First National Corporation (the “Company” or “First National”) (NASDAQ: FXNC) stated net income of $2.3M, or $0.46 per diluted share, for the 1st-quarter of 2K19, difference to $2.7M or $0.54 per diluted share for the 1st-quarter of 2K18. The declined in net income resulted mainly from a $648 thousand decline in noninterest income, which included a $456 thousand declined in income from bank-owned life insurance. Net interest income raised by $352 thousand, or 5 percent, difference to the 1st-quarter of 2K18. On April 18, 2K19, the Company began trading on the Nasdaq Capital Market stock exchange under the symbol FXNC.
Key accomplishments in the 1st-quarter of 2K19:
- Whole assets reached $775M
- Return on average equity of 13.47 percent
- Return on average assets of 1.21 percent
- Net interest margin of 3.97 percent
- Loan development of $7.6M for the quarter
- Deposit development of $13.7M for the quarter
“The Company continued to deliver superior financial performance in the 1st-quarter,” said Scott Harvard, president, and CEO of First National. Harvard added, “We are pleased to report a boost in net interest income over the similar quarter one year ago, which was driven by high-quality loan development and an improved net interest margin. While asset quality continues to be excellent, we are mindful of how late we may be in the current economic cycle and remain committed to adhering to consistent underwriting of recently’s credits.”
Whole assets of First National raised $7.2M to $775.1M, difference to $767.9M at March 31, 2K18. The earning asset composition changed favorably as loans, net of the allowance for loan losses, raised $29.9M, or 6 percent, while securities and interest-bearing deposits in banks declined $25.9M, or 13 percent, when comparing the periods.
Whole deposits declined $8.6M to $684.2M, difference to $692.8M at March 31, 2K18. The deposit portfolio composition remained stable as noninterest-bearing deposits were 28 percent and 27 percent of whole deposits at March 31, 2K19 and 2K18, respectively.
Shareholders’ equity raised $10.0M to $69.7M at March 31, 2K19, difference to $59.7M one year ago, mainly from a boost in retained earnings. Tangible common equity totaled $69.3M at the end of the 1st-quarter, a boost of 18 percent difference to $58.9M at March 31, 2K18. The Company’s wholly-owned banking partner, First Bank, was considered well-capitalized based on regulatory requirements at the end of the year.
ANALYSIS OF THE THREE-MONTH PERIOD
Net interest income raised $352 thousand, or 5 percent, to $6.9M for the quarter finished March 31, 2K19, difference to $6.5M for the 1st-quarter of 2K18. The raise resulted from a higher net interest margin and higher average earning asset balances.
Average earning asset balances raised 1 percent, and the net interest margin raised 18 basis points to 3.97 percent for the quarter finished March 31, 2K19, difference to 3.79 percent for the similar period in 2K18. The raise in the net interest margin resulted from a 38 basis point raise in the yield on average earning assets, which was partially offset by a 20 basis point raise in interest cost as a percent of average earning assets.
The higher yield on average earning assets was mainly attributable to a boost in yields on loans, securities and interest-bearing deposits in banks. The raise in interest cost was mainly attributable to higher interest rates paid on deposits, as the cost of whole interest-bearing deposits raised by 28 basis points, which difference favorably to raises of 100 basis points in the target federal funds rate during 2K18.
Noninterest income declined $648 thousand to $2.0M, difference to $2.6M for the similar period of 2K18. The declined was mainly attributable to a $456 thousand declined in bank owned life insurance and a $194 thousand declined in other income. The decline in bank-owned life insurance revenue was a result of a death benefit recorded in the 1st-quarter of 2K18.
The declined in other operating income was mainly attributable to the termination of the Company’s pension plan and the subsequent distribution of plan assets in the prior year, which resulted in a one-time raise in other operating income of $126 thousand during the 1st-quarter of 2K18. The declines were partially offset by a $30 thousand, or 7 percent, raise in wealth administration fees.
Noninterest cost raised $232 thousand, or 4 percent, to $6.1M for the 1st-quarter, difference to a similar period one year ago. Legal and professional fees raised $50 thousand, which resulted mainly from a boost in investment advisory costs of the wealth administration department, and audit fees related to new requirements for internal controls over financial reporting. The raise in investment advisory cost correlated with the raise in wealth administration revenue when comparing the periods.
ASSET QUALITY/LOAN LOSS PROVISION
There was no provision for loan losses recorded for the 1st-quarter of 2K19, difference to $100 thousand for the 1st-quarter 2K18. Net charge-offs totaled $63 thousand for the 1st-quarter of 2K19 difference to $154 thousand for the similar period of 2K18.
Nonperforming assets totaled $1.9M, or 0.25 percent of whole assets at March 31, 2K19, difference to $682 thousand, or 0.09 percent of whole assets, one year ago. The allowance for loan losses totaled $4.9M, or 0.90 percent of whole loans, and $5.3M, or 1.01 percent of whole loans, at March 31, 2K19 and 2K18, respectively.