GlobeNewswire Inc | Oct 29, 2021 07:00AM EDT

October 29, 2021

STRASBURG, Va., Oct. 29, 2021 (GLOBE NEWSWIRE) -- First National Corporation (the Company or First National) (NASDAQ: FXNC), the bank holding company of First Bank (the Bank), reported unaudited consolidated net income of $2.4 million, or $0.38 per diluted share for the third quarter of 2021, which resulted in return on average assets of 0.71% and return on average equity of 8.64%. This compares to net income of $1.8 million, or $0.36 per diluted share, and return on average assets of 0.74% and return on average equity of 8.52% for the third quarter of 2020.

Net income for the third quarter of 2021 included $1.3 million of merger related expenses from the Companys acquisition of The Bank of Fincastle (the Merger), which was consummated on July 1, 2021. In addition, there was no provision for loan losses in the third quarter of 2021, compared to provision for loan losses of $1.5 million for the third quarter of 2020.

During the third quarter of 2021, First Bank also negotiated and completed the acquisition of an $82.6 million loan portfolio originated from SmartBanks branch located in the Richmond, Virginia market. In connection with the purchase of the loan portfolio, the Bank hired a team of employees based out of the branch. SmartBank decided to close their branch operation on December 31, 2021. First Bank will continue to operate a loan production office from this location.

President and Chief Executive Officer Scott C. Harvard commented, The third quarter may have been the most productive in our companys 114 year history as we completed the acquisition of The Bank of Fincastle and also seized the opportunity for a team lift and loan portfolio acquisition in the Richmond market. The transactions boosted assets to $1.4 billion and increased loan balances by $205.1 million, while extending the Banks reach into the Roanoke market and bolstering the banking team in Richmond. These transactions reflect our strategy of hiring talented bankers to support organic growth, which in turn positions the company well for strategic acquisitions. I am incredibly proud of our people, not just for the level of work and effort it took to successfully complete two transformative transactions concurrently, but for their can-do attitude when asked to step up to the challenge. We believe our banking company is well positioned to be a leader in Virginia banking for years to come.

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

? Successful team lift and $83 million loan portfolio acquisition in the Richmond market ? Completed the acquisition of The Bank of Fincastle ? Total assets increased 44% to $1.4 billion ? Total loans, excluding PPP loans, increased 39% to $799.6 million ? Noninterest-bearing deposits increased 60% to $411.5 million ? Net interest income increased 29%, or $2.2 million ? Noninterest income increased 20%, or $447 thousand ? Merger related expenses totaled $1.3 million ? Nonperforming assets totaled $4.0 million, or 0.30% of total assets

ACQUISITION OF THE BANK OF FINCASTLE

On July 1, 2021, the Company completed the acquisition of The Bank of Fincastle (Fincastle) for an aggregate purchase price of $33.8 million of cash and stock. Fincastle was merged with and into First Bank.The former Fincastle branches continued to operate as The Bank of Fincastle, a division of First Bank, until the systems were converted on October 16, 2021. For the three-month and nine-month periods ended September 30, 2021, the Company recorded merger related expenses of $1.3 million and $2.0 million, respectively. The Company estimates it will incur an additional $1.4 million of merger related costs throughout the fourth quarter of 2021 and first quarter of 2022, which would result in aggregate costs related to the Merger of $3.4 million.

ACQUISITION OF THE SMARTBANK LOAN PORTFOLIO

On September 30, 2021, the Bank acquired $82.6 million of loans and certain fixed assets from SmartBank related to their Richmond area branch. First Bank agreed to assume the facility lease of SmartBanks branch office located in Glen Allen, Virginia. First Bank paid a premium based on a specific percentage of the loans sold and certain fixed assets were acquired at SmartBanks book value. Additionally, an experienced team of bankers based out of the SmartBank location have transitioned to become employees of First Bank. First Bank did not assume any deposit liabilities from SmartBank in connection with the transaction and SmartBank intends to close their branch operation on December 31, 2021. First Bank will continue to operate a loan production office from the location after the SmartBank branch is closed. First Banks assumption of the lease and acquisition of the remaining branch assets is expected to be completed in the fourth quarter of 2021, subject to customary closing conditions.

