First National (US:FXNC)2020-05-11 21:27PART I – FINANCIAL INFORMATION Financial Statements This section presents unaudited consolidated financial statements and notes, detailing accounting policies and the initial impacts of the COVID-19 pandemic Consolidated Balance Sheet Summary (Unaudited) | (in thousands) | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $816,412 | $800,048 | | Loans, net | $576,283 | $569,412 | | Securities available for sale | $128,660 | $120,983 | | Total Liabilities | $737,894 | $722,829 | | Total deposits | $720,627 | $706,442 | | Total Shareholders' Equity | $78,518 | $77,219 | Consolidated Statement of Income Summary (Unaudited) | (in thousands, except per share data) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net interest income | $7,026 | $6,899 | | Provision for loan losses | $900 | $— | | Noninterest income | $2,099 | $1,985 | | Noninterest expense | $6,144 | $6,098 | | Net income | $1,705 | $2,261 | | Diluted EPS | $0.34 | $0.46 | Notes to Consolidated Financial Statements These notes detail interim financial statements, significant risks, lending operations, asset quality, capital, liquidity, and financial instruments, emphasizing COVID-19 impacts - In response to the COVID-19 pandemic, the company is participating in the Paycheck Protection Program (PPP), having approved 575 loans totaling $74.9 million as of April 30, 202034 - The company implemented a payment deferral program for customers affected by the pandemic, executing 464 deferrals on loan balances of $171.0 million as of April 30, 2020. These are not considered troubled debt restructurings under interagency guidance33 Allowance for Loan Losses Activity - Q1 2020 | (in thousands) | Amount | | :--- | :--- | | Beginning Balance, Dec 31, 2019 | $4,934 | | Charge-offs | ($328) | | Recoveries | $78 | | Provision for loan losses | $900 | | Ending Balance, Mar 31, 2020 | $5,584 | - On April 21, 2020, the company entered into two interest rate swap agreements with notional amounts of $5.0 million and $4.0 million to convert floating-rate junior subordinated debt to fixed-rate debt, designated as cash flow hedges127 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2020 financial results, emphasizing COVID-19's impact, including a significant loan loss provision, operational adjustments, and stable financial condition - Net income for Q1 2020 was $1.7 million, a decrease of $556 thousand from Q1 2019, primarily driven by a $900 thousand provision for loan losses related to the COVID-19 pandemic147148 - The company suspended its stock repurchase program in March 2020 due to economic uncertainty. In Q1 2020, it repurchased 129,035 shares for $2.1 million140235 - The efficiency ratio improved to 66.50% for Q1 2020 from 67.23% in Q1 2019153 Loan Portfolio Sectors with Expected Pressure from COVID-19 | Industry | Loan Balance (Mar 31, 2020) | Percent of Total Loans | | :--- | :--- | :--- | | Hospitality | $45,014 thousand | 7.74% | | Retail / shopping | $26,598 thousand | 4.57% | | Health care | $23,180 thousand | 3.98% | | Total | $94,792 thousand | 16.29% | Results of Operations Net interest income increased, but a significant loan loss provision was recorded due to the pandemic, while noninterest income and expenses saw modest changes - Net interest income rose to $7.0 million in Q1 2020 from $6.9 million in Q1 2019, as a 6% increase in average earning assets offset a 20 basis point decline in the net interest margin to 3.77%176 - A provision for loan losses of $900 thousand was recorded in Q1 2020, with approximately $700 thousand attributed to adjustments in qualitative factors due to the pandemic's economic impact184186 - Noninterest income increased by $114 thousand (6%) year-over-year, primarily due to an $88 thousand (20%) increase in wealth management fees from higher assets under management187 Financial Condition Total assets and net loans grew, while asset quality remained stable, though future risks in COVID-19 impacted sectors were identified - Total assets increased by $16.4 million (2%) to $816.4 million at March 31, 2020, compared to December 31, 2019194 - Net loans grew by $6.9 million (1%) during Q1 2020, led by increases in commercial and industrial loans197 - Non-performing assets were stable at $1.5 million, or 0.19% of total assets, at March 31, 2020211 - The allowance for loan losses increased to 0.96% of total loans at March 31, 2020, up from 0.86% at December 31, 2019214 Liquidity and Capital Resources The company maintains strong liquidity and capital, exceeding regulatory requirements, but suspended its stock repurchase program due to pandemic uncertainty - The Bank had access to $237.9 million in non-deposit sources of funds at March 31, 2020, including $146.7 million from the FHLB226 First Bank's Regulatory Capital Ratios (March 31, 2020) | Ratio | Value | | :--- | :--- | | Total capital to risk-weighted assets | 14.98% | | Tier 1 capital to risk-weighted assets | 14.02% | | Common equity Tier 1 capital to risk-weighted assets | 14.02% | | Tier 1 capital to average assets | 10.08% | | Capital conservation buffer ratio | 6.98% | - The Bank met all requirements to be categorized as "well capitalized" under prompt corrective action regulations as of March 31, 2020232 Quantitative and Qualitative Disclosures About Market Risk This disclosure is not required for the company for this reporting period - The company states that this disclosure is not required245 Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2020246 - No changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, such controls were identified during the last fiscal quarter247 PART II – OTHER INFORMATION Legal Proceedings The company is not a party to any material pending legal proceedings beyond routine litigation incidental to its business - There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Company's business250 Risk Factors A new risk factor addresses the highly uncertain and potentially adverse effects of the COVID-19 pandemic on business, financial condition, and operations - A new risk factor has been added to address the ongoing COVID-19 pandemic, noting that its effects on the business, financial condition, and operations are highly uncertain and difficult to predict252 - Specific pandemic-related risks include potential credit losses from borrower financial stress, operational disruptions, decreased demand for products and services, and heightened cybersecurity and fraud threats253 Unregistered Sales of Equity Securities and Use of Proceeds The company details Q1 2020 stock repurchase activity, including the suspension of its $5 million plan due to pandemic uncertainty Issuer Purchases of Equity Securities (Q1 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased as Part of Plan | Approx. Dollar Value Remaining in Plan | | :--- | :--- | :--- | :--- | :--- | | Jan 2020 | — | $— | — | $5,000 thousand | | Feb 2020 | 2,323 | $20.92 | 100 | $4,998 thousand | | Mar 2020 | 128,935 | $16.05 | 128,935 | $2,929 thousand | | Total Q1 | 131,258 | $16.14 | 129,035 | $2,929 thousand | Defaults Upon Senior Securities None reported - None256 Mine Safety Disclosures None reported - None256 Other Information None reported - None256 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL financial statements - The filing includes CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 1350, as well as XBRL interactive data files257258