GlobeNewswire Inc | Jan 31, 2022 07:00AM EST

January 31, 2022

STRASBURG, Va., Jan. 31, 2022 (GLOBE NEWSWIRE) -- First National Corporation (the Company or First National) (NASDAQ: FXNC), the bank holding company of First Bank (the Bank), reported unaudited consolidated net income of $2.2 million, or $0.35 per diluted share, for the fourth quarter of 2021, which included $1.3 million of merger expenses and provision for loan losses of $350 thousand. This compares to net income of $3.2 million, or $0.65 per diluted share for the fourth quarter of 2020 that included recovery of loan losses of $200 thousand.

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

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

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

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

ACQUISITION OF THE BANK OF FINCASTLE

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

ACQUISITION OF THE SMARTBANK LOAN PORTFOLIO

On September 30, 2021, the Bank acquired $82.6 million of loans and certain branch assets from SmartBank related to their Richmond area branch, located in Glen Allen, Virginia. First Bank paid a premium based on a specific percentage of the loans sold and certain branch assets were acquired at 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 closed their branch operation on December 31, 2021. The Bank continued to operate its loan production office from the former branch location. First Banks assumption of the SmartBanks branch office lease, acquisition of the remaining branch assets, and the transition of SmartBank employees to First Bank was completed in the fourth quarter of 2021.

SMALL BUSINESS ADMINISTRATIONS 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 $12.5 million at December 31, 2021, with $124 thousand scheduled to mature in the second and third quarters of 2022, and $12.4 million scheduled to mature in the first and second quarters of 2026.

NET INTEREST INCOME

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

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

PROVISION FOR LOAN LOSSES

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

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

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

NONINTEREST INCOME

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

NONINTEREST EXPENSE

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

BALANCE SHEET

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

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

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

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

On January 1, 2022, the Company redeemed $5.0 million of subordinated debt that it issued on October30,2015. The debt was an interest only subordinated term note due2025in the aggregate principal amount of $5.0 million. The note had a fixed interest rate of 6.75% per annum. Debt issuance costs related to the note were fully amortized at December 31, 2021.Although the note had a maturity date ofOctober1,2025, the Companywas able to prepay the note, in part or in fullthrough maturity, at the Company's option, on any scheduled interest payment date.

ABOUT FIRST NATIONAL CORPORATION

First National Corporation (NASDAQ: FXNC) is the parent company and bank holding company of First Bank, a community bank that first opened for business in 1907 in Strasburg, Virginia. The Bank offers loan and deposit products and services through its website, www.fbvirginia.com, its mobile banking platform, a network of ATMs located throughout its market area, a loan production office, a customer service center in a retirement community, and 20 bank branch office locations located throughout the Shenandoah Valley, the central regions of Virginia, the Roanoke Valley, and in the city of Richmond. In addition to providing traditional banking services, the Bank operates a wealth management division under the name First Bank Wealth Management. First Bank also owns First Bank Financial Services, Inc., which invests in entities that provide investment services and title insurance.

FORWARD-LOOKING STATEMENTS

Certain information contained in this discussion may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to the 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 December September June 30, March December 31, 30, 31, 31, 2021 2021 2021 2021 2020 Income StatementInterest incomeInterest and $ 9,365 $ 9,215 $ 7,074 $ 7,143 $ 7,310 fees on loansInterest ondeposits in 64 79 37 33 31 banksInterest onfederal funds 2 8 ? ? ? soldInterest on securitiesTaxable 920 766 697 717 567 interestTax-exempt 299 242 215 180 163 interestDividends 23 21 22 22 24 Total interest $ 10,673 $ 10,331 $ 8,045 $ 8,095 $ 8,095 incomeInterest expenseInterest on $ 355 $ 369 $ 328 $ 363 $ 410 depositsInterest onsubordinated 155 156 154 154 160 debtInterest onjunior 68 68 68 66 68 subordinateddebtTotal interest $ 578 $ 593 $ 550 $ 583 $ 638 expenseNet interest $ 10,095 $ 9,738 $ 7,495 $ 7,512 $ 7,457 incomeProvision for(recovery of) 350 ? (1,000 ) ? (200 )loan lossesNet interestincome afterprovision for $ 9,745 $ 9,738 $ 8,495 $ 7,512 $ 7,657 (recovery of)loan lossesNoninterest incomeServicecharges on $ 625 $ 547 $ 447 $ 442 $ 553 depositaccountsATM and check 894 753 682 601 576 card feesWealthmanagement 716 696 657 643 598 feesFees for othercustomer 299 434 307 286 216 servicesIncome frombank owned 152 161 100 113 124 life insuranceNet gains on ? ? ? 37 2 securitiesNet gains on ? ? 18 7 10 sale of loansOtheroperating 260 57 224 14 73 incomeTotalnoninterest $ 2,946 $ 2,648 $ 2,435 $ 2,143 $ 2,152 incomeNoninterest expenseSalaries andemployee $ 5,099 $ 5,446 $ 3,693 $ 3,555 $ 3,212 benefitsOccupancy 510 500 399 447 422 Equipment 527 519 433 431 440 Marketing 179 243 138 106 112 Supplies 168 176 77 88 90 Legal andprofessional 731 586 483 737 310 feesATM and check 317 329 268 231 253 card expenseFDIC 112 87 78 69 105 assessmentBank franchise 172 153 172 168 161 taxDataprocessing 1,271 465 216 204 196 expenseAmortization 4 5 5 14 24 expenseOther realestate owned 12 14 ? ? ? expense, netNet losses(gains) ondisposal of (15 ) ? ? ? ? premises andequipmentOtheroperating 924 903 668 600 569 expenseTotalnoninterest $ 10,011 $ 9,426 $ 6,630 $ 6,650 $ 5,894 expenseIncome before $ 2,680 $ 2,960 $ 4,300 $ 3,005 $ 3,915 income taxesIncome tax 497 562 958 569 759 expenseNet income $ 2,183 $ 2,398 $ 3,342 $ 2,436 $ 3,156

