FIRST NATIONAL CORPORATION Financial Statements (Form 10-Q) June 30, 2000
SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended JUNE 30, 2000 Commission File Number 0-13663 FIRST NATIONAL CORPORATION (Exact name of registrant as specified in its charter) SOUTH CAROLINA 57-0799315 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 950 JOHN C. CALHOUN DRIVE, SE, ORANGEBURG, SC 29115 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (803) 534-2175 NOT APPLICABLE Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period, that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 90 days. YES "X" NO Indicate the number of shares outstanding of each of issuer's class of securities. CLASS OUTSTANDING as of June 30, 2000 Common Stock, $2.50 par value 7,041,101
FIRST NATIONAL CORPORATION INDEX Part I: Financial Information Item 1 - Financial Statements Condensed Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 Condensed Consolidated Statements of Changes In Shareholders' Equity - Six Months Ended June 30, 2000 and 1999 Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2000 and 1999 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999 Notes to Condensed Consolidated Financial Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Part II: Other Information Item 1 - Legal Proceedings Item 6 - Exhibits and Reports on Form 8-K (A) Exhibit 27 - Financial Data Schedule (B) Reports on Form 8-K: None
PART I - FINANCIAL INFORMATION Item l. FINANCIAL STATEMENTS FIRST NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except par value) 6-30-00 12-31-99 (Unaudited) (Note 1) ASSETS Cash and cash equivalents: Cash and due from banks $35,761 $39,479 Interest-bearing deposits with banks 343 1,848 Total cash and cash equivalents 36,104 41,327 Federal funds sold and securities purchased 62,000 - Investment securities: Held-to-maturity (fair value of $41,858 in 2000 and $46,529 in 1999) 42,754 47,268 Available-for-sale 145,782 148,304 Total investment securities 188,536 195,572 Loans 687,389 613,961 Less, unearned income (3,772) (3,420) Less, allowance for loan losses (8,361) (7,883) Loans, net 675,256 602,655 Premises and equipment, net 16,467 15,693 Other assets 19,300 17,151 TOTAL ASSETS $997,663 $872,398 LIABILITIES & SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing $116,227 $105,018 Interest-bearing transaction accounts 622,420 584,647 Total deposits 738,647 689,665 Federal funds purchased & securities sold under agreements to repurchase 151,840 76,400 Notes payable 23,100 26,750 Other liabilities 5,098 3,764 Total liabilities 918,685 796,579 Shareholders' equity: Common stock-$2.50 par value; authorized 40,000,000 shares; issued and outstanding 7,041,101 shares 17,603 17,603 Surplus 47,666 47,666 Retained earnings 16,967 13,496 Accumulated other comprehensive loss (3,258) (2,946) Total shareholders' equity 78,978 75,819 Total liabilities and shareholders' equity $997,663 $872,398 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
FIRST NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited) (Dollars in thousands) <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> Accumulated Other Common Stock Retained Comprehensive Shares Amount Surplus Earnings Income(Loss) Total BALANCE, DECEMBER 31, 1998 6,899,679 $ 17,249 $ 47,072 $ 8,743 $ 1,261 $ 74,325 Comprehensive income: Net income - - - 4,714 - 4,714 Change in net unrealized gain (loss) on securities available- for-sale, net of tax effects - - - - (2,899) (2,899) Total comprehensive income - - - - - 1,815 Cash dividends declared at $.26 per share - - - (1,516) - (1,516) Common stock issued 106,466 266 347 - - 613 BALANCE, JUNE 30, 1999 7,006,145 $ 17,515 $ 47,419 $ 11,941 (1,638) $ 75,237 BALANCE, DECEMBER 31, 1999 7,041,101 $ 17,603 $ 47,666 $ 13,496 $ (2,946) $ 75,819 Comprehensive income: Net income - - - 5,301 - 5,301 Change in net unrealized gain (loss) on securities available- for-sale, net of tax effects - - - - (312) (312) Total comprehensive income - - - - - 4,989 Cash dividends declared at $.26 per share - - - (1,830) - (1,830) BALANCE, JUNE 30, 2000 7,041,101 $ 17,603 $ 47,666 $ 16,967 $ (3,258) $78,978 </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
