Part 1: Performance Analysis
First National Bank's primary source of revenue is net interest income. In FY2021, the net interest income increased by $3.3 million, or 3.7%, compared to the previous year. The increase was driven by an increase in average earning assets and a slight increase in the net interest margin. Additionally, non-interest income increased by $1.1 million, or 10%, compared to the previous year due to increases in debit card interchange fees, deposit service charges, and fees earned from First National Wealth Management.
However, the bank's net income decreased by $3.3 million, or 18.6%, compared to the previous year due to an increase in the provision for loan losses. The bank recognized $3.6 million in provision for loan losses in FY2021 compared to $0.6 million in the previous year. This increase in provision was due to the impact of the COVID-19 pandemic on the bank's loan portfolio that resulted in higher levels of delinquencies and nonperforming loans.
On the other hand, the bank's total assets increased by $142.7 million, or 7.1%, compared to the previous year, driven by an increase in loans, deposits, and securities. The bank's loan portfolio increased by $92.7 million, or 8.1%, in FY2021, driven primarily by an increase in commercial real estate loans. Deposits increased by $77.7 million, or 6.3%, and securities increased by $31.4 million, or 26%.
Part 2: Forward-Looking Analysis
Management states that the COVID-19 pandemic has created an uncertain economic environment that may continue to impact the bank's operations, financial results, and overall performance in the future. The bank continues to monitor and assess the impact of the pandemic and other macro-economic factors on its loan portfolio, deposit base, and investment portfolio.
The bank believes that it has modest exposure to changes in interest rates as it has implemented an effective interest rate risk management strategy that minimizes the risk of increased interest rates. Additionally, the bank is well-positioned in its market and has a competitive advantage due to its strong community relationships and personalized customer service.
Management is optimistic about the bank's future growth and profitability, and plans to continue its efforts to expand its commercial loan portfolio, enhance its digital banking capabilities and grow its wealth management business. However, there are risks and uncertainties that could impact the bank's future performance, including changes in economic conditions, changes in interest rates, increased competition, and changes in legislation or regulation. As such, investors are advised to exercise caution and undertake thorough due diligence before making investment decisions.