First National Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

fxnc20190603_10q.htm

Table of Contents

UNITED STATES

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 the quarterly period ended September 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-23976

(Exact name of registrant as specified in its charter)

Virginia	54-1232965
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

112 West King Street, Strasburg, Virginia	22657
(Address of principal executive offices)	(Zip Code)

(540) 465-9121

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $1.25 per share	FXNC	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 9, 2020, 4,858,217 shares of common stock, par value $1.25 per share, of the registrant were outstanding.

Table of Contents

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	3

	Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019 (unaudited)	6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)	7

	Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2020 and 2019 (unaudited)	9

	Notes to Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	53

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	55

Item 6.	Exhibits	56

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST NATIONAL CORPORATION

Consolidated Balance Sheets

(in thousands, except share and per share data)

	(unaudited)
	September 30,		December 31,
	2020		2019*
Assets
Cash and due from banks	$	13,349	$	9,675
Interest-bearing deposits in banks		108,857		36,110
Securities available for sale, at fair value		117,132		120,983
Securities held to maturity, at amortized cost (fair value, 2020, $15,638; 2019, $17,646)		15,101		17,627
Restricted securities, at cost		1,848		1,806
Loans held for sale		—		167
Loans, net of allowance for loan losses, 2020, $7,777; 2019, $4,934		640,591		569,412
Premises and equipment, net		19,548		19,747
Accrued interest receivable		3,156		2,065
Bank owned life insurance		17,792		17,447
Core deposit intangibles, net		43		170
Other assets		5,316		4,839
Total assets	$	942,733	$	800,048

Liabilities and Shareholders’ Equity

Liabilities
Deposits:
Noninterest-bearing demand deposits	$	256,733	$	189,623
Savings and interest-bearing demand deposits		480,017		399,255
Time deposits		101,645		117,564
Total deposits	$	838,395	$	706,442
Subordinated debt		9,987		4,983
Junior subordinated debt		9,279		9,279
Accrued interest payable and other liabilities		2,816		2,125
Total liabilities	$	860,477	$	722,829

Commitments and contingencies

Shareholders’ Equity
Preferred stock, par value $1.25 per share; authorized 1,000,000 shares; none issued and outstanding	$	—	$	—
Common stock, par value $1.25 per share; authorized 8,000,000 shares; issued and outstanding, 2020, 4,858,217 shares; 2019, 4,969,716 shares		6,073		6,212
Surplus		6,081		7,700
Retained earnings		66,670		62,583
Accumulated other comprehensive income, net		3,432		724
Total shareholders’ equity	$	82,256	$	77,219
Total liabilities and shareholders’ equity	$	942,733	$	800,048

*Derived from audited consolidated financial statements.

See Notes to Consolidated Financial Statements

Table of Contents

FIRST NATIONAL CORPORATION

Consolidated Statements of Income (Unaudited)

(in thousands, except per share data)

	Three Months Ended					Nine Months Ended
	September 30,		September 30,			September 30,			September 30,
	2020		2019			2020			2019
Interest and Dividend Income
Interest and fees on loans	$	7,568	$	7,429		$	22,187		$	21,625
Interest on deposits in banks		25		97			159			340
Interest and dividends on securities:
Taxable interest		575		645			1,881			2,078
Tax-exempt interest		152		157			454			472
Dividends		23		26			75			76
Total interest and dividend income	$	8,343	$	8,354		$	24,756		$	24,591
Interest Expense
Interest on deposits	$	541	$	1,089		$	2,179		$	3,062
Interest on federal funds purchased		—		1			—			1
Interest on subordinated debt		160		90			341			269
Interest on junior subordinated debt		68		103			225			322
Interest on other borrowings		—		—			—			2
Total interest expense	$	769	$	1,283		$	2,745		$	3,656
Net interest income	$	7,574	$	7,071		$	22,011		$	20,935
Provision for loan losses		1,500		—			3,200			200
Net interest income after provision for loan losses	$	6,074	$	7,071		$	18,811		$	20,735
Noninterest Income
Service charges on deposit accounts	$	446	$	757		$	1,475		$	2,173
ATM and check card fees		669		586			1,738			1,676
Wealth management fees		573		477			1,610			1,372
Fees for other customer services		323		177			767			505
Income from bank owned life insurance		131		131			345			333
Net gains on securities available for sale		38		—			38			—
Net gains on sale of loans		3		34			60			81
Other operating income		18		29			40			71
Total noninterest income	$	2,201	$	2,191		$	6,073		$	6,211
Noninterest Expense
Salaries and employee benefits	$	3,498	$	3,556		$	10,109		$	10,374
Occupancy		433		398			1,244			1,237
Equipment		439		410			1,267			1,239
Marketing		63		143			243			523
Supplies		112		86			304			250
Legal and professional fees		262		231			842			775
ATM and check card expense		259		225			727			666
FDIC assessment		52		(6	)		142			98
Bank franchise tax		162		136			476			402
Data processing expense		191		174			563			526
Amortization expense		33		71			127			241
Net gains on disposal of premises and equipment		—		—			(9	)		—
Other operating expense		631		762			1,857			2,183
Total noninterest expense	$	6,135	$	6,186		$	17,892		$	18,514

