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CST: 22/08/2019 20:51:17   

First National Corporation Announces Second Quarter Earnings

30 Days ago

STRASBURG, Va., July 23, 2019 (GLOBE NEWSWIRE) -- First National Corporation (the “Company” or “First National”) (NASDAQ:FXNC) reported net income of $2.1 million, or $0.42 per diluted share, for the second quarter of 2019, compared to $2.5 million or $0.49 per diluted share for the second quarter of 2018. The decrease in net income resulted primarily from a $366 thousand increase in noninterest expense and a $200 thousand increase in the provision for loan losses, which were partially offset by a $134 thousand increase in net interest income.

Highlights for the second quarter of 2019:

  • Loan growth of $24.4 million during the quarter
  • Return on average equity of 11.76%
  • Return on average assets of 1.08%
  • Net interest margin of 3.88%
  • Nonperforming assets decreased to 0.23% of assets
  • Total assets reached $778.4 million

”We are pleased with second quarter results for the Company, specifically the pick-up in quality loan growth, the continued growth in wealth management assets and income, and the $19 million of deposit growth since year end,” said Scott Harvard, president and chief executive officer of First National. Harvard added, “While the net interest margin improved compared to the same quarterly period in 2018, the margin decreased compared to the linked quarter. We are concerned about the impact of an inverted yield curve on earnings over an extended period. Expenses for the quarter were also impacted by legal fees and marketing expenses related to strategic initiatives, and additional costs related to listing the Company’s stock on Nasdaq."

BALANCE SHEET

Total assets of First National increased $15.0 million to $778.4 million, compared to $763.4 million at June 30, 2018. The earning asset composition changed favorably as loans, net of the allowance for loan losses, increased $44.1 million, or 8%, while securities and interest-bearing deposits in banks decreased $31.0 million, or 17%.

Total deposits increased to $689.8 million, up from $686.5 million at June 30, 2018. The deposit portfolio composition remained relatively stable as noninterest-bearing deposits were 27% and 29% of total deposits at June 30, 2019 and 2018, respectively.

Shareholders’ equity increased $11.2 million to $72.8 million at June 30, 2019, compared to $61.6 million one year ago, primarily from an increase in retained earnings. Tangible common equity totaled $72.5 million at the end of the second quarter, an increase of 19% compared to $61.0 million at June 30, 2018. The Company’s wholly owned subsidiary, First Bank (the “Bank”), was considered well capitalized at June 30, 2019.

ANALYSIS OF THE THREE-MONTH PERIOD

Net interest income increased $134 thousand to $7.0 million for the quarter ended June 30, 2019, compared to $6.8 million for the second quarter of 2018. The increase resulted from a higher net interest margin and higher average earning asset balances. Average earning asset balances increased 1%, and the net interest margin increased 2 basis points to 3.88% for the quarter ended June 30, 2019, compared to 3.86% for the same period in 2018. The increase in the net interest margin resulted from a 23 basis point increase in the yield on average earning assets, which was partially offset by a 21 basis point increase in interest expense as a percent of average earning assets. 

The higher yield on average earning assets was primarily attributable to an 11 basis point increase in the yield on loans and a 59 basis point increase in the yield on interest-bearing deposits in banks. The increase in interest expense was primarily attributable to higher interest rates paid on deposits, as the cost of total interest-bearing deposits increased by 30 basis points, which compared favorably to the 75 basis point increase in the target federal funds rate that occurred between the two periods.

Noninterest income decreased slightly to $2.0 million, compared to $2.1 million for the same period of 2018. The decrease was primarily attributable to a $69 thousand decrease in service charges on deposits and a $64 thousand decrease in other operating income. Other operating income decreased primarily as a result of revenue earned during the prior year from a settlement and release agreement related to brokerage services, which is no longer being earned in the current year. These decreases were partially offset by a $49 thousand, or 12%, increase in wealth management fees, and a $22 thousand increase in income from bank-owned life insurance.

