First National Corporation Reports Fourth Quarter 2021 Financial Results

STRASBURG, Va., Jan. 31, 2022 (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 $2.2 million, or $0.35 per diluted share, for the fourth quarter of 2021, which included $1.3 million of merger expenses and provision for loan losses of $350 thousand. This compares to net income of $3.2 million, or $0.65 per diluted share for the fourth quarter of 2020 that included recovery of loan losses of $200 thousand.

For the year ending December 31, 2021, net income totaled $10.4 million, or $1.86 per diluted share, which included $3.5 million of merger expenses, and resulted in a return on average assets of 0.88% and a return on average equity of 10.30%. This compares to net income of $8.9 million, or $1.82 per diluted share, and a return on average assets of 0.98% and a return on average equity of 10.92% for the same period of 2020. Recovery of loan losses of $650 thousand and provision for loan losses of $3.0 million were included in net income for the years ending December 31, 2021 and 2020, respectively.

Key highlights of the fourth quarter of 2021 are as follows. Comparisons are to the corresponding period in the prior year unless otherwise stated:

• Completed operational merger of The Bank of Fincastle into First Bank
  • Conversion, employee severance and vendor contract termination costs completed
  • Tangible book value per share from merger less dilutive than initial estimate
  • Goodwill from merger totaled $1.2 million, compared to initial estimate of $3.9 million
• Completed transaction with SmartBank, which included:
  • Seven-person team lift
  • Assumption of office lease in the Richmond market
  • Acquisition of $82.6 million of loans and branch assets
• Efficiency ratio of 64.69%
• Net interest income increased $2.6 million, or 35%
• Noninterest income increased $794 thousand, or 37%
• Loans increased $195.2 million, or 31%
• Tangible book value per share increased by 5% to $18.28
  

“The Company delivered impressive financial performance for the fourth quarter and for the year while absorbing expenses associated with two strategic acquisitions,” said Scott Harvard, president and chief executive officer of First National. Harvard continued, “During the quarter, our team successfully completed expansion initiatives into the Richmond and Roanoke markets and began to experience some momentum growing the loan portfolio. We are pleased that we’ve retained the total amount of deposits assumed from the Fincastle acquisition and are optimistic about the impact our newly acquired bankers and markets could have on profitability. With the combination of the dedicated employees and the recent new additions to our team, we believe our banking company is well-positioned to be a leader in Virginia banking and deliver solid returns to our investors.”

ACQUISITION OF THE BANK OF FINCASTLE

On July 1, 2021, the Company completed the acquisition of The Bank of Fincastle (“Fincastle”) for an aggregate purchase price of $33.8 million of cash and stock (the “Merger”). Fincastle was merged with and into First Bank. The former Fincastle branches operated as The Bank of Fincastle, a division of First Bank, until their systems were converted on October 16, 2021. For the three-month and twelve-month periods ended December 31, 2021, the Company incurred merger expenses of $1.3 million and $3.5 million, respectively. The Company estimates it will incur approximately $20 thousand of additional merger expenses in the first quarter of 2022.

ACQUISITION OF THE SMARTBANK LOAN PORTFOLIO

On September 30, 2021, the Bank acquired $82.6 million of loans and certain branch assets from SmartBank related to their Richmond area branch, located in Glen Allen, Virginia. First Bank paid a premium based on a specific percentage of the loans sold and certain branch assets were acquired at SmartBank’s book value. Additionally, an experienced team of bankers based out of the SmartBank location have transitioned to become employees of First Bank. First Bank did not assume any deposit liabilities from SmartBank in connection with the transaction and SmartBank closed their branch operation on December 31, 2021. The Bank continued to operate its loan production office from the former branch location. First Bank’s assumption of the SmartBank’s branch office lease, acquisition of the remaining branch assets, and the transition of SmartBank employees to First Bank was completed in the fourth quarter of 2021.

SMALL BUSINESS ADMINISTRATION’S PPP

The Bank participated as a lender in the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) to support local small businesses and non-profit organizations by providing forgivable loans. Loan fees received from the SBA are accreted into income evenly over the life of the loans, net of loan origination costs, through interest and fees on loans. PPP loans totaled $12.5 million at December 31, 2021, with $124 thousand scheduled to mature in the second and third quarters of 2022, and $12.4 million scheduled to mature in the first and second quarters of 2026.

