Item 1. Business
The Company
First National Corporation (the "Company") was organized on September 7, 1983 as a Virginia corporation for the purpose of acquiring all of the outstanding common stock of the First National Bank of Strasburg (effective June 1, 1994, name changed to First Bank) (the "Bank") in connection with the reorganization of the Bank into a one bank holding company structure. At the effective date of the reorganization, the Bank merged into a newly-formed national bank organized as a wholly-owned subsidiary of the Company, with each outstanding share of common stock of the Bank being converted into one share of common stock of the Company. The primary activity of the Company is the ownership and operation of the Bank.
The Bank
The Bank is currently organized as a state chartered bank under the laws of the Commonwealth of Virginia. It commenced operations on July 1, 1907 as The Peoples National Bank of Strasburg. On January 10, 1928 the Bank changed its name to the First National Bank of Strasburg and moved into its current headquarters location in Strasburg.
On July 8, 1985, the Bank's first branch was opened in the town of Front Royal, Virginia. The second branch was opened on July 26, 1985 in the City of Winchester, Virginia. The Bank purchased a branch in Frederick County, Virginia from First Union National Bank of Virginia on March 31, 1994. The Bank opened this former First Union branch as a full service office on July 1, 1994. A fourth branch was constructed in the town of Woodstock, Virginia and opened for business on May 30, 1995. During 1998, two additional office locations were opened. The Bank leased office space for a Loan Production Office in downtown Winchester, Virginia, which opened on March 18, 1998. Additionally, a new full-service branch facility was purchased on the north side of Winchester, Virginia. This location was opened for business on December 19, 1998. The Bank opened a sixth branch on June 28, 1999 with the lease of a former Regional Bank branch office in Woodstock, Virginia.
On April 12, 1994, the Bank received approval from the Federal Reserve Bank of Richmond (the "Federal Reserve") and the Virginia State Corporation Commission's Bureau of Financial Institutions (the "SCC") to convert to a state chartered bank with membership in the Federal Reserve System. The Bank was given one year from approval to convert. On June 1, 1994, the Bank consummated such conversion and changed its name to First Bank.
In April 1994, the Bank formed a subsidiary, First Bank Financial Services, Inc. ("Financial Services"), for the purpose of investing in Bankers Title of Fredericksburg, LLC, a title insurance company formed by a group of community banks in Virginia. This company underwrites title insurance which is sold through the banks which own the company to their customers.
Banking Services
As a full-service commercial bank, the Bank provides a wide range of deposit, loan and other general banking services to individuals, businesses, institutions and government entities. The Bank's deposit services for individuals include checking, statement savings, NOW accounts, money market accounts, IRA deposits, certificates of deposit, Christmas club accounts, direct deposit programs, a club account, life-line checking accounts and investment savings accounts. Loan services to individuals include personal and installment loans (including automobile and property improvement loans), residential mortgages, adjustable rate mortgages, bi-weekly mortgages, home equity loans, and MasterCard and Visa credit cards. The Bank also offers consumers other general banking services, such as safe deposit facilities,
travelers checks and collections, and acts as agent for the purchase and redemption of United States Savings Bonds. In addition, the Bank offers corporate and business services, including regular business checking, corporate savings, certificates of deposit, commercial and small business loans, and on-line wire transfer services. The Bank also offers Commercial mortgages. During 1999 the bank began to offer equipment leasing services and a wider array of mortgage products. In 2000 the bank will introduce an on-line banking package including bill-payer to be fully integrated with our enhanced website (www.firstbank-va.com).
Location and Service
The Bank serves the areas of Shenandoah, Frederick, Warren and Clarke Counties and the City of Winchester in Virginia. The Bank solicits business from individuals and small to medium-sized businesses, including retail shops and professional service businesses, residing in this service area.
The Bank has offices at the following locations:
Competition
The Bank is subject to intense competition from various financial institutions and other companies or firms that offer financial services. In its market area, the Company is and will be competing with several state-wide and regional banking institutions. The Bank competes for deposits with other commercial banks, savings and loan associations, credit unions and with issuers of commercial paper and securities, such as money market and mutual funds. In making loans, the Bank competes with other commercial banks, savings and loan associations, consumer finance companies, credit unions, leasing companies and other lenders.
Federal and state legislative changes since 1982 have significantly increased competition among financial institutions, and current trends toward further deregulation may be expected to increase such competition even further. Many of the financial organizations in competition with the Company have greater financial resources than the Company and are able to offer similar services at varying costs with greater loan capacities. Of all the banks in our marketplace, the Bank is one of a few that serves the area exclusively as an independent, community bank. This enables it to identify and meet customer needs efficiently and enhance its competitiveness in the marketplace. The Bank's history, dating back to 1907, also allows it to compete from a position of strength and stability.
Asset and Liability Management
Assets of the Bank consist primarily of loans and its investment portfolio. Deposit accounts, including checking accounts and interest-bearing accounts, time deposits and certificates of deposit, represent the majority of the liabilities of the Bank. In an effort to maintain adequate levels of liquidity and
minimize fluctuations in the net interest margin (the difference between interest income and interest expense), the rate sensitivity of the loan and investment portfolios are similar to the rate sensitivity of the Bank's liabilities.
The Bank invests the majority of its investment portfolio in highly marketable short-term assets, such as federal funds and issues of the United States government and its agencies. By pricing loans on a variable rate structure, or by keeping the maturity of the investment and loan portfolios relatively short- term, the Bank is able to maintain loan interest or to reinvest securities proceeds at prevailing market rates, thereby helping to maintain a generally consistent spread over the interest rates paid by the Bank on the deposits which are used to fund the investment and loan portfolios.
Lending Activities
The Bank is an active lender with a loan portfolio that includes commercial and residential mortgages, real estate construction loans, commercial loans, and consumer loans. The Company's lending activity extends to individuals and small and medium-sized businesses within its primary service area. Consistent with its focus on providing community-based financial services, the Bank does not attempt to diversify its loan portfolio geographically by making significant amounts of loans to borrowers outside of its primary service area.