Noninterest expense increased $366 thousand, or 6%, to $6.2 million, compared to the same period one year ago. The increase was primarily attributable to a $148 thousand, or 5%, increase in salaries and employee benefits, a $102 thousand increase in other operating expense, an $80 thousand increase in legal and professional fees, and a $78 thousand increase in marketing expense. The increase in other operating expense was attributable to additional costs of listing the Company’s common stock on the Nasdaq Capital Market stock exchange during the quarter, as well as higher education and training expenses. The increase in legal and professional fees resulted from legal costs related to strategic initiatives, and consulting expenses related to bank compliance testing and implementation of new accounting standards. The increase in marketing expense was also attributable to strategic initiatives. These increases were partially offset by a $40 thousand decrease in amortization expense and a $31 thousand decrease in FDIC assessments.   

ANALYSIS OF THE SIX-MONTH PERIOD

Net interest income increased $486 thousand, or 4%, to $13.9 million for the six months ended June 30, 2019, compared to $13.4 million for the same period of 2018. The increase resulted from a higher net interest margin and higher average earning asset balances. Average earning asset balances increased 1%, and the net interest margin increased 10 basis points to 3.93% for the six months ended June 30, 2019, compared to 3.83% for the same period in 2018. The increase in the net interest margin resulted from a 30 basis point increase in the yield on average earning assets, which was partially offset by a 21 basis point increase in interest expense as a percent of average earning assets. 

The higher yield on average earning assets was primarily attributable to a 20 basis point increase in the yield on loans and a 65 basis point increase in the yield on interest-bearing deposits in banks. The increase in interest expense was primarily attributable to higher interest rates paid on deposits, as the cost of total interest-bearing deposits increased by 29 basis points, which compared favorably to the 75 basis point increase in the target federal funds rate that occurred between the two periods.

Noninterest income decreased to $4.0 million, compared to $4.7 million for the same period of 2018. The decrease was primarily attributable to a $434 thousand decrease in income from bank-owned life insurance, a $258 thousand decrease in other operating income, and a $130 thousand decrease in service charges on deposits. These decreases were partially offset by a $79 thousand increase in wealth management fees.  The decrease in income from bank-owned life insurance resulted from a death benefit recorded in the first quarter of 2018. The decrease in other operating income was impacted by the termination of the Company’s pension plan and subsequent distribution of plan assets in the prior year, which resulted in a one-time increase in other operating income of $126 thousand during the first quarter of 2018, as well as revenue earned during the prior year from a settlement and release agreement related to brokerage services.  

Noninterest expense increased $598 thousand, or 5%, to $12.3 million, compared to $11.7 million for the same period one year ago. The increase was primarily attributable to a $208 thousand, or 3%, increase in salaries and employee benefits, a $130 thousand increase in legal and professional fees, a $122 thousand increase in other operating expense, and a $110 thousand increase in marketing expense. The increase in legal and professional fees resulted primarily from legal costs related to an evaluation of strategic initiatives, an increase in investment advisory costs of the wealth management department, and consulting expenses related to bank compliance testing and implementation of new accounting standards. The increase in investment advisory expense correlated with the increase in wealth management revenue, when comparing the same periods.  The increase in other operating expense was attributable to costs of listing the Company’s common stock on the Nasdaq Capital Market stock exchange, as well as higher education and training expenses. The increase in marketing expense was attributable to strategic initiatives. These increases were partially offset by an $81 thousand decrease in amortization expense and a $44 thousand decrease in FDIC assessments.  

ASSET QUALITY/LOAN LOSS PROVISION

The provision for loan losses totaled $200 thousand for the second quarter of 2019, compared to no provision for loan losses for the second quarter 2018. Net charge-offs totaled $151 thousand for the second quarter of 2019 compared to $233 thousand for the same period of 2018. The provision for loan losses recorded in the second quarter of 2019 was primarily a result of loan growth during the period. Nonperforming assets totaled $1.8 million, or 0.23% of total assets at June 30, 2019, compared to $2.4 million, or 0.31% of total assets, one year ago. The allowance for loan losses totaled $5.0 million, or 0.87% of total loans, and $5.0 million, or 0.95% of total loans, at June 30, 2019 and 2018, respectively.

