First National Corporation announces second quarter earnings

economic-forecast-headerFirst National Corporation, the parent company of First Bank, reported net income of $444 thousand, or $0.03 per basic and diluted share, for the quarter ended June 30, 2015.

Net income for the quarter was impacted by $458 thousand of one-time expenses and increased operating costs related to the acquisition of six branch banking operations. The branch acquisition was completed on April 17 and included the assumption of $186 million in deposit liabilities along with certain assets.

Operating Highlights

  • Total assets increased from $530.4 million to $695.8 million
  • The number of bank offices increased from 10 to 16 due to the branch acquisition
  • The Bank hired a Regional President to lead its newly formed south region
  • Cost of funds improved from 0.39% to 0.21%
  • Net interest income increased by 9% to $5.1 million
  • Leverage ratio remained over 10.00%

“During the second quarter, the Company successfully completed the acquisition of six full service branches in the Shenandoah Valley and central Virginia and assumed $186 million in deposits,” said Scott C. Harvard, President and CEO of the Company.

Harvard continued, “While total deposits assumed were materially less than originally projected, we believe the transaction represents inexpensive and reliable core funding for the foreseeable future. By acquiring longer term core funding, the Company absorbed significant one-time costs associated with the transaction that impacted financial performance in both the first and second quarter. Management remains confident the transaction is the right strategic move for the Company to build value going forward. We were especially pleased that the cost of funds of the acquired deposits was lower than originally projected, as were the costs associated with the transaction. Because the deposits were materially lower than expected at the closing date, capital levels remained high following the transaction, which positions the Company to be opportunistic either through additional acquisitions or by restructuring capital to enhance future earnings per share. Challenges remain for the Company to enhance efficiency of operations by taking advantage of the larger balance sheet and by improving our use of technology to the benefit of our new and legacy customers. We continue to be impressed with the team of associates who have joined the First Bank team and pleased with the addition of Butch Smiley as the new Regional President of the south region.

“We were disappointed with the loan volume from the First Mortgage division, but were pleased with the volume generated by the Bank’s commercial lenders. Although new loan production from commercial lenders remained fairly robust during the quarter, several large loan relationships paid off, which negatively impacted loan portfolio growth. While loan growth is essential to the success of the recent acquisition, the Bank is committed to high standards of loan underwriting and is unwilling to compromise those standards for the sake of growth alone. We intend to stay committed to those standards and remain optimistic about the ability of our loan team to pick up where they left off in the first quarter.

“Since the acquisition, we have seen a moderate decline for five of the six branches with one branch experiencing increases in deposit balances. Total deposits of the acquired branches decreased by $10 million, or 6%, to $176 million at June 30, 2015 compared to $186 million at the acquisition date. The legacy branches continue to grow low cost core non-time deposit balances built on relationships. The lower cost of all deposits contributed to a higher net interest margin than anticipated for the quarter in spite of lower loan balances.

“Lastly, we continued to see improvement in asset quality metrics. Loan delinquencies over 30 days were at their lowest levels in years as were non-performing assets, and the Bank’s classified asset ratio continued to improve by declining to 27%.”


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