First National Corporation Reports Annual and Fourth Quarter 2023 Financial Results

Rhea-AI Summary

First National Corporation reported a net income of $9.6 million and diluted earnings per common share of $1.53 for the year ended December 31, 2023, compared to net income of $16.8 million and diluted earnings per common share of $2.68 for the year ended December 31, 2022. The fourth quarter ended December 31, 2023, saw a net loss of $851 thousand and diluted loss per common share of $0.14, primarily due to a $6.0 million provision for credit losses. Despite this, the return on average assets was 0.71% for the year, and the company's book value increased to $18.06 per share from $16.79 at the end of last year.

Positive

• None.

Negative

• The net loss for the fourth quarter of 2023 resulted from a $6.0 million provision for credit losses, primarily due to commercial and industrial loans originated to health care professionals through a third-party lender.

Insights

Financial Analyst

The reported financials of First National Corporation indicate a mixed performance with a year-over-year decrease in net income from $16.8 million to $9.6 million and a decline in diluted earnings per share from $2.68 to $1.53. This performance dip, particularly the net loss in the fourth quarter, is a critical concern for investors and analysts alike. The provision for credit losses of $6.0 million, driven by loan charge-offs and increased reserves, suggests potential weaknesses in the loan portfolio management, especially concerning commercial and industrial loans to health care professionals.

Despite the fourth quarter setback, the company's return on average assets (ROAA) of 0.71% and an 8% increase in tangible book value per share to $18.06 are positive indicators of underlying value. The efficiency ratio of 67.69%, although not exceptional, is within a reasonable range for the banking industry, indicating a moderate level of operational efficiency. The loan portfolio growth of 5% and the stable net interest margin in a rising interest rate environment are also noteworthy, as they may signal the company's resilience and strategic interest rate risk management.

Market Research Analyst

From a market perspective, the dynamics reflected in First National's financials are indicative of broader trends in the banking sector. The increase in noninterest-bearing deposits to 31% of total deposits is a strong liquidity indicator and suggests customer confidence in the bank's stability. However, the substantial provision for credit losses raises questions about the risk profile of the bank's lending activities, particularly in niche markets like healthcare professional lending through third-party lenders.

It's essential to consider the impact of the Federal Reserve's interest rate hikes on the bank's interest income and expense. The ability to stabilize the net interest margin at 3.35% in this context is a testament to effective asset-liability management. The growth in the loan portfolio, despite economic headwinds, demonstrates the bank's competitive positioning and potential for market share gains. These factors could influence investor sentiment and the stock's performance in the medium to long term.

Economist

The financial outcomes for First National Corporation must be contextualized within the economic environment of 2023, marked by multiple Federal Reserve interest rate hikes. These monetary policy decisions typically aim to curb inflation but can also lead to a contraction in economic activity. The bank's ability to grow its loan portfolio in such a climate may suggest strong demand for credit, which could be a positive economic indicator.

The reported provision for credit losses reflects an anticipation of future loan defaults, which could be symptomatic of economic stress among borrowers, particularly in the healthcare sector. This development may have broader economic implications, signaling potential vulnerabilities in sectors that have been considered relatively recession-proof in the past. The long-term effects will depend on the bank's risk mitigation strategies and the broader economic recovery trajectory.

STRASBURG, Va., Feb. 01, 2024 (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 $9.6 million and diluted earnings per common share of $1.53 for the year ended December 31, 2023. This compared to net income of $16.8 million and diluted earnings per common share of $2.68 for the year ended December 31, 2022.

For the fourth quarter ended December 31, 2023, the Company reported unaudited consolidated net loss of $851 thousand and diluted loss per common share of $0.14. This compared to net income of $3.1 million and diluted earnings per common share of $0.50 for the third quarter of 2023, and net income of $4.8 million and diluted earnings per common share of $0.76 for the fourth quarter of 2022.

The net loss for the fourth quarter of 2023 resulted from a $6.0 million provision for credit losses during the period, which was primarily the result of $2.7 million of loan charge-offs, a $2.4 million increase in specific reserves on individually impaired loans, and an $819 thousand increase in the general reserve component of the allowance for credit losses on loans. The charge-offs, increase in specific reserves, and increase in the general reserve were primarily attributable to commercial and industrial loans originated to health care professionals through a third-party lender. 