The provision for loan losses totaled $200 thousand for the six-month period ended June 30, 2019, compared to $100 thousand for the same period in 2018. Net charge-offs totaled $214 thousand for the six months ended June 30, 2019 compared to $387 thousand for the same period of 2018.

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. For details on 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, 2018, and other filings with the Securities and Exchange Commission.

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, one loan production office, a customer service center in a retirement community, and 14 bank branch office locations located throughout the Shenandoah Valley and central regions of Virginia. 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.

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
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
Income Statement                  
Interest income                  
Interest and fees on loans $ 7,200     $ 6,996     $ 7,106     $ 6,917     $ 6,546  
Interest on deposits in banks 133     110     105     88     186  
Interest on securities                  
Taxable interest 696     737     771     797     776  
Tax-exempt interest 159     156     153     156     156  
Dividends on restricted securities 26     24     24     23     22  
Total interest income $ 8,214     $ 8,023     $ 8,159     $ 7,981     $ 7,686  
Interest expense                  
Interest on deposits $ 1,051     $ 922     $ 798     $ 702     $ 665  
Interest on subordinated debt 90     89     91     91     89  
Interest on junior subordinated debt 108     111     105     105     101  
Interest on other borrowings     2              
Total interest expense $ 1,249     $ 1,124     $ 994     $ 898     $ 855  
Net interest income $ 6,965     $ 6,899     $ 7,165     $ 7,083     $ 6,831  
Provision for loan losses 200         500          
Net interest income after provision for loan losses $ 6,765     $ 6,899     $ 6,665     $ 7,083     $ 6,831  
Noninterest income                  
Service charges on deposit accounts $ 715     $ 701     $ 814     $ 818     $ 784  
ATM and check card fees 573     517     642     540     555  
Wealth management fees 458     437     443     423     409  
Fees for other customer services 153     175     154     143     151  
Income from bank owned life insurance 99     103     97     107     77  
Net gains (losses) on securities         (1 )        
Net gains on sale of loans 25     22     23     39     15  
Other operating income 12     30     107     108     76  
Total noninterest income $ 2,035     $ 1,985     $ 2,279     $ 2,178     $ 2,067  
Noninterest expense                  
Salaries and employee benefits $ 3,375     $ 3,443     $ 3,306     $ 3,371     $ 3,227  
Occupancy 401     438     424     387     387  
Equipment 409     420     410     396     420  
Marketing 239     141     155     123     161  
Supplies 91     73     91     75     88  
Legal and professional fees 303     241     343     229     223  
ATM and check card expense 225     216     178     217     211  
FDIC assessment 35     69     68     78     66  
Bank franchise tax 136     130     117     118     118  
Telecommunications expense 79     83     79     83     98  
Data processing expense 179     173     173     168     170  
Postage expense 44     48     51     42     42  
Amortization expense 80     90     99     108     120  
Other real estate owned expense, net             2     1  
Net loss on disposal of premises and equipment             2      
Other operating expense 634     533     587     551     532  
Total noninterest expense $ 6,230     $ 6,098     $ 6,081     $ 5,950     $ 5,864  
Income before income taxes $ 2,570     $ 2,786     $ 2,863     $ 3,311     $ 3,034  
Income tax expense 484     525     542     635     583  
Net income $ 2,086     $ 2,261     $ 2,321     $ 2,676     $ 2,451  

