STRASBURG, Va., July 29, 2026 (GLOBE NEWSWIRE) -- First National Corporation (the “Company” or “First National”) (NASDAQ: FXNC), the bank holding company of First Bank (the “Bank”), reported consolidated net income of $5.7 million and basic and diluted earnings per common share of $0.64 and $0.63, respectively, for the second quarter ended June 30, 2026.

"Our quarterly and year-to-date results reflect steady execution of our intentional, profitable growth strategy. Growth in average loan and deposit balances lifted net interest income, and net loans expanded for a second straight quarter as our new and legacy banking teams continue to deepen customer relationships. The net interest margin in excess of four percent combined with expense management and strong asset quality delivered a strong second quarter and first half of the year. I am also pleased to report that we received all regulatory approvals for the pending sale of our North Carolina branches which we expect to close early in the fourth quarter, continuing our branch optimization initiative announced earlier this year," said Scott C. Harvard, President and Chief Executive Officer of First National Corporation.

Financial highlights for second quarter 2026

Net interest income

For the second quarter of 2026, the Company’s net interest margin fully tax equivalent ("FTE") (1) was 4.15%, compared with 3.99% for the first quarter of 2026 and 3.95% in the second quarter of 2025. The Company said the net interest margin (FTE) (1) for the quarter included the impact of acquisition accounting fair value adjustments.

Net accretion income related to acquisition accounting was $245 thousand, a 5-basis-point incremental increase to the net interest margin for the quarter ended June 30, 2026. Prior period acquisition accounting resulted in net accretion income of $211 thousand, or a 4-basis-point incremental increase to the net interest margin for the quarter ended March 31, 2026, and net accretion income of $907 thousand, or a 19-basis-point incremental increase to the net interest margin for the quarter ended June 30, 2025.

Earning asset yields for the second quarter of 2026 increased 11 basis points to 5.31% from the first quarter of 2026. Net interest income FTE (1) was $20.1 million for the second quarter of 2026, up $1.3 million from $18.8 million in the first quarter of 2026, driven by an increase in average interest-earning assets, improved yields, reduced funding costs, and average and net loan growth.

Allowance and provision for credit losses

The Company recorded a $426 thousand provision for credit losses in the second quarter of 2026, compared with $450 thousand in the first quarter of 2026. The second-quarter provision included a $350 thousand provision for credit losses on loans, a $79 thousand provision for credit losses on unfunded commitments, and a $3 thousand reduction in credit losses on securities.

Net charge-offs totaled $105 thousand in the second quarter of 2026, compared with $542 thousand in the first quarter of 2026 and $448 thousand in the second quarter of 2025.

The allowance for credit losses on loans totaled $14.9 million, or 1.00% of total loans, at June 30, 2026, compared with $14.7 million, or 1.00% of total loans, at March 31, 2026, and $15.2 million, or 1.05% of total loans, at June 30, 2025. The allowance to total loans was unchanged from the prior quarter and decreased from the prior year due to declines in specific reserves on individually analyzed loans. The allowance for credit losses to non-performing assets coverage was 315% at June 30, 2026, compared with 331% at March 31, 2026, and 223% at June 30, 2025.

Noninterest income and expense

Noninterest income increased $194 thousand to $4.0 million in the second quarter of 2026 from $3.8 million in the prior quarter. The increase reflected higher ATM and check card income, other operating income, and brokered mortgage fees.

Noninterest expense increased $455 thousand to $16.4 million from $16.0 million in the prior quarter. The increase included higher other operating expense, marketing expense, legal and professional fees, supplies expense, and data processing expense.

The sale of two banking offices in Roanoke Rapids and Louisburg, North Carolina, including most of the deposit and loan accounts associated with those offices, has received all required regulatory approvals and is planned for October 2026. The Company expects to recognize a one-time gain on the sale of the offices in the fourth quarter of 2026.

The Bank also plans to consolidate three additional banking offices and discontinue low-volume ATMs at non-branch locations before year-end. Together, the sale and consolidation will reduce the number of banking offices from 33 to 28 by year end. The Company said the goals of these branch optimization actions are to streamline operations, improve profitability, and allocate resources to faster-growing markets.

Income taxes

Income tax expense was $1.4 million for the second quarter of 2026, compared with $1.2 million for the first quarter of 2026. The effective tax rate was 19.5% in the second quarter of 2026, unchanged from the first quarter.

Balance sheet

At June 30, 2026, total assets were $2.076 billion, up $34.2 million, or 1.7%, from June 30, 2025. Total assets were consistent with the prior quarter, as loan growth was offset by lower cash and cash equivalents. The year-over-year increase was driven by loan growth and additional securities available for sale.

Loans held for investment ("LHFI"), net of allowance, totaled $1.472 billion at June 30, 2026, up $22.7 million, or 3.0% annualized, from $1.450 billion at March 31, 2026, and up $44.2 million, or 3.1%, from June 30, 2025. The Company said net loan growth in the second quarter and year to date was driven by increased production from newly hired bankers and continued focus on relationship banking, highlighting how franchise expansion and local relationship lending continue to support core balance-sheet growth.