SMALL BUSINESS ADMINISTRATION'S PPP

The Bank participated as a lender in the U.S. Small Business Administrations (SBA) Paycheck Protection Program (PPP) to support local small businesses and non-profit organizations by providing forgivable loans. Loan fees received from the SBA are accreted into income evenly over the life of the loans, net of loan origination costs, through interest and fees on loans. PPP loans totaled $22.8 million at September 30, 2021, with $1.3 million scheduled to mature in the second and third quarters of 2022, and $21.5 million scheduled to mature in the first and second quarters of 2026.

NET INTEREST INCOME

Net interest income increased $2.2 million, or 29%, to $9.7 million for the third quarter of 2021, compared to the same period of 2020. The increase resulted from a $2.0 million, or 24% increase in total interest and dividend income and a $176 thousand, or 23%, decrease in total interest expense. Net interest income was favorably impacted by a $383.8 million, or 43%, increase in average earning assets and was partially offset by the impact of a 35-basis point decrease in the net interest margin to 3.06% when comparing the periods.

PROVISION FOR LOAN LOSSES

There was no provision for loan losses for the third quarter of 2021. The allowance for loan losses totaled $5.4 million, or 0.66% of total loans and there were no significant changes in the general or specific reserve components of the allowance. The loans acquired from Fincastle and SmartBank during the quarter did not require an allowance for loan loss at September 30, 2021. Net charge-offs totaled $31 thousand during the three-month period ending September 30, 2021. The allowance for loan losses totaled $5.4 million, or 0.89% of total loans at June 30, 2021, and $7.8 million, or 1.20% of total loans at September 30, 2020. Provision for loan losses totaled $1.5 million for the three-month period ending September 30, 2020.

Loans 30 to 89 days past due and accruing totaled $3.3 million, or 0.40% of total loans at September 30, 2021, compared to $885 thousand, or 0.14% of total loans one year ago. Accruing substandard loans totaled $319 thousand at September 30, 2021 and $3.8 million at September 30, 2020. Nonperforming assets totaled $4.0 million, or 0.30% of total assets at September 30, 2021, compared to $7.0 million, or 0.74% of total assets at September 30, 2020. Nonperforming assets were comprised of $2.2 million of nonaccrual loans and $1.8 million of other real estate owned.There were $1.5 million of commercial rental properties included in other real estate owned that were acquired in the Merger.

During the fourth quarter of 2020, and during the first half of 2021, the Bank modified terms of certain loans for customers that continued to be negatively impacted by the pandemic by lowering borrowers loan payments with interest only payments for periods ranging between 6 and 24 months. Modified loans totaled $13.3 million at September 30, 2021, with $13.2 million in the Banks commercial real estate loan portfolio and $83 thousand in the commercial and industrial loans portfolio. The loans were comprised of $11.6 million in the lodging sector and $1.7 million in the leisure sector. All modified loans were performing under their modified terms as of September 30, 2021.

NONINTEREST INCOME

Noninterest income increased $447 thousand, or 20%, to $2.6 million compared to the same period of 2020. Service charges on deposits increased $101 thousand, or 23%, ATM and check card fees increased $84 thousand, or 13%, wealth management fees increased $123 thousand, or 21%, and fees for other customer services increased $111 thousand, or 34%. Service charges on deposits benefited from an increase in overdraft fee income, the increase in ATM and check card fees resulted from an increase in card use by customers, wealth management revenue increased from a higher amount of assets under management, and the increase in fees for other customer services was impacted by an increase in mortgage fee income.

NONINTEREST EXPENSE

Noninterest expense increased $3.3 million, or 54%, to $9.4 million, compared to the same period one year ago. The increase was primarily attributable to a $1.9 million increase in salaries and employee benefits, a $180 thousand increase in marketing expense, a $324 thousand increase in legal and professional fees, a $274 thousand increase in data processing fees, and a $272 thousand increase in other operating expenses. The increase in salaries and employee benefits resulted primarily from merger related expenses and the increase in the number of employees from the acquisition of Fincastle. Marketing expenses increased from both merger related expenses and timing of advertising campaigns. The increase in legal and professional fees was attributable to merger related expenses. Data processing expenses increased from merger related expenses and from the impact of additional customer accounts from the merger with Fincastle.