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

  (unaudited)
For the Quarter Ended
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
Common Share and Per Common Share Data                  
Net income, basic $ 0.42     $ 0.46     $ 0.47     $ 0.54     $ 0.49  
Weighted average shares, basic 4,963,737     4,960,264     4,957,055     4,955,162     4,952,712  
Net income, diluted $ 0.42     $ 0.46     $ 0.47     $ 0.54     $ 0.49  
Weighted average shares, diluted 4,965,822     4,964,134     4,960,597     4,958,162     4,954,265  
Shares outstanding at period end 4,964,824     4,963,487     4,957,694     4,956,925     4,953,356  
Tangible book value at period end $ 14.60     $ 13.97     $ 13.35     $ 12.72     $ 12.31  
Cash dividends $ 0.09     $ 0.09     $ 0.05     $ 0.05     $ 0.05  
                   
Key Performance Ratios                  
Return on average assets 1.08 %   1.21 %   1.22 %   1.41 %   1.29 %
Return on average equity 11.76 %   13.47 %   14.15 %   16.89 %   16.23 %
Net interest margin 3.88 %   3.97 %   4.05 %   4.02 %   3.86 %
Efficiency ratio (1) 67.94 %   67.23 %   62.99 %   62.68 %   64.17 %
                   
Average Balances                  
Average assets $ 773,574     $ 757,910     $ 753,112     $ 750,619     $ 762,626  
Average earning assets 724,909     709,690     706,323     703,894     715,163  
Average shareholders’ equity 71,124     68,089     65,077     62,882     60,592  
                   
Asset Quality                  
Loan charge-offs $ 219     $ 228     $ 374     $ 295     $ 294  
Loan recoveries 68     165     82     57     61  
Net charge-offs 151     63     292     238     233  
Non-accrual loans 1,775     1,915     3,172     2,738     2,330  
Other real estate owned, net                 68  
Nonperforming assets 1,775     1,915     3,172     2,738     2,398  
Loans 30 to 89 days past due, accruing 792     1,002     1,446     2,707     3,408  
Loans over 90 days past due, accruing 19     133     235     261     549  
Troubled debt restructurings, accruing     259     264     269     273  
Special mention loans 2,610     1,910     2,078     2,718     3,988  
Substandard loans, accruing 2,825     3,132     3,522     1,216     3,798  
                   
Capital Ratios (2)                  
Total capital $ 82,078     $ 80,780     $ 74,697     $ 72,807     $ 71,026  
Tier 1 capital 77,083     75,834     69,688     68,006     65,987  
Common equity tier 1 capital 77,083     75,834     69,688     68,006     65,987  
Total capital to risk-weighted assets 14.24 %   14.49 %   13.62 %   13.25 %   13.47 %
Tier 1 capital to risk-weighted assets 13.37 %   13.60 %   12.71 %   12.38 %   12.52 %
Common equity tier 1 capital to risk-weighted assets 13.37 %   13.60 %   12.71 %   12.38 %   12.52 %
Leverage ratio 9.96 %   10.01 %   9.26 %   9.07 %   8.66 %

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

  (unaudited)
For the Quarter Ended
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
Balance Sheet                  
Cash and due from banks $ 12,354     $ 10,862     $ 13,378     $ 11,370     $ 13,501  
Interest-bearing deposits in banks 10,716     31,833     15,240     10,068     27,762  
Securities available for sale, at fair value 119,510     121,202     99,857     102,748     106,707  
Securities held to maturity, at amortized cost 18,828     19,489     43,408     44,239     45,701  
Restricted securities, at cost 1,701     1,701     1,688     1,590     1,590  
Loans held for sale 675     200     419     516     1,195  
Loans, net of allowance for loan losses 569,959     545,529     537,847     535,020     525,894  
Other real estate owned, net of valuation allowance                 68  
Premises and equipment, net 20,182     20,282     20,066     19,557     19,633  
Accrued interest receivable 2,163     2,143     2,113     2,138     2,073  
Bank owned life insurance 17,193     17,094     13,991     13,894     13,787  
Core deposit intangibles, net 302     382     472     571     679  
Other assets 4,801     4,361     4,490     4,743     4,774  
Total assets $ 778,384     $ 775,078     $ 752,969     $ 746,454     $ 763,364  
                   
