First National Corporation Reports Fourth Quarter 2020 Financial Results

STRASBURG, Va., Jan. 29, 2021 (GLOBE NEWSWIRE) -- First National Corporation (the “Company” or “First National”) (NASDAQ: FXNC), the bank holding company of First Bank (the “Bank”), reported unaudited consolidated net income of $3.2 million, or $0.65 per diluted share, for the fourth quarter of 2020, which resulted in a return on average assets of 1.31% and a return on average equity of 15.03%. This compares to net income of $2.7 million, or $0.55 per diluted share, and a return on average assets of 1.36% and a return on average equity of 14.10% for the fourth quarter of 2019. Recovery of loan losses of $200 thousand and provision for loan losses of $250 thousand were included in net income for the three-month periods ending December 31, 2020 and 2019, respectively.

For the year ending December 31, 2020, net income totaled $8.9 million, or $1.82 per diluted share, which resulted in a return on average assets of 0.98% and a return on average equity of 10.92%. This compares to net income of $9.6 million, or $1.92 per diluted share, and a return on average assets of 1.23% and a return on average equity of 13.19% for the same period of 2019. Provision for loan losses of $3.0 million and $450 thousand was included in net income for the years ending December 31, 2020 and 2019, respectively.

Highlights for the fourth quarter of 2020:

• Return on average assets of 1.31%
• Return on average equity of 15.03%
• Efficiency ratio of 61.00%
• Net interest income increased $382 thousand, or 5%
• Wealth management revenue increased $102 thousand, or 21%
• Tangible book value increased 13% to $17.47 per share, compared to $15.50 one year ago
• Nonperforming assets decreased $260 thousand during the quarter to $6.7 million
  

“Fourth quarter performance provided a strong finish to an otherwise challenging but rewarding year,” said Scott Harvard, president and chief executive officer of First National. Harvard continued, “Financial results for the quarter were exceptional, while performance for the year was surprisingly good considering the business challenges created by the pandemic. Although non-performing assets increased during the year and certain loans were modified to help business customers navigate a difficult operating environment, we are pleased with the Bank’s overall asset quality. Another bright spot in the company has been consistent growth of our wealth management business as wealth management revenue increased by 21% over the same quarter of the prior year. The entire First Bank team demonstrated why bankers are essential workers as they navigated family, health, and work to deliver the personal financial services needed by our small businesses, neighbors and friends.”

COVID-19 PANDEMIC UPDATE

Operations

During the fourth quarter, the Bank continued to follow its Pandemic Plan that strives to protect the health of its employees and customers, while continuing to deliver essential banking services. In response to an increasing number of COVID-19 cases in our communities during the fourth quarter, the Bank re-entered phase one of its plan on December 9, 2020 after operating under phase two of its plan since July 1, 2020. Phase one of the plan limits access to banking offices while delivering a majority of its banking services through branch drive throughs, ATMs, and mobile and internet banking platforms.

Paycheck Protection Program

The Bank participated as a lender in the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) to support local small businesses and non-profit organizations. During the second and third quarters of 2020, the Bank originated $76.6 million of PPP loans, received $2.5 million of loan fees, and incurred $535 thousand of loan origination costs. The original PPP provided forgivable loans over a five month period before it stopped accepting applications in August of 2020. The loan fees are being accreted into earnings evenly over the life of the loans, net of the loan costs, through interest and fees on loans. At December 31, 2020, PPP loan balances totaled $64.7 million with 98% of the loan balances maturing in the second quarter of 2022 and 2% of loan balances maturing in the third quarter of 2025. As of December 31, 2020, customers with PPP loan balances totaling $2.0 million had requested debt forgiveness but have not yet received notifications of forgiveness decisions from the SBA.