BALANCE SHEET

Total assets of First National increased $413.1 million, or 44%, to $1.4 billion at September 30, 2021, compared to $942.7 million at September 30, 2020. Loans, net of the allowance for loan losses increased $176.4 million, or 28%, securities increased $144.4 million, or 109%, and interest-bearing deposits in banks and Fed funds sold combined increased $67.2 million, or 62%. The increase in loans was attributable to the acquisitions of Fincastle and the SmartBank loan portfolio during the quarter, while the increases in securities, interest-bearing deposits in banks and Fed funds sold were attributable to the acquisition of Fincastle and growth in the Banks deposit portfolio during the recent twelve-month period.

Total liabilities increased $378.4 million, or 44%, to $1.2 billion at September 30, 2021, compared to $860.5 million one year ago. The increase in total liabilities was attributable to growth in deposits. Total deposits increased $374.2 million, or 45%, to $1.2 billion. Noninterest-bearing demand deposits increased $154.8 million, or 60%, savings and interest-bearing demand deposits increased $172.6 million, or 36%, and time deposits increased $46.8 million, or 46%. Although the majority of the deposit portfolio growth resulted from the acquisition of Fincastle, growth of the Banks deposits over the prior twelve-month period also made a meaningful contribution.

Shareholders equity increased $34.7 million, or 42%, to $116.9 million at September 30, 2021, compared to one year ago, from a $27.5 million increase in common stock and surplus, primarily from the issuance of common stock related to the Fincastle acquisition and an $8.9 million increase in retained earnings. The Bank was considered well-capitalized at September 30, 2021.

ABOUT FIRST NATIONAL

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 20 bank branch office locations located throughout the Shenandoah Valley, the central regions of Virginia, and the Richmond and Roanoke market areas. 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, and Bank of Fincastle Services, Inc., which has an investment in a mortgage company.

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 Companys future operations and are generally identified by phrases such as the Company expects, the Company believes or words of similar import. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including the rapidly changing uncertainties related to the COVID-19 pandemic and its potential adverse effect on the economy, our employees and customers, and our financial performance. For details on other factors that could affect expectations, see the risk factors and other cautionary language included in the Companys Annual Report on Form 10-K for the year ended December 31, 2020, and other filings with the Securities and Exchange Commission.

CONTACTS

Scott C. Harvard M. Shane BellPresident and CEO Executive Vice President and CFO(540) 465-9121 (540) 465-9121sharvard@fbvirginia.com sbell@fbvirginia.com

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

(unaudited) For the Quarter Ended September June 30, March December September 30, 31, 31, 30, 2021 2021 2021 2020 2020 Income StatementInterest incomeInterest and $ 9,215 $ 7,074 $ 7,143 $ 7,310 $ 7,568 fees on loansInterest ondeposits in 79 37 33 31 25 banksInterest onfederal funds 8 ? ? ? ? soldInterest on securitiesTaxable 766 697 717 567 575 interestTax-exempt 242 215 180 163 152 interestDividends 21 22 22 24 23 Totalinterest $ 10,331 $ 8,045 $ 8,095 $ 8,095 $ 8,343 incomeInterest expenseInterest on $ 369 $ 328 $ 363 $ 410 $ 541 depositsInterest onsubordinated 156 154 154 160 160 debtInterest onjunior 68 68 66 68 68 subordinateddebtTotalinterest $ 593 $ 550 $ 583 $ 638 $ 769 expenseNet interest $ 9,738 $ 7,495 $ 7,512 $ 7,457 $ 7,574 incomeProvision for(recovery of) ? (1,000 ) ? (200 ) 1,500 loan lossesNet interestincome afterprovision for $ 9,738 $ 8,495 $ 7,512 $ 7,657 $ 6,074 (recovery of)loan lossesNoninterest incomeServicecharges on $ 547 $ 447 $ 442 $ 553 $ 446 depositaccountsATM and check 753 682 601 576 669 card feesWealthmanagement 696 657 643 598 573 feesFees forother 434 307 286 216 323 customerservicesIncome frombank owned 161 100 113 124 131 lifeinsuranceNet gains on ? ? 37 2 38 securitiesNet gains on ? 18 7 10 3 sale of loansOtheroperating 57 224 14 73 18 incomeTotalnoninterest $ 2,648 $ 2,435 $ 2,143 $ 2,152 $ 2,201 incomeNoninterest expenseSalaries andemployee $ 5,446 $ 3,693 $ 3,555 $ 3,212 $ 3,498 benefitsOccupancy 500 399 447 422 433 Equipment 519 433 431 440 439 Marketing 243 138 106 112 63 Supplies 176 77 88 90 112 Legal andprofessional 586 483 737 310 262 feesATM and check 329 268 231 253 259 card expenseFDIC 87 78 69 105 52 assessmentBank 153 172 168 161 162 franchise taxDataprocessing 465 216 204 196 191 expenseAmortization 5 5 14 24 33 expenseOther realestate owned 14 ? ? ? ? expense(income), netOtheroperating 903 668 600 569 631 expenseTotalnoninterest $ 9,426 $ 6,630 $ 6,650 $ 5,894 $ 6,135 expenseIncome before $ 2,960 $ 4,300 $ 3,005 $ 3,915 $ 2,140 income taxesIncome tax 562 958 569 759 386 expenseNet income $ 2,398 $ 3,342 $ 2,436 $ 3,156 $ 1,754