FIRST NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands of dollars, except per share data) Three Months Ended Six Months Ended 06-30-00 06-30-99 06-30-00 06-30-99 Interest income: Loans, including fees $15,051 $11,463 $29,098 $22,464 Investment securities: Taxable 2,338 2,873 4,662 5,567 Nontaxable 433 452 904 897 Federal funds sold 1,095 52 1,189 174 Deposits with banks 96 - 110 - Total interest income 19,013 14,840 35,963 29,102 Interest expense: Interest on deposits 6,348 4,848 12,077 9,610 Federal funds purchased & securities sold under agreements to repurchase 2,006 669 2,976 1,358 Notes payable 446 322 876 588 Total interest expense 8,800 5,839 15,929 11,556 Net interest income: Net interest income 10,213 9,001 20,034 17,546 Provision for loan losses 440 397 758 744 Net interest income after provision for loan losses 9,773 8,604 19,276 16,802 Non-interest income: Service charges on deposit accounts 1,950 1,421 3,738 2,801 Other service charges and fees 1,045 1,059 1,845 1,981 Gain on sale of securities available-for-sale - 43 - 245 Other income - 14 - 40 Total non-interest income 2,995 2,537 5,583 5,067 Non-interest expense: Salaries & employee benefits 4,406 4,054 8,922 8,354 Net occupancy expense 446 517 932 1,028 Furniture and equipment expense 862 703 1,707 1,326 Loss on sale of securities available-for-sale 12 - 12 - Other expense 2,930 2,458 5,399 4,464 Total non-interest expense 8,656 7,732 16,972 15,172 Earnings: Income before provision for income taxes 4,112 3,409 7,887 6,697 Provision for income taxes 1,361 918 2,586 1,983 Net Income $2,751 $2,491 $5,301 $4,714 Comprehensive income $2,953 $ 606 $4,989 $1,815 Earnings per share: Basic $ 0.39 $ 0.36 $ 0.75 $ 0.68 Diluted $ 0.39 $ 0.35 $ 0.75 $ 0.67 Cash dividends per common share $ 0.13 $ 0.13 $ 0.26 $ 0.26 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
FIRST NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands of dollars) Six Months Ended 06-30-00 06-30-99 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,301 $ 4,714 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,134 918 Provision for loan losses 476 744 Deferred income taxes 183 - Gain on sale of securities available- for-sale - (202) Gain on sale of premises and equipment - (20) Net amortization of investment securities (9) 152 Net change in: Miscellaneous other assets (2,099) (2,893) Miscellaneous other liabilities 1,333 330 Net cash provided by operating activities 6,319 3,743 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investment securities available-for-sale 17,129 309 Proceeds from maturities of investment securities held-to-maturity 6,633 4,733 Proceeds from maturities of investment securities available-for-sale 5,619 51,039 Purchases of investment securities held-to-maturity (2,181) (5,091) Purchases of investment securities available-for-sale (20,649) (73,399) Net increase in customer loans (73,125) (36,527) Recoveries of loans previously charged off - 91 Purchases of premises and equipment (1,909) (2,239) Proceeds from sale of premises and equipment - 20 Net increase in federal funds sold (62,000) - Net cash used by investing activities (130,483) (61,064)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED... Six Months Ended 06-30-00 06-30-99 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand deposits, NOW accounts, savings accounts and certificates of deposit 48,982 34,558 Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 75,439 18,917 Proceeds from issuance of debt - 20,000 Repayment of debt (3,650) (2,150) Dividends paid (1,830) (1,516) Stock options exercised - 613 Net cash provided by financing activities 118,941 70,422 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (5,223) $ 13,101 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 41,327 35,107 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,104 $ 48,208 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
FIRST NATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All prior period information has been restated to reflect the merger with FirstBancorporation, Inc., which was accounted for as a pooling-of-interests. Operating results for the three and six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The condensed consolidated balance sheet at December 31, 1999, has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The information contained in the consolidated financial statements and accompanying footnotes included in the Corporation's annual report on Form 10-K for the year ended December 31, 1999 should be referenced when reading these unaudited condensed consolidated financial statements. NOTE 2 - Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts. The statement requires that all derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in the fair value of derivatives be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133", which delays the original effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to have a material effect on the Corporation's consolidated financial statements.
