First National's Margin Expansion Accelerates

The Tip Desk · October 23, 2026 · 3 min read

Tax-equivalent net interest margin widened 23 bps to 4.38% as earning-asset yields rose 24 bps and acquisition accretion added 18 bps.

First National Corporation (FXNC), the Strasburg, Virginia bank holding company of First Bank, reported tax-equivalent net interest margin of 4.38% for the three months ended September 30, 2026, a 23-basis-point sequential expansion after a 16-basis-point widening in the second quarter.

Earning-asset yields rose 24 bps to 5.55% from the prior quarter. Acquisition-accounting accretion contributed $867 thousand, or an 18-basis-point lift to the margin, versus $245 thousand, or 5 bps, in the second quarter. The company said the higher accretion was driven by payoffs on purchased loans.

Net interest income, fully tax equivalent, was $21.3 million, up $1.2 million from $20.1 million in the second quarter. The company attributed the increase to improved yields and interest income related to acquisition accounting.

Net loan growth slowed. Loans grew $13.6 million in the third quarter, a 3.7% annualized rate, after $22.7 million, or 6.3% annualized, in the second quarter. Period-end loans were $1.500 billion. Other real estate loans were the largest category at $739.8 million. The company said third-quarter and year-to-date net loan growth was driven by production from newly hired bankers and a continued focus on relationship banking.

Deposits reversed first-quarter growth. Total deposits declined $2.4 million, or 0.5% annualized, to $1.829 billion, after $37.7 million, or 8.4% annualized, growth in the first quarter. Average deposits fell $17.6 million, or 3.8% annualized. Noninterest-bearing deposits were $520.1 million, or 28% of deposits. Interest-bearing deposit cost was 1.66%. Time deposits cost 2.86% and checking 1.10%.

The company recorded no net provision for credit losses in the third quarter, versus $426 thousand in the second quarter. Net charge-offs were $594 thousand. The allowance for credit losses on loans was $14.4 million, or 0.96% of loans, down from $14.9 million, or 1.00%, on lower specific and pooled reserves. Coverage of nonperforming assets declined to 268% from 315%.

Nonperforming assets rose $647 thousand to $5.4 million, or 0.26% of assets, from $4.7 million, or 0.23%, as two closed banking offices were carried as $747 thousand of other real estate owned. Non-accrual loans were 0.31% of loans. Loans 30 to 89 days past due and still accruing were $3.4 million, or 0.23% of loans. The company said the OREO increase came from the carrying values of the two closed offices after a one-time branch-consolidation event.

Noninterest income increased $66 thousand to $4.1 million. The company cited higher wealth-management fees, bank-owned life insurance income, and gains on loans held for sale, offset by lower brokered mortgage fees. Noninterest expense rose $259 thousand to $16.7 million, including $212 thousand of OREO expense from consolidating three banking offices and higher employee benefits, offset by lower marketing and legal fees. The efficiency ratio improved to 63.21% from 66.59%.

The branch-optimization process was completed in the third quarter with the closure and consolidation of three offices and off-site ATMs. Two North Carolina offices in Roanoke Rapids and Louisburg, including most associated deposit and loan accounts, were sold in early October. The company anticipates a one-time gain on that sale in the fourth quarter. Combined, the sale and consolidation will reduce banking offices from 33 to 28 by year-end.

Holding-company common equity Tier 1 capital rose to 12.98% from 12.60%. Tangible book value per share increased to $19.94 from $19.71. The quarterly dividend was unchanged at $0.17 a share.