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

(unaudited) For the Quarter Ended September June 30, March 31, December September 30, 31, 30, 2021 2021 2021 2020 2020 Common Shareand Per Common Share DataNet income, $ 0.39 $ 0.69 $ 0.50 $ 0.65 $ 0.36 basicWeightedaverage shares, 6,220,456 4,868,901 4,863,823 4,858,288 4,854,144 basicNet income, $ 0.38 $ 0.69 $ 0.50 $ 0.65 $ 0.36 dilutedWeightedaverage shares, 6,229,525 4,873,286 4,872,097 4,861,208 4,854,649 dilutedSharesoutstanding at 6,226,418 4,870,459 4,868,462 4,860,399 4,858,217 period endTangible bookvalue at period $ 18.11 $ 18.21 $ 17.65 $ 17.47 $ 16.92 endCash dividends $ 0.12 $ 0.12 $ 0.12 $ 0.11 $ 0.11 Key Performance RatiosReturn on 0.71 % 1.31 % 1.00 % 1.31 % 0.74 %average assetsReturn on 8.64 % 15.33 % 11.53 % 15.03 % 8.52 %average equityNet interest 3.06 % 3.10 % 3.27 % 3.30 % 3.41 %marginEfficiency 64.82 % 63.65 % 64.53 % 61.00 % 62.35 %ratio (1) Average BalancesAverage assets $ 1,337,247 $ 1,026,583 $ 988,324 $ 954,810 $ 944,390 Average earning 1,272,969 976,842 937,199 904,511 889,127 assetsAverageshareholders? 110,153 87,442 85,708 83,545 81,894 equity Asset Quality Loan $ 111 $ 1,085 $ 66 $ 165 $ 115 charge-offsLoan recoveries 80 64 67 73 96 Net charge-offs 31 1,021 (1 ) 92 19 (recoveries)Non-accrual 2,158 2,102 6,814 6,714 6,974 loansOther realestate owned, 1,848 ? ? ? ? netNonperforming 4,006 2,102 6,814 6,714 6,974 assetsLoans 30 to 89days past due, 3,276 550 906 996 885 accruingLoans over 90days past due, 7 5 ? 302 6 accruingTroubled debtrestructurings, ? ? ? ? ? accruingSpecial mention ? ? ? ? 510 loansSubstandard 319 322 1,343 1,394 3,804 loans, accruing Capital Ratios (2)Total capital $ 128,197 $ 95,856 $ 94,044 $ 91,243 $ 89,155 Tier 1 capital 122,763 90,391 86,717 84,032 81,883 Common equity 122,763 90,391 86,717 84,032 81,883 tier 1 capitalTotal capitalto 14.42 % 16.25 % 16.05 % 15.82 % 15.34 %risk-weightedassetsTier 1 capitalto 13.81 % 15.32 % 14.80 % 14.57 % 14.09 %risk-weightedassetsCommon equitytier 1 capitalto 13.81 % 15.32 % 14.80 % 14.57 % 14.09 %risk-weightedassetsLeverage ratio 9.22 % 8.78 % 8.78 % 8.80 % 8.67 %