2023 HIGHLIGHTS

Key highlights of the year ended December 31, 2023, are as follows. Comparisons are to the prior year ended December 31, 2022, unless otherwise stated:

• Net income totaled $9.6 million
• Return on average assets was 0.71%
• Efficiency ratio ⁽¹⁾ of 67.69%
• Net interest margin was 3.41%
• Loan portfolio increased $48.9 million, or 5%
• Noninterest-bearing deposits comprised 31% of total deposits
• Tangible book value per share increased by 8% to $18.06
• Provision for credit losses totaled $6.2 million

“While the fourth quarter financial results were disappointing, we are pleased with the company’s overall performance in 2023. After absorbing a $6.0 million provision for credit losses in the fourth quarter and the Federal Reserve raising the Federal funds rate four times during the year, the return on average assets was still a respectable 0.71% for the year and book value increased to $18.06 per share from $16.79 at the end of last year,” said Scott Harvard, president and chief executive officer of First National. Harvard continued, “Our team continued to serve customers as trusted advisors and were able to grow loans by $48.9 million, stabilize the net interest margin in the fourth quarter at 3.35%, and retain 31% of total deposits in noninterest-bearing accounts. I remain optimistic about the ability of our team to deliver people first service that results in value creation for our shareholders over time.”

NET INTEREST INCOME

Year Ending December 31, 2023 Compared to Year Ending December 31, 2022

Net interest income decreased $2.2 million, or 5%, to $43.4 million for 2023. Total interest income increased by $8.3 million and was offset by an increase in total interest expense of $10.5 million.

The increase in total interest income was primarily attributable to a $7.6 million, or 18%, increase in interest income and fees on loans. The increase in interest income on loans was primarily attributable to a 48-basis point increase in the yield on loans and a 7% increase in average loan balances compared to the prior year.

The increase in total interest expense was attributable to a $10.4 million increase in interest expense on deposits. The higher interest expense on deposits resulted from a 126-basis point increase in the cost of interest-bearing deposits, which was partially offset by the impact of a 3% decrease in average interest-bearing deposits. The increase in the cost of deposits was impacted by a change in the composition of the deposit portfolio as lower cost deposit balances decreased, while higher cost deposit balances increased.

The net interest margin was 3.41% compared to the 3.71% for the prior year as the increase in the cost of funds exceeded the increase in yield on earning assets. Although the interest rate environment continued to be challenging during the year, the net interest margin was stable over the last three quarters as the rising cost of funds was offset by rising earning asset yields.

Fourth Quarter 2023 Compared to Linked Third Quarter 2023

Net interest income increased by $126 thousand, or 1%, to $10.8 million for the fourth quarter of 2023, compared to the linked third quarter of 2023. Total interest income increased by $643 thousand and was partially offset by an increase in total interest expense of $517 thousand.

The $643 thousand increase in interest income was primarily attributable to a $615 thousand, or 5%, increase in interest income and fees on loans. The increase in interest income on loans was primarily attributable to a 13-basis point increase in the yield on loans and a 2% increase in average loan balances compared to the linked quarter.

The $517 thousand increase in interest expense was attributable to a $422 thousand, or 11%, increase in interest expense on deposits. The higher interest expense on deposits was attributable to a 17-basis point increase in the cost of interest-bearing deposits and a 2% increase in average interest-bearing deposits compared to the linked quarter. The increase in the cost of deposits was also impacted by a change in the composition of the deposit portfolio as lower cost account balances decreased, while higher cost account balances increased.

The net interest margin was unchanged at 3.35% compared to the linked quarter as an increase in the cost of funds was offset by an increase in the yield on earning assets.

NONINTEREST INCOME

Year Ending December 31, 2023 Compared to Year Ending December 31, 2022

Noninterest income totaled $11.8 million for the year, which was a decrease of $866 thousand, or 7%, compared to $12.7 million for the prior year. The decrease was primarily a result of a gain on sale of other investment of $2.9 million in the prior year, which was partially offset by $2.0 million of net losses on sale of securities available for sale in the prior year. The gain on sale of other investment resulted from a gain on sale of an interest in a broker-dealer of investment securities by First Bank Financial Services, Inc.

Fourth Quarter 2023 Compared to Linked Third Quarter 2023

Noninterest income totaled $3.1 million for the fourth quarter of 2023 and was unchanged from the third quarter of 2023. An increase in fees for other customer services and a gain on sale of other investment was offset by decreases in ATM and check card fees. The gain on sale of other investment resulted from a contingency payment associated with the 2022 sale of the investment.

NONINTEREST EXPENSE

Year Ending December 31, 2023 Compared to Year Ending December 31, 2022

Noninterest expense increased $1.6 million, or 5%, in 2023, compared to the prior year. The increase was attributable to increases in several categories, including salaries and employee benefits, marketing, legal and professional fees, ATM and check card expense, FDIC assessment, bank franchise tax, and other operating expenses.

Fourth Quarter 2023 Compared to Linked Third Quarter 2023

Noninterest expense decreased $684 thousand, or 7%, in the fourth quarter of 2023, compared to the linked quarter. The decrease was primarily attributable to a $506 thousand, or 9%, decrease in salaries and employee benefits. The decrease in salaries and employee benefits was attributable to an adjustment to performance-based compensation based on the Company’s 2023 financial results.