Congress recently revived the PPP (“new PPP”) as part of the COVID-19 relief bill that was signed into law on December 27, 2020. The Bank began participating as a lender in the new PPP in January of 2021. As of January 25, 2021, the Bank originated $2.1 million of new PPP loans. Loan fees received on new PPP loans will also be accreted into earnings evenly over the life of the loans, net of the loan costs, through interest and fees on loans. These new PPP loans will mature in the first quarter of 2026.

Asset Quality Impact

The pandemic has negatively impacted the financial condition of certain loan customers. The Bank expects certain sectors of its commercial real estate loan portfolio, including retail shopping, lodging and leisure, may experience elevated financial pressure in future periods. Those sectors comprised 5%, 5% and 2% of the loan portfolio, respectively, excluding PPP loans, at December 31, 2020. The Bank also expects that loans in those same sectors of its commercial and industrial loan portfolio may experience financial pressure in future periods. The magnitude of the potential decline in the Bank’s loan quality in future periods will likely depend on the duration of the pandemic and the extent that the Bank’s customers experience business interruptions.

Loan Modifications

In response to the unknown impact of the pandemic on the economy and its customers, the Bank created and implemented a loan payment deferral program for individual and business customers beginning in the first quarter of 2020, which provided them the opportunity to defer monthly payments for 90 days. At June 30, 2020, loans participating in the program totaled $182.6 million. The majority of these loans resumed regular payments during the second half of the year after their deferral periods ended. Loans that remained in the program totaled $1.2 million at December 31, 2020.

During the fourth quarter of 2020, the Bank modified terms of certain loans for customers that continued to be negatively impacted by the pandemic. The loan modifications lowered borrower’s loan payments by allowing interest only payments for periods ranging between 6 and 24 months. All loans modified were in the Bank’s commercial real estate loan portfolio and totaled $14.3 million at December 31, 2020. The loans were comprised of $12.8 million in the lodging sector and $1.5 million in the leisure sector.

Capital

The Company issued $5.0 million of subordinated debt in June 2020 as a result of its enterprise risk management and capital planning. The purpose of the issuance was primarily to further strengthen holding company liquidity and to remain a source of strength for the Bank in the event of a severe economic downturn. The Company may also use the proceeds of the issuance for general corporate purposes, including the potential repayment of the Company’s subordinated debt issued in 2015, which became callable on a quarterly basis beginning January 1, 2021. The Company issued the debt at a 5.50% fixed-to-floating rate subordinated note due 2030 to an institutional investor and was structured to qualify as Tier 2 capital under bank regulatory guidelines.

The Company’s stock repurchase plan remained suspended during the fourth quarter of 2020 and ended on December 31, 2020. The Company has not authorized another stock repurchase plan due to the potential impact of the pandemic on the economy and the Bank’s customers. The Company continued to pay cash dividends on common stock of $0.11 per share in the fourth quarter of 2020, which were unchanged from cash dividends paid during the first, second and third quarters of 2020.

BALANCE SHEET

Total assets of First National increased $150.9 million, or 19%, to $950.9 million at December 31, 2020, compared to $800.0 million at December 31, 2019. Total securities increased $15.9 million, while loans, net of the allowance for loan losses, increased $53.0 million, or 9%. The growth in the loan portfolio included PPP loans that totaled $64.7 million at the end of the year.

Total liabilities increased $143.2 million, or 20%, to $866.0 million at December 31, 2020, compared to $722.8 million one year ago. The increase in total liabilities was primarily attributable to significant growth in deposits. Total deposits increased $136.0 million, or 19%, to $842.5 million. Noninterest-bearing demand deposits increased $73.6 million, or 39%, savings and interest-bearing demand deposits increased $79.8 million, or 20%, while time deposits decreased $17.4 million, or 15%. The origination of PPP loans contributed to the deposit growth as many customers deposited proceeds of the loans in their deposit accounts at the Bank. Although proceeds from PPP loan originations during the second and third quarters of 2020 contributed to the increase in deposits, the Bank also experienced a significant amount of deposit growth not related to proceeds from PPP loan originations.