The principal economic risk associated with each of the categories of loans in the portfolio is the credit worthiness of its borrowers. Within each category, such risk is increased or decreased depending on prevailing economic conditions. In an effort to manage this risk, it is the Bank's policy to give loan amount approval limits to individual loan officers based on their level of experience. The risk associated with the real estate mortgage loans and installment loans to individuals varies based upon employment levels, consumer confidence, fluctuations in value of residential real estate and other conditions that affect the ability of consumers to repay indebtedness. The risk associated with commercial, financial and agricultural loans varies based upon the strength and activity of the local economies of the Bank's market area. The risk associated with real estate construction loans varies based upon the supply and demand for the type of real estate under construction. Most of the Bank's real estate construction loans are for pre-sold or contract homes.
Residential Mortgage Lending. Residential mortgage loans are made in amounts up to 80% (95% with Mortgage Guaranty Insurance) of the appraised value of the security property. Residential mortgage loans are underwritten using qualification guidelines. The Bank requires that the borrower obtain title, fire and casualty coverage in an amount equal to the loan amount and in a form acceptable to the Bank.
The Bank charges origination fees on its residential mortgage loans. These fees vary among loan products and with market conditions. Generally such fees amount to 1.0% to 2.125% of the loan principal amount. In addition, the Bank charges fees to its borrowers to cover the cost of appraisals, credit reports and certain expenses related to the documentation and closing of loans.
Real Estate Construction Loans. The Bank does originate construction loans on income-producing properties such as apartments, shopping centers, hotels and office buildings. These loans are carefully underwritten with emphasis placed on the project income, as well as, the borrowers and guarantors ability to repay from outside sources. The Bank also makes construction loans for residential purposes. These loans are primarily used for construction of owner-occupied pre-sold residential homes and are considered an attractive type of lending due to their short-term maturities and high yields. The Bank does not participate in any "speculative lending" which relies on market demand after construction.
Construction lending entails significant additional risk as compared with commercial and residential mortgage lending. Construction loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of the home under construction, which is of
uncertain value prior to the completion of construction. Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project and related loan-to-value ratios. To minimize risks associated with construction lending, the Bank limits loan amounts to 80% of appraised value on pre-sold homes in addition to its usual credit analysis of its borrowers. The Bank also obtains a first lien on the security property as security for its construction loans.
Commercial Real Estate Lending. The Bank provides permanent mortgage financing for a variety of commercial projects. These loans are written with maturities generally within one and five years and are made predominantly on an adjustable rate basis. The Bank attempts to concentrate its commercial real estate lending efforts into owner-occupied projects. However, from time to time, in the normal course of business, the Bank will provide a limited amount of financing for income producing, non-owner occupied projects which meet all of the guidelines established by loan policy.
Commercial Loans. As a full-service community bank, the Bank makes loans to qualified small businesses in its service area. Commercial business loans generally have a higher degree of risk than commercial and residential mortgage but have commensurately higher yields. To manage these risks, the Bank secures appropriate collateral and carefully monitors the financial condition of its business borrowers. Commercial business loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of its business and are either unsecured or secured by business assets, such as accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself. Further, the collateral for secured commercial business loans may depreciate over time and cannot be appraised with as much precision as real estate.
Consumer Loans. The Bank currently offers most types of consumer demand, time and installment loans including automobile loans and home equity lines of credit. The risk associated with installment loans to individuals varies based upon employment levels, consumer confidence, and other conditions that affect the ability of consumers to repay indebtedness.
Employees
At December 31, 1999, a total of 89 persons were employed by the Company and the Bank and 83 of these persons are employed full time. None are represented by any collective bargaining unit. The Company considers relations with its employees to be good.
Supervision and Regulation
General. As a bank holding company registered under the Bank Holding Company Act of 1956 (the "BHCA"), the Company is subject to the supervision and examination of the Board of Governors of the Federal Reserve System and is required to file with the Federal Reserve such reports and other information as the Federal Reserve may require. The Bank was supervised and regularly examined by the Office of the Comptroller of the Currency, but upon its conversion to a state chartered bank on June 1, 1994, became subject to the oversight of the Federal Reserve and the Bureau of Financial Institutions of the SCC. The various laws and regulations administered by the regulatory agencies affect corporate practices, such as dividend payments, incurring debt, acquisition of financial institutions and other companies, and types of business conducted.
Bank Holding Company Regulation. Under Federal Reserve policy, a bank holding company is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support such banks in circumstances where it might not do so absent such policy. The BHCA requires a bank holding company to obtain Federal Reserve approval before it acquires, directly or indirectly, ownership or control of any voting shares of a bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls a majority of such voting shares). Federal Reserve approval also must be obtained before a bank holding company acquires
all or substantially all of the assets of another bank or bank holding company or merges or consolidates with another bank holding company. In addition to the approval of the Federal Reserve, before any bank acquisition can be completed, prior approval thereof must be obtained from each other banking agency which has supervisory jurisdiction over the bank to be acquired.
The BHCA also prohibits a bank holding company, with certain limited exceptions, from acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank, or from engaging in any activities other than those of banking or of managing or controlling banks or furnishing services to or performing services for its subsidiaries. The principal exceptions to these prohibitions permit a bank holding company to engage in, or acquire an interest in a company that engages in activities which, after due notice and opportunity for hearing, the Federal Reserve by regulation or order has determined are so closely related to banking or of managing or controlling banks as to be a proper incident thereto.
The subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or any of its subsidiaries, or investments in the stock or other securities thereof, and on the taking of such stocks or securities as collateral for loans. The Federal Reserve possesses cease and desist powers over bank holding companies if their actions represent unsafe or unsound practices or violations of law.
A bank holding company may not, without providing prior notice to the Federal Reserve, purchase or redeem its own stock if after the transaction the company is no longer classified as "well-capitalized."