ASSET QUALITY

Overview

Nonperforming assets (“NPAs”) as a percentage of total assets increased to 0.48% on December 31, 2023, compared to 0.23% on September 30, 2023, and 0.21% one year ago on December 31, 2022. Loans past due greater than 30 days and still accruing interest as a percentage of total loans also increased to 0.31% on December 31, 2023, compared to 0.19% on September 30, 2023, and 0.17% on December 31, 2022. Net charge-offs totaled $2.7 million in the fourth quarter of 2023, compared to net charge-offs of $83 thousand in the third quarter of 2023, and net charge-offs of $95 thousand in the fourth quarter of 2022. The allowance for credit losses on loans totaled $12.0 million, or 1.24% of total loans on December 31, 2023, compared to $8.9 million, or 0.93% of total loans on September 30, 2023, and $7.4 million, or 0.81% of total loans on December 31, 2022.

Nonperforming Assets

NPAs increased to $6.8 million on December 31, 2023, compared to $3.1 million on September 30, 2023, and $2.9 million on December 31, 2022, which represented 0.48%, 0.23%, and 0.21% of total assets, respectively. The increase in NPAs during the fourth quarter of 2023 resulted from thirteen commercial and industrial loans originated to health care professionals through a third-party lender with loan balances totaling $1.7 million and related unamortized premium balances totaling $706 thousand, and one commercial and industrial loan participation with a balance of $1.2 million.

Past Due Loans

Loan past due greater than 30 days and still accruing interest increased to $3.0 million, or 0.31% of total loans on December 31, 2023, compared to $1.8 million, or 0.19% of total loans on September 30, 2023, and $1.5 million, or 0.17%, of total loans on December 31, 2022. Of the total past due loans still accruing interest, $524 thousand was past due 90 days or more on December 31, 2023, compared to $370 thousand on September 30, 2023, and $0 on December 31, 2022. Loans that were past due 90 days or more and still accruing interest on December 31, 2023 were in the renewal process.

Net Charge-offs

Year Ending December 31, 2023 Compared to Year Ending December 31, 2022

Net charge-offs totaled $3.6 million for the year compared to net charge-offs of $114 thousand in the prior year. Net charge offs included $1.7 million of commercial and industrial loans that were originated to health care professionals through a third-party lender and $706 thousand of unamortized premiums on the loans. There was also an $888 thousand charge off attributable to two commercial and industrial loans to one customer, which had specific reserves established in the fourth quarter of 2022.

Fourth Quarter 2023 Compared to Linked Third Quarter 2023

Net charge-offs totaled $2.7 million for the fourth quarter of 2023, compared to net charge-offs of $83 thousand for the linked third quarter of 2023. The net charge-offs included $1.7 million of commercial and industrial loans originated to health care professionals through a third-party lender and $706 thousand of unamortized loan premiums on the loans.

Provision for Credit Losses

Year Ending December 31, 2023 Compared to Year Ending December 31, 2022

Provision for credit losses totaled $6.2 million in 2023, compared to a provision for credit losses of $1.9 million for the prior year. The provision was comprised of a $6.0 million provision for credit losses on loans, a $260 thousand provision for credit losses on unfunded commitments, and a $26 thousand recovery of credit losses on held-to-maturity securities.

Fourth Quarter 2023 Compared to Linked Third Quarter 2023

The Bank recorded a $6.0 million provision for credit losses in the fourth quarter of 2023, which was comprised of a $5.9 million provision for credit losses on loans, a $224 thousand provision for credit losses on unfunded commitments, and a $24 thousand recovery of credit losses on held-to-maturity securities. This compared to a provision for credit losses of $100 thousand for the linked third quarter of 2023.

Allowance for Credit Losses on Loans

On December 31, 2023, the allowance for credit losses on loans totaled $12.0 million, which was an increase of $3.1 million compared to an allowance for credit losses of $8.9 million on September 30, 2023. The allowance for credit losses totaled $7.4 million on December 31, 2022. The allowance increased in the fourth quarter of 2023 from a $2.4 million increase in specific reserves on individually evaluated loans and an $819 thousand increase in the general reserve component of the allowance. Specific reserves increased by $1.8 million from fourteen new individually evaluated loan relationships and increased by $555 thousand from two loans to one customer that were individually analyzed for specific reserves in prior periods. The general reserve increased from loan growth, higher calculated loss rates, and from the recognition of higher inherent risk in the loan portfolio through adjustments to qualitative risk factors. A qualitative factor adjustment related to changes in asset quality was made to the commercial and industrial loan pool during the fourth quarter of 2023.

The following table provides the changes in the allowance for credit losses on loans for the three-month periods ended (dollars in thousands):

		December 31, 2023				September 30, 2023				December 31, 2022
Allowance for credit losses on loans, beginning of period		$	8,896			$	8,858			$	5,710
Net charge-offs			(2,673	)			(83	)			(114	)
Provision for credit losses on loans			5,751				121				1,850
Allowance for credit losses on loans, end of period		$	11,974			$	8,896			$	7,446

The allowance for credit losses on loans as a percentage of total loans totaled 1.24% on December 31, 2023, compared to 0.93% on September 30, 2023, and 0.81% on December 31, 2022. 