Shareholders’ equity increased $7.7 million, or 10%, to $84.9 million at December 31, 2020, compared to one year ago, from a $6.7 million increase in retained earnings and a $2.7 million increase in accumulated other comprehensive income. These increases were partially offset by $1.7 million decrease in common stock and surplus, which resulted from stock repurchases in the first quarter of 2020. The Bank was considered well-capitalized at December 31, 2020.

PERFORMANCE ANALYSIS OF THE THREE-MONTH PERIOD

Net interest income increased $382 thousand, or 5%, to $7.5 million for the fourth quarter of 2020, compared to the same period of 2019. The increase resulted from a $593 thousand, or 48%, decrease in total interest expense, which was partially offset by a $211 thousand decrease in total interest and dividend income. The net interest margin decreased 49 basis points to 3.30%. The decrease in the net interest margin was offset by growth in average earning assets of $158.8 million, or 21%, and resulted in an increase in net interest income.

The decrease in interest expense was primarily a result of the $632 thousand, or 61%, decrease in interest expense on deposits, which was attributable to reduced interest rates paid on deposits. The impact of a $79.1 million, or 15% increase in average interest-bearing deposits was offset by a 53-basis point decrease in the cost of interest-bearing deposits. A 49-basis point reduction of the cost of interest-bearing checking accounts and a 108-basis point reduction of the cost of money market accounts made the largest contributions to the decrease in interest expense.

The decrease in total interest and dividend income resulted from an 87-basis point decrease in the yield on earning assets, which was partially offset by a $158.8 million, or 21%, increase in average earning assets. The decrease in the yield on earning assets resulted from a 35-basis point decrease in the yield on securities, a 54-basis point decrease in the yield on loans, and a 153-basis point decrease in the yield on interest-bearing deposits in banks. The loan yield was negatively impacted by PPP loans earning a 1.00% interest rate. Additionally, the mix of earning assets had an unfavorable impact on the yield on average earning assets as lower yielding interest-bearing deposits in banks increased from 5% to 13% of average earning assets.

Noninterest income decreased $189 thousand, or 8%, to $2.2 million compared to the same period of 2019. Service charges on deposits decreased $200 thousand, or 27%, to $553 thousand, and ATM and check card fees decreased $78 thousand, or 12%, to $576 thousand. The decrease in service charges on deposits resulted from a reduction in overdraft fee income, which management believes was a result of the significant increase in deposit balances and a decrease in consumer spending. ATM and check card fees decreased primarily from the timing of an annual incentive payment from the Company’s check card processing vendor, which was received in the fourth quarter of 2019. These decreases were partially offset by wealth management fees, which increased $102 thousand, or 21%, from a higher amount of assets under management.

Noninterest expense increased $90 thousand, or 2%, to $5.9 million, compared to the same period one year ago. The increase was primarily attributable to a $158 thousand increase in FDIC assessment expense. This was partially offset by a $105 thousand decrease in other operating expense, which resulted from lower amounts of fraud losses on check cards, dues and subscriptions, employee training expense, and loan servicing costs.

PERFORMANCE ANALYSIS OF THE TWELVE-MONTH PERIOD

Net interest income increased $1.5 million, or 5%, to $29.5 million for the year ending December 31, 2020, compared to the same period of 2019. The increase resulted from a $1.5 million, or 31%, decrease in total interest expense. Total interest and dividend income was unchanged at $32.9 million. The net interest margin decreased 38 basis points to 3.50%. The decrease in the net interest margin was offset by growth in average earning assets of $118.8 million, or 16%.  

The decrease in total interest expense resulted primarily from a $1.5 million decrease in interest expense on deposits, which was attributable to reduced interest rates paid on deposits. The impact of a $63.4 million or 13%, increase in average interest-bearing deposits was offset by a 36-basis point decrease in the cost of interest-bearing deposits. A 49-basis point reduction of the cost of interest-bearing checking accounts and a 77-basis point reduction of the cost of money market accounts made the largest contributions to the decrease in interest expense.