The Company is also subject to certain provisions of Virginia law that affect the ability of a bank holding company to acquire another financial institution based in Virginia. Under certain amendments to the Virginia Financial Institutions Holding Company Act that became effective July 1, 1983, no corporation, partnership or other business entity may acquire, or make any public offer to acquire, more than 5% of the stock of any Virginia financial institution or any Virginia financial institution holding company, unless it shall first file an application with the Virginia State Corporation Commission (the "SCC"). The SCC is directed by the statute to solicit the views of the affected financial institution, or financial institution holding company, with respect to such stock acquisition, and is empowered to conduct an investigation during the 60 days following receipt of such an application. If the SCC takes no action within the prescribed period, or if during the prescribed period it issues notice of its intent not to disapprove an application, the acquisition may be completed. The SCC may disapprove an application subject to such conditions as it may deem advisable.
The Bank. As stated earlier in this item under "The Bank," the Bank received approval from the Federal Reserve and the SCC and converted to a state chartered bank, organized under the laws of the Commonwealth of Virginia, with membership in the Federal Reserve System. The Bank is now supervised and regularly examined by the Federal Reserve and the SCC and is subject to the laws and regulations administered by those regulatory authorities.
Limits on Dividends and Other Payments. The Company is a legal entity separate and distinct from the Bank. Most of the Company's revenues result from dividends paid to the Company by the Bank. The right of the Company, and consequently the right of creditors and shareholders of the Company, to participate in any distribution of the assets or earnings of the Bank through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of the Bank, except to the extent that claims of the Company in its capacity as a creditor may be recognized.
The amount of dividends payable by the Bank to the Company depends upon the Bank's earnings and capital position, and is limited by federal and state law, regulations and policies.
As a state member bank subject to the regulations of the Federal Reserve Board, the Bank has to obtain the approval of the Federal Reserve Board for any dividend if the total of all dividends declared in any calendar year would exceed the total of its net profits, as defined by the Federal Reserve Board, for that year, combined with its retained net profits for the preceding two years. In addition, the Bank may not pay a dividend in an amount greater than its undivided profits then on hand after deducting its losses and bad debts. For this purpose, bad debts are generally defined to include the principal amount of loans which are in arrears with respect to interest by six months or more unless such loans are fully secured and in the process of collection. Moreover, for purposes of this limitation, the Bank is not permitted to add the balance in its allowance for loan losses account to its undivided profits then on hand; however, it may net the sum of its bad debts as so defined in excess of that account. At December 31, 1999, the Bank had $3.8 million of retained earnings legally available for the payment of dividends.
In addition, the Federal Reserve is authorized to determine under certain circumstances relating to the financial condition of a national bank, a state member bank or a bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The payment of dividends that deplete a bank's capital base could be deemed to constitute such an unsafe or unsound practice. The Federal Reserve has indicated that banking organizations should generally pay dividends only out of current operating earnings.
Borrowings by the Company. There are various legal restrictions on the extent to which the Company can Borrow or otherwise obtain credit from the Bank. In general, these restrictions require that any such extensions of credit must be secured by designated amounts of specified collateral and are limited, as to the Company, to 10 percent of the Bank's capital stock and surplus, and as to the Company and any nonbanking subsidiaries in the aggregate, to 20 percent of the Bank's capital stock and surplus. Federal law also requires that transactions between the Bank and the Company or any nonbanking subsidiaries, including extensions of credit, sales of securities or assets and the provision of services, be conducted on terms at least as favorable to the bank as those that apply or would apply to comparable transactions with unaffiliated parties.
Capital Requirements
Year Ended December 31,
Required Capital Ratios:
Leverage Ratio 4.00% Tier 1 risk-based capital ratio 4.00 Total risk-based capital ratio 8.00
The Company Capital Ratios:
Leverage Ratio 8.9% Tier 1 risk-based capital ratio 12.7 Total risk-based capital ratio 13.7
In January 1989, the Federal Reserve Board published risk-based capital guidelines in final form which are applicable to bank holding companies. The Federal Reserve Board guidelines redefine the components of capital, categorize assets into different risk classes and include certain off-balance sheet items in the calculation of risk-weighted assets. These guidelines became effective on March 15, 1989. The minimum ratio of qualified total capital to risk-weighted assets (including certain off balance sheet items, such as standby letters of credit) is 8.00%. At least half of the total capital must be comprised of common equity, retained earnings and a limited amount of permanent preferred stock, less goodwill ("Tier
1 capital"). The remainder ("Tier 2 capital") may consist of a limited amount of subordinated debt, other preferred stock, certain other instruments and a limited amount of loan and lease losses reserves. The Company's Tier 1 and total Capital ratios as of December 31, 1999 were 12.7% and 13.7%, respectively.
In addition, the Federal Reserve Board has established minimum Leverage ratio (Tier 1 capital to quarterly average assets less goodwill) guidelines for bank holding companies. These guidelines provide for a minimum ratio of 3.00% for bank holding companies that meet certain specific criteria, including that they have the highest regulatory rating. All other bank holding companies will be required to maintain a Leverage ratio of 3.00% plus an additional cushion of at least 100 to 200 basis points. The Company's Leverage ratio as of December 31, 1999 was 8.9%. The guidelines also provide that a banking organization experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.
Under Federal Reserve Board policy, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve Board's policy that, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks. This support may be required during periods of financial stress or adversity or in circumstances where the financial flexibility and capital-raising capacity of the bank holding company would be called upon to obtain additional resources for assisting its subsidiary banks. The failure of a bank holding company to serve as a source of strength to its subsidiary banks would generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice, a violation of Federal Reserve regulations, or both.
FIRREA. In August 1989, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"). Among other things, FIRREA abolished the Federal Savings and Loan Insurance Corporation and established two new insurance funds under the jurisdiction of the FDIC -- the Savings Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF"). The FDIC will set assessments for deposit insurance annually. The act requires that the FDIC reach an insurance fund reserve ratio for the BIF of $1.25 for every $100 of insured deposits within fifteen years. Assessment for the BIF and SAIF will be set independently.