Allowance for Credit Losses on Unfunded Commitments

The allowance for credit losses on unfunded commitments totaled $413 thousand on December 31, 2023, and the provision for credit losses on unfunded commitments totaled $224 thousand for the fourth quarter of 2023, which was included in the $6.0 million provision for credit losses reported on the Company’s consolidated income statement.

Allowance for Credit Losses on Securities

The allowance for credit losses on securities totaled $107 thousand on December 31, 2023, which was a decrease from $131 thousand on September 30, 2023. Recovery of credit losses on securities totaled $24 thousand for the fourth quarter of 2023.

LIQUIDITY

Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, unpledged securities held-to-maturity, at par, eligible to be pledged to the Federal Reserve Bank through its Bank Term Funding Program, and available lines of credit totaled $512.7 million on December 31, 2023, and $532.1 million on September 30, 2023.

The Bank maintains liquidity to fund loan growth and to meet potential demand from deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $368.2 million on December 31, 2023, and $346.9 million on September 30, 2023. Excluding municipal deposits, the estimated amount of uninsured customer deposits totaled $286.2 million on December 31, 2023, and $268.4 million on September 30, 2023.

BALANCE SHEET

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Assets totaled $1.4 billion on December 31, 2023, which was a $50.0 million, or 4%, increase compared to total assets one year ago on December 31, 2022. Interest-bearing deposits in banks increased by $23.8 million and loans, net of the allowance for credit losses on loans, increased by $44.5 million, or 5%. 

Loans increased by $44.5 million, or 5%, but the growth in loans did not have an impact on the composition of the loan portfolio. The loan portfolio was primarily comprised of loans secured by one-to-four family residential real estate, loans secured by commercial real estate, and commercial and industrial loans, which totaled 36%, 45%, and 12% of the loan portfolio, respectively, on December 31, 2023.

Deposits decreased by $7.6 million, or 1%, when compared to total deposits one year ago on December 31, 2022. The deposit composition changed over the prior year as noninterest-bearing demand deposits decreased from 34% to 31% of total deposits, savings and interest-bearing deposits decreased from 55% to 54% of total deposits, and time deposits increased from 11% to 16% of total deposits over the period.

Other borrowings increased $50.0 million during the year as the Bank borrowed funds in December 2023 from the Federal Reserve Bank through their Bank Term Funding Program. On December 31, 2023, borrowings totaled $50.0 million with a fixed interest rate of 4.85% and a maturity date of December 26, 2024. The Bank benefited from the borrowing by reducing interest rate risk and increasing net interest income. The Bank had no other borrowings one year ago on December 31, 2022.

Shareholders’ equity totaled $116.3 million on December 31, 2023, which was an increase of $7.9 million, or 7%, compared to December 31, 2022. The increase in total shareholders’ equity was attributable to a $3.9 million increase in retained earnings and a $3.8 million decrease in accumulated other comprehensive loss, net. The Company declared and paid cash dividends totaling $0.60 per common share in 2023, which was an increase compared to cash dividends totaling $0.56 paid in the prior year. The Company’s common equity to total assets ratio and its tangible common equity to tangible assets ratio increased during the year. The Bank is considered well-capitalized.

Year Ended December 31, 2023 Compared to Linked Quarter Ended September 30, 2023

Assets totaled $1.4 billion on December 31, 2023, which was a $53.2 million increase from the linked quarter ended September 30, 2023. Interest-bearing deposits in banks increased by $37.0 million and loans, net of the allowance for credit losses on loans, increased by $13.9 million. 

Loans, net of the allowance for credit losses on loans, totaled $957.5 million on December 31, 2023, which was a $13.9 million, or 6% annualized, increase from September 30, 2023.

Deposits totaled $1.2 billion on December 31, 2023 and September 30, 2023. The deposit composition changed slightly as noninterest-bearing demand deposits decreased $24.6 million, while savings and interest-bearing deposits increased $15.2 million and time deposits increased $7.9 million during the period. 

Other borrowings increased $50.0 million during the fourth quarter as the Bank borrowed funds in December 2023 from the Federal Reserve Bank through their Bank Term Funding Program.

Shareholders’ equity totaled $116.3 million on December 31, 2023, which was an increase of $4.3 million from September 30, 2023. The increase in total shareholders’ equity was attributable to a $6.0 million decrease in accumulated other comprehensive loss, net. The Company declared and paid cash dividends of $0.15 per common share during the fourth quarter of 2023, which was unchanged from quarterly dividends paid during the first three quarterly periods of 2023.

