First National Corporation · NASDAQ:FXNC
First National — Shareholder Meeting (May 2016)
49 slides from First National's shareholder meeting presentation, May 10, 2016
Slide 1: Annual Meeting of Shareholders
Annual Meeting of Shareholders May 10, 2016 First? National Corporation
Slide 2: Forward-looking statements
Forward-looking statements The Company makes forward-looking statements that are subject to risks and uncertainties. These forward-looking statements include statements regarding profitability, liquidity, adequacy of capital, the allowance for loan losses, interest rate sensitivity, market risk, gro
Slide 3: Operating philosophy
Operating philosophy Banking is a people business “Large enough to deliver, small enough to care” D
Slide 4: Business lines
Business lines First Bank Business Personal Wealth | Banking Banking | Meng od Management | Founded | 1907 | [Retail bankingoffices | 16 Total assets $701MM Trust assets | $179MM D
Slide 5: Strategic vision
Strategic vision * Build a profitable banking company across markets where community engagement and relationship focus are valued * Core funding is the building block for valuable banking franchise * Relationships drive margin preservation and profitability * Adapting to changing customer behaviors
Slide 6: Experienced team
Experienced team Industry Executive Role Experience Years in Market Scott Harvard President & CEO 31 years 5 years Dennis Dysart Sr. EVP, COO 23 years 23 years Shane Bell EVP, CFO 22 years 14 years Samuel Crow, Jr. EVP, CCO 25 years 2 years Butch Smiley Regional President 34 years 34 years D
Slide 7: 2015 highlights
2015 highlights * Completed six branch acquisition, $186 million deposits + Retained 94% of acquired deposits post closing « Added Regional President and loan team * Assets increased from $518 million to $692 million * Loan growth of $61 million to $439 million * 32% of acquired deposits deployed in
Slide 8: Branch footprint map
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Slide 9: Post-acquisition
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Slide 10: The Acquisition
The Acquisition Successful execution + Pre-closing runoff was surprising + From $308 million to $186 million * Pricing adjusted for runoff + Pricing remained favorable, included gain on real estate + Financial impact exceeded expectations + TBV per share dilution recovery in one year + Post closing
Slide 11: Stock price Year = 3.47%
Stock price 1 Year = 3.47% $10.00 $9.50 $9.00 $8.95 $8.50 $8.00 Source: SNL Financial. Stock price from 1/1/15 to 12/31/15 iD
Slide 12: 2016 first quarter highlights
2016 first quarter highlights ¢ Net loans increased $15.1 million ¢ Net income available to common shareholders increased 35% to $1.1 million, compared to the fourth quarter of 2015 ¢ Net interest margin increased to 3.63%, compared to 3.53% for the fourth quarter of 2015 * Noninterest expense decre
Slide 13: Stock price YTD = 6.15%
Stock price YTD = 6.15% $9.50 $2.50 $9.30 | $9.10 | $8.90 | $8.70 - Source: SNL Financial. Stock price from 1/1/16 to 5/9/16 iD
Slide 14: Balance sheet (condensed)
Balance sheet (condensed) 42/31/2015 42/31/2014 ASSETS Cash and deposits in banks $ 39,334 $24,845 Securities 173,469 84,658 Loans, net 433,798 372,020 Other 45,720 36,642 Total assets $692,321 $ 518,165 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits $ 627,116 $ 444,338 Subordinated debt 4,913 7 Juni
Slide 15: Lower cost of capital
Lower cost of capital Total risk-based capital ratio e Redeemed $ 14.6 20.0% million preferred 46°09 stock A508 * Issued $5.0 million subordinated debt 8.0% si2 * Over $1.0 million 4.0% savings annually 0.0% 1 1 3Q15 4Q15 Common Equity Tier 1m Tier 2 = Subordinated debt Preferred stock 4)
Slide 16: Assets Deposits
Assets Deposits 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 q (in millions)
Slide 17: Profitability
Profitability Return on assets 0.50% 0.40% 0.30% 0.20% 85.0% + 80.0% 75.0% 70.0% 65.0% 60.0% 0. 0.42% 1015 2015 3015 4015 4016. Efficiency ratio / 835% 9 —— 1015 2015 3015 4015 1016 Return on equity _ _ 10.00% 1 4 = =r =r 1015 2015 3015 4015 1016 Net interest margin 4.00% 388% 3.75% Y 1015 2015 3Q15