Total interest and dividend income remained unchanged from a $118.8 million, or 16%, increase in average earning assets, which was offset by a 65-basis point decrease in the yield on earning assets. The decrease in the yield on earning assets resulted from a 25-basis point decrease in the yield on securities, a 41-basis point decrease in the yield on loans, and a 175-basis point decrease in the yield on interest-bearing deposits in banks. The loan yield was negatively impacted by PPP loans earning a 1.00% interest rate. Additionally, the mix of earning assets had an unfavorable impact on the yield on average earning assets as lower yielding interest-bearing deposits in banks increased from 3% to 10% of average earning assets.

Noninterest income decreased $327 thousand, or 4%, to $8.2 million, compared to the same period of 2019, primarily from a $898 thousand, or 31%, decrease in service charges on deposits. The decrease in service charges on deposits was attributable to lower overdraft fee income, which is believed to be a result of the significant increase in deposit balances and a decrease in consumer spending. This decrease was partially offset by a $340 thousand, or 18%, increase in wealth management fees, which resulted from higher amounts of assets under management.

Noninterest expense decreased $532 thousand, or 2%, to $23.8 million, compared to the same period one year ago. The decrease was primarily attributable to a $296 thousand, or 45%, decrease in marketing expense and a $431 thousand decrease in other operating expense, which resulted from lower amounts of fraud losses on check cards, dues and subscriptions, employee training expense, and loan servicing costs.

ASSET QUALITY/LOAN LOSS PROVISION

There was a recovery of loan losses of $200 thousand for the fourth quarter of 2020, which was attributable to a decrease in the general reserve and specific reserve components of the allowance for loan losses. The decrease in the general reserve resulted from a decrease in loan balances during the quarter and a favorable change in asset quality. Net charge-offs totaled $92 thousand for the quarter compared to $228 thousand for the same period one year ago. The allowance for loan losses totaled $7.5 million, or 1.19% of total loans at December 31, 2020. Excluding PPP loans, the allowance for loan losses totaled 1.32% of total loans. Provision for loan losses totaled $250 thousand for the same period of 2019 and the allowance for loan losses totaled $4.9 million, or 0.86% of total loans at December 31, 2019.

For the year ended December 31, 2020, provision for loan losses totaled $3.0 million and resulted from increases in the general and specific reserve components of the allowance for loan losses.  The increase in the general reserve resulted from the Bank’s observation of unfavorable changes in economic indicators and consideration of risks associated with modified loans that were negatively impacted by the pandemic. The specific reserve component of the allowance for loan losses increased from reserves placed on newly identified impaired loans. Net charge offs on loans also contributed to the provision for loan losses, which totaled $449 thousand for the year ending December 31, 2020, compared to $525 thousand for the prior year. Provision for loan losses totaled $450 thousand for the year ended December 31, 2019.

Loans 30 to 89 days past due and accruing totaled $996 thousand, or 0.16% of total loans at December 31, 2020 compared to $2.4 million, or 0.41% of total loans one year ago. Accruing substandard loans totaled $1.4 million at December 31, 2020 and $3.4 million at December 31, 2019. Nonperforming assets consisted only of non-accrual loans, which totaled $6.7 million, or 0.71% of total assets at December 31, 2020, compared to $1.5 million, or 0.18% of total assets one year ago.

FORWARD-LOOKING STATEMENTS

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to the Company’s future operations and are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including the rapidly changing uncertainties related to the COVID-19 pandemic and its potential adverse effect on the economy, our employees and customers, and our financial performance. For details on other factors that could affect expectations, see the risk factors and other cautionary language included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and other filings with the Securities and Exchange Commission.