NET INTEREST INCOME

Net interest income increased $2.6 million, or 35%, to $10.1 million for the fourth quarter of 2021, compared to the same period of 2020. The increase resulted from a $2.6 million, or 32% increase in total interest and dividend income and a $60 thousand, or 9%, decrease in total interest expense. Net interest income was favorably impacted by a $385.5 million, or 43%, increase in average earning assets and was partially offset by the impact of a 17-basis point decrease in the net interest margin to 3.13% when comparing the periods.

Accretion of PPP income, net of costs, and accretion of discounts on purchased loans, net of premiums, were included in interest income and fees on loans. Accretion of PPP income totaled $285 thousand in the fourth quarter of 2021, compared to $388 thousand for the same period of 2020. Accretion of discounts on purchased loans totaled $158 thousand in the fourth quarter of 2021. There was no accretion of discounts on purchased loans in the fourth quarter of 2020.

PROVISION FOR LOAN LOSSES

The provision for loan losses totaled $350 thousand for the fourth quarter of 2021. The allowance for loan losses totaled $5.7 million, or 0.69% of total loans. The provision for loan losses resulted from $74 thousand of net charge-offs during the quarter and an increase in the general reserve component of the allowance for loan losses, which was partially offset by a decrease in the specific reserve component. The allowance for loan losses totaled $5.4 million, or 0.66% of total loans at September 30, 2021, and $7.5 million, or 1.19% of total loans at December 31, 2020. Recovery of loan losses totaled $200 thousand for the fourth quarter of 2020.

Loans 30 to 89 days past due and accruing totaled $3.2 million, or 0.39% of total loans at December 31, 2021, compared to $996 thousand, or 0.16% of total loans one year ago. Accruing substandard loans totaled $315 thousand at December 31, 2021 and $1.4 million at December 31, 2020. Nonperforming assets totaled $4.2 million, or 0.30% of total assets at December 31, 2021, compared to $6.7 million, or 0.71% of total assets at December 31, 2020. Nonperforming assets were comprised of $2.3 million of nonaccrual loans and $1.9 million of other real estate owned. There were $1.5 million of commercial rental properties included in other real estate owned that were acquired in the Merger.

During the fourth quarter of 2020 and during the first half of 2021, the Bank modified terms of certain loans for customers that were negatively impacted by the pandemic. The modifications lowered borrower’s loan payments with interest only payments for periods ranging between 6 and 24 months. Modified loans totaled $11.5 million at December 31, 2021 and were all in the lodging sector within the Bank’s commercial real estate loan portfolio. All modified loans were either performing under their modified terms or had returned to their original terms as of December 31, 2021.

NONINTEREST INCOME

Noninterest income increased $794 thousand, or 37%, to $2.9 million for the three-month period ended December 21, 2021, compared to the same period of 2020. Service charges on deposits increased $72 thousand, or 13%, ATM and check card fees increased $318 thousand, or 55%, income from bank-owned life insurance increased $28 thousand, or 23%, and fees for other customer services increased $83 thousand, or 38%, comparing the same periods. The increases were primarily attributable to the acquisition of Fincastle. Wealth management fees increased $118 thousand, or 20%, and was attributable to an increase in assets under management from growth in account values and from an increase in the number of clients being served by the wealth management division.

NONINTEREST EXPENSE

Noninterest expense increased $4.1 million, or 70%, to $10.0 million for the three-month period ended December 31, 2021, compared to the same period one year ago. The increase was primarily attributable to a $1.9 million increase in salaries and employee benefits, a $421 thousand increase in legal and professional fees, a $1.1 million increase in data processing fees, and a $355 thousand increase in other operating expenses, comparing the same periods. The increases were primarily attributable to the increase in the number of employees, branch offices and customers that resulted from the acquisition of Fincastle, merger expenses related to the acquisition of Fincastle, and the acquisition of the loan portfolio and branch assets from SmartBank in the Richmond market, and the hiring of their team of employees. Merger expenses incurred in the fourth quarter of 2021 totaled $1.3 million and had the largest impact on salaries and employee benefits, marketing, supplies, legal and professional fees, data processing and other operating expenses.

