ex99.htm

Exhibit 99.1

Contact:

Scott C. Harvard		M. Shane Bell
President and CEO		Executive Vice President and CFO
(540) 465-9121		(540) 465-9121
sharvard@therespowerinone.com		sbell@therespowerinone.com

News Release
April 30, 2012

First National Corporation Announces First Quarter Profit

Strasburg, Virginia (April 30, 2012) --- First National Corporation (the “Company”) (OTCBB: FXNC), the parent company of First Bank (the “Bank”), reported net income of $475 thousand and net income to common shareholders of $251 thousand, or $0.08 per basic and diluted share for the quarter ending March 31, 2012. For the same quarter of 2011, net income was $1.0 million and net income to common shareholders was $780 thousand, or $0.26 per basic and diluted share.

Operating Highlights for the First Quarter

Net interest margin increased to 4.14%

Nonperforming assets decreased 12% from year-end to $15.9 million

The Bank disposed of $2.3 million of foreclosed properties

Allowance for loan losses was 3.49% of loans, or $13.6 million

The Bank realized $1.1 million of gains on sale of securities

The Company and Bank continued to be well-capitalized by regulatory requirements

Scott C. Harvard, President and CEO of the Company and the Bank commented, “I am pleased to report a profit for the first quarter of 2012 after three very difficult quarters at our banking company. We saw improvement in net interest margin, asset quality, and revenues, all of which are drivers of income and value. Our goal is to build sustainable profits by delivering the kind of personal service that is best provided by a local independent community bank committed to its core markets.”

Net interest income increased 3% to $5.1 million for the first quarter of 2012, compared to the same period a year ago. The net interest margin increased to 4.14% from 3.89% compared to the quarter ended March 31, 2011. The interest margin benefitted from a lower cost of funds during the period and from the return to accrual status of one large loan relationship. The net interest margin of 4.14% was also an increase over the 4.07% for the prior quarter ended December 31, 2011.

Noninterest income, excluding gains on sale of securities, increased 4% to $1.4 million compared to the same period a year ago. The increase in noninterest income resulted from higher revenue from fees for other customer services, including loan fees. Revenues from trust and investment advisory services, where total assets at quarter end exceeded $230 million, increased slightly while other noninterest income categories, such as service charges on deposit accounts, ATM and check card income, remained stable when comparing the periods.

Noninterest expense increased to $4.6 million compared to $4.4 million for the same period in 2011, excluding the provision for other real estate owned and net gains on sale of other real estate owned. The Bank continued to bear additional expense related to non-performing assets. Some of the expenses in the category include legal, management, maintenance, acquisition, taxes and insurance. In addition, noninterest expenses include the cost of diverting resources to collecting and improving the assets in the non-performing portfolio. Management continues to focus on reducing non-performing assets with the goal of reducing the additional expense burden associated with problem loans.

The provision for loan losses was $2.0 million, which resulted in a total allowance for loan losses of $13.6 million or 3.49% of total loans at March 31, 2012. This compared to a provision for loan losses of $270 thousand and an allowance for loan losses of $13.2 million, or 3.09% of total loans, at the end of the same quarter in 2011. Net charge-offs for the period declined from $3.1 million in the first quarter of 2011 to $1.3 million in the first quarter of 2012. Non-performing assets decreased $2.3 million or 12% during the first quarter to 2.99% of total assets at March 31, 2012, compared to 3.38% at December 31, 2011. The Bank sold 37 foreclosed properties with carrying values of $2.3 million, which generated $90 thousand in net gains on disposition. In addition, the Bank charged down carrying values of foreclosed properties owned at March 31, 2012 by $401 thousand.

During the first quarter, the Company announced that Dennis Dysart was named Senior Executive Vice President and Chief Credit Officer. Dysart has over 19 years of banking experience in the market and helped build the retail and operations side of the Bank. Upon the departure of the prior chief executive officer in January 2011, Dysart took a leadership role in evaluating and managing the troubled loan portfolio. During that time he demonstrated a keen understanding of the credit function and a tireless commitment to troubled debt resolution. In his new role, Dysart has enhanced risk management practices, aggressively managed non-performing assets, and realized success marketing and selling repossessed real estate. Also during the first quarter, the Bank named Greg Sasser, a 27 year veteran lender in the market, to manage special assets for the bank.

Cautionary Statements

The Company notes to investors that past results of operations do not necessarily indicate future results. Certain factors that affect the Company’s operations and business environment are subject to uncertainties that could in turn affect future results. These factors are identified in the Annual Report on Form 10-K for the year ended December 31, 2011, which can be accessed from the Company’s website at www.therespowerinone.com, as filed with the Securities and Exchange Commission.

About the Company

First National Corporation, headquartered in Strasburg, Virginia, is the financial holding company of First Bank. First Bank offers loan, deposit, trust and investment products and services from 10 branch offices in the northern Shenandoah Valley region of Virginia, including Shenandoah County, Warren County, Frederick County and the City of Winchester. First Bank also owns First Bank Financial Services, Inc., which invests in entities that provide investment services and title insurance.