FIRREA also imposes, with certain exceptions, a "cross-guarantee" on the part of commonly controlled depository institutions. Under this provision, if one depository institution subsidiary of a multi- unit holding company fails or requires FDIC assistance, the FDIC may assess a commonly controlled depository institution for the estimated losses suffered by the FDIC. While the FDIC's claim is junior to the claims of non-affiliated depositors, holders of secured liabilities, general creditors, and subordinated creditors, it is superior to the claims of shareholders.
In addition, FIRREA grants numerous new or enhanced enforcement powers over financial institutions and individuals associated with them. Its criminal and civil liability provisions apply equally to banks and savings and loan associations and provide for stiffer civil fines and criminal penalties for any depository institution or any institution affiliated party who engages in or tolerates bank fraud or other wrongdoing.
FDICIA. The Federal Deposit Insurance Corporation Improvement Act ("FDICIA") was signed into law on December 19, 1991. Section 131 of FDICIA requires the federal banking agencies to develop a mechanism to take prompt and corrective action ("PCA") to resolve the problems of insured depository institutions ("IDI's"). Capital levels and supervisory concern determine a bank's PCA capital category.
Section 302 requires the FDIC to establish a risk-based assessment system. The system is designed as a matrix where each IDI will pay an assessment rate based on the combination of its capital and supervisory condition.
Section 305 of FDICIA requires incorporating interest rate risk ("IRR") into the risk-based standard and a measurement system that would identify institutions with high levels of IRR and ensure that they have sufficient capital to cover their exposure. The measurement system will quantify IRR exposure through weighting and risk factors.
Depository institutions are required to establish non-capital standards for bank safety and soundness. These standards fall into three broad categories: operations and management standards for internal controls, loan documentation, and credit underwriting; asset quality, earnings and stock valuation standards; and executive compensation standards. The failure of a depository institution to meet these standards will trigger regulatory actions. Section 112 establishes guidelines for annual independent audit, annual report filings with regulatory agencies, independent audit reports and procedures, and independent audit committees.
Section 301 addresses brokered deposits with no restrictions on "well capitalized" institutions and restrictions based upon the capital threshold of remaining institutions. Truth in Savings ("TISA") or Regulation DD is intended to assist consumers in comparing deposit accounts principally through disclosures of fees, annual percentage yields, interest rates and other terms associated with interest-bearing deposit accounts. Compliance was mandatory on June 21, 1993. Section 304 requires a uniform standard for real estate lending establishing loan-to value ("LTV") ratio guidelines for real estate secured loans.
FDICIA contains a provision for IDI's to provide supplemental disclosure of the estimated fair value of assets and liabilities in reports required to be filed with federal banking agency.
FDICIA establishes various limitations on loans to bank insiders and prescribes standards that effectively limit the risks posed by an insured bank's exposure to other insured depository institutions ("Interbank Liabilities"). FDICIA also requires advance notice of a branch closure, the establishment of incentives to provide life-line accounts to low-income customers and addresses the frequency and scope of supervisory examinations. Clearly, the ultimate impact of FDICIA will be profound.
Government Policies and Legislation. The policies of regulatory authorities, including the Federal Reserve Board and the FDIC, have had a significant effect on the operating results of commercial banks in the past and are expected to do so in the future. An important function of the Federal Reserve is to regulate aggregate bank credit and money through such means as open market dealings in securities, establishment of the discount rate on member banks, borrowings, and changes in reserve requirements against member deposits. Policies at these agencies may be influenced by many factors, including inflation, unemployment, short-term and long-term changes in the international trade balance, and fiscal policies of the United States government.
Congress has periodically considered and adopted legislation which has resulted in, and could result in further, deregulation of both banks and financial institutions. Such legislation could modify or eliminate geographic restrictions on banks and bank holding companies and could modify or eliminate current prohibitions against the Company engaging in one or more non-banking activities. Such legislative changes also could place the Company in more direct competition with other financial institutions. No assurance can be given as to whether any additional legislation will be adopted and as to effect of such legislation on the business of the Company.
Item 2.
Item 2. Properties
The principal executive offices of First National Corporation are located at 112 West King Street, Strasburg, Virginia, which is owned free of encumbrances. In addition to operating a full service banking facility at this Strasburg location, the Company operates six additional branches and a loan production office. The Company owns four of these facilities without encumbrances and leases three of the facilities.
The leases on these facilities including renewal options, expire in 2002. See Note 14 to the Consolidated Financial Statements of the Company's 1999 Annual Report to Shareholders for additional information concerning this lease commitment.
Item 3.
Item 3. Legal Proceedings
In the ordinary course of its operations, the Company is party to various legal proceedings. Based on information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote in the fourth quarter of 1999.
Part II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Shares of the common stock of the Company are traded on the over-the-counter (OTC) market and quoted in the OTC Bulletin Board under the symbol "FXNC." However, similar to the trading of the Bank's common stock prior to its reorganization, trading of the Company's common stock is generally the result of private negotiation. Increasingly, a broker or dealer may be involved.
The Company has a limited record of trades involving its common stock in the sense of "bid" and "asked" prices or in highs and lows. The effort to accurately disclose trading prices is made more difficult due to the fact that price per share information is not required to be disclosed to the Company when shares of its stock have been sold by holders and purchased by others. The following table summarizes the high and low sales prices of shares of the Company's common stock on the basis of trades known to the Company. The Company may not be aware of the per share price of all trades made.
Market Price and Dividends
Sales Price ($) Dividends ($) (1) --------------- ----------------- High Low ---- ---
1998:
1st quarter.................. 34.00 22.50 .215 2nd quarter.................. 40.00 35.09 .215 3rd quarter.................. 37.25 31.00 .215 4th quarter.................. 33.00 30.63 .355
1999:
1st quarter.................. 30.50 29.00 .26 2nd quarter.................. 30.00 27.00 .26 3rd quarter.................. 31.00 26.50 .26 4th quarter.................. 28.88 26.00 .37
- ------------- (1) The Company increased its dividend to $1.15 per share in 1999, which represented a payout ratio of 44.72%. The dividend per share and payout ratios in 1998 were $1.00 and 41.21%, respectively.