BALANCE SHEET

Total assets of First National increased $438.5 million, or 46%, to $1.4 billion at December 31, 2021, compared to $950.9 million at December 31, 2020. Interest-bearing deposits in banks increased $43.1 million, or 38%, total securities increased $168.4 million, or 108%, and loans increased $195.2 million, or 31%. Loans, excluding PPP loans, increased $247.5 million, or 44% and were partially offset by a $52.3 million decrease in PPP loans during the year. PPP loans totaled $12.5 million at December 31, 2021.

Total liabilities increased $406.4 million, or 47%, to $1.3 billion at December 31, 2021, compared to $866.0 million one year ago. The increase in total liabilities was primarily attributable to significant growth in deposits. Total deposits increased $406.3 million, or 48%, to $1.2 billion. Noninterest-bearing demand deposits increased $150.0 million, or 57%, savings and interest-bearing demand deposits increased $211.0 million, or 44%, and time deposits increased $45.4 million, or 45%.

Shareholders’ equity increased $32.1 million, or 38%, to $117.0 million at December 31, 2021, compared to one year ago, from a $7.7 million increase in retained earnings and a $27.5 million combined increase in common stock and surplus. These increases were partially offset by $3.1 million decrease in accumulated other comprehensive income. The Bank was considered well-capitalized at December 31, 2021.

The acquisitions of Fincastle and the SmartBank loan portfolio had a significant impact on balance sheet growth. On July 1, 2021, the acquisition date of Fincastle, The Bank of Fincastle had total assets of $267.9 million, interest-bearing deposits in banks of $43.5 million, total securities of $12.0 million, loans, net of the allowance for loan losses of $191.5 million, and total deposits of $236.3 million. On September 30, 2021, the acquisition date of SmartBank’s Richmond-area branch loan portfolio, the loans totaled $82.6 million.

On January 1, 2022, the Company redeemed $5.0 million of subordinated debt that it issued on October 30, 2015. The debt was an interest only subordinated term note due 2025 in the aggregate principal amount of $5.0 million. The note had a fixed interest rate of 6.75% per annum. Debt issuance costs related to the note were fully amortized at December 31, 2021. Although the note had a maturity date of October 1, 2025, the Company was able to prepay the note, in part or in full through maturity, at the Company's option, on any scheduled interest payment date. 

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 invests in entities that provide investment services and title insurance.

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 involve a number of risks and uncertainties, including the rapidly changing uncertainties related to the COVID-19 pandemic and its potential adverse effect on the economy, our employees and customers, and our financial performance. For details on other 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, 2020, 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,
		2021				2021				2021				2021				2020
Income Statement
Interest income
Interest and fees on loans		$	9,365			$	9,215			$	7,074			$	7,143			$	7,310
Interest on deposits in banks			64				79				37				33				31
Interest on federal funds sold			2				8				—				—				—
Interest on securities
Taxable interest			920				766				697				717				567
Tax-exempt interest			299				242				215				180				163
Dividends			23				21				22				22				24
Total interest income		$	10,673			$	10,331			$	8,045			$	8,095			$	8,095
Interest expense
Interest on deposits		$	355			$	369			$	328			$	363			$	410
Interest on subordinated debt			155				156				154				154				160
Interest on junior subordinated debt			68				68				68				66				68
Total interest expense		$	578			$	593			$	550			$	583			$	638
Net interest income		$	10,095			$	9,738			$	7,495			$	7,512			$	7,457
Provision for (recovery of) loan losses			350				—				(1,000	)			—				(200	)
Net interest income after provision for (recovery of) loan losses		$	9,745			$	9,738			$	8,495			$	7,512			$	7,657
Noninterest income
Service charges on deposit accounts		$	625			$	547			$	447			$	442			$	553
ATM and check card fees			894				753				682				601				576
Wealth management fees			716				696				657				643				598
Fees for other customer services			299				434				307				286				216
Income from bank owned life insurance			152				161				100				113				124
Net gains on securities			—				—				—				37				2
Net gains on sale of loans			—				—				18				7				10
Other operating income			260				57				224				14				73
Total noninterest income		$	2,946			$	2,648			$	2,435			$	2,143			$	2,152
Noninterest expense
Salaries and employee benefits		$	5,099			$	5,446			$	3,693			$	3,555			$	3,212
Occupancy			510				500				399				447				422
Equipment			527				519				433				431				440
Marketing			179				243				138				106				112
Supplies			168				176				77				88				90
Legal and professional fees			731				586				483				737				310
ATM and check card expense			317				329				268				231				253
FDIC assessment			112				87				78				69				105
Bank franchise tax			172				153				172				168				161
Data processing expense			1,271				465				216				204				196
Amortization expense			4				5				5				14				24
Other real estate owned expense, net			12				14				—				—				—
Net losses (gains) on disposal of premises and equipment			(15	)			—				—				—				—
Other operating expense			924				903				668				600				569
Total noninterest expense		$	10,011			$	9,426			$	6,630			$	6,650			$	5,894
Income before income taxes		$	2,680			$	2,960			$	4,300			$	3,005			$	3,915
Income tax expense			497				562				958				569				759
Net income		$	2,183			$	2,398			$	3,342			$	2,436			$	3,156

