"After a slow start to the first quarter, loan production picked up in March and lifted loan balances for the quarter. Deposit flows were also strong in the quarter with an eight percent annualized growth rate. We were excited to see our recently hired bankers teaming up with our legacy bankers to produce solid success on both sides of the balance sheet. With fewer days, the first quarter is typically the most challenging of the year for profitability, yet we were pleased to exceed our budgeted metrics for earnings, deposits, loans, and asset quality. We expect that the loan production late in the quarter will reap benefits going forward and we will begin the year with good momentum." said Scott C. Harvard, President and Chief Executive Officer of First National.
FINANCIAL HIGHLIGHTS FOR FIRST QUARTER 2026
●
Diluted earnings per share of $0.54 per share, compared to $0.18 one year prior, and $0.61 in the previous quarter
●
Adjusted diluted earnings per share(1) of $0.54 per share, compared to $0.35 one year prior adjusted for merger expenses
●
Return on average assets of 0.98% compared to 0.32% one year prior, and 1.06% in the previous quarter
●
Return on average equity of 10.51% compared to 3.85% one year prior, and 11.86% in the previous quarter
●
Tax equivalent(1) net interest margin of 3.99%, up from 3.77% one year prior, and 3.95% in the previous quarter
●
Asset quality improved with non-performing assets declining to 0.21% of total assets
●
Net loan growth of $14.7 million for the quarter, a 4.0% annualized growth rate
●
Deposit growth of $37.7 million, an 8.4% annualized growth rate, in lower cost demand deposits and interest-bearing checking, money market, and savings accounts. Time deposits declined slightly during the quarter
●
Noninterest bearing deposits of $524.3 million, or 29% of deposits, contributed to our low funding cost
NET INTEREST INCOME
For the first quarter of 2026, the Company's net interest margin fully tax equivalent ("FTE")(1) was 3.99%, compared to 3.95% for the fourth quarter of 2025 and 3.77% in the first quarter of 2025. The Company's net interest margin (FTE)(1) for the first quarter of 2026 includes the impact of acquisition accounting fair value adjustments. Net accretion income related to acquisition accounting was $211 thousand, a 4-basis point incremental increase to the net interest margin for the first quarter ended March 31, 2026. Prior period acquisition accounting resulted in net accretion income of $201 thousand, or a 5-basis point incremental increase to the net interest margin for the quarter ended December 31, 2025, and net amortization expense of $36 thousand, or a one basis point incremental decrease to the net interest margin for the first quarter ended March 31, 2025.
Earning asset yields for the first quarter of 2026 decreased 4-basis points to 5.20% compared to the fourth quarter of 2025. For the first quarter of 2026, net interest income was $18.8 million, a decrease of $276 thousand from $19.0 million in the fourth quarter of 2025 due to a decrease in average interest-earning assets. Loan growth occurred late in the first quarter of 2026 and was negative in the first two months of the quarter, limiting interest income growth for the quarter.
The quarterly impact of acquisition accretion and amortization is reflected in the following table (dollars in thousands):
For the quarter ended:
Mar 31, 2026
Dec 31, 2025
Mar 31, 2025
Loans
$
294
$
283
$
(194
)
Deposits
(10
)
(10
)
443
Borrowings
(73
)
(72
)
(285
)
$
211
$
201
$
(36
)
ALLOWANCE AND PROVISION FOR CREDIT LOSSES
The Company recorded a $450 thousand provision for credit losses in the first quarter of 2026, compared to $951 thousand for the fourth quarter of 2025. The first quarter provision was comprised of a $521 thousand provision for credit losses on loans, a $56 thousand reduction in provision for credit losses on unfunded commitments, and a $15 thousand reduction in the credit losses on securities. Net charge-offs totaled $542 thousand in the first quarter of 2026, compared to net charge-offs of $651 thousand in the fourth quarter of 2025 and net charge-offs of $2.4 million in the first quarter of 2025.