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

(unaudited) For the Quarter Ended December 31, September June 30, March 31, December 30, 31, 2021 2021 2021 2021 2020 Common Shareand Per Common Share DataNet income, $ 0.35 $ 0.39 $ 0.69 $ 0.50 $ 0.65 basicWeightedaverage shares, 6,226,838 6,220,456 4,868,901 4,863,823 4,858,288 basicNet income, $ 0.35 $ 0.38 $ 0.69 $ 0.50 $ 0.65 dilutedWeightedaverage shares, 6,235,907 6,229,524 4,873,286 4,872,097 4,861,208 dilutedSharesoutstanding at 6,228,176 6,226,418 4,870,459 4,868,462 4,860,399 period endTangible bookvalue at period $ 18.28 $ 18.11 $ 18.21 $ 17.65 $ 17.47 endCash dividends $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.11 Key Performance RatiosReturn on 0.63 % 0.71 % 1.31 % 1.00 % 1.31 %average assetsReturn on 7.44 % 8.64 % 15.33 % 11.53 % 15.03 %average equityNet interest 3.13 % 3.06 % 3.10 % 3.27 % 3.30 %marginEfficiency 64.69 % 64.86 % 63.65 % 64.53 % 61.00 %ratio (1) Average BalancesAverage assets $ 1,366,855 $ 1,337,247 $ 1,026,583 $ 988,324 $ 954,810 Average earning 1,289,977 1,272,969 976,842 937,199 904,511 assetsAverageshareholders? 116,511 110,153 87,442 85,708 83,545 equity Asset Quality Loan $ 185 $ 111 $ 1,085 $ 66 $ 165 charge-offsLoan recoveries 111 80 64 67 73 Net charge-offs 74 31 1,021 (1 ) 92 Non-accrual 2,304 2,158 2,102 6,814 6,714 loansOther realestate owned, $ 1,848 1,848 ? ? ? netNonperforming 4,152 4,006 2,102 6,814 6,714 assetsLoans 30 to 89days past due, 3,235 2,707 550 906 996 accruingLoans over 90days past due, ? 7 5 ? 302 accruingTroubled debtrestructurings, ? ? ? ? ? accruingSpecial mention ? ? ? ? ? loansSubstandard 315 319 322 1,343 1,394 loans, accruing Capital Ratios (2)Total capital $ 125,934 $ 128,197 $ 95,856 $ 94,044 $ 91,243 Tier 1 capital 120,224 122,763 90,391 86,717 84,032 Common equity 120,224 122,763 90,391 86,717 84,032 tier 1 capitalTotal capitalto 14.76 % 14.42 % 16.25 % 16.05 % 15.82 %risk-weightedassetsTier 1 capitalto 14.09 % 13.81 % 15.32 % 14.80 % 14.57 %risk-weightedassetsCommon equitytier 1 capitalto 14.09 % 13.81 % 15.32 % 14.80 % 14.57 %risk-weightedassetsLeverage ratio 8.82 % 9.22 % 8.78 % 8.78 % 8.80 %