Slide 18: Revenue growth
Revenue growth $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 1Q15 2Q15 3Q15 4Q15 1016 Net interest income Non-interest income (in millions) q
Slide 19: Expense management
Expense management $7.0 4 $6.5 5 $6.1 $6.0 + $5.5 5 $5.0 + $4.5 5 $4.0 4 1Q15 2Q15 3Q15 4Q15 1Q16 m1Q15 m2Q15 3Q15 B4Q15 #1Q16 (in millions) q
Slide 20: Earnings per share
Earnings per share (basic and diluted) $0.25 4 $0.22 $0.20 ~ $0.15 ~ $0.10 ~ $0.05 ~ S- 1Q15 2Q15 3Q15 4Q15 1Q16 4)
Slide 21: Overview
Overview * Gained invaluable retail, marketing and operations experience for future acquisition opportunities « Retain the acquired and legacy low-cost deposit portfolio ¢ Maintain a well-structured, diversified loan portfolio ¢ Operate in vibrant markets that afford loan, deposit and wealth managem
Slide 22: Deposit mix
Deposit mix 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Non-interest bearing MMDA & Time Savings =FXNC U.S Peer Source: SNL Financial, peer banks with assets §500M - §16N 26% 20% Jumbo Time D
Slide 23: Loan mix
Loan mix 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% al. Co nstruction & Land Dev 1-4 Family CRE& Multifamily mFXNC U.S Peer Source: SNL Financial, peer banks with assets §500M - §16N D
Slide 24: Asset Quality
Asset Quality Nonperforming assets (1) Classified assets 4.0% $70 3.5% $60 9 3.0% $50 2.5% $40 2.0% 30 1.5% 8 $20 1.0% 09% $17 0.5% $10 0.0% - $0 1 2011 2012 2013 2014 2015 2011 2012 2013 2014 201 (1) Expressed as a percentage of total assets and comprised of non- accrual loans and other real estate
Slide 25: Efficiency drivers
Efficiency drivers ° Increase revenue * Continue the deployment of acquired, low-cost deposits into loans * Increase non-interest income, including wealth management and mortgage income, as well as deposit and loan fees ¢ Lower operating expenses * Streamline processes and delivery * Build alternati
Slide 26: Increase revenue
Increase revenue * Experienced, engaged sales team booked $61 million in net loan growth during 2015 * Legacy market produced approximately $38 million ¢ S. Region produced approximately $23 million, primarily in Harrisonburg (Rockingham County), Staunton and Waynesboro (Augusta County) ¢ Vibrant ma
Slide 27: Footprint
Footprint
Slide 28: Winchester, VA MSA
Winchester, VA MSA Major Employers Include: Valley Health System Navy Federal Credit Union U.S. Department of Defense Shenandoah University U.S. Department of Homeland Defense Wal Mart Rubbermaid Commercial Prod LLC vvvvvvv Other Information: Current unemployment rate of 3.9% AARP Top 10 for best pl
Slide 29: Harrisonburg, VA MSA
Harrisonburg, VA MSA Major Employers Include: James Madison University Sentara Healthcare Cargill Meat Solutions Wal Mart R.R. Donnelley and Sons Company Great Eastern Resort Management vvvwv vv Pilgrims Pride Corp Other Information: > Current unemploymentrate of 4.3% v Majority of out-commuters to
Slide 30: Staunton-Waynesboro, VA MSA
Staunton-Waynesboro, VA MSA Major Employers Include: > Augusta Medical Center >» McKee Foods Corporation » Hershey Chocolate of Virginia > Target Corp > Hollister, Inc. > Blue Ridge Community College > AAF McQuay, Inc. Other Information: > Current unemploymentrate of 4.3% > Majority of out-commuters
Slide 31: Asset mix
Asset mix $800,000 + $700,000 + $600,000 $500,000 + $400,000 $300,000 + $200,000 $100,000 $0 1Q15 2Q15 3Q15 4Q15 1Q16 Loans, gross mSecurities & Intbearing deposits mOther (in thousands)
Slide 32: Net interest margin
Net interest margin 4.00% 3.90% 3.80% 3.70% 3.60% 3.50% 3.40% 3.30% a 3.20% T | T T T 1 1Q15 2Q15 3Q15 4Q15 1Q16 maFXNC —U.S. Peers Source: SNL Financial, U.S. banks with assets $500M- $1BN. D 3.63%
Slide 33: Lower operating expenses
Lower operating expenses ¢ Streamline processes and delivery ¢ De-centralization & automation of deposit services * Bill pay self enrollment « Automated mobile deposit enrollment « Instant issue debit cards ¢ Expanded debit card activation options (ATM, phone and mobile) « Image enabled ATMs for dep
Slide 34: Lower operating expenses