Noninterest-bearing demand deposits $ 186,553     $ 189,261     $ 181,964     $ 186,293     $ 196,839  
Savings and interest-bearing demand deposits 385,399     377,673     369,383     360,988     367,399  
Time deposits 117,863     117,290     119,219     119,823     122,291  
Total deposits $ 689,815     $ 684,224     $ 670,566     $ 667,104     $ 686,529  
Other borrowings     5,000              
Subordinated debt 4,974     4,969     4,965     4,961     4,956  
Junior subordinated debt 9,279     9,279     9,279     9,279     9,279  
Accrued interest payable and other liabilities 1,507     1,878     1,485     1,459     952  
Total liabilities $ 705,575     $ 705,350     $ 686,295     $ 682,803     $ 701,716  
                   
Preferred stock $     $     $     $     $  
Common stock 6,206     6,204     6,197     6,196     6,192  
Surplus 7,566     7,515     7,471     7,438     7,346  
Retained earnings 58,268     56,629     54,814     52,741     50,313  
Accumulated other comprehensive income (loss), net 769     (620 )   (1,808 )   (2,724 )   (2,203 )
Total shareholders’ equity $ 72,809     $ 69,728     $ 66,674     $ 63,651     $ 61,648  
Total liabilities and shareholders’ equity $ 778,384     $ 775,078     $ 752,969     $ 746,454     $ 763,364  
                   
Loan Data                  
Mortgage loans on real estate:                  
Construction and land development $ 46,281     $ 48,948     $ 45,867     $ 42,982     $ 37,350  
Secured by farmland 855     883     880     942     975  
Secured by 1-4 family residential 225,820     217,527     215,945     211,938     211,101  
Other real estate loans 236,515     220,513     218,673     223,961     223,387  
Loans to farmers (except those secured by real estate) 1,006     806     1,035     937     476  
Commercial and industrial loans (except those secured by real estate) 48,347     45,239     43,570     41,924     40,467  
Consumer installment loans 11,572     11,890     12,061     12,301     12,315  
Deposit overdrafts 208     204     275     249     231  
All other loans 4,350     4,465     4,550     4,587     4,631  
Total loans $ 574,954     $ 550,475     $ 542,856     $ 539,821     $ 530,933  
Allowance for loan losses (4,995 )   (4,946 )   (5,009 )   (4,801 )   (5,039 )
Loans, net $ 569,959     $ 545,529     $ 537,847     $ 535,020     $ 525,894  

FIRST NATIONAL CORPORATION
Quarterly Performance Summary
(in thousands, except share and per share data)

  (unaudited)
For the Quarter Ended
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
Reconciliation of Tax-Equivalent Net Interest Income                
GAAP measures:                  
Interest income – loans $ 7,200     $ 6,996     $ 7,106     $ 6,917     $ 6,546  
Interest income – investments and other 1,014     1,027     1,053     1,064     1,140  
Interest expense – deposits (1,051 )   (922 )   (798 )   (702 )   (665 )
Interest expense – subordinated debt (90 )   (89 )   (91 )   (91 )   (89 )
Interest expense – junior subordinated debt (108 )   (111 )   (105 )   (105 )   (101 )
Interest expense – other borrowings     (2 )            
Total net interest income $ 6,965     $ 6,899     $ 7,165     $ 7,083     $ 6,831  
Non-GAAP measures:                  
Tax benefit realized on non-taxable interest income – loans $ 10     $ 11     $ 11     $ 12     $ 11  
Tax benefit realized on non-taxable interest income – municipal securities 42     41     42     41     41  
Total tax benefit realized on non-taxable interest income $ 52     $ 52     $ 53     $ 53     $ 52  
Total tax-equivalent net interest income $ 7,017     $ 6,951     $ 7,218     $ 7,136     $ 6,883  



FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)