See Notes to Consolidated Financial Statements

Table of Contents

FIRST NATIONAL CORPORATION

Consolidated Statements of Income (Unaudited)

(Continued)

(in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2020		2019		2020		2019
Income before income taxes	$	2,140	$	3,076	$	6,992	$	8,432
Income tax expense		386		583		1,290		1,592
Net income	$	1,754	$	2,493	$	5,702	$	6,840
Earnings per common share
Basic	$	0.36	$	0.50	$	1.17	$	1.38
Diluted	$	0.36	$	0.50	$	1.17	$	1.38

See Notes to Consolidated Financial Statements

Table of Contents

FIRST NATIONAL CORPORATION

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)

	Three Months Ended					Nine Months Ended
	September 30,			September 30,		September 30,			September 30,
	2020			2019		2020			2019
Net income	$	1,754		$	2,493	$	5,702		$	6,840
Other comprehensive income, net of tax,
Unrealized holding gains on available for sale securities, net of tax $8 and $99 for the three months and $700 and $875 for the nine months ended September 30, 2020 and 2019, respectively		26			375		2,632			3,292
Unrealized holding losses on securities transferred from held to maturity to available for sale, net of tax $0 and $0 for the three months and $0 and ($91) for the nine months ended September 30, 2020 and 2019, respectively		—			—		—			(340	)
Reclassification adjustment for gains included in net income, net of tax ($8) and $0 for the three months and ($8) and $0 for the nine months ended September 30, 2020 and 2019, respectively		(30	)		—		(30	)		—
Change in fair value of cash flow hedges, net of tax $34 and $0 for the three months and $28 and $0 for the nine months ended September 30, 2020 and 2019, respectively		131			—		106			—
Total other comprehensive income		127			375		2,708			2,952
Total comprehensive income	$	1,881		$	2,868	$	8,410		$	9,792

See Notes to Consolidated Financial Statements

Table of Contents

FIRST NATIONAL CORPORATION

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Nine Months Ended
	September 30,			September 30,
	2020			2019
Cash Flows from Operating Activities
Net income	$	5,702		$	6,840
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		992			1,003
Amortization of core deposit intangibles		127			241
Amortization of debt issuance costs		14			13
Origination of loans held for sale		(3,183	)		(7,497	)
Proceeds from sale of loans held for sale		3,410			6,899
Net gains on sales of loans held for sale		(60	)		(81	)
Provision for loan losses		3,200			200
Net gains on securities available for sale		(38	)		—
Increase in cash value of bank owned life insurance		(345	)		(333	)
Accretion of discounts and amortization of premiums on securities, net		497			447
Accretion of premium on time deposits		(20	)		(46	)
Stock-based compensation		254			159
Excess tax benefits on stock-based compensation		(2	)		(2	)
Gains on disposal of premises and equipment		(9	)		—
Deferred income tax benefit		(1,030	)		(97	)
Changes in assets and liabilities:
(Increase) decrease in interest receivable		(1,091	)		60
Decrease (increase) in other assets		688			(1,122	)
(Decrease) increase in accrued expenses and other liabilities		(28	)		210
Net cash provided by operating activities	$	9,078		$	6,894
Cash Flows from Investing Activities
Proceeds from maturities, calls, principal payments, and sales of securities available for sale	$	24,787		$	14,431
Proceeds from maturities, calls, and principal payments of securities held to maturity		2,444			1,669
Purchases of securities available for sale		(18,019	)		(2,336	)
Net purchase of restricted securities		(42	)		(118	)
Purchase of premises and equipment		(793	)		(883	)
Proceeds from sale of premises and equipment		9			—
Purchase of bank owned life insurance		—			(3,000	)
Net increase in loans		(74,379	)		(28,694	)
Net cash used in investing activities	$	(65,993	)	$	(18,931	)