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,
		2021				2021				2021				2021				2020
Common Share and Per Common Share Data
Net income, basic		$	0.35			$	0.39			$	0.69			$	0.50			$	0.65
Weighted average shares, basic			6,226,838				6,220,456				4,868,901				4,863,823				4,858,288
Net income, diluted		$	0.35			$	0.38			$	0.69			$	0.50			$	0.65
Weighted average shares, diluted			6,235,907				6,229,524				4,873,286				4,872,097				4,861,208
Shares outstanding at period end			6,228,176				6,226,418				4,870,459				4,868,462				4,860,399
Tangible book value at period end		$	18.28			$	18.11			$	18.21			$	17.65			$	17.47
Cash dividends		$	0.12			$	0.12			$	0.12			$	0.12			$	0.11
Key Performance Ratios
Return on average assets			0.63	%			0.71	%			1.31	%			1.00	%			1.31	%
Return on average equity			7.44	%			8.64	%			15.33	%			11.53	%			15.03	%
Net interest margin			3.13	%			3.06	%			3.10	%			3.27	%			3.30	%
Efficiency ratio (1)			64.69	%			64.86	%			63.65	%			64.53	%			61.00	%
Average Balances
Average assets		$	1,366,855			$	1,337,247			$	1,026,583			$	988,324			$	954,810
Average earning assets			1,289,977				1,272,969				976,842				937,199				904,511
Average shareholders’ equity			116,511				110,153				87,442				85,708				83,545
Asset Quality
Loan charge-offs		$	185			$	111			$	1,085			$	66			$	165
Loan recoveries			111				80				64				67				73
Net charge-offs			74				31				1,021				(1	)			92
Non-accrual loans			2,304				2,158				2,102				6,814				6,714
Other real estate owned, net		$	1,848				1,848				—				—				—
Nonperforming assets			4,152				4,006				2,102				6,814				6,714
Loans 30 to 89 days past due, accruing			3,235				2,707				550				906				996
Loans over 90 days past due, accruing			—				7				5				—				302
Troubled debt restructurings, accruing			—				—				—				—				—
Special mention loans			—				—				—				—				—
Substandard loans, accruing			315				319				322				1,343				1,394
Capital Ratios (2)
Total capital		$	125,934			$	128,197			$	95,856			$	94,044			$	91,243
Tier 1 capital			120,224				122,763				90,391				86,717				84,032
Common equity tier 1 capital			120,224				122,763				90,391				86,717				84,032
Total capital to risk-weighted assets			14.76	%			14.42	%			16.25	%			16.05	%			15.82	%
Tier 1 capital to risk-weighted assets			14.09	%			13.81	%			15.32	%			14.80	%			14.57	%
Common equity tier 1 capital to risk-weighted assets			14.09	%			13.81	%			15.32	%			14.80	%			14.57	%
Leverage ratio			8.82	%			9.22	%			8.78	%			8.78	%			8.80	%