The following table provides capital ratios at the periods ended:

		December 31, 2023				September 30, 2023				December 31, 2022
Total capital ratio (2)			14.05	%			14.80	%			14.60	%
Tier 1 capital ratio (2)			12.82	%			13.86	%			13.82	%
Common equity Tier 1 capital ratio (2)			12.82	%			13.86	%			13.82	%
Leverage ratio (2)			9.31	%			9.97	%			9.57	%
Common equity to total assets (5)			8.19	%			8.20	%			7.91	%
Tangible common equity to tangible assets (5) (6)			7.97	%			7.98	%			7.70	%

LOANS ORIGINATED THROUGH A THIRD-PARTY

The Bank purchased commercial and industrial loans between October 2021 and October 2023 from a third-party finance company that originated and serviced loans to health care professionals. The finance company operated a program that historically provided credit support to the Bank through, among other things, the repurchase of their loans and unamortized loan premiums when loans did not pay according to the loan agreements.

The Bank performed an evaluation of the purchased loans, which resulted in a loss classification for $1.7 million of the loans and $830 thousand of their unamortized premiums. The classifications resulted in charge offs of the loans and unamortized premiums totaling $2.5 million to the Bank’s allowance for credit losses on loans during the fourth quarter of 2023.

On December 31, 2023, loans purchased from the finance company totaled $24.5 million, which was comprised of $16.6 million of loan balances and unamortized premiums totaling $7.9 million. The Bank determined that $2.4 million of the loans were non-accrual and thus were individually evaluated. Specific reserves on the individually evaluated loans were included in the Bank’s allowance for credit losses on loans. The remaining $22.1 million of loans were considered performing and were included in the calculation of the general reserve component of the allowance for credit losses. Premiums are amortized over the life of the loans using the effective interest method.

STOCK REPURCHASE PLAN

During the fourth quarter of 2022, the Board of Directors authorized a stock repurchase plan to purchase up to $5.0 million of its common stock through December 31, 2023. There were no stock repurchases during the fourth quarter of 2023. For the year ended December 31, 2023, the Company repurchased 37,532 shares of its common stock for a total of $568 thousand at a weighted average price of $15.14 per share. There were no stock repurchases during the prior year ending December 31, 2022.

NON-GAAP FINANCIAL MEASURES

In addition to financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company uses certain non-GAAP financial measures that provide useful information for financial and operational decision making, evaluating trends, and comparing financial results to other financial institutions. The non-GAAP financial measures presented in this document include fully taxable equivalent interest income, the net interest margin, the efficiency ratio, and tangible common equity to tangible assets.
 
The Company believes certain non-GAAP financial measures enhance the understanding of its business and performance. Non-GAAP financial measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP and may not be comparable to those reported by other financial institutions. A reconciliation of tax-exempt net interest income is included at the end of this release.

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, a loan production office, a customer service center in a retirement community, and 20 bank branch office locations located throughout the Shenandoah Valley, the central regions of Virginia, the Roanoke Valley, 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 owns an interest in an entity that provides title insurance services. 

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 are subject to a number of risks and uncertainties. For details on factors that could affect expectations, future events or results, 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, 2022, and other filings with the Securities and Exchange Commission.

CONTACTS

Scott C. Harvard		M. Shane Bell
President and CEO		Executive Vice President and CFO
(540) 465-9121		(540) 465-9121
sharvard@fbvirginia.com		sbell@fbvirginia.com

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,
		2023				2023				2023				2023				2022
Income Statement
Interest income
Interest and fees on loans		$	13,255			$	12,640			$	11,886			$	11,512			$	11,502
Interest on deposits in banks			368				338				759				344				522
Interest on securities
Taxable interest			1,318				1,323				1,306				1,339				1,381
Tax-exempt interest			303				304				307				306				308
Dividends			30				26				28				27				27
Total interest income		$	15,274			$	14,631			$	14,286			$	13,528			$	13,740
Interest expense
Interest on deposits		$	4,232			$	3,810			$	3,402			$	2,216			$	1,593
Interest on federal funds purchased			1				—				—				—				—
Interest on subordinated debt			70				69				69				69				69
Interest on junior subordinated debt			68				69				67				67				68
Interest on other borrowings			94				—				3				—				—
Total interest expense		$	4,465			$	3,948			$	3,541			$	2,352			$	1,730
Net interest income		$	10,809			$	10,683			$	10,745			$	11,176			$	12,010
Provision for credit losses			5,950				100				100				—				1,250
Net interest income after provision for credit losses		$	4,859			$	10,583			$	10,645			$	11,176			$	10,760
Noninterest income
Service charges on deposit accounts		$	718			$	733			$	683			$	646			$	662
ATM and check card fees			825				976				848				800				838
Wealth management fees			784				811				749				776				706
Fees for other customer services			232				122				220				196				238
Brokered mortgage fees			46				38				35				—				21
Income from bank owned life insurance			168				175				135				149				155
Net losses on securities available for sale			—				—				—				—				(2,004	)
Gain on sale of other investment			186				—				—				—				2,885
Other operating income			110				198				214				211				631
Total noninterest income		$	3,069			$	3,053			$	2,884			$	2,778			$	4,132
Noninterest expense
Salaries and employee benefits		$	4,999			$	5,505			$	5,189			$	5,346			$	5,325
Occupancy			568				534				524				528				562
Equipment			621				598				571				587				575
Marketing			190				204				248				268				228
Supplies			153				128				147				148				144
Legal and professional fees			443				439				422				343				339
ATM and check card expense			313				440				425				400				388
FDIC assessment			154				161				212				106				70
Bank franchise tax			262				262				262				254				238
Data processing expense			327				266				252				202				289
Amortization expense			4				5				4				5				4
Other real estate owned (income) expense, net			2				15				(219	)			3				(189	)
Other operating expense			1,064				1,227				1,121				1,010				1,007
Total noninterest expense		$	9,100			$	9,784			$	9,158			$	9,200			$	8,980
Income (loss) before income taxes		$	(1,172	)		$	3,852			$	4,371			$	4,754			$	5,912
Income tax expense (benefit)			(321	)			731				866				905				1,132
Net income (loss)		$	(851	)		$	3,121			$	3,505			$	3,849			$	4,780