ABOUT FIRST NATIONAL CORPORATION

First National Corporation (NASDAQ: FXNC) is the parent company and bank holding company of First Bank, a community bank that first opened for business in 1907 in Strasburg, Virginia. The Bank offers loan and deposit products and services through its website, www.fbvirginia.com, its mobile banking platform, a network of ATMs located throughout its market area, one loan production office, a customer service center in a retirement community, and 14 bank branch office locations located throughout the Shenandoah Valley, the central regions of Virginia and in the city of Richmond. In addition to providing traditional banking services, the Bank operates a wealth management division under the name First Bank Wealth Management. First Bank also owns First Bank Financial Services, Inc., which invests in entities that provide investment services and title insurance.

CONTACTS

Scott C. Harvard		M. Shane Bell
President and CEO		Executive Vice President and CFO
[phone]		[phone]
[e-mail]		[e-mail]

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

		(unaudited)
		For the Quarter Ended
		December 31,				September 30,				June 30,				March 31,				December 31,
		2020				2020				2020				2020				2019
Income Statement
Interest income
Interest and fees on loans		$	7,310			$	7,568			$	7,416			$	7,203			$	7,333
Interest on deposits in banks			31				25				16				118				163
Interest on securities
Taxable interest			567				575				636				670				627
Tax-exempt interest			163				152				151				151				156
Dividends			24				23				26				26				27
Total interest income		$	8,095			$	8,343			$	8,245			$	8,168			$	8,306
Interest expense
Interest on deposits		$	410			$	541			$	676			$	962			$	1,042
Interest on subordinated debt			160				160				91				90				91
Interest on junior subordinated debt			68				68				67				90				98
Total interest expense		$	638			$	769			$	834			$	1,142			$	1,231
Net interest income		$	7,457			$	7,574			$	7,411			$	7,026			$	7,075
Provision for (recovery of) loan losses			(200	)			1,500				800				900				250
Net interest income after provision for (recovery of) loan losses		$	7,657			$	6,074			$	6,611			$	6,126			$	6,825
Noninterest income
Service charges on deposit accounts		$	553			$	446			$	348			$	681			$	753
ATM and check card fees			576				669				550				519				654
Wealth management fees			598				573				512				525				496
Fees for other customer services			216				323				237				207				181
Income from bank owned life insurance			124				131				99				115				123
Net gains on securities			2				38				—				—				1
Net gains on sale of loans			10				3				26				31				89
Other operating income			73				18				1				21				44
Total noninterest income		$	2,152			$	2,201			$	1,773			$	2,099			$	2,341
Noninterest expense
Salaries and employee benefits		$	3,212			$	3,498			$	3,022			$	3,589			$	3,193
Occupancy			422				433				409				402				415
Equipment			440				439				418				410				406
Marketing			112				63				74				106				128
Supplies			90				112				103				89				88
Legal and professional fees			310				262				301				279				311
ATM and check card expense			253				259				223				245				231
FDIC assessment			105				52				60				30				(53	)
Bank franchise tax			161				162				161				153				136
Data processing expense			196				191				188				184				179
Amortization expense			24				33				42				52				61
Other real estate owned expense, net			—				—				—				—				1
Net losses (gains) on disposal of premises and equipment			(20	)			—				—				(9	)			14
Other operating expense			589				631				612				614				694
Total noninterest expense		$	5,894			$	6,135			$	5,613			$	6,144			$	5,804
Income before income taxes		$	3,915			$	2,140			$	2,771			$	2,081			$	3,362
Income tax expense			759				386				528				376				646
Net income		$	3,156			$	1,754			$	2,243			$	1,705			$	2,716

