1997, investment income was $5,066,000 compared with $4,134,000 for the
same period in 1995, a net increase of $932,000 or 22.5 percent. Management
attributes this increase in income to higher yields on investment securities.
<PAGE>
Management's Discussion Continued...
At the end of the second quarter 1997, securities averaged $156,899,000
and yielded 6.28 percent on a taxable equivalent basis, compared to
$149,453,000 with a yield of 6.10 percent for the year ended December 31,
1996, resulting in an 18 basis point increase in yield.
As of June 30, 1997, the Company had unrealized gains in the U.S.
Treasury and agency portfolio denoted as held-to-maturity, of $75,000 and in
the municipal portfolio $409,000. Also at June 30, 1997, the Company had an
unrealized loss of $66,000 in the U. S. Treasury and agency portfolio and an
$70,000 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 Debit and Equity
Securities" for the investment portfolio, and showed a net unrealized gain at
June 30, 1997 of approximately $85,000 on the $121,500,000 of securities
denoted as available-for-sale.
For the first six months ended June 30, 1997, the Company had a $2,000
realized gain due to called municipal bonds.
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 six months of 1997, interest-bearing liabilities
averaged $388,590,000 and carried an average rate of 4.02 percent. This
compares to an average level of $353,810,000 with a rate of 3.90 percent at
December 31, 1996 or an increase of 12 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 June 30,
1997 was $314,000 compared to $300,000 for the same period in 1996 which
represents a 4.7 percent increase. For the six month period ended June 30,
1997, the provision for loan loss was $598,000 compared to $520,000 for the
same period in 1996 which represents a 15.0 percent increase. The increase
in the provision for loan losses was due to continued strong loan growth.
The allowance for loan losses was $5,178,000 or 1.60 percent of outstanding
loans at June 30, 1997 compared to 1.60 percent of outstanding loans at year-
end 1996.
To determine the adequacy of the allowance for loan losses, management
performs an internal loan analysis which indicated the estimated loan losses.
Management feels that the allowance for loan losses is adequately funded.
<PAGE>
Management's Discussion Continued...
Other real estate owned includes certain real estate acquired as a
result of foreclosure. For the period ended June 30, 1997, other real estate
owned was $43,000 compared to $63,000 at December 31, 1996. This decrease
resulted from the sale of several real estate properties.
Management anticipates that the level of charge-offs for 1997 will be
near or below the levels of 1996. 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 second quarter of 1997 was $1,492,000
compared to $1,294,000 for the same period in 1996, representing an increase
of $198,000 or 15.3 percent. For the first six months of 1997 noninterest
income was $2,997,000 compared to $2,607,000 for the same period in 1996,
representing an increase of $390,000 or 15.0 percent. During the first six
months of 1997, other service charges, commissions, and fees increased
$332,000 or 56.2 percent compared to the same period in 1996. This increase
can be primarily attributed to the increase in debit card fees as well as ATM
fees charged on non-bank customer transactions.
Noninterest expense for the second quarter of 1997 was $4,651,000
compared to $3,949,000 for the same period in 1996, representing an increase
of $702,000 or 17.8 percent. For the six months ended June 30, 1997,
noninterest expense was $9,149,000 compared to $7,828,000, an increase of
$1,321,000 or 16.9 percent. Salaries and employee benefits for the second
quarter ended June 30, 1997 increased $382,000 or 17.6 percent compared to
the same period in 1996. For the first six months of 1997 salaries and
employee benefits increased $765,000 or 18.2 percent compared to the same
period in 1996. Depreciation expense increased $87,000 or 15.5 percent for
the second quarter of 1997 compared to the same period in 1996. For the six
months ended June 30, 1997 depreciation expense increased $231,000 or 20.5
percent compared to the same period in 1996. These increases can be largely
attributed to the opening of the National Bank of York County and the
Bluffton branch of First National Bank during the third quarter of 1996.
Other expenses increased $225,000 or 21.2 percent for the second quarter of
1997 compared to the same period in 1996. For the six months ended June 30,
1997, other expenses increased $327,000 or 15.0 percent compared to the same
period in 1996. 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.
<PAGE>
Management's Discussion Continued...