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,
		2023				2023				2023				2023				2022
Common Share and Per Common Share Data
Earnings (loss) per common share, basic		$	(0.14	)		$	0.50			$	0.56			$	0.61			$	0.76
Weighted average shares, basic			6,261,500				6,256,663				6,269,668				6,273,913				6,262,821
Earnings (loss) per common share, diluted		$	(0.14	)		$	0.50			$	0.56			$	0.61			$	0.76
Weighted average shares, diluted			6,282,815				6,271,351				6,277,161				6,281,116				6,272,409
Shares outstanding at period end			6,263,102				6,260,934				6,250,613				6,281,935				6,264,912
Tangible book value at period end (4)		$	18.06			$	17.38			$	17.55			$	17.30			$	16.79
Cash dividends		$	0.15			$	0.15			$	0.15			$	0.15			$	0.14
Key Performance Ratios
Return on average assets			(0.25	%)			0.91	%			1.02	%			1.15	%			1.37	%
Return on average equity			(2.97	%)			10.96	%			12.56	%			14.20	%			18.38	%
Net interest margin			3.35	%			3.35	%			3.36	%			3.60	%			3.70	%
Efficiency ratio (1)			66.23	%			70.67	%			68.37	%			65.50	%			59.56	%
Average Balances
Average assets		$	1,372,365			$	1,355,113			$	1,372,781			$	1,351,630			$	1,386,841
Average earning assets			1,290,231				1,275,112				1,290,828				1,267,830				1,297,223
Average shareholders’ equity			113,614				112,987				111,917				109,924				103,132
Asset Quality
Loan charge-offs		$	2,765			$	143			$	110			$	975			$	135
Loan recoveries			92				60				206				60				40
Net charge-offs (recoveries)			2,673				83				(96	)			915				95
Non-accrual loans			6,763				3,116				677				1,591				2,673
Other real estate owned, net			—				—				45				185				185
Nonperforming assets (3)			6,763				3,116				722				1,776				2,858
Loans 30 to 89 days past due, accruing			2,484				1,395				970				1,816				1,532
Loans over 90 days past due, accruing			524				370				226				47				—
Special mention loans			—				—				2,754				—				1,959
Substandard loans, accruing			287				1,683				418				296				301
Capital Ratios (2)
Total capital		$	142,333			$	146,163			$	144,278			$	141,501			$	139,549
Tier 1 capital			129,840				136,947				135,079				132,784				132,103
Common equity tier 1 capital			129,840				136,947				135,079				132,784				132,103
Total capital to risk-weighted assets			14.05	%			14.80	%			14.88	%			14.85	%			14.60	%
Tier 1 capital to risk-weighted assets			12.82	%			13.86	%			13.93	%			13.94	%			13.82	%
Common equity tier 1 capital to risk-weighted assets			12.82	%			13.86	%			13.93	%			13.94	%			13.82	%
Leverage ratio			9.31	%			9.96	%			9.72	%			9.70	%			9.57	%