NOTE 3 - Earnings Per Share: Basic earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding during each period. Diluted earnings per share is based on the weighted-average shares of common stock outstanding during each period plus the maximum dilutive effect of common stock issuable upon exercise of stock options. The weighted average number of shares and equivalents are determined after giving retroactive effect to stock dividends and stock splits. Weighted-average shares outstanding used in calculating earnings per share for the three and six months ended June 30, 2000 and 1999 are as follows: 3 Months Ended 6 Months Ended 6/30/00 6/30/99 6/30/00 6/30/99 Basic 7,041,101 7,006,145 7,041,101 6,963,437 Diluted 7,071,502 7,084,107 7,076,345 7,042,100 Dividends per share are calculated using the current equivalent number of common shares outstanding at the time of the dividend based on the Corporation's shares outstanding. NOTE 4 - Commitments and Contingent Liabilities: In the normal course of business, the Corporation makes various commitments and incurs certain contingent liabilities, which are not reflected in the accompanying financial statements. The commitments and contingent liabilities include guarantees, commitments to extend credit and standby letters of credit. At June 30, 2000, commitments to extend credit and standby letters of credit totaled $133,615,000. The Corporation does not anticipate any material losses as a result of these transactions.
FIRST NATIONAL CORPORATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion relates to financial statements contained in this report. For further information refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. First National Corporation (the "Corporation") is a bank holding company incorporated under the laws of South Carolina in 1985. The Corporation owns 100% of First National Bank, a national bank which opened for business in 1932, 100% of National Bank of York County, a national bank which opened for business in 1996, 100% of Florence County National Bank, a national bank which opened for business in 1998, and 90% of CreditSouth Financial Services Corporation, an upscale finance company which opened for business in 1998. The Corporation engages in no significant operations other than the ownership of its subsidiaries. Some of the major services which the Corporation provided through its banking subsidiaries include checking, NOW accounts, savings and other time deposits of various types, alternative investment products such as annuities and mutual funds, loans for businesses, agriculture, real estate, personal use, home improvement and automobiles, credit cards, letters of credit, home equity lines of credit, safe deposit boxes, bank money orders, wire transfer services, trust services, discount brokerage services, and use of ATM facilities. The Corporation has no material concentration of deposits from any single customer or group of customers, and no significant portion of its loans is concentrated within a single industry or group of related industries. There are no material seasonal factors that would have a material adverse effect on the Corporation. The Corporation does not have foreign loans. For the second quarter of 2000, First National Corporation ("the Corporation") had consolidated net income of $2,751,000, an increase of 10.6 percent over the $2,491,000 earned in the second quarter of 1999. Diluted earnings per share amounted to $0.39 for the three months ended June 30, 2000, an 11.4 percent increase over the $0.35 per share earned in the second quarter of 1999. Net income for the first six months of 2000 was $5,301,000, an increase of 12.5 percent over the $4,714,000 earned for the same period in 1999. Diluted earnings per share amounted to $0.75 for the six months ended June 30, 2000, an 11.9 percent increase over the $0.67 per share earned in the first six months of 1999. NET INTEREST INCOME For the second quarter of 2000, net interest income was $9,773,000 compared to $8,604,000 for the same period in 1999. This is an increase of $1,169,000 or 13.6 percent. Net interest income for the first six months of 2000 was $19,276,000 compared to $16,802,000 for the same period in 1999. This represents an increase of $2,474,000 or 14.7 percent. This increase resulted from a 29.1 percent increase in loan outstandings, net of unearned income when compared to the first six months of 1999.
Management's Discussion Continued... The yield on a major portion of the Corporation's earning assets adjusts simultaneously but to varying degrees of magnitude, with changes in the general level of interest rates. In the first six months of 1999, the year to date taxable equivalent yield on earning assets was 7.54 percent. During the same period of 2000, the yield increased to 7.86 percent, or an increase of 32 basis points. The cost of the interest-bearing liabilities used to fund most of these earning assets increased 55 basis points from 3.68 percent in 1999 to 4.23 percent in 2000. Interest rates paid on interest-bearing liabilities increased more rapidly than yields on earning assets during the period. For the first six months net interest margins decreased from 4.44 percent in 1999 to 4.27 percent in 2000. The positive impact of interest-free funds for the same period remained constant at .58 percent. The largest category of earning assets is loans. At the end of the second quarter 2000, loans outstanding, less unearned income, were $683,617,000 compared to $610,541,000 at December 31, 1999. This represents an increase of $73,076,000 or 11.9 percent in the six month period. For the second quarter ended June 30, 2000, interest and fees on loans were $15,051,000 compared to $11,463,000 for the comparable period in 1999, an increase of $3,588,000 or 31.3 percent. For the six months ended June 30, 2000, interest and fees on loans were $29,098,000 compared with $22,464,000 for the same period in 1999. This represents an increase of $6,634,000 or 29.5 percent. For the six months ended June 30, 2000, loans averaged $651,215,000 and decreased in yield by 34 basis points to 8.47 percent on a taxable equivalent basis, compared to $541,434,000 with a taxable equivalent yield of 8.81 percent for the full year ended December 31, 1999. Investment securities are the second largest category of earning assets. Investment securities are utilized by the Corporation as a vehicle for the employment of excess funds, to provide liquidity, to fund loan demand or deposit liquidation, and to pledge as collateral for certain deposit and purchased funds. At June 30, 2000, investment securities were $188,536,000 compared to $195,572,000 at December 31, 1999. The investment portfolio remained about the same during this period. For the second quarter ended June 30, 2000, investment and money market income was $3,962,000 compared with $3,377,000 for the comparable period in 1999, a net increase of $585,000 or 17.3 percent. For the six month period ended June 30, 2000, investment income was $6,865,000 compared with $6,638,000 for the same period in 1999, a net increase of $227,000 or 3.4 percent. The increase was attributable to higher second quarter balances of securities purchased under agreement to resell. For the second quarter 2000, securities averaged $188,157,000 and yielded 6.10 percent on a taxable equivalent basis, compared to $226,329,000 with a yield of approximately 5.75 percent for the full year ended December 31, 1999, resulting in a 35 basis point increase in yield.
