First National Beats Q1 Targets on Strong Loan and Deposit Momentum

STRASBURG, VA – April 30, 2026 – First National Corporation (NASDAQ: FXNC) announced a robust start to the year, reporting first-quarter net income of $4.9 million, or $0.54 per diluted share. The results, which significantly outpaced the $0.18 per share earned in the same period a year ago, were fueled by a powerful surge in loan and deposit activity in March that helped the bank exceed its internal performance targets.

Despite a sequential dip from the $0.61 per share reported in the fourth quarter of 2025, the underlying metrics point to a company carrying significant momentum into the rest of the year. The Strasburg-based holding company for First Bank saw strong growth in core banking activities, improved asset quality, and an expanding net interest margin, painting a picture of operational strength in a complex economic environment.

“After a slow start to the first quarter, loan production picked up in March and lifted loan balances for the quarter,” said Scott C. Harvard, President and Chief Executive Officer of First National. “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.”

Winning the Funding Game

A key highlight of the quarter was the bank's success in attracting low-cost funding. Total deposits grew by $37.7 million, an impressive 8.4% annualized rate. Critically, this growth was concentrated in lower-cost demand deposits, interest-bearing checking, money market, and savings accounts, while higher-cost time deposits saw a slight decline. This strategic shift in the deposit mix is crucial for profitability, as it helps control funding costs.

This strong deposit-gathering performance directly contributed to an expansion of the bank's tax-equivalent net interest margin (NIM), a core measure of lending profitability. The NIM widened to 3.99% for the first quarter, up from 3.95% in the prior quarter and 3.77% in the first quarter of 2025. This figure positions First National favorably within the community banking sector, where NIMs have been under pressure. For context, its NIM surpasses the 3.81% average reported by community banks in 2025 and stands above that of several larger regional peers.

The bank’s ability to attract and retain these valuable deposits was credited by Harvard to strong teamwork. “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,” he noted in the release. This synergy appears to be a key component of the bank’s strategy following its 2024 acquisition of Touchstone Bank.

A March Surge Lifts Performance

The first quarter's narrative was a tale of two distinct periods. After a sluggish January and February, a flurry of activity in March drove the quarter's positive results. Net loan growth reached $14.7 million, representing a 4.0% annualized rate. While modest for the full quarter, the late acceleration provides a strong foundation for interest income in the second quarter and beyond.

This growth comes against a backdrop of cautious optimism in First National's core markets of Virginia and northern North Carolina. Regional economies are experiencing moderate growth, though they remain subject to national uncertainties, including the Federal Reserve's steady hand on interest rates and geopolitical tensions. The Fed held its benchmark rate at 3.50%-3.75% in its April meeting, providing a stable but high-rate environment for lenders.

First National’s ability to generate loan growth in this climate, particularly in commercial and real estate sectors, demonstrates effective penetration of its local markets. The bank is also continuing to optimize its footprint, announcing several branch consolidations and closures earlier in the year to enhance efficiency post-merger.

A Deeper Dive into the Balance Sheet

While the headline net income of $4.9 million was down from $5.5 million in the fourth quarter of 2025, the decrease was largely attributable to a one-time event. The prior quarter's results included an $895,000 recovery related to a loan acquired from Touchstone Bank. When adjusting for such non-recurring items, the bank's core operational performance remains solid.

Asset quality, a paramount concern for any financial institution, showed marked improvement. Non-performing assets declined to just 0.21% of total assets, down from 0.23% in the prior quarter and 0.24% a year ago. The bank also strengthened its defenses, increasing its allowance for credit losses to 331% of non-performing assets, up from 316% at year-end 2025. This indicates a proactive and conservative approach to managing credit risk.

Shareholders also saw tangible gains, as the tangible book value per share grew to $19.11, a significant increase from $16.81 at the end of March 2025. This metric, which strips out intangible assets like goodwill, is a closely watched indicator of a bank's core value. The company maintained its quarterly cash dividend at $0.17 per common share, rewarding investors while continuing to build its capital base. With a strong capital position, improving asset quality, and clear momentum in its core lending and deposit-gathering activities, First National appears well-positioned for the year ahead.