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

(unaudited) For the Quarter Ended December September June 30, March 31, December 31, 30, 31, 2021 2021 2021 2021 2020 Balance Sheet Cash and due from $ 18,725 $ 19,182 $ 13,913 $ 11,940 $ 13,115 banksInterest-bearing 157,281 95,459 114,334 164,322 114,182 deposits in banksFederal funds sold ? 80,589 ? ? ? Securitiesavailable for sale, 289,495 266,600 222,236 159,742 140,225 at fair valueSecurities held tomaturity, at 33,441 10,046 10,898 13,424 14,234 amortized costRestricted 1,813 1,813 1,631 1,631 1,875 securities, at costLoans held for sale ? ? ? ? 245 Loans, net ofallowance for loan 819,408 816,977 611,883 630,716 622,429 lossesOther real estate 1,848 1,848 ? ? ? ownedPremises and 22,403 22,401 18,876 19,087 19,319 equipment, netAccrued interest 3,903 3,823 2,662 2,609 2,717 receivableBank owned life 24,294 24,141 18,128 18,029 17,916 insuranceGoodwill 3,030 4,011 ? ? ? Core deposit 154 159 ? 5 19 intangibles, netOther assets 13,641 8,740 10,032 6,625 4,656 Total assets $ 1,389,436 $ 1,355,789 $ 1,024,593 $ 1,028,130 $ 950,932 Noninterest-bearing $ 413,188 $ 411,527 $ 290,571 $ 292,280 $ 263,229 demand depositsSavings andinterest-bearing 689,998 652,624 528,002 526,012 479,035 demand depositsTime deposits 145,566 148,419 95,732 97,765 100,197 Total deposits $ 1,248,752 $ 1,212,570 $ 914,305 $ 916,057 $ 842,461 Subordinated debt 9,993 9,993 9,992 9,992 9,991 Junior subordinated 9,279 9,279 9,279 9,279 9,279 debtAccrued interestpayable and other 4,373 7,041 2,335 6,876 4,285 liabilitiesTotal liabilities $ 1,272,397 $ 1,238,883 $ 935,911 $ 942,204 $ 866,016 Preferred stock $ ? $ ? $ ? $ ? $ ? Common stock 7,785 7,783 6,088 6,086 6,075 Surplus 31,966 31,889 6,295 6,214 6,151 Retained earnings 76,990 75,554 73,901 71,144 69,292 Accumulated othercomprehensive 298 1,680 2,398 2,482 3,398 income, netTotal shareholders? $ 117,039 $ 116,906 $ 88,682 $ 85,926 $ 84,916 equityTotal liabilitiesand shareholders? $ 1,389,436 $ 1,355,789 $ 1,024,593 $ 1,028,130 $ 950,932 equity Loan Data Mortgage loans on real estate:Construction and $ 55,721 $ 45,120 $ 25,035 $ 25,720 $ 27,328 land developmentSecured by farmland 3,708 3,748 495 507 521 Secured by 1-4 291,990 294,216 235,158 236,870 235,814 family residentialOther real estate 361,213 358,895 244,960 248,357 246,362 loansLoans to farmers(except those 985 857 232 436 637 secured by realestate)Commercial andindustrial loans(except those 98,820 104,807 102,734 117,109 109,201 secured by realestate)Consumer 4,963 6,577 5,179 5,684 6,458 installment loansDeposit overdrafts 175 172 174 112 143 All other loans 7,543 8,019 3,381 3,407 3,450 Total loans $ 825,118 $ 822,411 $ 617,348 $ 638,202 $ 629,914 Allowance for loan (5,710 ) (5,434 ) (5,465 ) (7,486 ) (7,485 )lossesLoans, net $ 819,408 $ 816,977 $ 611,883 $ 630,716 $ 622,429

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

(unaudited) For the Quarter Ended December September June March December 31, 30, 30, 31, 31, 2021 2021 2021 2021 2020 Reconciliation ofTax-Equivalent Net InterestIncomeGAAP measures: Interest income ? $ 9,365 $ 9,215 $ 7,074 $ 7,143 $ 7,310 loansInterest income ?investments and 1,308 1,116 971 952 785 otherInterest expense (355 ) (369 ) (328 ) (363 ) (410 )? depositsInterest expense? subordinated (155 ) (156 ) (154 ) (154 ) (160 )debtInterest expense? junior (68 ) (68 ) (68 ) (66 ) (68 )subordinated debtTotal net $ 10,095 $ 9,738 $ 7,495 $ 7,512 $ 7,457 interest incomeNon-GAAP measures:Tax benefitrealized onnon-taxable $ 8 $ 8 $ 8 $ 8 $ 8 interest income ?loansTax benefitrealized onnon-taxable 80 64 57 48 43 interest income ?municipalsecuritiesTotal tax benefitrealized on $ 88 $ 72 $ 65 $ 56 $ 51 non-taxableinterest incomeTotaltax-equivalent $ 10,183 $ 9,810 $ 7,560 $ 7,568 $ 7,508 net interestincome

