First National Corp (FXNC) SEC Filing 10-K Annual report for the fiscal year ending Tuesday, December 31, 2019

Exhibit 99.1

First National Corporation Reports 17% Increase in Fourth Quarter 2019 Net Income

STRASBURG, Va., January 28, 2020 --- First National Corporation (the “Company” or “First National”) (NASDAQ:FXNC) reported net income of $2.7 million, or $0.55 per diluted share, for the fourth quarter of 2019, which resulted in a return on average assets of 1.36% and a return on average equity of 14.10%. This was a $395 thousand, or 17%, increase compared to net income for the fourth quarter of 2018, which totaled $2.3 million or $0.47 per diluted share, and a return on average assets of 1.22% and a return on average equity of 14.15%.

For the year ended December 31, 2019, net income totaled $9.6 million, or $1.92 per diluted share, which resulted in return on assets of 1.23% and return on equity of 13.19%. This compares to net income of $10.1 million, or $2.04 per diluted share, for the year ended December 31, 2018.

Highlights for the fourth quarter of 2019:

“First National Corporation produced strong results in the fourth quarter of 2019 to finish a year of solid performance for the Company,” said Scott C. Harvard, President and CEO of First National. Harvard added, “Although lower market rates and a flat yield curve caused net interest margin compression, we are pleased with six percent loan growth and five percent deposit growth during the year. In addition, wealth management revenue has consistently increased from growth in the number of accounts under management and their market values. Going forward, we plan to focus on operating efficiently and expanding our customer portfolios by offering the latest banking products and delivering superior service.”

BALANCE SHEET

Total assets of First National increased $47.1 million, or 6%, to $800.0 million at December 31, 2019, compared to $753.0 million at December 31, 2018. The earning asset composition was unchanged as loans, net of the allowance for loan losses, increased $31.6 million, or 6%, and securities and interest-bearing deposits in banks increased $16.3 million, or 10%.

Total deposits increased $35.9 million, or 5%, to $706.4 million at December 31, 2019, compared to $670.6 million at December 31, 2018. There was a slight change in the deposit composition as noninterest-bearing deposits was unchanged at 27% of total deposits, while savings and interest-bearing demand deposits increased from 55% to 57% of total deposits and time deposits decreased from 18% to 16% of total deposits.

Shareholders’ equity increased $10.5 million to $77.2 million at December 31, 2019, compared to $66.7 million one year ago, primarily from a $7.8 million increase in retained earnings and a $2.5 million increase in accumulated other comprehensive income. Tangible common equity totaled $77.0 million at the end of the fourth quarter, an increase of 16% compared to $66.2 million one year ago. The Company’s wholly owned subsidiary, First Bank (the “Bank”), was considered well capitalized at December 31, 2019.

ANALYSIS OF THE THREE-MONTH PERIOD

Net interest income decreased $90 thousand, or 1%, to $7.1 million for the fourth quarter of 2019, compared to the same period of 2018. The decrease resulted from a 26 basis point decrease in net interest margin, which was partially offset by a 6% increase in average earning assets. The decrease in the net interest margin resulted from a 10 basis point increase in interest expense as a percent of average earning assets and a 16 basis point decrease in the yield on average earning assets.

The lower yield on average earning assets was primarily attributable to a 14 basis point decrease in the yield on loans. The increase in interest expense was primarily attributable to higher interest rates paid on deposits, as the cost of total interest-bearing deposits increased 16 basis points.

Noninterest income increased $62 thousand, or 3%, to $2.3 million, compared to the same period of 2018. Wealth management fees increased $53 thousand, or 12%, fees for other customer services increased $27 thousand, or 18%, income from bank owned life insurance increased $26 thousand, or 27%, and net gains on sale of loans increased $66 thousand. These increases were partially offset by a $61 thousand, or 7%, decrease in service charges on deposits, and a $63 thousand decrease in other operating income.

Noninterest expense decreased $277 thousand, or 5%, to $5.8 million, compared to the same period one year ago. The decrease was primarily attributable to a $113 thousand, or 3%, decrease in salaries and employee benefits, a $27 thousand, or 17%, decrease in marketing expense, a $32 thousand, or 9%, decrease in legal and professional fees, a $121 thousand decrease in FDIC assessment, and a $38 thousand decrease in amortization expense of core deposit intangibles. These decreases were partially offset by a $53 thousand, or 30%, increase in ATM and check card expense.