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,
		2021				2021				2021				2021				2020
Balance Sheet
Cash and due from banks		$	18,725			$	19,182			$	13,913			$	11,940			$	13,115
Interest-bearing deposits in banks			157,281				95,459				114,334				164,322				114,182
Federal funds sold			—				80,589				—				—				—
Securities available for sale, at fair value			289,495				266,600				222,236				159,742				140,225
Securities held to maturity, at amortized cost			33,441				10,046				10,898				13,424				14,234
Restricted securities, at cost			1,813				1,813				1,631				1,631				1,875
Loans held for sale			—				—				—				—				245
Loans, net of allowance for loan losses			819,408				816,977				611,883				630,716				622,429
Other real estate owned			1,848				1,848				—				—				—
Premises and equipment, net			22,403				22,401				18,876				19,087				19,319
Accrued interest receivable			3,903				3,823				2,662				2,609				2,717
Bank owned life insurance			24,294				24,141				18,128				18,029				17,916
Goodwill			3,030				4,011				—				—				—
Core deposit intangibles, net			154				159				—				5				19
Other assets			13,641				8,740				10,032				6,625				4,656
Total assets		$	1,389,436			$	1,355,789			$	1,024,593			$	1,028,130			$	950,932
Noninterest-bearing demand deposits		$	413,188			$	411,527			$	290,571			$	292,280			$	263,229
Savings and interest-bearing demand deposits			689,998				652,624				528,002				526,012				479,035
Time deposits			145,566				148,419				95,732				97,765				100,197
Total deposits		$	1,248,752			$	1,212,570			$	914,305			$	916,057			$	842,461
Subordinated debt			9,993				9,993				9,992				9,992				9,991
Junior subordinated debt			9,279				9,279				9,279				9,279				9,279
Accrued interest payable and other liabilities			4,373				7,041				2,335				6,876				4,285
Total liabilities		$	1,272,397			$	1,238,883			$	935,911			$	942,204			$	866,016
Preferred stock		$	—			$	—			$	—			$	—			$	—
Common stock			7,785				7,783				6,088				6,086				6,075
Surplus			31,966				31,889				6,295				6,214				6,151
Retained earnings			76,990				75,554				73,901				71,144				69,292
Accumulated other comprehensive income, net			298				1,680				2,398				2,482				3,398
Total shareholders’ equity		$	117,039			$	116,906			$	88,682			$	85,926			$	84,916
Total liabilities and shareholders’ equity		$	1,389,436			$	1,355,789			$	1,024,593			$	1,028,130			$	950,932
Loan Data
Mortgage loans on real estate:
Construction and land development		$	55,721			$	45,120			$	25,035			$	25,720			$	27,328
Secured by farmland			3,708				3,748				495				507				521
Secured by 1-4 family residential			291,990				294,216				235,158				236,870				235,814
Other real estate loans			361,213				358,895				244,960				248,357				246,362
Loans to farmers (except those secured by real estate)			985				857				232				436				637
Commercial and industrial loans (except those secured by real estate)			98,820				104,807				102,734				117,109				109,201
Consumer installment loans			4,963				6,577				5,179				5,684				6,458
Deposit overdrafts			175				172				174				112				143
All other loans			7,543				8,019				3,381				3,407				3,450
Total loans		$	825,118			$	822,411			$	617,348			$	638,202			$	629,914
Allowance for loan losses			(5,710	)			(5,434	)			(5,465	)			(7,486	)			(7,485	)
Loans, net		$	819,408			$	816,977			$	611,883			$	630,716			$	622,429