NET INCOME
Net income was up 17.4 percent for the second quarter of 1997 when
compared to the same period in 1996. For the six months ended June 30, 1997,
net income was up 16.1 percent compared to the same period in 1996. The
$1,707,000 or 17.5 percent increase in net interest income and the $390,000
or 15.0 percent increase in noninterest income for the six months ended June
30, 1997 as compared to the same period in 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 second quarter,
1997, stockholder's equity was $50,972,000 compared to $48,346,000 at
December 31, 1996.
The Corporation and subsidiaries 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 June 30, 1997
was 14.8 percent compared to 15.8 percent at December 31, 1996. The total
capital ratio was 16.1 percent at June 30, 1997 compared to 17.1 percent at
December 31, 1996.
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 June 30, 1997, First National
Corporation's leverage ratio was 9.8 percent, compared to 9.5 percent at
December 31, 1996. 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.
<PAGE>
Management's Discussion Continued...
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 subsidiaries, First National
Bank and National Bank of York County, is a party 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:
The annual shareholders meeting of the Registrant was held April
22, 1997 for the following purposes:
(1) To elect six (6) directors whose terms will expire in 2000. The
following directors were elected:
Charles W. Clark Edward V. Mirmow, Jr.
Dwight W. Frierson Walter L. Tobin
C. John Hipp, III Larry D. Westbury
Elect two (2) directors whose terms will expire in 1999.
The following directors were elected:
Robert R. Hill, Jr. Ralph W. Norman
1,768,757 For 22,100 Withheld 39,582 Against
Total against the following individually:
Charles W. Clark 5,975
Dwight W. Frierson 35,187
C. John Hipp, III 7,534
Edward V. Mirmow, Jr. 5,975
Walter L. Tobin 61,682
Larry D. Westbury 5,975
Robert R. Hill, Jr. 5,975
Ralph W. Norman 5,975
<PAGE>
Item 4. Continued...
(2) To adopt an amendment to the Company's Articles of
Incorporation increasing from 5,000,000 to 20,000,000 the
number of authorized shares of the Company's common stock:
1,715,305 For 8,516 Withheld 50,911 Against
(3) To ratify the appointment of J. W. Hunt and Company, LLP, as
independent auditors for the Company for the fiscal year
ending December 31, 1997:
1,763,789 For 9,706 Withheld 1,237 Against
Item 5. Other Information:
Not Applicable
Item 6. Exhibits and Reports of Form 8-K:
(A) Exhibit 3 - Articles of Amendment
(B) Exhibit 27 - Financial Data Schedule
(C) Reports on Form 8-K: None
<PAGE>
Pursuant to the requirements of the Securities and 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: August 12, 1997 C. JOHN HIPP, III
PRESIDENT & CHIEF EXECUTIVE OFFICER
Date: August 12, 1997 W. LOUIS GRIFFITH
PRINCIPAL ACCOUNTING OFFICER AND
CHIEF FINANCIAL OFFICER
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
3 Articles of Amendment Attached
27 Financial Data Schedule Attached
<PAGE>
Jim Miles
SECRETARY OF STATE
FILED
MAY 2, 1997
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended,
the undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
1. The name of the corporation is First National Corporation.
2. On April 22, 1997, the corporation adopted the following Amendment(s)
of its Articles of Incorporation.
Article Fifth is amended to increase from 5,000,000 to 20,000,000 the
number of authorized shares of common stock ($5.00 par value).
3. The manner, of not set forth in the amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
Amendment shall be effected, is as follows: (if not applicable, insert
"not applicable" or "NA").
Not applicable
4. Complete either a or b, whichever is applicable.
A. "X" Amendment(s) adopted by shareholder action.
At the date of adoption of the amendment, the number of
outstanding shares of each voting group entitled to vote
separately on the Amendment, and the vote of such shares
was:
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
OUT- VOTES SHARES UNDISPUTED*
VOTING STANDING ENTITLED REPRESENTED SHARES VOTED
GROUP SHARES TO BE CAST AT MEETING FOR AGAINST
Common stock 2,551,091 2,551,091 1,774,732 1,715,305 59,427
B. " " The Amendment(s) was duly adopted by the Incorporators or
board of directors without shareholder approval pursuant to
Section 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South
Carolina Code as amended, and shareholder action was not
required.