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

		(unaudited)
		For the Quarter Ended
		December 31,				September 30,				June 30,				March 31,				December 31,
		2020				2020				2020				2020				2019
Common Share and Per Common Share Data
Net income, basic		$	0.65			$	0.36			$	0.46			$	0.34			$	0.55
Weighted average shares, basic			4,858,288				4,854,144				4,849,719				4,950,887				4,968,574
Net income, diluted		$	0.65			$	0.36			$	0.46			$	0.34			$	0.55
Weighted average shares, diluted			4,861,208				4,854,649				4,849,719				4,955,970				4,972,535
Shares outstanding at period end			4,860,399				4,858,217				4,852,187				4,849,692				4,969,716
Tangible book value at period end		$	17.47			$	16.92			$	16.63			$	16.17			$	15.50
Cash dividends		$	0.11			$	0.11			$	0.11			$	0.11			$	0.09
Key Performance Ratios
Return on average assets			1.31	%			0.74	%			1.00	%			0.85	%			1.36	%
Return on average equity			15.03	%			8.52	%			11.30	%			8.72	%			14.10	%
Net interest margin			3.30	%			3.41	%			3.59	%			3.77	%			3.79	%
Efficiency ratio (1)			61.00	%			62.35	%			60.34	%			66.50	%			60.50	%
Average Balances
Average assets		$	954,810			$	944,390			$	899,301			$	806,609			$	795,391
Average earning assets			904,511				889,127				836,741				755,173				745,721
Average shareholders’ equity			83,545				81,894				79,845				78,659				76,424
Asset Quality
Loan charge-offs		$	165			$	115			$	176			$	328			$	281
Loan recoveries			73				96				88				78				53
Net charge-offs			92				19				88				250				228
Non-accrual loans			6,714				6,974				1,480				1,522				1,459
Other real estate owned, net			—				—				—				—				—
Nonperforming assets			6,714				6,974				1,480				1,522				1,459
Loans 30 to 89 days past due, accruing			996				885				1,094				2,901				2,372
Loans over 90 days past due, accruing			302				6				1				86				97
Troubled debt restructurings, accruing			—				—				4,313				—				—
Special mention loans			—				510				2,034				6,058				6,069
Substandard loans, accruing			1,394				3,804				8,616				4,368				3,410
Capital Ratios (2)
Total capital		$	91,243			$	89,155			$	88,109			$	86,849			$	85,439
Tier 1 capital			84,032				81,883				81,813				81,265				80,505
Common equity tier 1 capital			84,032				81,883				81,813				81,265				80,505
Total capital to risk-weighted assets			15.82	%			15.34	%			15.20	%			14.98	%			14.84	%
Tier 1 capital to risk-weighted assets			14.57	%			14.09	%			14.11	%			14.02	%			13.99	%
Common equity tier 1 capital to risk-weighted assets			14.57	%			14.09	%			14.11	%			14.02	%			13.99	%
Leverage ratio			8.80	%			8.67	%			9.08	%			10.08	%			10.13	%