Management's Discussion Continued... At June 30, 2000, the Corporation had net unrealized losses in the U.S. Treasury and agency portfolio denoted as held-to-maturity, of $29,000 and in the municipal portfolio $867,000. Also at June 30, 2000, the Corporation had a net unrealized loss of approximately $5,171,000 on the $145,782,000 balance of securities denoted as available-for-sale. For the six months ended June 30, 2000, the Corporation had a $12,000 realized loss due to called agency bonds and the sale of investment securities. Although securities classified as available-for-sale may be sold from time to time to meet liquidity or other needs, it is not the normal activity or intent of the Corporation to trade the investment portfolio. Management has the intent and the ability to hold securities on a long-term basis or until maturity. During the first six months of 2000, interest-bearing liabilities averaged $749,262,000 and carried an average rate of 4.23 percent. This compares to an average level of $626,815,000 with a rate of 3.82 percent for the full year ended December 31, 1999, or an increase of 41 basis points. PROVISION FOR LOAN LOSSES The provision for loan losses for the three month period ended June 30, 2000 was $440,000 compared to $397,000 for the same period in 1999 which represents a 10.8 percent increase. For the six month period ended June 30, 2000, the provision for loan loss was $758,000 compared to $744,000 for the same period in 1999 which represents a 1.9 percent increase. The allowance for loan losses was $8,361,000 or 1.22 percent of outstanding loans at June 30, 2000 compared to 1.29 percent of outstanding loans at year-end 1999. To determine the adequacy of the allowance for loan losses, management performs an internal loan analysis which indicates the estimated loan losses. Management feels that the allowance for loan losses is adequately funded. Other real estate owned includes certain real estate acquired as a result of foreclosure. For the period ended June 30, 2000, other real estate owned was $482,000 compared to $227,000 at December 31, 1999. This increase resulted from the foreclosure of real estate properties. Management anticipates that the level of charge-offs for 2000 will be near the levels of 1999. The loan loss allowance is considered adequate by management. However, changes in economic conditions in the Corporation's market area could affect these levels. NONINTEREST INCOME AND EXPENSE Noninterest income for the second quarter of 2000 was $2,995,000 compared to $2,537,000 for the same period in 1999, representing an increase of $458,000 or 18.1 percent. For the first six months of 2000 noninterest income was $5,583,000 compared to $5,067,000 for the same period in 1999, representing an increase of $516,000 or 10.2 percent. This increase is primarily attributed to deposit account service charges and other service charges, fees and commissions. It is also noted that the second quarter for 1999 included $202,000 gains on sale of securities as compared to a $12,000 loss in the quarter ending June 30, 2000.