See Notes to Consolidated Financial Statements

Table of Contents

FIRST NATIONAL CORPORATION

Consolidated Statements of Cash Flows (Unaudited)

(Continued)

(in thousands)

	Nine Months Ended
	September 30,			September 30,
	2020			2019
Cash Flows from Financing Activities
Net increase in demand deposits and savings accounts	$	147,872		$	14,497
Net (decrease) increase in time deposits		(15,899	)		604
Proceeds from subordinated debt, net of issuance costs		4,990			—
Cash dividends paid on common stock, net of reinvestment		(1,509	)		(1,257	)
Repurchase of common stock, stock incentive plan		(47	)		(20	)
Repurchase of common stock, employee stock ownership plan		—			(32	)
Repurchase of common stock, stock repurchase plan		(2,071	)		—
Net cash provided by financing activities	$	133,336		$	13,792
Increase in cash and cash equivalents	$	76,421		$	1,755
Cash and Cash Equivalents
Beginning	$	45,785		$	28,618
Ending	$	122,206		$	30,373
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	2,739		$	3,658
Income taxes	$	2,451		$	1,576
Supplemental Disclosures of Noncash Investing and Financing Activities
Unrealized gains on securities available for sale	$	3,294		$	4,167
Unrealized losses on securities transferred from held to maturity to available for sale	$	—		$	(431	)
Fair value of securities transferred from held to maturity to available for sale	$	—		$	23,036
Change in fair value of cash flow hedges	$	134		$	—
Issuance of common stock, dividend reinvestment plan	$	106		$	83

See Notes to Consolidated Financial Statements

Table of Contents

FIRST NATIONAL CORPORATION

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(in thousands, except share and per share data)

	Common Stock			Surplus			Retained Earnings			Accumulated Other Comprehensive Income		Total
Balance, June 30, 2019	$	6,206		$	7,566		$	58,268		$	769	$	72,809
Net income		—			—			2,493			—		2,493
Other comprehensive income		—			—			—			375		375
Cash dividends on common stock ($0.09 per share)		—			—			(447	)		—		(447	)
Stock-based compensation		—			91			—			—		91
Issuance of 1,498 shares common stock, dividend reinvestment plan		1			26			—			—		27
Issuance of 3,500 shares common stock, stock incentive plan		5			(5	)		—			—		—
Repurchase of 1,545 shares common stock, employee stock ownership plan		(2	)		(30	)		—			—		(32	)
Balance, September 30, 2019	$	6,210		$	7,648		$	60,314		$	1,144	$	75,316

	Common Stock		Surplus			Retained Earnings			Accumulated Other Comprehensive Income		Total
Balance, June 30, 2020	$	6,065	$	5,967		$	65,451		$	3,305	$	80,788
Net income		—		—			1,754			—		1,754
Other comprehensive income		—		—			—			127		127
Cash dividends on common stock ($0.11 per share)		—		—			(535	)		—		(535	)
Stock-based compensation		—		86			—			—		86
Issuance of 2,530 shares common stock, dividend reinvestment plan		3		33			—			—		36
Issuance of 3,500 shares common stock, stock incentive plan		5		(5	)		—			—		—
Balance, September 30, 2020	$	6,073	$	6,081		$	66,670		$	3,432	$	82,256

	Common Stock		Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2018	$	6,197	$	7,471		$	54,814		$	(1,808	)	$	66,674
Net income		—		—			6,840			—			6,840
Other comprehensive income		—		—			—			2,952			2,952
Cash dividends on common stock ($0.27 per share)		—		—			(1,340	)		—			(1,340	)
Stock-based compensation		—		159			—			—			159
Issuance of 4,232 shares common stock, dividend reinvestment plan		5		78			—			—			83
Issuance of 8,902 shares common stock, stock incentive plan		12		(12	)		—			—			—
Repurchase of 1,006 shares common stock, stock incentive plan

