FIRST NATIONAL CORPORATION
Financial Statements
(Form 10-Q)
September 30, 2000
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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 September 30, 2000 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 September 30, 2000
Common Stock, $2.50 par value 7,035,201
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FIRST NATIONAL CORPORATION
INDEX
Part I: Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Changes
In Shareholders' Equity -
Nine Months Ended
September 30, 2000 and 1999
Condensed Consolidated Statements of Income -
Three and Nine Months Ended
September 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended
September 30, 2000 and 1999
Notes to Condensed 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
(A) Exhibit 27 - Financial Data Schedule
(B) Reports on Form 8-K: None
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PART I - FINANCIAL INFORMATION
Item l. FINANCIAL STATEMENTS
FIRST NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except par value)
9/30/00 12/31/99
(Unaudited) (Note 1)
ASSETS
Cash and cash equivalents:
Cash and due from banks $31,722 $39,479
Interest-bearing deposits with banks 427 1,848
Total cash and cash equivalents 32,149 41,327
Federal funds sold and securities purchased 1,150 -
Investment securities:
Held-to-maturity (fair value of $38,458
in 2000 and $46,529 in 1999) 38,916 47,268
Available-for-sale 147,924 148,304
Total investment securities 186,840 195,572
Loans 711,134 613,961
Less, unearned income (3,471) (3,420)
Less, allowance for loan losses (8,623) (7,883)
Loans, net 699,040 602,655
Premises and equipment, net 16,612 15,693
Other assets 19,418 17,151
TOTAL ASSETS $955,209 $872,398
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $114,688 $105,018
Interest-bearing transaction accounts 615,734 584,647
Total deposits 730,422 689,665
Federal funds purchased & securities
sold under agreements to repurchase 88,255 76,400
Notes payable 48,900 26,750
Other liabilities 5,633 3,764
Total liabilities 873,210 796,579
Shareholders' equity:
Common stock-$2.50 par value; authorized
40,000,000 shares; issued and outstanding
7,035,201 and 7,041,101 shares 17,588 17,603
Surplus 47,588 47,666
Retained earnings 18,788 13,496
Accumulated other comprehensive loss (1,965) (2,946)
Total shareholders' equity 81,999 75,819
Total liabilities and shareholders' equity $955,209 $872,398
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
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FIRST NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Retained Comprehensive
Shares Amount Surplus Earnings Income(Loss) Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 6,899,679 $ 17,249 $ 47,072 $ 8,743 $ 1,261 $ 74,325
Comprehensive income:
Net income - - - 5,700 - 5,700
Change in net unrealized gain
(loss) on securities available-
for-sale, net of tax effects - - - - (3,195) (3,195)
Total comprehensive income - - - - - 2,505
Cash dividends declared at
$.39 per share - - - (2,274) - (2,274)
Common stock issued 127,656 319 394 - - 713
Repurchase of common stock (378) (1) (8) - - (9)
BALANCE, SEPTEMBER 30, 1999 7,026,957 $ 17,567 $ 47,458 $ 12,169 (1,934) $ 75,260
BALANCE, DECEMBER 31, 1999 7,041,101 $ 17,603 $ 47,666 $ 13,496 $ (2,946) $ 75,819
Comprehensive income:
Net income - - - 8,108 - 8,108
Change in net unrealized gain
(loss) on securities available-
for-sale, net of tax effects - - - - 981 981
Total comprehensive income - - - - - 9,089
Cash dividends declared at
$.40 per share - - - (2,816) - (2,816)
Repurchase of common stock (5,900) (15) (78) - - (93)
BALANCE, SEPTEMBER 30, 2000 7,035,201 $ 17,588 $ 47,588 $ 18,788 $ (1,965) $81,999
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
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FIRST NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except per share data)
Three Months Ended Nine Months Ended
9/30/99
9/30/00 (Restated) 9/30/00 9/30/99
Interest income:
Loans, including fees $15,857 $11,924 $44,955 $34,388
Investment securities:
Taxable 2,307 2,501 6,969 8,068
Nontaxable 438 471 1,342 1,368
Federal funds sold 498 367 1,687 541
Deposits with banks 73 - 183 -
Total interest income 19,173 15,263 55,136 44,365
Interest expense:
Interest on deposits 6,711 4,796 18,788 14,406
Federal funds purchased & securities
sold under agreements to repurchase 1,730 761 4,706 2,119
Notes payable 496 417 1,372 1,005
Total interest expense 8,937 5,974 24,866 17,530
Net interest income:
Net interest income 10,236 9,289 30,270 26,835
Provision for loan losses 456 366 1,214 1,110
Net interest income after
provision for loan losses 9,780 8,923 29,056 25,725
Noninterest income:
Service charges on deposit accounts 1,826 1,425 5,564 4,226
