First National Corporation Reports Record Third Quarter and Year to Date 2026 Financial Performance

First National posts record Q3 earnings with strong loan growth and improved margins.

What the company is saying

First National Corporation (NASDAQ:FXNC), led by President and CEO Scott C. Harvard, is highlighting record financial performance for both the third quarter and year-to-date 2026. The company attributes these results to organic loan growth, a higher net interest margin, strong asset quality, and disciplined expense management. Management emphasizes the successful completion of a branch optimization process, including the closure and consolidation of three banking offices and off-site ATMs, and the sale of two North Carolina branches, with an anticipated gain to be recognized in Q4. The tone is confident and data-driven, with specific attention given to improvements in key profitability and efficiency metrics. The narrative frames operational streamlining as a driver for future profitability and resource allocation to higher-growth markets. The company also points to stable deposit funding and robust capital ratios as supporting its positive outlook.

What the data suggests

The company reported Q3 2026 net income of $6.9 million and basic EPS of $0.76, up from $0.62 a year ago and $0.64 in the prior quarter. Year-to-date net income reached $17.5 million, with basic EPS of $1.94, both showing significant increases over the prior year. Return on average assets improved to 1.32% in Q3 from 1.09% a year ago, and return on average equity rose to 14.02% from 12.43%. The tax equivalent net interest margin expanded to 4.38% in Q3, compared to 3.84% a year earlier. Net loan growth was $13.6 million for the quarter (3.7% annualized) and $67.3 million year-to-date (4.7%). Asset quality remained strong, with non-performing assets at 0.26% of total assets and an allowance for credit losses on loans at $14.4 million, or 0.96% of total loans. Noninterest bearing deposits totaled $520.1 million, representing 28% of deposits, supporting a low funding cost. Net interest income for Q3 was $21.3 million, up $1.2 million from the previous quarter, aided by $867,000 in net accretion income from acquisition accounting. Noninterest income increased slightly to $4.1 million, while noninterest expense rose to $16.7 million, reflecting higher employee benefit and real estate owned expenses. Tangible book value per share grew to $19.94. Capital ratios remain robust, with a total risk-based capital ratio of 15.14%. The company has already executed the operational changes it describes, and the only forward-looking element is the expected gain from the North Carolina branch sale in Q4.

Analysis

The announcement is highly factual and supported by detailed, realised financial metrics, including net income, EPS, net interest margin, loan growth, and asset quality. The majority of claims are backward-looking and substantiated by numerical data, with only a minor forward-looking element regarding an anticipated gain from a recently completed office sale. The tone is positive but proportionate to the strong operational and financial results disclosed. There is no evidence of narrative inflation or exaggerated claims; the language is measured and focuses on realised achievements. No large capital outlay is paired with long-dated, uncertain returns, and the operational changes (branch optimization) are already completed or near completion. The gap between narrative and evidence is minimal.

Risk flags

• ●Net charge-offs increased to $594,000 in the third quarter from $105,000 in the prior quarter, indicating some volatility in credit quality that could impact future results if the trend continues.
• ●Non-performing assets rose by $647,000 to $5.4 million in Q3, and loans past due 30-89 days increased to $3.4 million, suggesting some emerging asset quality pressures that warrant monitoring.
• ●Deposit balances were relatively stable, but average deposit balances declined $17.6 million during the quarter, and uninsured customer deposits remain elevated at $575.8 million, which could pose liquidity risk if market conditions change.
• ●The allowance for credit losses as a percentage of total loans decreased to 0.96% from 1.00% in the prior quarter and 1.01% a year ago, reflecting lower reserves that could reduce loss absorption capacity if asset quality deteriorates.
• ●The company is relying on the anticipated gain from the North Carolina branch sale to further boost Q4 results; if the gain is lower than expected or delayed, near-term earnings momentum could be affected.

Bottom line

First National Corporation delivered strong Q3 and year-to-date results, with rising net income, EPS, and net interest margin, driven by organic loan growth and operational streamlining. Asset quality remains solid, though there are some early signs of pressure in non-performing assets and charge-offs. The branch optimization and North Carolina office sale are complete, with the latter expected to provide a one-time gain in the upcoming quarter. Capital and liquidity positions are robust, supporting ongoing growth. Investors should watch for the realized gain from the branch sale in Q4 and monitor any further shifts in asset quality or deposit trends. The main takeaway is that First National is executing well on its profitability and efficiency initiatives, but continued vigilance on credit and funding risks is warranted.

