Exhibit 99.1

First National Corporation Announces 30% Increase in Earnings

STRASBURG, Va., July 26, 2016 --- First National Corporation (the "Company" or "First National") (OTC: FXNC) today reported earnings of $1.4 million and earnings per share of $0.29 for the second quarter ended June 30, 2016, a 30% increase compared to $1.1 million or $0.22 per share for the first quarter of 2016. Earnings for the second quarter of 2015 were $116 thousand or $0.02 per share.

For the six months ended June 30, 2016, reported earnings totaled $2.5 million or $0.51 per share, compared to $331 thousand or $0.07 per share for the six months ended June 30, 2015.  Year-to-date earnings for 2016 were positively impacted by higher revenues from net interest income and noninterest income, combined with lower noninterest expenses. In addition, net income available to common shareholders was favorably impacted by the elimination of dividends on preferred stock. Year-to-date earnings for 2015 were negatively impacted by integration expenses totaling $877 thousand related to the acquisition of six bank branches and the assumption of $186.8 million of deposit liabilities. 

Select highlights for the second quarter include:

	Return on equity increased to 11.90%, compared to 9.39% for the first quarter of 2016, and 2.97% for the second quarter of 2015

	Net income available to common shareholders increased $334 thousand, or 30%, to $1.4 million compared to the first quarter of 2016, and increased $1.3 million compared to the second quarter of 2015

	The efficiency ratio improved to 71.64% for the quarter, compared to 77.32% in the prior quarter and 83.52% in the second quarter of 2015

	Noninterest expense decreased $234 thousand, or 4%, compared to the first quarter of 2016, and decreased $972 thousand, or 14%, compared to the second quarter of 2015

	Assets per employee increased to $4.2 million, compared to $3.5 million at the end of the second quarter of 2015

	Net interest income increased $97 thousand, or 2%, compared to the first quarter of 2016, and increased $728 thousand, or 14%, compared to the second quarter of 2015

	Net loans increased $11.3 million, or 3%, during the quarter, and increased $74.2 million, or 19%, over the prior year

	Noninterest income increased $169 thousand, or 9%, compared to the first quarter of 2016, and decreased $197 thousand, or 9%, compared to the second quarter of 2015

"We continue to be pleased with the progress being made in our Company since the deposit and branch acquisition that was consummated in the second quarter of 2015," said Scott C. Harvard, president and chief executive officer of First National. Harvard added, "While we firmly believed the transaction was a significant strategic accomplishment, we recognized that it would take successful execution to drive the long term benefits to the Company. The Company's performance trends quarter over quarter since the acquisition reflect effective plan execution to date. Last year, the Company embarked on efficiency initiatives that focused on better use of technology and eliminating unnecessary processes and paperwork across the bank. The initiatives lead to improved customer service, higher productivity and reduced expenses. The bank consolidated one branch at the end of 2015 and has announced a second branch closure that will occur at the end of July 2016. Employee productivity has increased significantly as evidenced by the assets-to-employee ratio of $4.2 million at June 30, 2016, compared to $3.5 million one year ago. Successful execution of the deposit acquisition also included deliberate and disciplined deployment of the acquired funds into loan assets. Through the second quarter of this year, we have deployed over 30% of the acquired deposits into loans, positively impacting revenues and earnings, while liquidity remains available for potential loan and earnings growth. I couldn't be prouder of our entire team as we begin to reap the benefits of their efforts."

BRANCH ACQUISITION

On April 17, 2015, First Bank (the "Bank"), the Company's banking subsidiary, completed the acquisition of six banking offices with approximately $186.8 million of deposits in the Shenandoah Valley and central Virginia regions from Bank of America, N.A. (the "Acquisition" or "Branch Acquisition"). The Company incurred integration costs related to the Acquisition, including legal and professional fees, supplies, data processing and postage expenses that totaled $458 thousand for the second quarter of 2015, and $877 thousand for the six month period ended June 30, 2015. The Company did not incur integration costs during 2016.

At June 30, 2016, deposits in the acquired branches totaled $175.2 million, which was 94% of the deposit balances assumed in the Acquisition. The branch acquisition had a positive impact on the cost of funds for the Company. Excluding amortization of the time deposit valuation allowance, the cost of funds for the second quarter of 2016 for acquired branches was 0.22%, compared to the total cost of funds of the Company of 0.30% for the same period. The mix of deposits, which was comprised of a significant amount of noninterest-bearing deposits, remained consistent from the acquisition date through June 30, 2016. The Bank assembled an experienced lending team in its south region that made a meaningful contribution to loan growth during 2015 and in the first half of 2016.

BALANCE SHEET

Total assets of First National increased $10.3 million during the quarter to $711.3 million at June 30, 2016, and increased $15.5 million compared to June 30, 2015.  Loans, net of the allowance for loan losses, increased $11.3 million, or 3%, during the quarter to $459.8 million, and increased $74.2 million, or 19%, compared to one year ago.  While net loans increased over the prior periods, securities and interest-bearing deposits in banks combined decreased $357 thousand during the quarter to $194.3 million, and decreased $56.2 million compared to balances one year ago.

Total deposits decreased $2.8 million during the quarter to $630.3 million, and were $9.5 million higher than total deposits one year ago. When comparing the deposit portfolios at June 30, 2016, March 31, 2016 and June 30, 2015, there was no significant change in its composition with noninterest-bearing demand deposits, savings and interest-bearing demand deposits, and time deposits comprising 25%, 54% and 21% of total deposits, respectively.

Total shareholders' equity increased $1.6 million during the quarter to $49.3 million.  Tangible common equity totaled $47.3 million at June 30, 2016, compared to $45.6 million at March 31, 2016 and $42.1 million at June 30, 2015.  The Company exceeded its target capital levels at quarter-end.