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

		(unaudited)
		For the Quarter Ended
		December 31,				September 30,				June 30,				March 31,				December 31,
		2020				2020				2020				2020				2019
Balance Sheet
Cash and due from banks		$	13,115			$	13,349			$	17,717			$	30,551			$	9,675
Interest-bearing deposits in banks			114,182				108,857				90,562				17,539				36,110
Securities available for sale, at fair value			140,225				117,132				123,193				128,660				120,983
Securities held to maturity, at amortized cost			14,234				15,101				16,211				17,086				17,627
Restricted securities, at cost			1,875				1,848				1,848				1,848				1,806
Loans held for sale			245				—				170				621				167
Loans, net of allowance for loan losses			622,429				640,591				645,220				576,283				569,412
Premises and equipment, net			19,319				19,548				19,792				19,619				19,747
Accrued interest receivable			2,717				3,156				3,863				2,124				2,065
Bank owned life insurance			17,916				17,792				17,661				17,562				17,447
Core deposit intangibles, net			19				43				76				118				170
Other assets			4,656				5,316				5,777				4,401				4,839
Total assets		$	950,932			$	942,733			$	942,090			$	816,412			$	800,048
Noninterest-bearing demand deposits		$	263,229			$	256,733			$	253,974			$	197,662			$	189,623
Savings and interest-bearing demand deposits			479,035				480,017				470,764				407,555				399,255
Time deposits			100,197				101,645				114,277				115,410				117,564
Total deposits		$	842,461			$	838,395			$	839,015			$	720,627			$	706,442
Subordinated debt			9,991				9,987				9,982				4,987				4,983
Junior subordinated debt			9,279				9,279				9,279				9,279				9,279
Accrued interest payable and other liabilities			4,285				2,816				3,026				3,001				2,125
Total liabilities		$	866,016			$	860,477			$	861,302			$	737,894			$	722,829
Preferred stock		$	—			$	—			$	—			$	—			$	—
Common stock			6,075				6,073				6,065				6,062				6,212
Surplus			6,151				6,081				5,967				5,899				7,700
Retained earnings			69,292				66,670				65,451				63,741				62,583
Accumulated other comprehensive income, net			3,398				3,432				3,305				2,816				724
Total shareholders’ equity		$	84,916			$	82,256			$	80,788			$	78,518			$	77,219
Total liabilities and shareholders’ equity		$	950,932			$	942,733			$	942,090			$	816,412			$	800,048
Loan Data
Mortgage loans on real estate:
Construction and land development		$	27,328			$	27,472			$	31,981			$	40,279			$	43,164
Secured by farmland			521				533				872				888				900
Secured by 1-4 family residential			235,814				234,198				234,188				230,980				229,438
Other real estate loans			246,362				249,786				247,623				240,486				235,655
Loans to farmers (except those secured by real estate)			637				1,120				711				1,221				1,423
Commercial and industrial loans (except those secured by real estate)			109,201				124,157				123,995				54,287				48,730
Consumer installment loans			6,458				7,378				8,401				9,505				10,400
Deposit overdrafts			143				194				170				238				374
All other loans			3,450				3,530				3,575				3,983				4,262
Total loans		$	629,914			$	648,368			$	651,516			$	581,867			$	574,346
Allowance for loan losses			(7,485	)			(7,777	)			(6,296	)			(5,584	)			(4,934	)
Loans, net		$	622,429			$	640,591			$	645,220			$	576,283			$	569,412

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

		(unaudited)
		For the Quarter Ended
		December 31,				September 30,				June 30,				March 31,				December 31,
		2020				2020				2020				2020				2019
Reconciliation of Tax-Equivalent Net Interest Income
GAAP measures:
Interest income – loans		$	7,310			$	7,568			$	7,416			$	7,203			$	7,333
Interest income – investments and other			785				775				829				965				973
Interest expense – deposits			(410	)			(541	)			(676	)			(962	)			(1,042	)
Interest expense – subordinated debt			(160	)			(160	)			(91	)			(90	)			(91	)
Interest expense – junior subordinated debt			(68	)			(68	)			(67	)			(90	)			(98	)
Total net interest income		$	7,457			$	7,574			$	7,411			$	7,026			$	7,075
Non-GAAP measures:
Tax benefit realized on non-taxable interest income – loans		$	8			$	8			$	8			$	10			$	10
Tax benefit realized on non-taxable interest income – municipal securities			43				41				40				40				41
Total tax benefit realized on non-taxable interest income		$	51			$	49			$	48			$	50			$	51
Total tax-equivalent net interest income		$	7,508			$	7,623			$	7,459			$	7,076			$	7,126

FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)