Other service charges and fees 951 1,001 2,796 2,982
Gain (loss)on sale of securities
available-for-sale 6 (23) (6) 222
Other income - 59 - 99
Total noninterest income 2,783 2,462 8,354 7,529
Noninterest expense:
Salaries & employee benefits 4,211 4,208 13,133 12,562
Net occupancy expense 475 349 1,407 1,377
Furniture and equipment expense 944 960 2,651 2,286
Other expense 2,726 4,700 8,125 9,164
Total noninterest expense 8,356 10,217 25,316 25,389
Earnings:
Income before provision for
income taxes 4,207 1,168 12,094 7,865
Provision for income taxes 1,400 182 3,986 2,165
Net Income $2,807 $ 986 $8,108 $5,700
Comprehensive income $4,100 $ 690 $9,089 $2,505
Earnings per share:
Basic $ 0.40 $ 0.14 $ 1.15 $ 0.82
Diluted $ 0.40 $ 0.14 $ 1.15 $ 0.81
Cash dividends per common share $ 0.14 $ 0.13 $ 0.40 $ 0.39
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
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FIRST NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
Nine Months Ended
9/30/00 9/30/99
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,108 $ 5,700
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,141 1,431
Provision for loan losses 730 891
Deferred income taxes (576) (597)
(Gain)loss on sale of securities available-
for-sale 6 (222)
Gain on sale of premises and equipment - (20)
Net amortization of investment securities 10 225
Net change in:
Miscellaneous other assets (2,217) (4,409)
Miscellaneous other liabilities 1,869 141
Net cash provided by operating
activities 9,071 3,140
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment
securities available-for-sale 10,281 31,505
Proceeds from maturities of investment
securities held-to-maturity 10,452 7,747
Proceeds from maturities of investment
securities available-for-sale 17,843 43,283
Purchases of investment securities
held-to-maturity (2,174) (7,510)
Purchases of investment securities
available-for-sale (26,129) (79,983)
Net increase in customer loans (97,165) (78,051)
Recoveries of loans previously charged off - 91
Purchases of premises and equipment (2,061) (4,508)
Proceeds from sale of premises and equipment - 20
Net increase (decrease)in federal funds sold (1,150) 3,291
Net cash used by investing activities (90,103) (84,115)
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED...
Nine Months Ended
9/30/00 9/30/99
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW
accounts, savings accounts and certificates
of deposit 40,758 46,220
Net increase in federal funds purchased
and securities sold under agreements to
repurchase 11,855 8,792
Proceeds from issuance of debt or other
borrowings 25,800 34,200
Repayment of debt or other borrowings (3,650) (6,350)
Common stock issued - 645
Repurchase of common stock (93) (9)
Dividends paid (2,816) (2,274)
Stock options exercised - 169
Net cash provided by financing
activities 71,854 81,393
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (9,178) $ 418
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 41,327 31,611
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32,149 $ 32,029
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
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FIRST NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. Certain prior period information has been reclassified
to conform to the current period presentation. Operating results for
the three and nine months ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2000.
The condensed consolidated balance sheet at December 31, 1999, has been
derived from the audited financial statements at that date, but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
The information contained in the consolidated financial statements and
accompanying footnotes included in the Corporation's annual report on Form
10-K for the year ended December 31, 1999 should be referenced when
reading these unaudited condensed consolidated financial statements.
NOTE 2 - Recent Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts. The statement
requires that all derivative instruments be recorded in the balance sheet
as either an asset or liability measured at fair value, and that changes
in the fair value of derivatives be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a
company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133",
which delays the original effective date of SFAS No. 133 until fiscal
years beginning after June 15, 2000. The adoption of SFAS No. 133 is not
expected to have a material effect on the Corporation's consolidated
financial statements.
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NOTE 3 - Earnings Per Share:
Basic earnings per share is calculated by dividing net income by the
weighted-average shares of common stock outstanding during each period.