NET INTEREST INCOME

Net interest income increased $97 thousand, or 2%, to $5.8 million for the quarter, compared to $5.7 million in the first quarter of 2016, and increased $728 thousand, or 14%, compared to $5.1 million for the second quarter of 2015.

Total interest income increased $87 thousand during the quarter to $6.3 million, compared to the first quarter of 2016 and increased $886 thousand, or 16%, compared to the second quarter of 2015. Interest income increased when compared to the first quarter of 2016 from growth in average earning assets. Compared to the second quarter of 2015, growth in interest income resulted primarily from higher average balances of loans and securities.

Total interest expense decreased $10 thousand during the quarter compared to the first quarter of 2016, and increased $158 thousand, or 49%, compared to the second quarter of 2015.  Comparing the second quarter of 2016 to the same period one year ago, the increase in interest expense resulted primarily from interest on deposits and interest on subordinated debt.  There was no subordinated debt on the Company's balance sheet during the second quarter of 2015; therefore, there was no related interest expense during that period.

NONINTEREST INCOME

Noninterest income increased $169 thousand, or 9%, to $2.1 million, compared to $1.9 million for the first quarter of 2016, and decreased $197 thousand when compared to the second quarter of 2015.

When compared to the first quarter of 2016, the increase in noninterest income was primarily attributable to higher revenue from service charges on deposit accounts. The decrease in noninterest income compared to the same period one year ago was primarily attributable to a $201 thousand bargain purchase gain included in other operating income in the second quarter of 2015, which resulted from the Acquisition.

NONINTEREST EXPENSE

Noninterest expense decreased $234 thousand, or 4%, to $5.9 million for the quarter compared to $6.1 million for the first quarter of 2016, and decreased $972 thousand, or 14%, compared to the second quarter of 2015. The decrease in expenses when compared to the first quarter of 2016 was primarily attributable to reductions in legal and professional fees, occupancy, and equipment expense.

Comparing current period results to the second quarter of 2015, the 14% decrease in total noninterest expense was attributable to lower salaries and employee benefit expense, other real estate owned and other operating expenses.  The decrease was also attributable to integration expenses from the Acquisition incurred in the second quarter of 2015 totaling $458 thousand.  Integration expenses were primarily included in legal and professional, supplies expense, data processing expense, and postage expense.

ASSET QUALITY/LOAN LOSS PROVISION

Credit quality continued to improve during the quarter as nonperforming assets decreased $1.9 million to 0.63% of total assets, compared to 0.91% at March 31, 2016, and 1.30% at June 30, 2015. Loans past due between 30 and 89 days and still accruing was 0.43% of total loans, compared to 0.38% at March 31, 2016 and 0.38% at June 30, 2015.

The Bank did not record provision for loan losses in the first or second quarters of 2016.  In the second quarter of 2015, the Bank recorded a recovery of loan losses of $100 thousand.  Net recoveries totaled $214 thousand in the second quarter of 2016, compared to net charge-offs of $4 thousand for the first quarter of 2016 and net charge-offs of $542 thousand for the second quarter of 2015.  Provision for loan losses was not required in the second quarter of 2016, primarily due to net recoveries of loans charged-off in prior periods and a decrease in the specific reserve component of the allowance for loan losses.  The allowance for loan losses totaled $5.7 million at June 30, 2016, $5.5 million at March 31, 2016, and $6.1 million at June 30, 2015, representing 1.23%, 1.22%, and 1.56% of total loans, respectively.

FORWARD-LOOKING STATEMENTS

Certain information contained 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 forward-looking statements relate to the Company's future operations and are generally identified by phrases such as "the Company expects," "the Company believes" or words of similar import. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. For details on factors that could affect expectations, see the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, and other filings with the Securities and Exchange Commission.

ABOUT FIRST NATIONAL CORPORATION

First National Corporation (OTC: FXNC) is the parent company and bank holding company of First Bank, a community bank that first opened for business in 1907 in Strasburg, Virginia. The Bank offers loan and deposit products and services through its website, www.fbvirginia.com, its mobile banking platform, a network of ATMs located throughout its market area, two loan production offices, a customer service center in a retirement community, and 15 bank branch office locations located throughout the Shenandoah Valley and central regions of Virginia. In addition to providing 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 invests in entities that provide investment services and title insurance.

FIRST NATIONAL CORPORATION

Quarterly Performance Summary

(in thousands, except share and per share data)

FIRST NATIONAL CORPORATION

Quarterly Performance Summary

(in thousands, except share and per share data)

FIRST NATIONAL CORPORATION

Year-to-Date Performance Summary

(in thousands, except share and per share data)

                      (unaudited)  

                           For the Six Months Ended 

FIRST NATIONAL CORPORATION

Year-to-Date Performance Summary

(in thousands, except share and per share data)

                        (unaudited)  

                              For the Six Months Ended 

⁽¹⁾ The efficiency ratio is computed by dividing noninterest expense excluding other real estate owned income/expense, amortization of intangibles, acquisition and integration related expenses, and gains and losses on disposal of premises and equipment by the sum of net interest income on a tax-equivalent basis and noninterest income, excluding gains and losses on sales of securities and bargain purchase gain.  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 is 34%. See the table above for the quarterly tax-equivalent net interest income and a reconciliation of net interest income to tax-equivalent net interest income.  The efficiency ratio is a non-GAAP financial measure that management believes provides investors with important information regarding operational efficiency.  Such information is not prepared in accordance with U.S. generally accepted accounting principles (GAAP) and should not be construed as such.  Management believes, however, 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.

⁽²⁾ All capital ratios reported are for the Bank.

CONTACTS

 

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