The Company had 719 shareholders of record as of February 29, 2000.
Item 6.
Item 6. Selected Financial Data
The information required by this Item is incorporated by reference "Table 1 - Selected Consolidated Financial Data" in Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Company is the holding company for the Bank, and Financial Services is a subsidiary of the Bank. The following discussion and analysis of the financial condition and results of operations of the Company for the years ended December 31, 1999,
1998 and 1997 should be read in conjunction with the consolidated financial statements and related notes.
Overview
Both earnings and assets grew in 1999. Net income for 1999 was $2,034,288 compared to $1,904,682 in 1998 and $1,611,322 in 1997. Net income per share increased $0.14 per share, basic and $0.15 per share, diluted in 1999 from 1998 ($2.57 per share basic and diluted in 1999 versus $2.43 per share basic and $2.42 per share diluted in 1998). The increase in earnings resulted primarily from a continuing increase in the Bank's interest income which was greater than the increase in interest expense. Return on average assets was 1.00% in 1999, 1.05% in 1998 and 1.07% in 1997. Return on average equity was 11.63% in 1999, 11.31% in 1998 and 10.41% in 1997.
Assets grew 16.1% in 1998, but in 1999 management elected to slow the rate to 8.1%. Growth occurred in the loan portfolio where loans, net of unearned income and allowance for loan losses, increased $20.9 million to $149.3 million. The securities portfolio declined $3.1 million to $45.1 million in 1999 after increasing $6.6 million to $48.3 million in 1998. Funding for the asset growth was provided, in part, by an increase in long-term debt of $15.2 million.
Results of Operations
Net interest income represents the primary source of earnings for the Company. Net interest income equals the amount by which interest income on earning assets, predominately loans and securities, exceeds interest expense on interest bearing liabilities, predominately deposits, short-term and long-term borrowings. The provision for loan losses and the amount of noninterest income and expense also have an effect on net income. Non-interest income and expense consists of income from service charges on deposit accounts, fees charged for various services, gains and losses from the sale of assets, both fixed assets and securities, and various administrative, operating and income tax expenses.
Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income. Net interest margin is calculated by dividing tax equivalent net interest income by average earning assets and reflects the Company's net yield on its earning assets.
General. Net income has increased in each of the last three years. The increase in income in 1999 was caused by growth in earning assets and by the funding of higher yielding loan assets, in part, from the sale of lower yielding securities assets. In 1997 and 1998 net interest income increased as the
Company continued to experience favorable asset growth.
Net Interest Income. Net interest income, after provision for loan losses, was $7.04 million for the year ended December 31, 1999, up $0.49 million or 7.41% over the $6.55 million reported for the same period in 1998. This increase in net interest income, after provision for loan losses, resulted from an increase in interest-earning assets. In 1998 net interest income, after provision for loan losses, increased 9.69% or $0.58 million from $5.97 million in 1997.
Interest income as a percent of average earning assets declined to 7.94% in 1999 from 8.22% in 1998 following a decline in 1998 from 8.51% in 1997. Interest expense as a percent of average earning assets increased from 4.02% in 1997 to 4.12% in l998 and declined to 3.95% in 1999. Net interest margin and interest rate spread decreased in 1999 when compared to 1998 and in 1998 when compared to 1997. Net interest margin was 3.98% in l999, 4.10% in l998 and 4.48% in 1997. Interest rate spread was 3.30% in 1999, 3.31% in l998 and 3.66% in 1997. The decline in yields on earning assets reflect a lower interest rate environment and management's attempt to grow the assets of the Bank while the cost of funding the growth increased.
Provision for Loan Losses. The provision for 1999 was increased to $495,000 from $330,000 for 1998 and $220,000 for 1997. The increases were the result of management's analysis of the existing loan portfolio and related credit risks.
Non-Interest Income. Non-interest income decreased $129,943 or 10.40% for 1999 over 1998 compared to an increase of $329,801 or 35.86% for 1998 over 1997. In 1999, non-interest income from other real estate owned (OREO) declined $47,828 due to lower rental income in 1999 compared to 1998. In 1999, profits on securities available for sale declined $196,942 from 1998. The increase in non-interest income in 1998 over 1997 was attributed to larger income from securities gains noted above, as well as increases in service charge income and fees for other customer services of $52,203 and $38,239 respectively.
Non-Interest Expense. In 1999, non-interest expenses increased $164,623 or 3.22% over 1998. In 1998, non-interest expenses increased $459,679 or 9.89% over 1997. The small percentage increase in 1999 was the result of management's commitment to reduce non-interest expenses.
Income Taxes. The Company has adopted FASB Statement No. 109, "Accounting for Income Taxes." A more detailed discussion of the Company's tax calculation is contained in Note 9 to the consolidated financial statements.
Net interest income is affected by changes in both average interest rates and average volumes of interest earning assets and interest bearing liabilities. Table 3 sets forth the amounts of the total change in interest income that can be attributed to changes in the volume of interest earning assets and interest bearing liabilities and the amount of the change that can be attributed to changes in interest rates. The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the relative size of the rate and volume changes.
Year 2000 Issues
The Company encountered no year 2000 related problems at the end of the year or during the transition on December 31, 1999. Management does not anticipate problems in the coming year regarding this unique and historical event.
The Bank complied with all of the FFIEC requests, from the assessment of operating systems to the replacement or modification of programs or PCs not compliant with Y2K. These systems were tested and all contingency plans were in place for unexpected occurrences.
The Bank spent a total of $212,224 on the Year 2000 project, which included hardware replacements, new software, testing, and contingency planning. Without these expenditures and the diligent efforts of all employees, January 1, 2000 may not have been so peaceful. The Bank is now, more than ever, ready to bring the Bank into the new millennium with new products and more enhanced services.
Table 1 - Selected Consolidated Financial Data
Table 2 - Average Balances, Income and Expense, Yields and Rates
(1) Income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 34% in 1999 and 1998. (2) Loans placed on a nonaccrual status are reflected in the balances.