		(unaudited)
		For the Year Ended
		December 31,				December 31,
		2020				2019
Income Statement
Interest income
Interest and fees on loans		$	29,497			$	28,958
Interest on deposits in banks			190				503
Interest on securities
Taxable interest			2,448				2,705
Tax-exempt interest			617				628
Dividends			99				103
Total interest income		$	32,851			$	32,897
Interest expense
Interest on deposits		$	2,589			$	4,104
Interest on federal funds purchased			—				1
Interest on subordinated debt			501				360
Interest on junior subordinated debt			293				420
Interest on other borrowings			—				2
Total interest expense		$	3,383			$	4,887
Net interest income		$	29,468			$	28,010
Provision for loan losses			3,000				450
Net interest income after provision for loan losses		$	26,468			$	27,560
Noninterest income
Service charges on deposit accounts		$	2,028			$	2,926
ATM and check card fees			2,314				2,330
Wealth management fees			2,208				1,868
Fees for other customer services			983				686
Income from bank owned life insurance			469				456
Net gains on securities			40				1
Net gains on sale of loans			70				170
Other operating income			113				115
Total noninterest income		$	8,225			$	8,552
Noninterest expense
Salaries and employee benefits		$	13,321			$	13,567
Occupancy			1,666				1,652
Equipment			1,707				1,645
Marketing			355				651
Supplies			394				338
Legal and professional fees			1,152				1,086
ATM and check card expense			980				897
FDIC assessment			247				45
Bank franchise tax			637				538
Data processing expense			759				705
Amortization expense			151				302
Other real estate owned expense, net			—				1
Net losses (gains) on disposal of premises and equipment			(29	)			14
Other operating expense			2,446				2,877
Total noninterest expense		$	23,786			$	24,318
Income before income taxes		$	10,907			$	11,794
Income tax expense			2,049				2,238
Net income		$	8,858			$	9,556

FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)

		(unaudited)
		For the Year Ended
		December 31,				December 31,
		2020				2019
Common Share and Per Common Share Data
Net income, basic		$	1.82			$	1.92
Weighted average shares, basic			4,878,139				4,964,832
Net income, diluted		$	1.82			$	1.92
Weighted average shares, diluted			4,880,266				4,967,932
Shares outstanding at period end			4,860,399				4,969,716
Tangible book value at period end		$	17.47			$	15.50
Cash dividends		$	0.44			$	0.36
Key Performance Ratios
Return on average assets			0.98	%			1.23	%
Return on average equity			10.92	%			13.19	%
Net interest margin			3.50	%			3.88	%
Efficiency ratio (1)			62.52	%			65.28	%
Average Balances
Average assets		$	901,216			$	776,933
Average earning assets			846,663				727,904
Average shareholders’ equity			81,093				72,451
Asset Quality
Loan charge-offs		$	784			$	884
Loan recoveries			335				359
Net charge-offs			449				525
Reconciliation of Tax-Equivalent Net Interest Income
GAAP measures:
Interest income – loans		$	29,497			$	28,958
Interest income – investments and other			3,354				3,939
Interest expense – deposits			(2,589	)			(4,104	)
Interest expense – federal funds purchased			—				(1	)
Interest expense – subordinated debt			(501	)			(360	)
Interest expense – junior subordinated debt			(293	)			(420	)
Interest expense – other borrowings			—				(2	)
Total net interest income		$	29,468			$	28,010
Non-GAAP measures:
Tax benefit realized on non-taxable interest income – loans		$	34			$	40
Tax benefit realized on non-taxable interest income – municipal securities			164				167
Total tax benefit realized on non-taxable interest income		$	198			$	207
Total tax-equivalent net interest income		$	29,666			$	28,217

(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, amortization of intangibles, and gains and losses on disposal of premises and equipment by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding gains and losses on sales of securities.  Tax-equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit is 21%. See the tables above for tax-equivalent net interest income and reconciliations of net interest income to tax-equivalent net interest income.  The efficiency ratio is a non-GAAP financial measure that management believes provides investors with important information regarding operational efficiency.  Such information is not prepared in accordance with U.S. generally accepted accounting principles (GAAP) and should not be construed as such.  Management believes; however, such financial information is meaningful to the reader in understanding operational performance but cautions that such information is not viewed as a substitute for GAAP.

(2) All capital ratios reported are for First Bank.