The allowance for credit losses on loans totaled $14.7 million, or 1.00% of total loans on March 31, 2026, compared to $14.7 million, or 1.02% of total loans on December 31, 2025, and $14.7 million, or 1.02% of total loans on March 31, 2025. The decrease in allowance for credit losses to total loans from the prior period is primarily driven by lower individually analyzed loans balances following charge-offs recorded during the quarter. The allowance for credit losses to non-performing assets coverage increased to 331% on March 31, 2026, compared to 316% on December 31, 2025, and 303% on March 31, 2025.
NONINTEREST INCOME AND EXPENSE
Noninterest income decreased $1.2 million to $3.8 million for the first quarter of 2026 from $5.0 million in the prior quarter. This decrease was primarily due to a one-time recovery, recognized in the prior period, of $895 thousand related to an acquired loan that was charged off prior to the acquisition of Touchstone Bank. The decrease in noninterest income includes additional decreases in income from bank owned life insurance, decreases in ATM and check card income, and decreases in brokered mortgage fees compared to the prior quarter.
Adjusted operating noninterest income(1), which excludes the loan recovery ($895 thousand in the fourth quarter of 2025), decreased $299 thousand to $3.8 million for the first quarter of 2026 from $4.1 million in the prior quarter, due to nominal decreases in income from bank owned life insurance, in ATM and check card income, and in brokered mortgage fees.
Noninterest expense decreased $143 thousand to $16.0 million for the first quarter of 2026 from $16.1 million in the prior quarter. Decreases in other operating expenses, merger expenses, data processing expense, and equipment expense were partially offset by the increase in salaries and employee benefits. Merger expenses in the prior quarter were incurred due to the one-time early lease termination of $127 thousand for the now closed Raleigh loan production office acquired in the Touchstone Bank merger.
Adjusted operating noninterest expense(1), which excludes the Raleigh LPO lease termination in the fourth quarter of 2025 and amortization of intangible assets ($434 thousand in the first quarter of 2026 and $442 thousand in the fourth quarter of 2025), decreased $8 thousand to $15.5 million for the first quarter of 2026 from $15.6 million in the prior quarter, due to decreases in equipment expense, data processing expense, and other operating expense that were offset by increases in salaries and employee benefits.
INCOME TAXES
Income tax expense was $1.2 million for the first quarter of 2026, compared to $1.4 million for the fourth quarter of 2025. The effective tax rate of 19.5% for the first quarter of 2026 decreased from 20.2% in the fourth quarter of 2025. This decreased effective tax rate in the first quarter was driven by the impact of nondeductible merger expenses in the prior quarter.
BALANCE SHEET
On March 31, 2026, total assets were $2.076 billion, an increase of $37.8 million or 1.9% (7.5% annualized) from December 31, 2025, and an increase of $42.5 million or 2.1% (8.5% annualized) from March 31, 2025. Total assets increased from the prior quarter due to loan growth and increased cash and cash equivalents, and the increase from the prior year was driven by loan growth and additional investment in securities available for sale.
On March 31, 2026, loans held for investment ("LHFI") net of allowance totaled $1.450 billion, an increase of $14.7 million or 4.0% annualized from $1.435 billion on December 31, 2025, and an increase of $13.8 million or 4.0% annualized from March 31, 2025. Loans grew in the first quarter of 2026 due to higher new loan production.
On March 31, 2026, total investments were $324.6 million, a decrease of $1.5 million or 0.5% from December 31, 2025, and an increase of $50.9 million or 18.6% from March 31, 2025. Available for sale ("AFS") securities totaled $217.7 million on March 31, 2026, and $217.5 million on December 31, 2025, and $161.0 million on March 31, 2025. The increase compared to the prior year was driven by security purchases exceeding portfolio cashflows and utilization of excess cash from the Touchstone Bank acquisition. Total net unrealized losses on the AFS securities portfolio were $16.2 million on March 31, 2026, compared to $14.8 million on December 31, 2025, and $20.1 million on March 31, 2025. Held to maturity securities are carried at amortized cost and totaled $101.3 million on March 31, 2026, $102.9 million on December 31, 2025, and $108.3 million on March 31, 2025.