Table 3 - Volume and Rate Analysis
Financial Condition
General. Management continued to aggressively increase the size of the loan portfolio in 1999. Loans, net of unearned discounts and allowance for loan losses, increased $20.9 million or 16.4% from $128.4 million in 1998 to $149.3 million in 1999. This growth in loans was reflected in an 8.1% increase in assets during the year. Assets began the year at $191.1million and grew $15.5 million to $206.6 million by year-end.
Loans. The Bank is an active lender with a loan portfolio which includes commercial and residential mortgages, commercial loans, consumer loans, both installment and credit card, real estate construction loans and home equity loans. The Bank's lending activity is concentrated on individuals and small to medium sized businesses in its primary trade area of the Virginia counties of Shenandoah, Warren, Frederick and the City of Winchester. As a provider of community oriented financial services, the Bank does not attempt to geographically diversify its loan portfolio by undertaking significant lending activity outside its primary trade area.
The Bank's loan portfolio is summarized in table 4 for the periods indicated.
Table 4 - Loan Portfolio
Loans at December 31, 1999 and 1998 are summarized as follows
1999 1998 ---- ---- (thousands)
Commercial, Financial, and Agricultural $26,907 $26,217 Real Estate Construction 10,205 5,415 Real Estate-Mortgage: Residential (1-4 Family) 58,712 47,965 Non-Farm. Non-Residential 20,971 21,381 Secured by Farmland 1,489 851 Consumer 31,829 27,376 All Other Loans 670 513 --- --------
Total Loans $150,783 $129,718 Less Unearned Income 23 121 Less Allowance for Loan Losses 1,447 1,226 ----- ----- Loans-Net of Unearned Income $149,313 $128,371 ======== ========
As shown in Table 4 above the total amount of commercial, financial and agricultural loans increased $0.7 million in 1999. Residential real estate mortgage loans increased $10.7 million in 1999 after increasing $2.8 million in 1998. Non-farm, non residential mortgage loans declined in 1999 by $0.4 million and increased in 1998 by $4.3 million. The growth in the consumer loan area continued in 1999 with an increase of $4.5 million which was more than the increase of $0.8 million in 1998.
There was no category of loans that exceeded 10% of outstanding loans at December 31, 1999 which were not disclosed in Table 4.
Table 5 - Remaining Maturities of Selected Loans
At December 31, 1999 Commercial
Financial, and Real Estate
Agricultural Construction ------------ ------------ (Dollars in Thousands)
Within 1 Year: $10,432 $10,205 -------- Variable Rate: 1 to 5 Years $2,361 $ - - After 5 Years 692 - - ------- ------- Total $ 3,053 $ - - ------- -------
Fixed Rate: 1 to 5 Years $ 10,716 $ - - After 5 Years 2,706 - - -------- ------- Total $ 13,422 $ - - -------- -------
Total Maturities $ 26,907 $ 10,205 ======== ========
Asset Quality. The Allowance for Loan Losses ("ALL") balance at December 31, 1999 was $1,447,011, representing 0.96% of total loans and 384% of non-performing assets. At December 31, 1998, these amounts were 0.95% and 223%. These amounts were .98 % and 114% at December 31, 1997.
Total losses charged against the ALL in 1999 were $338,897 compared to $233,306 in 1998, and $97,008 in 1997. Recoveries, consisting of the recovery of principal on loans previously charged against the allowance, totaled $64,712 in 1999, $17,184 in 1998, and $14,914 in 1997.
Management believes, based upon its review and analysis, that the Bank has sufficient reserves to cover any projected losses within the total loan portfolio.
Allowance for Loan Losses. Changes in the allowance for loan and lease losses are detailed in Table 6.
Table 6 - Allowance For Loan Losses
(in thousands of dollars)
At December 31, 1999 1998 ---- ----
Balance, Beginning of Period $1,226 $ 1,112 Loans Charged-Off Commercial, Financial and Agricultural 193 65 Real Estate-Construction -- -- Real Estate-Mortgage Residential (1-4 Family) 30 Non-Farm, Non Residential -- -- Secured by Farmland -- -- Consumer 146 138 All Other Loans -- -- ------ ------
Total Loans Charged Off 339 233 ------ ------
Recoveries
Commercial, Financial and Agricultural 30 Real Estate-Construction -- -- Real Estate-Mortgage Residential (1-4 Family) -- Non-Farm, Non-Residential -- -- Secured by Farmland -- -- Consumer 35 17 All Other Loans -- -- ------ ------
Total Recoveries 65 17 ------ ------
Net Charge-Offs 274 216 Provision For Loan Losses 495 330 ------ ------
Balance, End of Period $1,447 $1,226 ====== ======
Ratio of net charge-offs (recoveries) during the period to average loans outstanding during the period 0.20% 0.18%
For each period presented, the provision for loan losses charged to operating expense was based on management's judgement after taking into consideration all factors connected with the collectability of the existing portfolio. Management considers economic conditions, changes in the nature and value of the portfolio, industry standards and other relevant factors when evaluating the loan portfolio. Specific factors considered by management when determining the amount to be provided included internally generated loan quality reports which analyze each problem loan to estimate amounts of probable loss and previous loss experience with various loan categories.
Table 7 shows the balance and percentage of the Bank's allowance for loan losses allocated to each major category of loans.
Table 7 - Allocation of Allowance For Loan Losses
Non-Performing Assets Management classifies as non-performing both those loans on which payment has been delinquent 90 days or more and for which there is a risk of loss to either principal or interest, and Other Real Estate Owned. Other Real Estate Owned represents real property taken by the Bank either through foreclosure or through a deed in lieu thereof from the borrower. Other Real Estate Owned is booked at the lower of cost or market less estimated selling costs, and is actively marketed by the Bank through brokerage channels.