Management's Discussion Continued... Noninterest expense for the second quarter of 2000 was $8,656,000 compared to $7,732,000 for the same period in 1999, representing an increase of $924,000 or 12.0 percent. For the six months ended June 30, 2000, non-interest expense was $16,972,000 compared to $15,172,000 in 1999, an increase of $1,800,000 or 11.9 percent. Salaries and employee benefits for the second quarter ended June 30, 2000 increased $352,000 or 8.7 percent compared to the same period in 1999. For the first six months of 2000 salaries and employee benefits increased $568,000 or 6.8 percent compared to the same period in 1999. Occupancy expense along with furniture and equipment expense increased $88,000 or 7.2 percent for the second quarter of 2000 compared to the same period in 1999. For the six months ended June 30, 2000 occupancy together with furniture and equipment expense increased $285,000 or 12.1 percent compared to the same period in 1999. These increases can be largely attributed to an increase in both building and furniture and equipment depreciation expense, maintenance and repairs on buildings as well as an increase in equipment rental/lease expense. Rental/lease expense increases resulted from the investment in a new computer system for First National Corporation. Other expenses were $472,000 or 19.2 percent higher in the second quarter of 2000 compared to the same period in 1999. For the six months ended June 30, 2000, other expenses increased $935,000 or 20.9 percent compared to the same period in 1999. This increase in other expenses is distributed among the following expense categories: advertising, insurance, office and printing supplies, postage, telephone and line charges, and other expenses. NET INCOME Net income was up 10.4 percent for the second quarter of 2000 when compared to the same period in 1999. For the six months ended June 30, 2000, net income was up 12.5 percent compared to the same period in 1999. The $2,474,000 or 14.7 percent increase in net interest income and the $516,000 or 10.2 percent increase in noninterest income for the six months ended June 30, 2000 as compared to the same period in 1999 were the primary factors in the growth in net income. CAPITAL RESOURCES AND LIQUIDITY To date, the capital needs of the Corporation have been met through the retention of earnings less cash dividends. At the end of the second quarter, 2000, stockholder's equity was $78,978,000 compared to $75,819,000 at December 31, 1999. The Corporation and subsidiaries are subject to certain risk-based capital guidelines. These ratios measure the relationship of capital to a combination of balance sheet and off balance sheet risks. The values of both balance sheet and off balance sheet items will be adjusted to reflect credit risk. Under the guidelines of the Board of Governors of the Federal Reserve System, which are substantially similar to the Office of the Comptroller of the Currency guidelines, as of December 31, 1995, Tier 1 capital must be at least 4 percent of risk-weighted assets, while total capital must be 8 percent of risk-weighted assets. The Tier 1 capital ratio at June 30, 2000 was 12.21 percent compared to 12.70 percent at December 31, 1999. The total capital ratio was 13.46 percent at June 30, 2000 compared to 13.95 percent at December 31, 1999.
Management's Discussion Continued... In conjunction with the risk-based capital ratio, applicable regulatory agencies have also prescribed a leverage capital ratio in evaluating capital strength and adequacy. The minimum leverage ratio required for banks is between 3 percent and 5 percent, depending on the institution's composite rating as determined by its regulators. At June 30, 2000, First National Corporation's leverage ratio was 7.91 percent, compared to 8.64 percent at December 31, 1999. First National Corporation's ratios exceed the minimum standards by substantial margins. Liquidity is the ability of the Corporation to meet its cash flow requirements which arise primarily from withdrawal of deposits, extension of credit and payment of operating expenses. Asset liquidity is maintained by the maturity structure of loans, investment securities and other short-term investments. Management has policies and procedures governing the length of time to maturity on loans and investments. Normally changes in the earning asset mix are of a longer term nature and are not utilized for day-to-day Corporation liquidity needs. The Corporation's liabilities provide liquidity on a day-to-day basis. Daily liquidity needs are met from deposit levels or from the Corporation's use of federal funds purchased and securities sold under agreement to repurchase. Additional liquidity can be secured from lines of credit extended to the Corporation from its correspondent banks and other sources such as the Federal Home Loan Bank. Management feels that its liquidity position is adequate.
PART II - OTHER INFORMATION Item l. Legal Proceedings: Neither First National Corporation nor its subsidiaries are a party to nor is any of their property the subject of any material or other pending legal proceedings, other than ordinary routine proceedings incidental to their business. Item 2. Changes in Securities: Not Applicable Item 3. Defaults Upon Senior Securities: Not Applicable Item 4. Submission of Matters to a Vote of Security Holders: Not Applicable Item 5. Other Information: Not Applicable Item 6. Exhibits and Reports of Form 8-K (A) Exhibit 27 - Financial Data Schedule (B) Reports on Form 8-K: None
Pursuant to the requirements 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 Date: August 14, 2000 C. JOHN HIPP, III PRESIDENT & CHIEF EXECUTIVE OFFICER Date: August 14, 2000 RICHARD C. MATHIS EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
EXHIBIT INDEX EXHIBIT NO. DESCRIPTION OF EXHIBIT 27 Financial Data Schedule Attached