First National Corporation · NASDAQ:FXNC
First National — Shareholder Meeting (May 2015)
50 slides from First National's shareholder meeting presentation, May 12, 2015
Slide 1: Annual Meeting of Shareholders
First D National Corporation Annual Meeting of Shareholders May 12, 2015 Scott C. Harvard President and CEO
Slide 2: Company Objectives
Company Objectives Improve asset quality and risk profile Sustainable historical earnings Consistent and sustainable cash dividend Build risk management for $1 billion asset bank Strong enough to be opportunistic, measured enough to say no First ® National Corporation
Slide 3: Performance 2014
Performance 2014 Second year of strong financial performance Second year of excellent stock performance Reinstated quarterly cash dividends First full year (four consecutive quarters) of loan growth since the Recession Continued improvement in asset quality Improved risk profile - strong balance she
Slide 4: First Bank #15 - Banks $500 million to $1 Billion in Assets
First Bank #15 Banks $500 million to $1 Billion in Assets ROA Subchapter C Banks — Rank Community Bank Live ak Banking > Cees Bak Mati City Bank Howacd ask Independence Bank Heritage Bank of Nevads ‘iota ak ist Bank Wier Sint Bank First WatroBank Fat Baak a TRE ova State Bank Citizens State Bank Sou
Slide 5: Stock Price Change (%) Year
Stock Price Change (%) 1 Year 3'¢ Highest Return Among Virginia Banks First National Corporation - Price Change (%) irstt ov anc First National Corporation
Slide 6: Stock Price Change (%) Year
Stock Price Change (%) 2 Year tion - Price Change (%)
Slide 7: Stock Price Change (%) July 2012-Today
Stock Price Change (%) July 2012-Today Date of stock offering First National Corporation - Price Change (%)
Slide 8: Financial Overview
Financial Overview Shane Bell Executive Vice President Chief Financial Officer First ® National Corporation
Slide 9: Net Income
Net Income $ + T T T T A 2 2012 2013 2014 $(5.0) $(10.0) - $(15.0) - irstt — First National Corporation
Slide 10: Earnings per Common Share
Earnings per Common Share = $(1.00) - $(2.00) - $(3.00) + $(4.00) }~ $(5.00) - 2012 2013 2014 First D National Corporation
Slide 11: Asset Quality
Asset Quality Nonperforming assets (1) Classified assets (2)
Slide 12: Allowance for Loan Losses
Allowance for Loan Losses $16.0 + $14.0 $12.0 + | $10.0 $8.0 ~ $6.7 $6.0 + $4.0 |} $2.0 | 5 | ; d df 2010 2011 2012 2013 2014 irstD (in millions) First b National Corporation
Slide 13: Liquidity
Liquidity Liquidity Ratio y Wy) 30.0% + a 25.0% oes 0% ia 19.99 20.0% ~ 15.0% ~ 1189 10.0% + 5.0% + 0.0% + 2010 2011 2012 2013 2014 irstt Source: SNL Financial First (S in millions) (unaudited) National Corporation
Slide 14: Capital
Capital Total Risk Based Capital Ratio “19.94 2010 2011 2012 2013 2014 First ® National Corporation
Slide 15: Sensitivity to Market Rates
Sensitivity to Market Rates % US. Treasury Curve 4.50 4.00 3.50 3.00 2.50 12/31/2014 2.00 12/31/2013 1.50 1.00 0.50 imo 3mo 6mo lyr 2yr 3yr Syr Tyr 10yr 20 yr 30yr irstt Source: U.S, Department ofthe Treasury First National Corporation
Slide 16: Sensitivity to Market Rates
Sensitivity to Market Rates Treasury curve shifted downward in 2014 Fed funds rate remained at 0.00% to 0.25% Net interest income increased Fed continues to forecast rising rates Management considers current economic environment Strive to manage the balance sheet to low sensitivity to achieve consis
Slide 17: Total Revenue
Total Revenue $26.1 = Noninterest Income = Net Interest Income (in millions) 2010 2011 2012 2013 2014 First D National Corporation
Slide 18: Net Interest Margin
Net Interest Margin % 4.20 4.10 4.00 3.90 3.80 3.70 3.60 3.50 3.40 3.30 2010 2011 2012 2013 2014 —All U.S. Banks and Savings Institutions —FXNC irstt Source SNL Financial First National Corporation