Impairment of loans having recorded investments of $303,479 at December 31, l999 has been recognized in conformity with FASB Statement No. 114. The average recorded investment in impaired loans during 1999 was $234,024. The total allowance for loan losses related to these loans was $45,522 on December 31, l999. There was no interest income on impaired loans recognized for cash payments received in l999. In 1998, the bank had impaired loans with recorded investments of $164,569. The average recorded investment in impaired loans during 1998 was $195,574 and the total allowance for loan losses related to these loans was $78,228. There was no interest income on impaired loans recognized for cash payments received in 1998. There were no impaired loans in 1997.
Non-accrual loans excluded from impaired loan disclosure under FASB 114 amounted to $34,125 and $42,385 at December 31, 1999 and 1998 respectively. If interest on these loans had been accrued, such income would have approximated $374 and $1,326 for 1999 and 1998.
When a loan is placed on non-accrual status there are several negative implications as a result. First, all interest accrued but unpaid at the time of the classification is deducted from the interest income totals for the Bank. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Third, there may be actual losses which necessitate additional provisions for credit losses charged against earnings.
Table 8 - Non-Performing Assets
At December 31, 1999 1998 ---- ---- (Dollars in Thousands)
Nonaccrual Loans $ 34 $ 207 Restructured Loans -- -- Foreclosed Property 343 343 ----- ----- Total Nonperforming Assets $ 377 $ 550 ===== =====
Loans Past Due 90 Days Accruing Interest $126 $213
Allowance for Loan Losses to Period End Loans 0.96% 0.95%
Nonperforming Assets to Period End Loans 0.25% 0.42% and Foreclosed Properties
Net Charge-Offs (Recoveries) to Average Loans 0.20% 0.18%
Securities. Securities at December 31, 1999 were $45.1 million, a decrease of $3.2 million or 6.62% from the $48.3 million at the end of 1998. During 1999, the Company sold lower yielding securities and funded higher yielding loans as a means of increasing net interest income.
As of December 31, 1999, neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios.
Table 9 summarizes the carrying value of the Company's securities portfolio on the dates indicated.
Table 9 - Securities Portfolio
Years Ended December 31 (Dollars in Thousands) 1999 1998 ---- ---- Book Value: Securities Held to Maturity
U.S. Government Securities $ 0 $19 States and Political Subdivisions 0 0 ------- ------ Total Securities Held to Maturity $ 0 $19 ======= === Securities Available for Sale U.S. Government Securities $36,635 $40,140 States and Political Subdivisions 6,445 6,884 Other Securities 2,049 1,219 ------- ------- Total Securities Available for Sale $45,129 $48,243 ======= =======
Total Securities $45,129 $48,262 ======= =======
Investment Portfolio Maturity Distribution/Yield Analysis Year Ended December 31, 1999
(1) Yields on tax exempt securities have been computed on a tax-equivalent basis.
This schedule has been prepared using the contractual maturities for all securities with the exception of mortgaged-backed securities ("MBS's") and collateralized mortgage obligations ("CMO's"). Both MBS and CMO securities were recorded using dealer median prepayment speed assumptions, which is an industry standard.
As of December 31, 1999, neither the Company nor the Bank held any derivative financial instruments in their respective investment security portfolios.
Deposits. The Bank has made an effort in recent years to increase core deposits and reduce costs of funds. Deposits provide funding for the Company's investments in loans and securities, and the interest paid for deposits must be managed carefully to control the level of interest expense.
Deposits at December 31, 1999 were $153.4 million, a decrease of $1.6 million or 1.02% from $155.0 million at December 31, 1998. Savings and interest bearing demand deposits grew $4.9 million or 6.60% while non-interest-bearing demand deposits declined $0.9 million or 4.60% and time deposits declined $5.6 million or 9.32%.
The following tables are a summary of average deposits and average rates paid.
Table 10 - Average Deposits and Rates Paid
Maturities of CD's of $100,000 and More
Within Three to Six to Over Three Six Twelve One Months Months Months Year Total
At December 31, 1998 $4,338 $1,630 $1,700 $5,325 $12,993
Liquidity Liquidity represents an institutions ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, investments in securities, and loans maturing within one year. As a result of the Bank's management of liquid assets and the ability to generate liquidity through liability funding, management believes that the Bank maintains overall liquidity sufficient to satisfy its depositors' requirements and to meet its customers' credit needs.
At December 31, 1999, cash, interest bearing and non-interest bearing deposits with banks, federal funds sold, investments in securities, and loans maturing within one year were $41.5 million. As of December 31, 1999, approximately 23.31% or $34.8 million of the loan portfolio would mature or reprice within a one year period.
Non-deposit sources of funds in use as of December 31, 1999 consisted of six Federal Home Loan Bank advances. Three of the advances were used to fund specific longer-term loan requests. All three of these fixed-rate advances were Principal Reducing Credit ("PRC") advances that amortize during the life of the loan. The first PRC advance was funded in 1995 in the amount of $1.5 million at 6.25% with an effective maturity of December 12, 2005. The outstanding balance of this advance at year-end was $1.42 million. The second PRC advance was funded in 1998 in the amount of $1.3 million at 6.23% with an effective maturity of April 1, 2013. This advance maintained a balance of $1.22 million at year-end. The
last PRC advance was funded in 1999 in the amount of $1.0 million at 5.98% with an effective maturity of February 11, 2019. At year-end, the outstanding balance on this advance was $984 thousand. Two of the remaining three advances were Convertible Advances that maintain a fixed rate during an agreed upon contract term. Thereafter and until the maturity date, the Federal Home Loan Bank may convert the advances to a floating rate advance. If the Federal Home Loan Bank exercises its option to convert the advances, the Bank may prepay the advance with no penalty. One of the Convertible Advances was funded in 1997 in the amount of $5.0 million at 5.58% with an effective maturity date of December 16, 2002 and an optional convertible feature at December 16, 1999, or later. These funds were borrowed for the purpose of general loan funding. The other Convertible advance was funded in 1998 in the amount of $10.0 million at 5.515% with an effective maturity of March 17, 2008 and an optional convertible feature at March 17, 2003, or later. This advance was used to fund an investment growth strategy. The last advance was funded via the Daily Rate Credit ("DRC") program. This $15.0 million floating rate advance was funded in 1999 and maintains a maturity date of September 25, 2000. However, it may be repaid at anytime without penalty. This advance was used for general balance sheet funding.