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,
		2023				2023				2023				2023				2022
Balance Sheet
Cash and due from banks		$	17,194			$	17,168			$	17,697			$	17,950			$	20,784
Interest-bearing deposits in banks			69,967				32,931				54,379				59,851				46,130
Securities available for sale, at fair value			152,857				148,175				156,745				162,355				162,907
Securities held to maturity, at amortized cost (net of allowance for credit losses)			148,244				149,948				151,677				151,301				153,158
Restricted securities, at cost			2,078				2,077				1,803				1,803				1,908
Loans, net of allowance for credit losses			957,456				943,603				921,336				909,250				913,076
Other real estate owned, net			—				—				45				185				185
Premises and equipment, net			22,142				21,363				21,556				21,637				21,876
Accrued interest receivable			4,655				4,502				4,248				4,389				4,543
Bank owned life insurance			24,902				24,734				24,559				24,424				24,531
Goodwill			3,030				3,030				3,030				3,030				3,030
Core deposit intangibles, net			117				122				127				131				136
Other assets			16,653				18,567				17,022				16,026				17,119
Total assets		$	1,419,295			$	1,366,220			$	1,374,224			$	1,372,332			$	1,369,383
Noninterest-bearing demand deposits		$	379,208			$	403,774			$	396,137			$	410,019			$	427,344
Savings and interest-bearing demand deposits			662,169				646,980				670,005				676,875				677,139
Time deposits			192,349				184,419				176,226				154,631				136,849
Total deposits		$	1,233,726			$	1,235,173			$	1,242,368			$	1,241,525			$	1,241,332
Other borrowings		$	50,000			$	—			$	—			$	—			$	-
Subordinated debt, net			4,997				4,997				4,996				4,996				4,995
Junior subordinated debt			9,279				9,279				9,279				9,279				9,279
Accrued interest payable and other liabilities			5,022				4,792				4,721				4,675				5,417
Total liabilities		$	1,303,024			$	1,254,241			$	1,261,364			$	1,260,475			$	1,261,023
Preferred stock		$	—			$	—			$	—			$	—			$	—
Common stock			7,829				7,826				7,813				7,842				7,831
Surplus			32,950				32,840				32,601				32,992				32,716
Retained earnings			94,198				95,988				93,805				91,239				90,284
Accumulated other comprehensive (loss), net			(18,706	)			(24,675	)			(21,359	)			(20,216	)			(22,471	)
Total shareholders’ equity		$	116,271			$	111,979			$	112,860			$	111,857			$	108,360
Total liabilities and shareholders’ equity		$	1,419,295			$	1,366,220			$	1,374,224			$	1,372,332			$	1,369,383
Loan Data
Mortgage real estate loans:
Construction and land development		$	52,680			$	50,405			$	49,282			$	48,610			$	51,840
Secured by farmland			9,154				7,113				3,563				3,150				3343
Secured by 1-4 family residential			344,369				340,773				337,601				334,302				331,421
Other real estate loans			438,118				426,065				418,409				412,851				415,112
Loans to farmers (except those secured by real estate)			455				667				714				739				900
Commercial and industrial loans (except those secured by real estate)			112,619				116,463				112,088				110,198				110,325
Consumer installment loans			4,753				4,596				4,505				4,206				4,128
Deposit overdrafts			222				368				251				179				197
All other loans			7,060				6,049				3,781				3,732				3,256
Total loans		$	969,430			$	952,499			$	930,194			$	917,967			$	920,522
Allowance for credit losses			(11,974	)			(8,896	)			(8,858	)			(8,717	)			(7,446	)
Loans, net		$	957,456			$	943,603			$	921,336			$	909,250			$	913,076

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,
		2023				2023				2023				2023				2022
Reconciliation of Tax-Equivalent Net Interest Income (7)
GAAP measures:
Interest income – loans		$	13,255			$	12,640			$	11,886			$	11,512			$	11,502
Interest income – investments and other			2,019				1,991				2,400				2,016				2,238
Interest expense – deposits			(4,232	)			(3,810	)			(3,402	)			(2,216	)			(1,593	)
Interest expense – federal funds purchased			(1	)			—				—				—				—
Interest expense – subordinated debt			(70	)			(69	)			(69	)			(69	)			(69	)
Interest expense – junior subordinated debt			(68	)			(69	)			(67	)			(67	)			(68	)
Interest expense – other borrowings			(94	)			—				(3	)			—				—
Total net interest income		$	10,809			$	10,683			$	10,745			$	11,176			$	12,010
Non-GAAP measures:
Tax benefit realized on non-taxable interest income – municipal securities		$	80			$	81			$	81			$	82			$	82
Total tax benefit realized on non-taxable interest income			80				81				81				82				82
Total tax-equivalent net interest income		$	10,889			$	10,764			$	10,826			$	11,258			$	12,092