Announcement summary

(NASDAQ: FXNC) First National Corporation reported consolidated net income of $6.9 million and basic and diluted earnings per common share of $0.76 for the three months ended September 30, 2026. For the nine months ended September 30, 2026, consolidated net income was $17.5 million, with basic and diluted earnings per common share of $1.94 and $1.93, respectively. Scott C. Harvard, President and Chief Executive Officer, stated that the record financial performance was driven by organic loan growth, improved net interest margin, excellent asset quality, and expense management. The company completed its branch optimization process in the third quarter by closing and consolidating three banking offices and off-site ATMs, and in early October completed the sale of two North Carolina banking offices, expecting to book a gain in the fourth quarter. For the third quarter of 2026, basic earnings per share were $0.76, up from $0.62 one year prior and $0.64 in the previous quarter. Return on average assets was 1.32%, compared to 1.09% one year prior and 1.11% in the previous quarter. Return on average equity was 14.02%, compared to 12.43% one year prior and 12.03% in the previous quarter. The tax equivalent net interest margin was 4.38%, up from 3.84% one year prior and 4.15% in the previous quarter. Net loan growth for the quarter was $13.6 million, representing a 3.7% annualized growth rate. Non-performing assets were 0.26% of total assets. Noninterest bearing deposits totaled $520.1 million, or 28% of deposits. Year-to-date 2026, basic earnings per share were $1.94, compared to $1.36 one year prior, and adjusted basic earnings per share were $1.94, compared to $1.51 one year prior. Return on average assets was 1.15%, compared to 0.81% one year prior, and return on average equity was 12.26%, compared to 9.47% one year prior. The tax equivalent net interest margin was 4.19%, up from 3.85% one year prior. Net loan growth for the year was $67.3 million, a 4.7% growth rate. Net accretion income related to acquisition accounting was $867 thousand for the third quarter, $245 thousand for the second quarter, and $43 thousand for the third quarter of 2025. Net interest income FTE for the third quarter was $21.3 million, an increase of $1.2 million from $20.1 million in the second quarter. The company recorded no net provision for credit losses in the third quarter, compared to $426 thousand in the second quarter. Net charge-offs totaled $594 thousand in the third quarter, compared to $105 thousand in the second quarter and $939 thousand in the third quarter of 2025. The allowance for credit losses on loans was $14.4 million, or 0.96% of total loans on September 30, 2026, compared to $14.9 million, or 1.00% on June 30, 2026, and $14.4 million, or 1.01% on September 30, 2025. Noninterest income increased $66 thousand to $4.1 million for the third quarter from $4.0 million in the prior quarter. Noninterest expense increased $259 thousand to $16.7 million for the third quarter from $16.4 million in the prior quarter. The sale and consolidation of banking offices will reduce the number of offices from 33 to 28 by year end. Income tax expense was $1.7 million for the third quarter, compared to $1.4 million for the second quarter, with an effective tax rate of 19.7%. On September 30, 2026, total assets were $2.075 billion, an increase of $44.1 million or 2.2% from September 30, 2025. Loans held for investment net of allowance totaled $1.486 billion, an increase of $13.4 million or 3.6% annualized from June 30, 2026, and $67.3 million or 4.7% from September 30, 2025. Total investments were $306.8 million on September 30, 2026. Available for sale securities totaled $218.7 million, and held to maturity securities were $82.6 million. Total deposits were $1.829 billion, a decrease of $2.4 million or 0.5% annualized from the prior quarter, and an increase of $19.2 million or 1.1% from September 30, 2025. Liquidity sources available to the Bank totaled $721.6 million on September 30, 2026. Estimated uninsured customer deposits were $575.8 million on September 30, 2026. Non-performing assets increased by $647 thousand to $5.4 million on September 30, 2026. Loans past due 30-89 days and still accruing interest increased to $3.4 million, or 0.23% of total loans. The health care provider portfolio balance was $7.9 million, with $1.4 million on non-accrual and specifically reserved at $1.0 million. During the third quarter, the company declared and paid cash dividends of $0.17 per common share. Tangible book value per share grew to $19.94 on September 30, 2026. The total risk-based capital ratio for First National Corporation was 15.14% on September 30, 2026.

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