Capital Resources. The adequacy of the Company's capital is reviewed by management on an ongoing basis with reference to the size, composition, and quality of the Company's asset and liability levels and consistent with regulatory requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and absorb potential losses.
The Board of Governors of the Federal Reserve System has adopted capital guidelines to supplement the existing definitions of capital for regulatory purposes and to establish minimum capital standards. Specifically, the guidelines categorize assets and off-balance sheet items into four risks weighted categories. The minimum ratio of qualifying total capital to risk-weighted assets is 8.0%, of which at least 4.0% must be tier 1 capital, composed of common equity, retained earnings and a limited amount of perpetual preferred stock, less certain goodwill items. The Company had a ratio of risk-weighted assets to total capital of 13.7% at December 31, 1999 and a ratio of risk-weighted assets to Tier 1 capital of 12.7%. Both of these exceed the capital requirements adopted by the federal regulatory agencies.
Table 11- Analysis of Capital
Year End December 31, 1999 1998 (Dollars in Thousands) Tier 1 Capital
Common Stock $3,970 $3,945 Surplus 1,531 1,417 Retained Earnings 13,017 11,892 ------ ------ Total Tier 1 Capital $18,518 $17,254 Tier 2 Capital: Allowance for Loan Losses (1) 1,447 1,226 ----- ----- Total Risk Based Capital $19,965 $18,480 ======= ======= Risk-Weighted Assets $145,269 $125,213 Capital Ratios: Tier 1 Risk-Based Capital Ratio 12.7% 13.8% Total Risk-Based Capital Ratio 13.7% 14.8%
Tier 1 Capital to Average Total Assets 8.9% 9.0% - -------------- (1) Limited to 1.25% of risk weighted assets.
New Accounting Pronouncements. In June 1998, the Financial Accounting Standards Board issued Statement 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 1999. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company has not determined whether to adopt the new statement early. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.
Because the Company does not use derivative's, management does not anticipate that the adoption of the new Statement will have any effect on the Company's earnings or financial position.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is a small business issuer, as defined in Rule 405 under the Securities Act of 1933, as amended, and Rule 12b-2 under the Securities Exchange Act of 1934, as amended, and, accordingly, has not provided the information required by this Item.
Item 8.
Item 8. Financial Statements and Supplementary Data
Pursuant to General Instruction G(2), information required by this Item is incorporated by reference from pages 6 to 23 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1999.
Item 9.
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Pursuant to General Instruction G(3), the information called for this Item is incorporated herein by reference from pages 2, 3 and 5 of the Company's proxy statement dated March 2, 2000, for the Company's Annual Meeting of Shareholders held April 4, 2000.
Item 11.
Item 11. Executive Compensation
Pursuant to General Instruction G(3), the information called for this Item is incorporated herein by reference from pages 6 and 7 of the Company's proxy statement dated March 2, 2000 for the Company's Annual Meeting of Shareholders held April 4, 2000.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to General Instruction G(3), the information called for this Item is incorporated herein by reference from pages 3 and 4 of the Company's proxy statement dated March 2, 2000, for the Company's Annual Meeting of Shareholders held April 4, 2000.
Item 13.
Item 13. Certain Relationships and Related Transactions
Pursuant to General Instruction G(3), the information called for this Item is incorporated herein by reference from page 7 of the Company's proxy statement dated March 2, 2000, for the Company's Annual Meeting of Shareholders held April 4, 2000.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents required in Part II, Item 8, are incorporated by reference to pages 6 through 23 of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1999:
1. Financial Statements Page -------------------- ---- Report of Independent Certified Public Accountants 6 First National Corporation and Subsidiaries: Consolidated Balance Sheets at December 31, 1999 and 1998 7 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 8 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 9 and 10 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 11 Notes to Financial Statements 12 - 23
2. Financial Statement Schedules
All schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.
3. Exhibits
The following documents are attached hereto or incorporated herein by reference as Exhibits:
3.1 Articles of Incorporation, including amendments thereto (incorporated herein by reference to Exhibit 2 to the Company's Form 10 filed with the SEC on May 2, 1994). 3.2 Bylaws incorporated herein by reference to Exhibit 3 to the Company's Form 10 filed with the SEC on May 2, 1994). 4.1 Specimen of Common Stock Certificate incorporated herein by reference to Exhibit 1 to the Company's Form 10 filed with SEC on May 2, 1994). 13.1 Annual Report to Shareholders for the year ended December 31, 1999. 21.1 Subsidiaries of the Company (incorporated herein by reference to Exhibit 1 to the Company's Form 10 filed with SEC on May 2, 1994). 27 Financial Data Schedule (filed electronically only).
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended December 31, 1999.
With the exception of the information herein expressly incorporated by reference, the 1999 Annual Report to Shareholders and the Proxy Statement for the 2000 Annual Meeting of Shareholders are not to be deemed filed as part of this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:
FIRST NATIONAL CORPORATION
By: /s/ Harry S. Smith ------------------------------------- Harry S. Smith President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
Number Document - ------ --------
3.1 Articles of Incorporation, including amendments thereto (incorporated herein by reference to Exhibit 2 to the Company's Form 10 filed with the SEC on May 2, 1994). 3.2 Bylaws incorporated herein by reference to Exhibit 3 to the Company's Form 10 filed with the SEC on May 2, 1994). 4.1 Specimen of Common Stock Certificate incorporated herein by reference to Exhibit 1 to the Company's Form 10 filed with SEC on May 2, 1994). 13.1 Annual Report to Shareholders for the year ended December 31, 1999. 21.1 Subsidiaries of the Company (incorporated herein by reference to Exhibit 1 to the Company's Form 10 filed with SEC on May 2, 1994). 27 Financial Data Schedule (filed electronically only).