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

(unaudited) For the Quarter Ended September June 30, March 31, December September 30, 31, 30, 2021 2021 2021 2020 2020 Balance Sheet Cash and due from $ 19,182 $ 13,913 $ 11,940 $ 13,115 $ 13,349 banksInterest-bearing 95,459 114,334 164,322 114,182 108,857 deposits in banksFederal funds sold 80,589 ? ? ? ? Securitiesavailable for sale, 266,600 222,236 159,742 140,225 117,132 at fair valueSecurities held tomaturity, at 10,046 10,898 13,424 14,234 15,101 amortized costRestricted 1,813 1,631 1,631 1,875 1,848 securities, at costLoans held for sale ? ? ? 245 ? Loans, net ofallowance for loan 816,977 611,883 630,716 622,429 640,591 lossesOther real estate 1,848 ? ? ? ? ownedPremises and 22,401 18,876 19,087 19,319 19,548 equipment, netAccrued interest 3,823 2,662 2,609 2,717 3,156 receivableBank owned life 24,141 18,128 18,029 17,916 17,792 insuranceGoodwill 4,011 ? ? ? ? Core deposit 159 ? 5 19 43 intangibles, netOther assets 8,740 10,032 6,625 4,656 5,316 Total assets $ 1,355,789 $ 1,024,593 $ 1,028,130 $ 950,932 $ 942,733 Noninterest-bearing $ 411,527 $ 290,571 $ 292,280 $ 263,229 $ 256,733 demand depositsSavings andinterest-bearing 652,624 528,002 526,012 479,035 480,017 demand depositsTime deposits 148,419 95,732 97,765 100,197 101,645 Total deposits $ 1,212,570 $ 914,305 $ 916,057 $ 842,461 $ 838,395 Subordinated debt 9,993 9,992 9,992 9,991 9,987 Junior subordinated 9,279 9,279 9,279 9,279 9,279 debtAccrued interestpayable and other 7,041 2,335 6,876 4,285 2,816 liabilitiesTotal liabilities $ 1,238,883 $ 935,911 $ 942,204 $ 866,016 $ 860,477 Preferred stock $ ? $ ? $ ? $ ? $ ? Common stock 7,783 6,088 6,086 6,075 6,073 Surplus 31,889 6,295 6,214 6,151 6,081 Retained earnings 75,554 73,901 71,144 69,292 66,670 Accumulated othercomprehensive 1,680 2,398 2,482 3,398 3,432 income, netTotal shareholders? $ 116,906 $ 88,682 $ 85,926 $ 84,916 $ 82,256 equityTotal liabilitiesand shareholders? $ 1,355,789 $ 1,024,593 $ 1,028,130 $ 950,932 $ 942,733 equity Loan Data Mortgage loans on real estate:Construction and $ 45,194 $ 25,035 $ 25,720 $ 27,328 $ 27,472 land developmentSecured by farmland 3,748 495 507 521 533 Secured by 1-4 294,216 235,158 236,870 235,814 234,198 family residentialOther real estate 358,821 244,960 248,357 246,362 249,786 loansLoans to farmers(except those 857 232 436 637 1,120 secured by realestate)Commercial andindustrial loans(except those 104,807 102,734 117,109 109,201 124,157 secured by realestate)Consumer 6,577 5,179 5,684 6,458 7,378 installment loansDeposit overdrafts 172 174 112 143 194 All other loans 8,019 3,381 3,407 3,450 3,530 Total loans $ 822,411 $ 617,348 $ 638,202 $ 629,914 $ 648,368 Allowance for loan (5,434 ) (5,465 ) (7,486 ) (7,485 ) (7,777 )lossesLoans, net $ 816,977 $ 611,883 $ 630,716 $ 622,429 $ 640,591

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

(unaudited) For the Quarter Ended September June March December September 30, 30, 31, 31, 30, 2021 2021 2021 2020 2020 ReconciliationofTax-Equivalent Net InterestIncomeGAAP measures: Interest income $ 9,215 $ 7,074 $ 7,143 $ 7,310 $ 7,568 ? loansInterest income? investments 1,116 971 952 785 775 and otherInterest expense (369 ) (328 ) (363 ) (410 ) (541 )? depositsInterest expense? subordinated (156 ) (154 ) (154 ) (160 ) (160 )debtInterest expense? junior (68 ) (68 ) (66 ) (68 ) (68 )subordinateddebtTotal net $ 9,738 $ 7,495 $ 7,512 $ 7,457 $ 7,574 interest incomeNon-GAAP measures:Tax benefitrealized onnon-taxable $ 8 $ 8 $ 8 $ 8 $ 8 interest income? loansTax benefitrealized onnon-taxable 64 57 48 43 41 interest income? municipalsecuritiesTotal taxbenefit realized $ 72 $ 65 $ 56 $ 51 $ 49 on non-taxableinterest incomeTotaltax-equivalent $ 9,810 $ 7,560 $ 7,568 $ 7,508 $ 7,623 net interestincome