On March 31, 2026, total deposits were $1.837 billion, an increase of $37.7 million or 2.1% from the prior quarter, and an increase of $12.3 million or 0.7% from March 31, 2025. Overall, the deposit balances were relatively stable in comparison with the prior quarter and the prior year with increases primarily in savings and interest-bearing demand deposits. There were $25.0 million in other borrowings with the Federal Home Loan Bank on March 31, 2026, and December 31, 2025, compared to no other borrowings on March 31, 2025.
LIQUIDITY
Liquidity sources available to the Bank, including interest-bearing deposits in banks, unpledged securities available for sale, at fair value, and available lines of credit totaled $764.2 million on March 31, 2026, $743.0 million on December 31, 2025, and $800.2 million on March 31, 2025.
The Bank maintains liquidity to fund loan growth and to meet potential demand from deposit customers, including potential volatile deposits. The estimated amount of uninsured customer deposits totaled $558.9 million on March 31, 2026, $538.2 million on December 31, 2025, and $549.3 million on March 31, 2025. Excluding municipal deposits that have collateral pledged, the estimated amount of uninsured customer deposits totaled $461.3 million on March 31, 2026, $448.8 million on December 31, 2025, and $458.7 million on March 31, 2025.
ASSET QUALITY
Overall non-performing assets ("NPAs") improved over the prior period and prior year as previously reserved loans were charged off in the first quarter of 2026. Management classifies NPAs as non-accrual loans and other real estate owned ("OREO"). The Bank had no OREO on March 31, 2026, December 31, 2025, or March 31, 2025. NPAs as a percentage of total loans declined to 0.30% on March 31, 2026, down from 0.32% on December 31, 2025, and down from 0.34% on March 31, 2025. NPAs decreased by $209 thousand to $4.4 million on March 31, 2026, compared to $4.7 million on December 31, 2025, and $4.9 million on March 31, 2025.
There were no loans past due over 90 days or more and still accruing interest on March 31, 2026, December 31, 2025, or March 31, 2025. Loans past-due 30-89 days and still accruing interest increased to $5.0 million, or 0.34% of total loans on March 31, 2026, compared to $3.8 million, or 0.26% of total loans on December 31, 2025, and $5.0 million, or 0.35%, of total loans on March 31, 2025. The health care provider portfolio balance continues to decline with $9.1 million in loan balances and $3.7 million in unamortized premiums. The portfolio has loans totaling $1.8 million currently on non-accrual that are specifically reserved for $1.2 million.
CAPITAL
During the first quarter of 2026, the Company declared and paid cash dividends of $0.17 per common share, compared to $0.17 in the fourth quarter of 2025 and $0.155 in the first quarter of 2025. Tangible book value per share(1) grew to $19.11 at March 31, 2026, from $18.83 per share at December 31, 2025, and $16.81 at March 31, 2025.
The following table provides capital ratios and values for the periods ended:
First National Corporation(2)
Mar 31, 2026
Dec 31, 2025
Mar 31, 2025
Total risk-based capital ratio
14.64
%
14.53
%
14.58
%
Tier 1 risk-based capital ratio
13.06
%
12.93
%
12.07
%
Common equity Tier 1 capital ratio
12.44
%
12.30
%
11.44
%
Leverage ratio
9.65
%
9.29
%
8.78
%
Tangible common equity to tangible assets(1)
8.39
%
8.41
%
7.50
%
Tangible book value per share(1)
$
19.11
$
18.83
$
16.81
First Bank
Mar 31, 2026
Dec 31, 2025
Mar 31, 2025
Total risk-based capital ratio(3)
13.75
%
13.64
%
12.44
%
Tier 1 risk-based capital ratio(3)
12.73
%
12.59
%
11.39
%
Common equity Tier 1 capital ratio(3)
12.73
%
12.59
%
11.39
%
Leverage ratio(3)
9.38
%
9.13
%
8.28
%
Tangible common equity to tangible assets(1)
8.49
%
8.51
%
7.35
%
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 bankers, consumer and business mobile banking platforms, a network of ATMs located throughout its market area, a loan production office, a customer service center in a retirement community, and thirty-three banking office locations located throughout the Shenandoah Valley, the Roanoke Valley, the Richmond MSA, the south-central regions of Virginia, and in northern North Carolina. 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 owns an interest in an entity that provides title insurance services.