Lower operating expenses ¢ Alternative acquisition and delivery channels ¢ Customer preferences are changing « Electronic transactions ¢ Online account opening and funding ¢ Non-traditional service hours via technological delivery ¢ Presents an opportunity to meet customer expectations and lower cos
Slide 35: Industry trends
Industry trends Trends in noncash payments 2000-2012, by number and type of transaction Billions 50 Debit card 40 FF ~~ 30 L Credit card Se — ACH 20 Tus Checks (paid) 10 Prepaid card 0 i i L L 1 2000 2006 2012 Source: 2013 Federal Reserve Payment Study
Slide 36: Bank trends
Bank trends 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 7,619,244 5,755,979 2011 2012 2013 2014 2015 Check Electronic Operational —Branch
Slide 37: Lower operating expenses
Lower operating expenses e Reduce personnel expenses * Comprise 54% of non-interest expenses « Optimize staffing levels in response to changing customer preferences and efficiency enhancements 499 193 200 187 479- 180 160 154 140 120 ] 100 1 1Q15 2Q15 3Q15 4Q15 1Q16
Slide 38: Opportunity in efficiency
Opportunity in efficiency 77.3% x | 70.6% 714% 67.5% ae ea | 4 50.0% ‘ J First National VA Peers US Peers Top Performers * Corp = First National Corp =VAPeers =US Peers = Top Performers * Source: SNL Financial, peer banks with assets $500M- $1BN q *The top 20 Price / Tangible Book Value
Slide 39: Opportunity in efficiency
Opportunity in efficiency 77.3% x | 70.6% 714% 67.5% ae ea | 4 50.0% ‘ J First National VA Peers US Peers Top Performers * Corp = First National Corp =VAPeers =US Peers = Top Performers * Source: SNL Financial, peer banks with assets $500M- $1BN q *The top 20 Price / Tangible Book Value
Slide 40: Efficiency ratio
Efficiency ratio 83.5% 83.0% 80.0% 77.0% 9 74.0% 71.4% 71.0% 68.0% 65.0% T T T T T 1 1Q15 2Q15 3Q15 4Q15 1Q16 U.S Peer 1Q16 Source: SNL Financial, peer banks with assets $500M- $1BN iD
Slide 41: Operating summary
Operating summary ¢ Increase revenue by re-mixing the balance sheet into loans and improving non-interest income ¢ Decrease operating expenses via streamlined processes, alternative delivery, fewer branches and reduced personnel costs ¢ Improve the efficiency ratio to drive EPS and currency value to
Slide 42: Closing remarks
Closing remarks Scott C. Harvard, President/CEO
Slide 43: Strategic Focus
Strategic Focus ¢ Strategic actions intentional and effective ¢ From clean up to stabilization to opportunistic * Continue achievement of strong positive trends in financial performance metrics ¢ Risk management discipline and asset quality * Focused on drivers of value * Efficiency ratio: revenue a
Slide 44: Driver of value
Driver of value Price / tangible book value by efficiency ratio 250% 192% 200% 150% 100% Price / TBV 50% 0% > 100% 90%to 100% 80%to 90% 7O%to 80% 60%to 70% 50% to 60% < 50% Efficiency Ratio Source: SNL Financial. Banks with assets less than $50 billion
Slide 45: Driver of value
Driver of value Price / tangible book value by total assets 200% 185% 150% 100% Price / TBV 50% 0% <$500MM $500MM - $1BN $1BN - $5BN $5BN - $10BN Total assets Source: SNL Financial. Banks with assets less than $50 billion
Slide 46: Stock price since rights offering +146.8%
Stock p rice Since rights offering = +146.8% $10.00 $9.50 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 ; $3.00 $2.00 6/29/2012 6/29/2013 6/29/2014 6/29/2015 4) Source: SNL Financial. Stock price from 7/1/2012to 5/9/2016 \
Slide 47: Value proposition
Value proposition Demonstrated Track Record of Plan Execution + Completed effective turnaround + Seized acquisition opportunity at favorable pricing + Tangible Book Value recovery in one year + Record of making tough decisions to improve shareholder value Strong Trends in Key Value Drivers + Efficie
Slide 48: Stock profile: FXNC
Stock profile: FXNC 52 Week Range $7.92 to $9.95 Shares Outstanding 4,924,539 | Market Capitalization $46.8 million Average Daily Volume 1,265 Price/Book 98.1% | Price/Tangible Book 102.6% Source: SNL Financial iD
Slide 49: Operating philosophy
Operating philosophy Banking is a people business “Large enough to deliver, small enough to care” D