  (unaudited)
For the Six Months Ended
  June 30,
2019
  June 30,
2018
Income Statement      
Interest income      
Interest and fees on loans $ 14,196     $ 12,851  
Interest on deposits in banks 243     346  
Interest on securities      
Taxable interest 1,433     1,456  
Tax-exempt interest 315     301  
Dividends on restricted securities 50     44  
Total interest income $ 16,237     $ 14,998  
Interest expense      
Interest on deposits $ 1,973     $ 1,255  
Interest on subordinated debt 179     178  
Interest on junior subordinated debt 219     187  
Interest on other borrowings 2      
Total interest expense $ 2,373     $ 1,620  
Net interest income $ 13,864     $ 13,378  
Provision for loan losses 200     100  
Net interest income after provision for loan losses $ 13,664     $ 13,278  
Noninterest income      
Service charges on deposit accounts $ 1,416     $ 1,546  
ATM and check card fees 1,090     1,074  
Wealth management fees 895     816  
Fees for other customer services 328     304  
Income from bank owned life insurance 202     636  
Net gains on sale of loans 47     24  
Other operating income 42     300  
Total noninterest income $ 4,020     $ 4,700  
Noninterest expense      
Salaries and employee benefits $ 6,818     $ 6,610  
Occupancy 839     787  
Equipment 829     843  
Marketing 380     270  
Supplies 164     168  
Legal and professional fees 544     414  
ATM and check card expense 441     414  
FDIC assessment 104     148  
Bank franchise tax 266     233  
Telecommunications expense 162     134  
Data processing expense 352     332  
Postage expense 92     103  
Amortization expense 170     251  
Other real estate owned expense (income), net     (22 )
Other operating expense 1,167     1,045  
Total noninterest expense $ 12,328     $ 11,730  
Income before income taxes $ 5,356     $ 6,248  
Income tax expense 1,009     1,110  
Net income $ 4,347     $ 5,138  

FIRST NATIONAL CORPORATION
Year-to-Date Performance Summary
(in thousands, except share and per share data)         

  (unaudited)
For the Six Months Ended
  June 30,
2019
  June 30,
2018
Common Share and Per Common Share Data      
Net income, basic $ 0.88     $ 1.04  
Weighted average shares, basic 4,962,010     4,950,922  
Net income, diluted $ 0.88     $ 1.04  
Weighted average shares, diluted 4,964,988     4,953,328  
Shares outstanding at period end 4,964,824     4,953,356  
Tangible book value at period end $ 14.60     $ 12.31  
Cash dividends $ 0.18     $ 0.10  
       
Key Performance Ratios      
Return on average assets 1.14 %   1.37 %
Return on average equity 12.60 %   17.33 %
Net interest margin 3.93 %   3.83 %
Efficiency ratio (1) 67.59 %   63.27 %
       
Average Balances      
Average assets $ 766,054     $ 756,959  
Average earning assets 717,341     710,083  
Average shareholders’ equity 69,589     59,799  
       
Asset Quality      
Loan charge-offs $ 447     $ 500  
Loan recoveries 233     113  
Net charge-offs 214     387  
       
Reconciliation of Tax-Equivalent Net Interest Income    
GAAP measures:      
Interest income – loans $ 14,196     $ 12,851  
Interest income – investments and other 2,041     2,147  
Interest expense – deposits (1,973 )   (1,255 )
Interest expense – subordinated debt (179 )   (178 )
Interest expense – junior subordinated debt (219 )   (187 )
Interest expense – other borrowings (2 )    
Total net interest income $ 13,864     $ 13,378  
Non-GAAP measures:      
Tax benefit realized on non-taxable interest income – loans $ 21     $ 21  
Tax benefit realized on non-taxable interest income – municipal securities 83     80  
Total tax benefit realized on non-taxable interest income $ 104     $ 101  
Total tax-equivalent net interest income $ 13,968     $ 13,479  

(1) The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, amortization of intangibles, and gains and losses on disposal of premises and equipment 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. 

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