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,
		2021				2021				2021				2021				2020
Reconciliation of Tax-Equivalent Net Interest Income
GAAP measures:
Interest income – loans		$	9,365			$	9,215			$	7,074			$	7,143			$	7,310
Interest income – investments and other			1,308				1,116				971				952				785
Interest expense – deposits			(355	)			(369	)			(328	)			(363	)			(410	)
Interest expense – subordinated debt			(155	)			(156	)			(154	)			(154	)			(160	)
Interest expense – junior subordinated debt			(68	)			(68	)			(68	)			(66	)			(68	)
Total net interest income		$	10,095			$	9,738			$	7,495			$	7,512			$	7,457
Non-GAAP measures:
Tax benefit realized on non-taxable interest income – loans		$	8			$	8			$	8			$	8			$	8
Tax benefit realized on non-taxable interest income – municipal securities			80				64				57				48				43
Total tax benefit realized on non-taxable interest income		$	88			$	72			$	65			$	56			$	51
Total tax-equivalent net interest income		$	10,183			$	9,810			$	7,560			$	7,568			$	7,508

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,
		2021				2020
Income Statement
Interest income
Interest and fees on loans		$	32,797			$	29,497
Interest on deposits in banks			213				190
Interest on federal funds sold			10				—
Interest on securities
Taxable interest			3,100				2,448
Tax-exempt interest			936				617
Dividends			88				99
Total interest income		$	37,144			$	32,851
Interest expense
Interest on deposits		$	1,415			$	2,589
Interest on subordinated debt			619				501
Interest on junior subordinated debt			270				293
Total interest expense		$	2,304			$	3,383
Net interest income		$	34,840			$	29,468
Provision for (recovery of) loan losses			(650	)			3,000
Net interest income after provision for loan losses		$	35,490			$	26,468
Noninterest income
Service charges on deposit accounts		$	2,061			$	2,028
ATM and check card fees			2,930				2,314
Wealth management fees			2,712				2,208
Fees for other customer services			1,326				983
Income from bank owned life insurance			526				469
Net gains on securities			37				40
Net gains on sale of loans			25				70
Other operating income			555				113
Total noninterest income		$	10,172			$	8,225
Noninterest expense
Salaries and employee benefits		$	17,793			$	13,321
Occupancy			1,856				1,666
Equipment			1,910				1,707
Marketing			666				355
Supplies			509				394
Legal and professional fees			2,537				1,152
ATM and check card expense			1,145				980
FDIC assessment			346				247
Bank franchise tax			665				637
Data processing expense			2,156				759
Amortization expense			28				151
Other real estate owned expense, net			26				—
Net losses (gains) on disposal of premises and equipment			(15	)			(29	)
Other operating expense			3,095				2,446
Total noninterest expense		$	32,717			$	23,786
Income before income taxes		$	12,945			$	10,907
Income tax expense			2,586				2,049
Net income		$	10,359			$	8,858

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,
		2021				2020
Common Share and Per Common Share Data
Net income, basic		$	1.87			$	1.82
Weighted average shares, basic			5,550,589				4,878,139
Net income, diluted		$	1.86			$	1.82
Weighted average shares, diluted			5,559,082				4,880,266
Shares outstanding at period end			6,228,176				4,860,399
Tangible book value at period end		$	18.28			$	17.47
Cash dividends		$	0.48			$	0.44
Key Performance Ratios
Return on average assets			0.88	%			0.98	%
Return on average equity			10.30	%			10.92	%
Net interest margin			3.13	%			3.50	%
Efficiency ratio (1)			64.44	%			62.52	%
Average Balances
Average assets		$	1,182,436			$	901,216
Average earning assets			1,120,647				846,663
Average shareholders’ equity			100,596				81,093
Asset Quality
Loan charge-offs		$	1,447			$	784
Loan recoveries			322				335
Net charge-offs			1,125				449
Reconciliation of Tax-Equivalent Net Interest Income
GAAP measures:
Interest income – loans		$	32,797			$	29,497
Interest income – investments and other			4,347				3,354
Interest expense – deposits			(1,415	)			(2,589	)
Interest expense – subordinated debt			(619	)			(501	)
Interest expense – junior subordinated debt			(270	)			(293	)
Total net interest income		$	34,840			$	29,468
Non-GAAP measures:
Tax benefit realized on non-taxable interest income – loans		$	32			$	34
Tax benefit realized on non-taxable interest income – municipal securities			249				164
Total tax benefit realized on non-taxable interest income		$	281			$	198
Total tax-equivalent net interest income		$	35,121			$	29,666

(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 and losses on sales of securities. 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. 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) All capital ratios reported are for First Bank.