5. Unless a delayed date is specified, the effective date of these
Articles of Amendments shall be the date of acceptance for filing
by the Secretary of State (See Section 33-1-230(b)).
<PAGE>
Date: April 22, 1997
FIRST NATIONAL CORPORATION
(Name of Corporation)
By: W. LOUIS GRIFFITH
(Signature)
W. LOUIS GRIFFITH, CHIEF FINANCIAL OFFICER
(Type or Print name and Office)
<PAGE>
Jim Miles
SECRETARY OF STATE
FILED
MAY 22, 1997
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended,
the undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
1. The name of the corporation is First National Corporation.
2. On May 8, 1997, the corporation adopted the following Amendment(s) of
its Articles of Incorporation.
RESOLVED, that pursuant to a two-for-one split of the authorized shares
of the Corporation's common stock, the total number of authorized
shares of the Corporation's common stock shall be increased from
20,000,000 shares to 40,000,000 shares and the par value of each
authorized share shall be reduced from $5.00 per share to $2.50 per
share.
3. The manner, of not set forth in the amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
Amendment shall be effected, is as follows: (if not applicable, insert
"not applicable" or "NA").
Shareholders of record on May 19, 1997 will be issued additional stock
certificates representing one additional share of the Corporation's
Common Stock for every share currently held. Cash will be paid in lieu
of fractional shares.
4. Complete either a or b, whichever is applicable.
A. " " Amendment(s) adopted by shareholder action.
At the date of adoption of the amendment, the number of
outstanding shares of each voting group entitled to vote
separately on the Amendment, and the vote of such shares
was:
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
OUT- VOTES SHARES UNDISPUTED*
VOTING STANDING ENTITLED REPRESENTED SHARES VOTED
GROUP SHARES TO BE CAST AT MEETING FOR AGAINST
<PAGE>
B. "X" The Amendment(s) was duly adopted by the Incorporators or
board of directors without shareholder approval pursuant to
Sections 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South
Carolina Code as amended, and shareholder action was not
required.
5. Unless a delayed date is specified, the effective date of these
Articles of Amendments shall be the date of acceptance for filing
by the Secretary of State (See Section 33-1-230(b)).
Effective date: May 30, 1997
Date: May 16, 1997
FIRST NATIONAL CORPORATION
(Name of Corporation)
By: W. LOUIS GRIFFITH
(Signature)
W. LOUIS GRIFFITH, CHIEF FINANCIAL OFFICER
AND VICE PRESIDENT
(Type or Print name and Office)
*NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can
alternatively state the total number of votes cast for and
against the amendment by each voting group entitled to vote
separately on the amendment or the total number of undisputed
votes cast for the amendment by each voting group together
with a statement that the number cast for the amendment by
each voting group was sufficient for approval by that voting
group.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at June 30, 1997 (Unaudited) and
the Consolidated Statement of Income (Unaudited) for the six months ended June
30, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 29,896
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 507
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 121,500
<INVESTMENTS-CARRYING> 52,620
<INVESTMENTS-MARKET> 52,968
<LOANS> 323,176
<ALLOWANCE> 5,178
<TOTAL-ASSETS> 542,452
<DEPOSITS> 447,740
<SHORT-TERM> 40,310
<LIABILITIES-OTHER> 3,430
<LONG-TERM> 0
0
0
<COMMON> 12,837
<OTHER-SE> 38,135
<TOTAL-LIABILITIES-AND-EQUITY> 542,452
<INTEREST-LOAN> 14,323
<INTEREST-INVEST> 5,066
<INTEREST-OTHER> 392
<INTEREST-TOTAL> 19,781
<INTEREST-DEPOSIT> 7,345
<INTEREST-EXPENSE> 8,323
<INTEREST-INCOME-NET> 11,458
<LOAN-LOSSES> 598
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 9,149
<INCOME-PRETAX> 4,708
<INCOME-PRE-EXTRAORDINARY> 3,247
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,247
<EPS-PRIMARY> .64
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.00
<LOANS-NON> 1,002
<LOANS-PAST> 451
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,300
<ALLOWANCE-OPEN> 4,705
<CHARGE-OFFS> 311
<RECOVERIES> 186
<ALLOWANCE-CLOSE> 5,178
<ALLOWANCE-DOMESTIC> 5,178
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