FIRST NATIONAL CORPORATION Quarterly Performance Summary (in thousands, except share and per share data)
	(unaudited) For the Three Months Ended
Income Statement	March 31, 2012			March 31, 2011
Interest and dividend income
Interest and fees on loans	$	5,547		$	5,833
Interest on federal funds sold		3			7
Interest on deposits in banks		3			7
Interest and dividends on securities available for sale:
Taxable interest		535			451
Tax-exempt interest		102			123
Dividends		18			17
Total interest and dividend income	$	6,209		$	6,438

Interest expense
Interest on deposits	$	986		$	1,303
Interest on trust preferred capital notes		62			109
Interest on other borrowings		80			91
Total interest expense	$	1,129		$	1,503

Net interest income	$	5,080		$	4,935
Provision for loan losses		2,000			270
Net interest income after provision for loan losses	$	3,080		$	4,665

Noninterest income
Service charges on deposit accounts	$	502		$	501
ATM and check card fees		372			371
Trust and investment advisory fees		346			342
Fees for other customer services		98			73
Gains on sale of loans		43			47
Gains on sale of securities available for sale		1,117			-
Other operating income		35			6
Total noninterest income	$	2,514		$	1,340

Noninterest expense
Salaries and employee benefits	$	2,369		$	2,288
Occupancy		326			341
Equipment		306			325
Marketing		78			105
Stationery and supplies Legal and professional fees		81 250			79 201
ATM and check card fees		156			171
FDIC assessment		178			190
Gains on sale of other real estate owned, net		(90	)		-
Provision for other real estate owned		401			130
Other real estate owned expense		253			126
Other operating expense		596			599
Total noninterest expense	$	4,904		$	4,555

Income before income taxes	$	690		$	1,450
Income tax provision		215			447
Net income		475		$	1,003
Effective dividend and accretion on preferred stock		224			223
Net income available to common shareholders	$	251		$	780

Common Share and Per Common Share Data
Net income, basic and diluted	$	0.08		$	0.26
Shares outstanding at period end		2,955,649			2,952,303
Weighted average shares, basic and diluted		2,955,649			2,949,166
Book value at period end	$	7.39		$	11.86
Cash dividends	$	-		$	0.10

FIRST NATIONAL CORPORATION

Quarterly Performance Summary

(in thousands, except share and per share data)

	(unaudited) For the Three Months Ended
	March 31, 2012			March 31, 2011
Key Performance Ratios
Return on average assets		0.36	%		0.74	%
Return on average equity		5.17	%		8.31	%
Net interest margin		4.14	%		3.89	%
Efficiency ratio (1)		70.27	%		69.67	%

Asset Quality
Loan charge-offs	$	1,426		$	3,225
Loan recoveries		125			88
Net charge-offs		1,301			3,137
Non-accrual loans		10,370			11,016
Other real estate owned, net		5,562			5,428
Nonperforming assets		15,932			16,444

Average Balances
Average assets	$	529,469		$	552,939
Average earning assets		499,681			522,432
Average shareholders’ equity		36,981			48,931


	(unaudited)
	March 31, 2012			March 31, 2011
Capital Ratios
Tier 1 capital	$	45,522		$	58,027
Total capital		50,595			63,641
Total capital to risk-weighted assets		12.74	%		14.41	%
Tier 1 capital to risk-weighted assets		11.46	%		13.14	%
Leverage ratio		8.60	%		10.50	%

Balance Sheet
Cash and due from banks	$	9,477		$	7,329
Interest-bearing deposits in banks		19,553			14,912
Federal funds sold		-			15,000
Securities available for sale, at fair value		84,627			66,660
Restricted securities, at cost		2,775			3,153
Loans held for sale		329			150
Loans, net of allowance for loan losses		376,758			413,148
Premises and equipment, net		19,446			20,020
Interest receivable		1,523			1,632
Other assets		13,755			18,231
Total assets	$	528,243		$	560,235

Noninterest-bearing demand deposits	$	85,043		$	82,226
Savings and interest-bearing demand deposits		204,682			185,076
Time deposits		174,870			210,421
Total deposits	$	464,595		$	477,723
Other borrowings		14,094			20,117
Trust preferred capital notes		9,279			9,279
Other liabilities		4,131			3,937
Total liabilities	$	492,099		$	511,056

FIRST NATIONAL CORPORATION

Quarterly Performance Summary

(in thousands, except share and per share data)

	(unaudited)
	March 31, 2012			March 31, 2011
Balance Sheet (continued)
Preferred stock	$	14,299		$	14,160
Common stock		3,695			3,690
Surplus		1,644			1,613
Retained earnings		16,753			29,455
Accumulated other comprehensive income (loss), net		(247	)		261
Total shareholders’ equity	$	36,144		$	49,179

Total liabilities and shareholders’ equity	$	528,243		$	560,235

Loan Data
Mortgage loans on real estate:
Construction and land development	$	49,893		$	50,655
Secured by farm land		6,148			6,018
Secured by 1-4 family residential		125,628			120,863
Other real estate loans		169,590			196,190
Loans to farmers (except those secured by real estate)		2,378			2,341
Commercial and industrial loans (except those secured by real estate)		27,071			37,318
Consumer installment loans		8,565			11,881
Deposit overdrafts		100			128
All other loans		1,021			922
Total loans	$	390,394		$	426,316
Allowance for loan losses		13,636			13,168
Loans, net	$	376,758		$	413,148



(1) The efficiency ratio is computed by dividing noninterest expense excluding the provision for other real estate owned and gains and losses on other real estate owned by the sum of net interest income on a tax equivalent basis and noninterest income excluding gains and losses on sales of securities and premises and equipment. Tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit for 2012 and 2011 was 34%. Net interest income on a tax equivalent basis was $5,139 and $5,011 for the three months ended March 31, 2012 and 2011, respectively. Noninterest income excluding gains and losses on sales of securities and premises and equipment was $1,397 and $1,340 for the three months ended March 31, 2012 and 2011, respectively. The efficiency ratio is a non-GAAP financial measure that management believes provides investors with important information regarding operational efficiency. Such information is not in accordance with generally accepted accounting principles (GAAP) and should not be construed as such. Management believes such financial information is meaningful to the reader in understanding operational performance, but cautions that such information not be viewed as a substitute for GAAP.