Diluted earnings per share is based on the weighted-average shares of
common stock outstanding during each period plus the maximum dilutive
effect of common stock issuable upon exercise of stock options. The
weighted average number of shares and equivalents are determined after
giving retroactive effect to stock dividends and stock splits.
Weighted-average shares outstanding used in calculating earnings per
share for the three and nine months ended September 30, 2000 and 1999
are as follows:
3 Months Ended 9 Months Ended
9/30/00 9/30/99 9/30/00 9/30/99
Basic 7,039,621 6,988,213 7,040,604 6,988,213
Diluted 7,064,071 7,040,807 7,072,853 7,040,807
Dividends per share are calculated using the current equivalent of number
of common shares outstanding at the time of the dividend based on the
Corporation's shares outstanding.
NOTE 4 - Commitments and Contingent Liabilities:
In the normal course of business, the Corporation 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 September 30, 2000, commitments to
extend credit and standby letters of credit totaled $129,903,000. The
Corporation does not anticipate any material losses as a result of these
transactions.
NOTE 5 - Prior Period Adjustment:
Certain errors, resulting in a $486,000 overstatement of the reported net
income for the quarter ended September 30, 1999, in the Corporation's
previously filed Form 10Q for that period, have been corrected in the
current period's report. The errors had no effect on the previously
reported 1999 year to date earnings or retained earnings. However, basic
and diluted earnings per share for the quarter were reduced from $.22 to
$.14.
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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, 1999.
First National Corporation (the "Corporation") is a bank holding company
incorporated under the laws of South Carolina in 1985. The Corporation owns
100% of First National Bank, a national bank which opened for business in
1932, 100% of National Bank of York County, a national bank which opened for
business in 1996, 100% of Florence County National Bank, a national bank
which opened for business in 1998, and 90% of CreditSouth Financial Services
Corporation, an upscale finance company which opened for business in 1998.
The Corporation engages in no significant operations other than the ownership
of its subsidiaries.
Some of the major services which the Corporation provides through its
banking subsidiaries include checking, NOW accounts, savings and other time
deposits of various types, alternative investment products such as annuities
and mutual funds, loans for businesses, agriculture, real estate, personal
use, home improvement and automobiles, credit cards, letters of credit, home
equity lines of credit, safe deposit boxes, bank money orders, wire transfer
services, trust services, discount brokerage services, and use of ATM
facilities. The Corporation has no material concentration of deposits from
any single customer or group of customers, and no significant portion of its
loans is concentrated within a single industry or group of related
industries. There are no material seasonal factors that would have a
material adverse effect on the Corporation. The Corporation does not have
foreign loans.
For the third quarter of 2000, First National Corporation ("the
Corporation") had consolidated net income of $2,807,000, an increase of 184.7
percent over the $986,000 earned in the third quarter of 1999. Net income in
1999's third quarter was impacted by non-recurring expenses, totaling
$1,684,000 after taxes, associated with the Corporation's acquisition of
FirstBancorporation Inc. and purchase of two other bank branches. Reference
should be made to Note 5 of the Condensed Consolidated Financial Statements
regarding a prior period adjustment made to net income for the quarter ended
September 30, 1999. Diluted earnings per share amounted to $0.40 for the
three months ended September 30, 2000, a 185.7 percent increase over the
$0.14 per share earned in the third quarter of 1999. Net income for the
first nine months of 2000 was $8,108,000, an increase of 42.2 percent over
the $5,700,000 earned for the same period in 1999. Diluted earnings per
share amounted to $1.15 for the nine months ended September 30, 2000, a 42.0
percent increase over the $0.81 per share earned in the first nine months of
1999.
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Management's Discussion Continued...
NET INTEREST INCOME
For the third quarter of 2000, net interest income was $10,236,000
compared to $9,289,000 for the same period in 1999. This is an increase of
$947,000 or 10.2 percent. Net interest income for the first nine months of
2000 was $30,270,000 compared to $26,835,000 for the same period in 1999.
This represents an increase of $3,435,000 or 12.8 percent. This increase
resulted from a 23.9 percent increase in loan outstandings, net of unearned
income when compared to the first nine months of 1999.