Slide 19: Loans
Loans van) 440.0 + | 420.0 -— 400.0 be S $3 380.0 -~ $357.4 360.0 - 340.0 5 320.0 5 300.0 + T r . . 2010 2011 2012 2013 2014 irstO (gross loans, including loans held for sale) (in millions) First National Corporation
Slide 20: Total Revenue
fF FA HF FF FF BB N So & S&S fF oS © so & 1 f \ \ wy ca ° 4 Total Revenue $26.1 = Noninterest Income @ Net Interest Income (in millions) 2010 2011 2012 2013 2014 First D National Corporation
Slide 21: Non-Interest Income
Non-Interest Income Wealth Management Division $2,000 +~ $1,800 $ a $ $1,600 + $1, $: $1,400 + $ $1,200 + _ $1,000 + $800 + _ $600 + $400 + $200 + A $ 2010 2011 2012 2013 2014 irstt (in thousands) First b National Corporation
Slide 22: Noninterest Expense
Noninterest Expense | $ $20.0 + 4 ? r 5 $15.0 | $10.0 +} $5.0 + 2010 2011 2012 2013 2014 irstO (in millions) First b National Corporation
Slide 23: Provision for Loan Losses
Provision for Loan Losses $14.0 $12.0 4 $10.0 +— $8.0 + $6.0 + $4.0 $2.0 - g + — 2 $(2.0) - 2010 20112012 2013 2 $(4.0) + $(3-9) irstO (in millions) First’ National Corporation
Slide 24: Q1 2015 Financial Highlights
Q1 2015 Financial Highlights * Loans increased by $20.1 million during the quarter, largest increase in five years. * Net interest income increased by 5% to $4.6 million * Net interest margin increased to 3.96% ¢ Nonperforming assets decreased by 38% ¢ Return on average assets was 0.43% * Book value
Slide 25: Branch Acquisition
Branch Acquisition (unaudited) Pro forma Leverage Ratio(1) Pro forma Total Assets(2)* SActual m Proforma $800,000 $717,351 16.00% $700,000 5 13.66% 14.00% peonton 12.00% $529,518 ‘000% 0.01% 9.65% $500,000 8.00% $400,000 6.00% $300,000 4.00% $200,000 2.00% $100,000 0.00% r 1 Tier 1 Leverage Tier 1 L
Slide 26: Operations Overview
Operations Overview Dennis Dysart Sr. Executive Vice President Chief Operating Officer First ® National Corporation
Slide 27: Loan Portfolio
Loan Portfolio Loan growth of $21.3 million — 5 consecutive quarters of growth Average yield decreased by 14 bps to 4.89%, versus a prior year decrease of 42 bps Loan mix shifted away from higher risk assets — Fewer land acquisition and development loans — Fewer non-owner occupied CRE loans — More l
Slide 28: 5-year Comparison
5-year Comparison Loan Mix December 31, 2009 December 31, 2014 "Land Development SRRE @CRE =C&l m Consumer & Other Land Development SRRE @CRE = C&l m Consumer & Other First D National Corporation
Slide 29: Deposit Portfolio
Deposit Portfolio * Core deposit growth of $15.6 million, excluding a $22 million strategic reduction in the time deposit (CD) portfolio ¢ Average cost of funds, including bank borrowings, decreased by 18 bps to 0.38% ¢ Deposit mix continues to improve as loan officers secure full relationships incl
Slide 30: 5-Year Comparison
5-Year Comparison Deposit Mix December 31, 2009 December 31, 2014 “Noninterest SSavingsandIB ™& Time | Noninterest MSavingsandIB ™®Time First D National Corporation
Slide 31: Noninterest Income
Noninterest Income Primary drivers include the following: — Service charges on deposit accounts — ATM and check card fees — Wealth management fees Noninterest income totaled $7.4 million in 2014 versus $5.6 million in 2009 (increase of $1.9 million or 33%) Noninterest income now represents 29% of to
Slide 32: Wealth Management
Wealth Management $350 = $313 million $300 $250 41% $200 $150 I%. $100 z $50 $0 + + + - j 2010 2011 2012 2013 2014 mu Trust Assets m First Financial Advisors irstt so ions First National Corporation
Slide 33: First Mortgage
First Mortgage ¢ Production is trailing the original forecast — Average loan was $162,876, or 96% of the forecast — The number of loans closed in 2014 only represented 52% of the forecast ¢ Improvement initiatives in 2015 — Branch integration, MLOs being placed in retail offices to expand presence a