Total investments were $322.8 million at June 30, 2026, down $1.7 million, or 0.5%, from March 31, 2026, and up $23.2 million, or 7.7%, from June 30, 2025. Available-for-sale ("AFS") securities totaled $227.8 million at June 30, 2026, compared with $217.7 million at March 31, 2026, and $187.6 million at June 30, 2025. The increase from the prior year was driven by security purchases exceeding portfolio cashflows and the use of excess cash.

Total net unrealized losses on the AFS securities portfolio were $15.8 million at June 30, 2026, compared with $16.2 million at March 31, 2026, and $18.9 million at June 30, 2025. Held-to-maturity securities, carried at amortized cost, totaled $89.4 million at June 30, 2026, $101.3 million at March 31, 2026, and $106.4 million at June 30, 2025.

Total deposits were $1.831 billion at June 30, 2026, down $6.2 million, or 0.3%, from the prior quarter and up $28.0 million, or 1.6%, from June 30, 2025. While total deposits declined from March 31, 2026, average deposit balances for the second quarter increased $49.6 million, or 2.7%. Deposit balances were relatively stable compared with both the prior quarter and the prior year, with increases primarily in savings and interest-bearing demand deposits.

Other borrowings with the Federal Home Loan Bank were $25.0 million at June 30, 2026, March 31, 2026, and June 30, 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 $747.8 million at June 30, 2026, compared with $764.2 million at March 31, 2026, and $633.7 million at June 30, 2025.

The Bank said it maintains liquidity to fund loan growth and to meet potential demand from deposit customers, including volatile deposits. Estimated uninsured customer deposits totaled $573.8 million at June 30, 2026, $558.9 million at March 31, 2026, and $545.7 million at June 30, 2025. Excluding municipal deposits with collateral pledged, estimated uninsured customer deposits totaled $466.9 million at June 30, 2026, $461.3 million at March 31, 2026, and $451.9 million at June 30, 2025.

Asset quality

Non-performing assets ("NPAs") increased slightly from the prior period and improved from the prior year as previously reserved loans were charged off since the second quarter of 2025. Management defines NPAs as non-accrual loans and other real estate owned ("OREO"). The Bank had no OREO at June 30, 2026, March 31, 2026, or June 30, 2025.

NPAs as a percentage of total loans were 0.32% at June 30, 2026, up from 0.30% at March 31, 2026, but down from 0.47% at June 30, 2025. NPAs increased by $292 thousand to $4.7 million at June 30, 2026, compared with $4.4 million at March 31, 2026, but decreased by $2.1 million from $6.8 million at June 30, 2025.

There were no loans past due 90 days or more and still accruing interest at June 30, 2026, March 31, 2026, or June 30, 2025. Loans past due 30 to 89 days and still accruing interest declined to $2.5 million, or 0.17% of total loans, at June 30, 2026, compared with $5.0 million, or 0.34% of total loans, at March 31, 2026, and $3.2 million, or 0.22% of total loans, at June 30, 2025.

The health care provider portfolio continues to decline, with $8.6 million in loan balances and $3.4 million in unamortized premiums. The portfolio includes $1.8 million of loans currently on non-accrual that are specifically reserved for $1.3 million.

Capital

During the second quarter of 2026, the Company declared and paid cash dividends of $0.17 per common share, compared with $0.17 in the first quarter of 2026 and $0.155 in the second quarter of 2025. Tangible book value per share (1) increased to $19.71 at June 30, 2026, from $19.11 at March 31, 2026, and $17.40 at June 30, 2025. The quarterly dividend and higher tangible book value provide additional context on capital deployment and balance-sheet growth as the Company continues its branch optimization plans.

About First National Corporation

First National Corporation (NASDAQ: FXNC) is the parent company and bank holding company of First Bank, a community bank that opened 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 throughout its market area, a loan production office, a customer service center in a retirement community, and 33 banking office locations across the Shenandoah Valley, the Roanoke Valley, the Richmond MSA, the south-central regions of Virginia, and northern North Carolina.

In addition to 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 a title insurance company.

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 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 said these measures may enhance understanding of its business and performance. They are supplemental and not a substitute for, or more important than, GAAP financial measures, 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 the release.

Forward-looking statements

Certain information 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 statements relate to the Company’s plans, objectives, strategies, expectations, and intentions, including pending branch sales and other branch optimization initiatives, and other statements that are not historical facts. They also include statements identified by words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” "will," "continue," and “projects,” as well as similar expressions.

Although the Company believes its expectations are based on reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that it will achieve the anticipated benefits of its plans and strategies or that actual results, performance, or achievements will not differ materially from those expressed or implied by such statements. Forward-looking statements are subject to a number of risks and uncertainties and speak only as of the date of the release. The Company undertakes no obligation to update or revise any forward-looking statement, except as required by law.

For details on factors that could affect expectations, future events, or results, see the risk factors and other cautionary language included in First National Corporation’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”).