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FXNC.. $5.60... First National Corporation Announces Earnings...

STRASBURG, Va., Jan. 29, 2014 /PRNewswire/ -- First National Corporation (the "Company") (OTCBB: FXNC), the parent company of First Bank (the "Bank"), reported record annual and quarterly earnings. Net income totaled $10.0 million, or $1.85 per basic and diluted share, for the year ended December 31, 2013. For the fourth quarter of 2013, net income totaled $7.5 million, or $1.49 per basic and diluted share.

(Logo: http://photos.prnewswire.com/prnh/20120213/PH52225LOGO )

Operating Highlights for 2013

Earnings:

Net income of $10.0 million
Reversal of valuation allowance on net deferred tax assets decreased income tax expense by $4.8 million
Return on average assets 1.87%
Return on average equity 22.16%
Asset Quality:

Substandard loans (accruing) decreased 49%
Recovery of loan losses totaled $425 thousand
Capital:

Total shareholders' equity increased $8.8 million to $53.7 million
Book value per share increased from $6.22 to $7.98
Total risk-based capital increased from 15.34% to 18.25%
"We are pleased to announce record earnings for the year and the fourth quarter," said Scott C. Harvard, President and CEO of the Company and the Bank. "Thanks to the hard work of our entire team, the financial condition of the Bank has improved to the point that we were able to reverse the valuation allowance on deferred tax assets, resulting in a boost to fourth quarter and annual earnings of $4.8 million."

Fourth Quarter Earnings

Net income totaled $7.5 million for the fourth quarter of 2013, compared to $943 thousand for the same period of 2012. The significant increase in earnings was primarily a result of the reversal of the valuation allowance on net deferred tax assets which decreased income tax expense by $4.8 million. In addition, the Company recorded a recovery of loan losses totaling $3.0 million, compared to provision for loan losses of $100 thousand for the same quarter of 2012. Return on average assets was 5.65% compared to 0.72% for the fourth quarter of 2012. Return on average equity was 64.03% for the fourth quarter of 2013 compared to 8.37% for the fourth quarter of 2012.

Net interest income totaled $4.5 million for the quarter, compared to $4.7 million for the same period one year ago. Noninterest income increased $182 thousand, or 11% compared to the same period of 2012, primarily from a 17% increase in service charges on deposits and a 25% increase in wealth management fee income.


Noninterest expense totaled $6.0 million for the quarter compared to $5.1 million for the same period in the prior year. Noninterest expense, excluding lease termination costs of $655 thousand and pension settlement costs of $284 thousand, was unchanged at $5.1 million for the fourth quarter of 2013 compared to the same quarter in 2012. Other operating expenses increased $760 thousand compared to the same period of 2012, primarily from the decision to terminate a land lease, initially executed for branch expansion, which impacted current year earnings and eliminated expense in future periods. Salaries and employee benefits increased $503 thousand compared to the same period of 2012, primarily as a result of higher pension costs related to the retirement of several long time employees with years of service ranging up to 40 years. The reversal of the valuation allowance on net deferred tax assets resulted in income tax benefit totaling $4.3 million for the fourth quarter of 2013 compared to income tax expense of $76 thousand in the same period of 2012.


Pre-provision pre-tax earnings, excluding non-recurring items, increased 9% to $1.2 million for the quarter compared to $1.1 million for the same period in the prior year. Lease termination costs of $655 thousand and pension settlement costs of $284 thousand comprised the non-recurring items for the fourth quarter of 2013.


Annual Earnings


Net income totaled $10.0 million for year ended December 31, 2013 compared to $2.8 million for the same period one year ago. Return on average assets was 1.87% and return on average equity was 22.16% for the year ended December 31, 2013, compared to 0.53% and 6.80%, respectively, for the same period in 2012.

Net interest income totaled $18.4 million compared to $19.3 million for 2012. Noninterest income totaled $6.9 million for 2013 compared to $7.2 million for 2012. Noninterest income, excluding a gain on termination of a director retirement plan of $543 thousand in 2013, and gains on sale of securities of $1.3 million in 2012, increased 8% to $6.4 million compared to $5.9 million for the same period one year ago. The increase was primarily driven by wealth management fees and revenues from bank owned life insurance.

Noninterest expense totaled $20.6 million for the year compared to $19.1 million for the prior year. Noninterest expense, excluding lease termination costs of $864 thousand and pension settlement costs of $284 thousand, increased 1% to $19.4 million for the year ended December 31, 2013, compared to $19.1 million for the same period in 2012. Salaries and employee benefits, including pension expense, increased $836 thousand compared to the prior year. Other operating expenses increased $905 thousand compared to the same period one year ago. This increase was primarily attributable to the Bank's decision to terminate two land leases, initially executed for branch expansion, which impacted current year earnings and eliminated expense in future periods. Income tax benefit totaled $4.8 million for the year ended December 31, 2013, compared to income tax expense of $965 thousand for the prior year, primarily as a result of the reversal of the valuation allowance on the Company's net deferred tax assets.


Pre-provision pre-tax earnings, excluding non-recurring items and gains on sale of securities, totaled $5.4 million for the year compared to $6.0 million for the prior year. Lease termination costs of $864 thousand, pension settlement costs of $284 thousand, and a gain on termination of a director retirement plan totaling $543 thousand comprised the non-recurring items for 2013. Gains on sale of securities totaled $1.3 million in 2012.

Caution about 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. For details on 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, 2012, and other filings with the Securities and Exchange Commission.

About the Company

First National Corporation, headquartered in Strasburg, Virginia, is the bank holding company of First Bank. First Bank offers loan, deposit, trust and investment products and services from 10 office locations located throughout the northern Shenandoah Valley region of Virginia, which includes Shenandoah County, Warren County, Frederick County and the City of Winchester. Banking services are also accessed from the Bank's website, www.fbvirginia.com, and from a network of ATMs located throughout its market area. First Bank also owns First Bank Financial Services, Inc., which invests in entities that provide investment services and title insurance.