The yield on a major portion of the Corporation's earning assets adjusts
simultaneously, but to varying degrees of magnitude, with changes in the
general level of interest rates. In the first nine months of 1999, the year
to date taxable equivalent yield on earning assets was 7.50 percent. During
the same period of 2000, the yield increased to 7.93 percent, or an increase
of 43 basis points. The cost of the interest-bearing liabilities used to
fund most of these earning assets increased 67 basis points from 3.69 percent
in 1999 to 4.36 percent in 2000. Interest rates paid on interest-bearing
liabilities increased more rapidly than yields on earning assets during the
period.
For the first nine months, net interest margins decreased from 4.42
percent in 1999 to 4.23 percent in 2000. The positive impact of interest-free
funds for the same period increased from 0.60 percent in 1999 to 0.66
percent in 2000.
The largest category of earning assets is loans. At the end of the third
quarter 2000, loans outstanding, less unearned income, were $707,663,000
compared to $610,541,000 at December 31, 1999. This represents an increase
of $97,122,000 or 15.9 percent in the nine-month period. For the third
quarter ended September 30, 2000, interest and fees on loans were $15,857,000
compared to $11,924,000 for the comparable period in 1999, an increase of
$3,933,000 or 33.0 percent. For the nine months ended September 30, 2000,
interest and fees on loans were $44,955,000 compared with $34,388,000 for the
same period in 1999. This represents an increase of $10,567,000 or 30.7
percent.
For the nine months ended September 30, 2000, loans averaged $669,230,000
and decreased in yield by 29 basis points to 8.52 percent on a taxable
equivalent basis, compared to $541,434,000 with a taxable equivalent yield of
8.81 percent for the full year ended December 31, 1999.
Investment securities are the second largest category of earning assets.
Investment securities are utilized by the Corporation 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 September 30, 2000, investment securities were $186,840,000 compared to
$195,572,000 at December 31, 1999, representing a decline of 4.5 percent
during the nine-month period.
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Management's Discussion Continued...
For the third quarter ended September 30, 2000, investment and money
market income was $3,316,000 compared with $3,339,000 for the comparable
period in 1999, a net decrease of $23,000 or 0.7 percent. For the nine month
period ended September 30, 2000, investment income was $10,181,000 compared
with $9,977,000 for the same period in 1999, a net increase of $204,000 or
2.0 percent. The increase was attributable to higher second quarter balances
of securities purchased under agreement to resell.
For the nine months ended September 30, 2000, securities averaged
$186,448,000 and yielded 6.09 percent on a taxable equivalent basis, compared
to $226,329,000 with a yield of approximately 5.75 percent for the full year
ended December 31, 1999, resulting in a 34 basis point increase in yield.
At September 30, 2000, the Corporation had net unrealized losses in the
U.S. Treasury and agency portfolio denoted as held-to-maturity, of $14,000
and in the municipal portfolio of $444,000. Also at September 30, 2000, the
Corporation had a net unrealized loss of approximately $3,119,000 on the
$147,924,000 balance of securities denoted as available-for-sale.
For the nine months ended September 30, 2000, the Corporation had a $6,000
net realized loss due to the sale of investment securities available for
sale.
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 or
intent of the Corporation 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 nine months of 2000, interest-bearing liabilities
averaged $760,258,000 and carried an average rate of 4.36 percent. This
compares to an average level of $626,815,000 with a rate of 3.82 percent for
the full year ended December 31, 1999, or an increase of 54 basis points.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three month period ended September
30, 2000 was $456,000 compared to $366,000 for the same period in 1999 which
represents a 24.6 percent increase. For the nine month period ended
September 30, 2000, the provision for loan losses was $1,214,000 compared to
$1,110,000 for the same period in 1999 which represents a 9.4 percent
increase. The allowance for loan losses was $8,623,000 or 1.22 percent of
outstanding loans at September 30, 2000 compared to 1.29 percent of
outstanding loans at year-end 1999.
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 is adequately funded.
Other real estate owned includes certain real estate acquired as a result
of foreclosure and other reasons. For the period ended September 30, 2000,
other real estate owned was $918,000 compared to $227,000 at December 31,
1999. This increase resulted from the foreclosure and contractual purchase
of certain real estate properties.
<PAGE>
Management's Discussion Continued...
Management anticipates that the level of charge-offs for 2000 will be near
the levels of 1999. The loan loss allowance is considered adequate by
management. However, changes in economic conditions in the Corporation's
market area could affect these levels.