Price	18.61	EPS	1
Shares	5	P/E	14
MCap	92	P/FCF	13
Net Debt	-30	EBIT	12
TEV	62	TEV/EBIT	5
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-11-09
10-Q	2020-06-30	Filed 2020-08-10
10-Q	2020-03-31	Filed 2020-05-11
10-K	2019-12-31	Filed 2020-03-13
10-Q	2019-09-30	Filed 2019-11-08
10-Q	2019-06-30	Filed 2019-08-08
10-Q	2019-03-31	Filed 2019-05-09
10-K	2018-12-31	Filed 2019-03-14
10-Q	2018-09-30	Filed 2018-11-13
10-Q	2018-06-30	Filed 2018-08-10
10-Q	2018-03-31	Filed 2018-05-07
10-K	2017-12-31	Filed 2018-03-23
10-Q	2017-09-30	Filed 2017-11-13
10-Q	2017-06-30	Filed 2017-08-11
10-Q	2017-03-31	Filed 2017-05-12
10-K	2016-12-31	Filed 2017-03-29
10-Q	2016-09-30	Filed 2016-11-14
10-Q	2016-06-30	Filed 2016-08-12
10-Q	2016-03-31	Filed 2016-05-13
10-K	2015-12-31	Filed 2016-03-30
10-Q	2015-09-30	Filed 2015-11-16
10-Q	2015-06-30	Filed 2015-08-14
10-Q	2015-03-31	Filed 2015-05-15
10-K	2014-12-31	Filed 2015-03-27
10-Q	2014-09-30	Filed 2014-11-14
10-Q	2014-06-30	Filed 2014-08-14
10-Q	2014-03-31	Filed 2014-05-12
10-K	2013-12-31	Filed 2014-03-25
10-Q	2013-09-30	Filed 2013-11-14
10-Q	2013-06-30	Filed 2013-08-13
10-Q	2013-03-31	Filed 2013-05-13
10-K	2012-12-31	Filed 2013-03-25
10-Q	2012-09-30	Filed 2012-11-14
10-Q	2012-06-30	Filed 2012-08-14
10-Q	2012-03-31	Filed 2012-05-15
10-K	2011-12-31	Filed 2012-03-28
10-Q	2011-09-30	Filed 2011-11-10
10-Q	2011-06-30	Filed 2011-08-12
10-Q	2011-03-31	Filed 2011-05-16
10-K	2010-12-31	Filed 2011-03-24
10-Q	2010-09-30	Filed 2010-11-15
10-Q	2010-06-30	Filed 2010-08-16
10-Q	2010-03-31	Filed 2010-05-17
10-K	2009-12-31	Filed 2010-03-26

8-K	2021-02-18	Enter Agreement, Other Events, Exhibits
8-K	2021-02-11	Other Events, Exhibits
8-K	2021-01-29	Earnings, Exhibits
8-K	2020-12-09	Other Events
8-K	2020-10-29
8-K	2020-09-09
8-K	2020-07-29
8-K	2020-06-29
8-K	2020-06-10
8-K	2020-05-13
8-K	2020-04-29
8-K	2020-04-01
8-K	2020-02-14
8-K	2020-01-28
8-K	2019-12-03
8-K	2019-11-13
8-K	2019-10-25
8-K	2019-08-14
8-K	2019-07-24
8-K	2019-05-09
8-K	2019-04-23
8-K	2019-04-16
8-K	2019-03-15
8-K	2019-02-15
8-K	2019-01-30
8-K	2019-01-23
8-K	2018-10-24
8-K	2018-08-08
8-K	2018-07-24
8-K	2018-05-08
8-K	2018-05-08
8-K	2018-04-18
8-K	2018-02-20
8-K	2018-01-30

EX-31.1	ex_200536.htm
EX-31.2	ex_200537.htm
EX-32.1	ex_200538.htm
EX-32.2	ex_200539.htm

FXNC 10Q Quarterly Report

First National Earnings 2020-09-30