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

(unaudited) For the Year Ended December December 31, 31, 2021 2020 Income Statement Interest income Interest and fees on loans $ 32,797 $ 29,497 Interest on deposits in banks 213 190 Interest on federal funds sold 10 ? Interest on securities Taxable interest 3,100 2,448 Tax-exempt interest 936 617 Dividends 88 99 Total interest income $ 37,144 $ 32,851 Interest expense Interest on deposits $ 1,415 $ 2,589 Interest on subordinated debt 619 501 Interest on junior subordinated debt 270 293 Total interest expense $ 2,304 $ 3,383 Net interest income $ 34,840 $ 29,468 Provision for (recovery of) loan losses (650 ) 3,000 Net interest income after provision for loan $ 35,490 $ 26,468 lossesNoninterest income Service charges on deposit accounts $ 2,061 $ 2,028 ATM and check card fees 2,930 2,314 Wealth management fees 2,712 2,208 Fees for other customer services 1,326 983 Income from bank owned life insurance 526 469 Net gains on securities 37 40 Net gains on sale of loans 25 70 Other operating income 555 113 Total noninterest income $ 10,172 $ 8,225 Noninterest expense Salaries and employee benefits $ 17,793 $ 13,321 Occupancy 1,856 1,666 Equipment 1,910 1,707 Marketing 666 355 Supplies 509 394 Legal and professional fees 2,537 1,152 ATM and check card expense 1,145 980 FDIC assessment 346 247 Bank franchise tax 665 637 Data processing expense 2,156 759 Amortization expense 28 151 Other real estate owned expense, net 26 ? Net losses (gains) on disposal of premises and (15 ) (29 )equipmentOther operating expense 3,095 2,446 Total noninterest expense $ 32,717 $ 23,786 Income before income taxes $ 12,945 $ 10,907 Income tax expense 2,586 2,049 Net income $ 10,359 $ 8,858

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

(unaudited) For the Year Ended December December 31, 31, 2021 2020 Common Share and Per Common Share Data Net income, basic $ 1.87 $ 1.82 Weighted average shares, basic 5,550,589 4,878,139 Net income, diluted $ 1.86 $ 1.82 Weighted average shares, diluted 5,559,082 4,880,266 Shares outstanding at period end 6,228,176 4,860,399 Tangible book value at period end $ 18.28 $ 17.47 Cash dividends $ 0.48 $ 0.44 Key Performance Ratios Return on average assets 0.88 % 0.98 %Return on average equity 10.30 % 10.92 %Net interest margin 3.13 % 3.50 %Efficiency ratio (1) 64.44 % 62.52 % Average Balances Average assets $ 1,182,436 $ 901,216 Average earning assets 1,120,647 846,663 Average shareholders? equity 100,596 81,093 Asset Quality Loan charge-offs $ 1,447 $ 784 Loan recoveries 322 335 Net charge-offs 1,125 449 Reconciliation of Tax-Equivalent Net Interest IncomeGAAP measures: Interest income ? loans $ 32,797 $ 29,497 Interest income ? investments and other 4,347 3,354 Interest expense ? deposits (1,415 ) (2,589 )Interest expense ? subordinated debt (619 ) (501 )Interest expense ? junior subordinated debt (270 ) (293 )Total net interest income $ 34,840 $ 29,468 Non-GAAP measures: Tax benefit realized on non-taxable interest $ 32 $ 34 income ? loansTax benefit realized on non-taxable interest 249 164 income ? municipal securitiesTotal tax benefit realized on non-taxable $ 281 $ 198 interest incomeTotal tax-equivalent net interest income $ 35,121 $ 29,666

(1)The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, amortization of intangibles, gains and losses on disposal of premises and equipment, and merger related expenses by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding gains and losses on sales of securities. Tax-equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit is 21%. See the tables above for tax-equivalent net interest income and reconciliations of net interest income to tax-equivalent net interest income. The efficiency ratio is a non-GAAP financial measure that management believes provides investors with important information regarding operational efficiency. Such information is not prepared in accordance with U.S. generally accepted accounting principles (GAAP) and should not be construed as such. Management believes; however, such financial information is meaningful to the reader in understanding operational performance but cautions that such information not be viewed as a substitute for GAAP.

(2)All capital ratios reported are for First Bank.