Slide 34: Branch Acquisition
Branch Acquisition ¢ Purchased six (6) branches from Bank of America which closed 4/17/15 * Low deposit premium of 2.25% First ® National Corporation
Slide 35: Historical Deposit Premiums
Historical Deposit Premiums Nationwide Median Tangible Book Premium-to-Branch Deposits - > Source: Hovde Financial First : National Corporation
Slide 36: Branch Acquisition
Branch Acquisition ¢ Six bank branch offices purchased for $2.3 million, including equipment ¢ Acquisition value: — Low-cost core deposits for future loan growth — Increased scale and efficiencies — Synergies for the First Mortgage Division — Expand the franchise southward along the I-81 corridor an
Slide 37: Service Map
Service Map Branch Locations @ Branches & ATMs We New Location @ First Mortgage Location
Slide 38: 2015 Operating Priorities
2015 Operating Priorities Full integration of the recent branch acquisition Retention and expansion of the new relationships Deployment of new deposits into loan assets in the legacy market and the expanded footprint under the leadership of a Regional President and 2 Market Executives Growth in noni
Slide 39: Scott Harvard, President and CEO
Scott Harvard President and CEO First ® National Corporation
Slide 40: Overview
Overview Historical earnings Branch acquisition impact 2015 Takeaways from the recent transaction Bank consolidation trend First Bank today First ® National Corporation
Slide 41: Net Income (Loss)
Net Income (Loss) $12.0 $8.0 $4.0 — $ $(4.0) $(8.0) $(12.0) . d Firstt National Corporation (in millions)
Slide 42: Acquisition Impact 2015
Acquisition Impact 2015 35% increase in assets and 43% increase in deposits* Increase in expenses — One time deal costs Q1 and Q2 — New staff in acquired branches — New operational support staff Pace of deployment into loans will have an impact on margin and profitability ROA will be impacted by the
Slide 43: Acquisition Takeaways
Acquisition Takeaways Team can execute a meaningful acquisition in size and complexity Strong talent deep into the First Bank team Systems proved scalable — High tech products with Shenandoah Valley service First Bank brand/culture is transportable Acquisition playbook has been developed for future
Slide 44: Bank Consolidation
Bank Consolidation U.S. Banks have declined from 12,602 in 1994 to 6,509 in 2014 Bank failures and dearth of new banks Mergers/acquisitions Regulatory burden Slack economy Board and management fatigue First ® National Corporation
Slide 45: Industry Consolidation - US
Industry Consolidation - US Banks continue consolidation © # of banks and savings institutions First® Source: Virginia Bankers Association | National Corporation
Slide 46: Industry Consolidation - VA
Industry Consolidation - VA Banks continue consolidation 200 > 1g0 178 160 140 4 120 4 100 +i aan gan 22 ATTA 60 + -, i i L. . : ! 49 08% 09" 499 09% 9 p90? 490% ao° 9 qo 40%? 49" irct 1 First© Source: Virginia Bankers Associat tion National Corporation i=} f=} f=}
Slide 47: VA Banks by Size
VA Banks by Size 40 37 25 23. 16 15 15 10 6 ; 0 i >$5B $1Bto$5B $500Mto $250M to < $250M $1B $500M irct 1 First© jource: SNL Financial National Corporation
Slide 48: First Bank Today
First Bank Today Over $700 million assets Strong capital position Significant balance sheet to integrate Opportunities for profitability in legacy and new markets Much improved risk profile 18 offices from Winchester to Farmville Strong enough to be opportunistic, measured enough to say “no” First ®
Slide 49: Questions?
Questions? First ® National Corporation
Slide 50: Annual Meeting of Shareholders
First D National Corporation Annual Meeting of Shareholders May 12, 2015