NON-GAAP FINANCIAL MEASURES
In addition to financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), the Company uses certain non-GAAP financial measures that provide useful information for financial and operational decision making, evaluating trends, and comparing financial results to other financial institutions. The non-GAAP financial measures presented in this document include adjusted operating net income, adjusted operating non-interest expense, adjusted operating non-interest income, adjusted basic and diluted earnings per share, adjusted return on average assets, adjusted return on average equity, pre-provision pre-tax earnings, adjusted pre-provision pre-tax earnings, fully taxable equivalent interest income, the net interest margin, the efficiency ratio, tangible book value per share, and tangible common equity to tangible assets.
The Company believes certain non-GAAP financial measures enhance the understanding of its business and performance. Non-GAAP financial measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP and may not be comparable to those reported by other financial institutions. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is included at the end of this release.
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 Company's plans, objectives, expectations and intentions and other statements that are not historical facts, and other statements identified by words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "will," "continue," and "projects," as well as similar expression. 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 will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties. For details on factors that could affect expectations, future events, or results, see the risk factors and other cautionary language included in First National's Annual Report on Form 10-K for the year ended December 31, 2025 and other filings with the Securities and Exchange Commission (the "SEC").
CONTACTS
Scott C. Harvard
Brad E. Schwartz
President and CEO
Executive Vice President and CFO
(540) 545-7695
(540) 465-6130
[email protected]
[email protected]
FIRST NATIONAL CORPORATIONPerformance Summary(in thousands)
(unaudited)
For the Three Months Ended
Mar 31,2026
Dec 31,2025
Sep 30,2025
Jun 30,2025
Mar 31,2025
Income Statement
Interest and dividend income
Interest and fees on loans
$
21,017
$
21,513
$
21,430
$
21,594
$
20,639
Interest on deposits in banks
1,170
1,618
1,733
1,891
1,671
Interest on federal funds sold
—
1
1
—
39
Taxable interest on securities
1,786
1,734
1,562
1,313
1,314
Tax-exempt interest on securities
292
292
296
298
300
Dividends
64
66
65
69
59
Total interest and dividend income
$
24,329
$
25,224
$
25,087
$
25,165
$
24,022
Interest expense
Interest on deposits
$
5,414
$
5,929
$
6,246
$
6,080
$
6,038
Interest on subordinated debt
168
273
479
468
467
Interest on junior subordinated debt
66
67
67
66
66
Interest on other borrowings
5
3
—
3
—
Total interest expense
$
5,653
$
6,272
$
6,792
$
6,617
$
6,571
Net interest income
$
18,676
$
18,952
$
18,295
$
18,548
$
17,451
Provision for credit losses
450
951
193
911
832
Net interest income after provision for credit losses
$
18,226
$
18,001
$
18,102
$
17,637
$
16,619
Noninterest income
Service charges on deposit accounts
$
924
$
937
$
985
$
1,020
$
1,013