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,
		2023				2022
Income Statement
Interest income
Interest and fees on loans		$	49,293			$	41,720
Interest on deposits in banks			1,809				1,223
Interest on securities
Taxable interest			5,286				5,131
Tax-exempt interest			1,220				1,229
Dividends			111				92
Total interest income		$	57,719			$	49,395
Interest expense
Interest on deposits		$	13,660			$	3,273
Interest on federal funds purchased			1				—
Interest on subordinated debt			277				277
Interest on junior subordinated debt			271				270
Interest on other borrowings			97				—
Total interest expense		$	14,306			$	3,820
Net interest income		$	43,413			$	45,575
Provision for credit losses			6,150				1,850
Net interest income after provision for credit losses		$	37,263			$	43,725
Noninterest income
Service charges on deposit accounts		$	2,780			$	2,677
ATM and check card fees			3,449				3,300
Wealth management fees			3,120				3,008
Fees for other customer services			770				839
Brokered mortgage fees			119				245
Income from bank owned life insurance			627				596
Net losses on securities available for sale			—				(2,004	)
Gain on sale of other investment			186				2,885
Other operating income			733				1,104
Total noninterest income		$	11,784			$	12,650
Noninterest expense
Salaries and employee benefits		$	21,039			$	20,709
Occupancy			2,154				2,218
Equipment			2,377				2,300
Marketing			910				813
Supplies			576				528
Legal and professional fees			1,647				1,414
ATM and check card expense			1,578				1,370
FDIC assessment			633				463
Bank franchise tax			1,040				930
Data processing expense			1,047				989
Amortization expense			18				19
Other real estate owned income, net			(199	)			(106	)
Other operating expense			4,422				3,978
Total noninterest expense		$	37,242			$	35,625
Income before income taxes		$	11,805			$	20,750
Income tax expense			2,181				3,952
Net income		$	9,624			$	16,798

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,
		2023				2022
Common Share and Per Common Share Data
Net income, basic		$	1.54			$	2.69
Weighted average shares, basic			6,265,394				6,252,369
Net income, diluted		$	1.53			$	2.68
Weighted average shares, diluted			6,279,106				6,259,357
Shares outstanding at period end			6,263,102				6,264,912
Tangible book value at period end (4)		$	18.06			$	16.79
Cash dividends		$	0.60			$	0.56
Key Performance Ratios
Return on average assets			0.71	%			1.19	%
Return on average equity			8.59	%			15.87	%
Net interest margin			3.41	%			3.71	%
Efficiency ratio (1)			67.69	%			61.75	%
Average Balances
Average assets		$	1,363,339			$	1,408,710
Average earning assets			1,280,980				1,237,635
Average shareholders’ equity			112,083				105,869
Asset Quality
Loan charge-offs		$	3,993			$	529
Loan recoveries			418				415
Net charge-offs			3,575				114
Reconciliation of Tax-Equivalent Net Interest Income (7)
GAAP measures:
Interest income – loans		$	49,293			$	41,720
Interest income – investments and other			8,426				7,675
Interest expense – deposits			(13,660	)			(3,273	)
Interest expense – federal funds purchased			(1	)			—
Interest expense – subordinated debt			(277	)			(277	)
Interest expense – junior subordinated debt			(271	)			(270	)
Interest expense – other borrowings			(97	)			—
Total net interest income		$	43,413			$	45,575
Non-GAAP measures:
Tax benefit realized on non-taxable interest income – loans		$	—			$	8
Tax benefit realized on non-taxable interest income – municipal securities			324				327
Total tax benefit realized on non-taxable interest income		$	324			$	335
Total tax-equivalent net interest income		$	43,737			$	45,910

⁽¹⁾ The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, amortization of intangibles, gains and losses on disposal of premises and equipment, and merger related expenses by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding gains on sales of securities and gains on other investments. 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 not be viewed as a substitute for GAAP.

⁽²⁾ Capital ratios are for First Bank.

⁽³⁾ Nonperforming assets are comprised of nonaccrual loans and other real estate owned.

⁽⁴⁾ Tangible book value is calculated by subtracting goodwill and other intangibles from total shareholders' equity. Tangible book value is a non-GAAP financial measure that management believes provides investors with important information that may be related to the valuation of common stock.

⁽⁵⁾ Capital ratios presented are for First National Corporation.

⁽⁶⁾ The ratio of tangible common equity to tangible assets, or TCE ratio, is calculated by dividing consolidated total common shareholders’ equity by consolidated total assets, after reducing both amounts by goodwill and other intangible assets. The TCE ratio is not required by GAAP or by bank regulations, but is a metric used by management to evaluate the adequacy of the Company’s capital levels. Since there is no authoritative requirement to calculate the TCE ratio, our TCE ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non-GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP.

⁽⁷⁾ 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. 

FAQ

What was the net income of First National Corporation for the year ended December 31, 2023?

The net income was $9.6 million.

What was the diluted earnings per common share for the year ended December 31, 2023?

The diluted earnings per common share was $1.53.

What was the net loss for the fourth quarter ended December 31, 2023?

The net loss was $851 thousand.

What was the provision for credit losses during the fourth quarter of 2023?

The provision for credit losses totaled $6.0 million.

What was the return on average assets for the year ended December 31, 2023?

The return on average assets was 0.71%.