NONINTEREST INCOME AND EXPENSE
Noninterest income for the third quarter of 2000 was $2,783,000 compared
to $2,462,000 for the same period in 1999, representing an increase of
$321,000 or 13.0 percent. For the first nine months of 2000, noninterest
income was $8,354,000 compared to $7,529,000 for the same period in 1999,
representing an increase of $825,000 or 11.0 percent. This increase is
primarily attributed to deposit account service charges and other service
charges, fees and commissions.
Noninterest expense for the third quarter of 2000 was $8,356,000 compared
to $10,217,000 for the same period in 1999, representing a decrease of
$1,861,000 or 18.2 percent. For the nine months ended September 30, 2000,
noninterest expense was $25,316,000 compared to $25,389,000 in 1999, a
decrease of $73,000 or 0.3 percent. Salaries and employee benefits for the
quarter ended September 30, 2000 increased $3,000 or 0.1 percent compared to
the same period in 1999. For the first nine months of 2000, salaries and
employee benefits increased $571,000 or 4.5 percent compared to the same
period in 1999. Occupancy expense along with furniture and equipment expense
increased $110,000 or 8.4 percent for the third quarter of 2000 compared to
the same period in 1999. For the nine months ended September 30, 2000
occupancy together with furniture and equipment expense increased $395,000 or
10.8 percent compared to the same period in 1999. These increases can be
largely attributed to an increase in building and furniture and equipment
depreciation expense, maintenance and repairs on buildings as well as an
increase in equipment rental/lease expense. Other expenses were $1,974,000
or 42.0 percent lower in the third quarter of 2000 compared to the same
period in 1999. For the nine months ended September 30, 2000, other expenses
decreased $1,039,000 or 11.3 percent compared to the same period in 1999.
Other expenses for the nine months ended September 30, 1999 included
nonrecurring charges of approximately $2,381,000 related to costs associated
with the Corporation's merger with Firstbancorporation, Inc. The net
increase in other expenses in 2000 of $1,342,000, when compared to these
expenses in 1999 excluding the nonrecurring merger-related charges, is
distributed among the following expense categories: advertising, insurance
and surety bond, office and printing supplies, postage, and telephone and
line charges.
NET INCOME
Net income was up 184.7 percent for the third quarter of 2000 when
compared to the same period in 1999. For the nine months ended September 30,
2000, net income was up 42.2 percent compared to the same period in 1999.
The $3,435,000 or 12.8 percent increase in net interest income and the
$825,000 or 11.0 percent increase in noninterest income for the nine months
ended September 30, 2000 as compared to the same period in 1999 along with
prior year nonrecurring merger costs discussed above were the primary factors
in the growth in net income.
<PAGE>
Management's Discussion Continued...
CAPITAL RESOURCES AND LIQUIDITY
To date, the capital needs of the Corporation have been met through the
retention of earnings less cash dividends. At the end of the third quarter
of 2000, stockholder's equity was $81,999,000 compared to $75,819,000 at
December 31, 1999.
The Corporation and its banking 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 September 30, 2000 was 12.38 percent compared to 12.70 percent at December
31, 1999. The total capital ratio was 13.63 percent at September 30, 2000
compared to 13.95 percent at December 31, 1999.
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 September 30, 2000, First
National Corporation's leverage ratio was 8.14 percent, compared to 8.64
percent at December 31, 1999. First National Corporation's ratios exceed the
minimum standards by substantial margins.
Liquidity is the ability of the Corporation 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 Corporation's liabilities provide liquidity on a day-to-day basis.
Daily liquidity needs are met from deposit levels or from the Corporation'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 Corporation from its correspondent banks and other sources
such as the Federal Home Loan Bank. Management feels that its liquidity
position is adequate.
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PART II - OTHER INFORMATION
Item l. Legal Proceedings:
Neither First National Corporation nor its subsidiaries are 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:
Not Applicable
Item 5. Other Information:
Not Applicable
Item 6. Exhibits and Reports of Form 8-K
(A) Exhibit 27 - Financial Data Schedule
(B) Reports on Form 8-K: None
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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: November 14, 2000 C. JOHN HIPP, III
PRESIDENT & CHIEF EXECUTIVE OFFICER
Date: November 14, 2000 RICHARD C. MATHIS
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
27 Financial Data Schedule Attached