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

(unaudited) For the Nine Months Ended September September 30, 30, 2021 2020 Income Statement Interest income Interest and fees on loans $ 23,432 $ 22,187 Interest on deposits in banks 149 159 Interest on federal funds sold 8 ? Interest on securities Taxable interest 2,180 1,881 Tax-exempt interest 637 454 Dividends 65 75 Total interest income $ 26,471 $ 24,756 Interest expense Interest on deposits $ 1,060 $ 2,179 Interest on federal funds purchased ? ? Interest on subordinated debt 464 341 Interest on junior subordinated debt 202 225 Interest on other borrowings ? ? Total interest expense $ 1,726 $ 2,745 Net interest income $ 24,745 $ 22,011 Provision for (recovery of) loan losses (1,000 ) 3,200 Net interest income after provision for loan $ 25,745 $ 18,811 lossesNoninterest income Service charges on deposit accounts $ 1,436 $ 1,475 ATM and check card fees 2,036 1,738 Wealth management fees 1,996 1,610 Fees for other customer services 1,027 767 Income from bank owned life insurance 374 345 Net gains (losses) on securities 37 38 Net gains on sale of loans 25 60 Other operating income 295 40 Total noninterest income $ 7,226 $ 6,073 Noninterest expense Salaries and employee benefits $ 12,694 $ 10,109 Occupancy 1,346 1,244 Equipment 1,383 1,267 Marketing 487 243 Supplies 341 304 Legal and professional fees 1,806 842 ATM and check card expense 828 727 FDIC assessment 234 142 Bank franchise tax 493 476 Data processing expense 885 563 Amortization expense 24 127 Other real estate owned expense (income), net 14 (9 )Other operating expense 2,171 1,857 Total noninterest expense $ 22,706 $ 17,892 Income before income taxes $ 10,265 $ 6,992 Income tax expense 2,089 1,290 Net income $ 8,176 $ 5,702

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

(unaudited) For the Nine Months Ended September September 30, 30, 2021 2020 Common Share and Per Common Share Data Net income, basic $ 1.54 $ 1.17 Weighted average shares, basic 5,322,696 4,884,805 Net income, diluted $ 1.53 $ 1.17 Weighted average shares, diluted 5,329,939 4,886,668 Shares outstanding at period end 6,226,418 4,858,217 Tangible book value at period end $ 18.11 $ 16.92 Cash dividends $ 0.36 $ 0.33 Key Performance Ratios Return on average assets 0.97 % 0.86 %Return on average equity 11.40 % 9.49 %Net interest margin 3.13 % 3.58 %Efficiency ratio (1) 64.34 % 63.04 % Average Balances Average assets $ 1,121,225 $ 883,741 Average earning assets 1,063,597 827,240 Average shareholders? equity 95,861 80,228 Asset Quality Loan charge-offs $ 1,262 $ 619 Loan recoveries 211 262 Net charge-offs 1,051 357 Reconciliation of Tax-Equivalent Net Interest IncomeGAAP measures: Interest income ? loans $ 23,432 $ 22,187 Interest income ? investments and other 3,039 2,569 Interest expense ? deposits (1,060 ) (2,179 )Interest expense ? federal funds purchased ? ? Interest expense ? subordinated debt (464 ) (341 )Interest expense ? junior subordinated debt (202 ) (225 )Interest expense ? other borrowings ? ? Total net interest income $ 24,745 $ 22,011 Non-GAAP measures: Tax benefit realized on non-taxable interest $ 24 $ 26 income ? loansTax benefit realized on non-taxable interest 169 121 income ? municipal securitiesTotal tax benefit realized on non-taxable $ 193 $ 147 interest incomeTotal tax-equivalent net interest income $ 24,938 $ 22,158

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