ATM and check card fees
1,047
1,124
1,336
1,128
996
Wealth management fees
911
936
910
867
898
Fees for other customer services
287
292
407
230
258
Brokered mortgage fees
115
190
166
183
110
Income from bank owned life insurance
259
383
284
231
246
Net gains on securities available for sale
8
—
—
—
—
Net gains on sale of loans held for sale
1
3
5
—
—
Bargain purchase gain
—
—
304
—
—
Net gain on subordinated debt payoff
—
—
—
80
—
Other operating income
272
1,153
103
150
90
Total noninterest income
$
3,824
$
5,018
$
4,500
$
3,889
$
3,611
Noninterest expense
Salaries and employee benefits
$
8,982
$
8,454
$
8,487
$
8,033
$
8,689
Occupancy
972
996
1,025
944
1,069
Equipment
1,093
1,167
1,056
1,057
1,025
Marketing
341
350
324
286
220
Supplies
146
207
158
198
217
Legal and professional fees
688
667
660
594
522
ATM and check card expense
571
570
569
537
439
FDIC assessment
227
258
305
315
414
Bank franchise tax
380
349
350
348
317
Data processing expense
394
501
495
504
762
Core deposit intangible amortization expense
434
442
442
441
442
Other real estate owned expense (income), net
—
—
—
—
(8
)
Net (gain) loss on disposal of premises and equipment
—
—
(7
)
7
—
Merger expense
—
127
—
92
1,940
Other operating expense
1,754
2,037
1,918
1,835
2,287
Total noninterest expense
$
15,982
$
16,125
$
15,782
$
15,191
$
18,335
Income before income taxes
$
6,068
$
6,894
$
6,820
$
6,335
$
1,895
Income tax expense
1,181
1,390
1,270
1,284
297
Net income
$
4,887
$
5,504
$
5,550
$
5,051
$
1,598
FIRST NATIONAL CORPORATIONPerformance Summary(in thousands, except share and per share data)
(unaudited)
For the Three Months Ended
Mar 31,2026
Dec 31,2025
Sep 30,2025
Jun 30,2025
Mar 31,2025
Common Share and Per Common Share Data
Earnings per common share, basic
$
0.54
$
0.61
$
0.62
$
0.56
$
0.18
Adjusted earnings per common share, basic(1)
$
0.54
$
0.62
$
0.58
$
0.57
$
0.35
Weighted average shares, basic
9,031,591
9,011,378
8,999,153
8,987,179
8,979,527
Earnings per common share, diluted
$
0.54
$
0.61
$
0.62
$
0.56
$
0.18
Adjusted earnings per common share, diluted(1)
$
0.54
$
0.62
$
0.58
$
0.57
$
0.35
Weighted average shares, diluted
9,047,416
9,030,437
9,023,185
9,001,972
9,005,923
Shares outstanding at period end
9,040,967
9,025,395
9,009,209
8,989,138
8,986,696
Tangible book value per share at period end(1)
$
19.11
$
18.83
$
18.26
$
17.40
$
16.81
Market price per share at period end
$
26.92
$
25.24
$
22.68
$
19.47
$
22.45
Cash dividends declared
$
0.170
$
0.170
$
0.155
$
0.155
$
0.155
Key Performance Ratios
Return on average assets(4)
0.98
%
1.06
%
1.09
%
1.00
%
0.32
%
Adjusted return on average assets(1)(4)
0.98
%
1.08
%
1.03
%
1.02
%
0.63
%
Return on average equity(4)
10.51
%
11.86
%
12.43
%
11.85
%
3.85
%
Adjusted return on average equity(1)(4)
10.51
%
12.08
%
11.75
%
12.05
%
7.61
%
Net interest margin(4)
3.98
%
3.93
%
3.83
%
3.93
%
3.75
%
Net interest margin fully tax equivalent(1)(4)
3.99
%
3.95
%
3.84
%
3.95
%
3.77
%
Efficiency ratio(1)
68.86
%
67.16
%
67.97
%
65.27
%
75.44
%
Average Balances
Average assets
$
2,026,947
$
2,061,973
$
2,022,958
$
2,019,344
$
2,016,958
Average earning assets
1,905,400
1,914,802
1,897,328
1,893,133
1,888,427
Average noninterest deposits to total average deposits
27.96
%
29.28
%
29.13
%
29.88
%
29.01
%
Average shareholders' equity
$
188,585
$
184,167
177,130
