National Bankshares, Inc. Reports Higher First Quarter Income

BLACKSBURG, VA--(Marketwire - Apr 12, 2012) - Today, National Bankshares, Inc. (NASDAQ: NKSH) announced net income of almost $4.43 million for the quarter ended March 31, 2012, or 10.06%, above the total reported for the first quarter of 2011. Basic net income per share was $0.64, which compares with $0.58 for the first three months last year. The return on average assets for the first quarter was 1.67%, and it was 1.60% for the three months ended March 31, 2011. The return on average equity was 12.40% and 12.44% for the same two periods. Total loans at quarter-end, at $585.49 million, were down slightly from the total of $588.88 million at the end of March last year. Noninterest income was $2.15 million, an 11.27% increase over the $1.93 million at March 31, 2011. At March 31, 2012, the Company had total assets of $1.08 billion, an increase of 5.58% over the end of the first quarter of 2011 and up slightly from total assets of nearly $1.07 billion at year-end.

National Bankshares' Chairman, President & CEO James G. Rakes commented, "The increase in our first quarter earnings reflects continued economic recovery for our customers. We see encouraging indications of loan demand, but that demand remains slower than we would like. We also see steady growth in most noninterest income categories, and we have been able to contain noninterest expense."

National Bankshares, Inc., headquartered in Blacksburg, Virginia, is the parent company of National Bank of Blacksburg, which does business as National Bank, and of National Bankshares Financial Services, Inc. National Bank is a community bank operating from 25 offices throughout Southwest Virginia. National Bankshares Financial Services, Inc. is an investment and insurance subsidiary in the same trade area. The Company's stock is traded on the NASDAQ Capital Market under the symbol "NKSH." Additional information is available at www.nationalbankshares.com.

Forward-Looking Statements
Certain statements in this press release may be "forward-looking statements." Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results that are not statements of historical fact and that involve significant risks and uncertainties. Although the Company believes that its expectations with regard to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual Company results will not differ materially from any future results implied by the forward-looking statements. Actual results may be materially different from past or anticipated results because of many factors, some of which may include changes in economic conditions, the interest rate environment, legislative and regulatory requirements, new products, competition, changes in the stock and bond markets and technology. The Company does not update any forward-looking statements that it may make.

National Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
($ in thousands, except for per share data)					March 31, 2012				March 31, 2011				December 31, 2011
Assets
Cash and due from banks					$	12,241			$	11,800			$	11,897
Interest-bearing deposits						101,301				55,674				98,355
Federal funds sold						---				---				---
Securities available for sale						198,346				190,844				174,918
Securities held to maturity						139,367				132,669				143,995
		Total securities				337,713				323,513				318,913
Mortgage loans held for sale						1,371				---				2,623
Loans:
	Loans, net of unearned income and deferred fees					584,564				587,902				588,470
	Less: allowance for loan losses					(8,063	)			(8,245	)			(8,068	)
		Loans, net				576,501				579,657				580,402
Bank premises and equipment, net						10,563				10,366				10,393
Accrued interest receivable						6,175				6,514				6,304
Other real estate owned						940				2,222				1,489
Intangible assets						10,188				11,272				10,460
Bank-owned life insurance						19,991				17,415				19,812
Other assets						6,858				8,125				6,454
		Total assets			$	1,083,842			$	1,026,558			$	1,067,102
Liabilities and Stockholders' Equity
Noninterest-bearing deposits					$	145,070			$	136,769			$	142,163
Interest-bearing demand deposits						415,352				372,470				404,801
Savings deposits						65,322				58,273				61,298
Time deposits						306,048				318,383				311,071
		Total deposits				931,792				885,895				919,333
Other borrowed funds						---				---				---
Accrued interest payable						191				260				206
Other liabilities						7,067				6,738				6,264
		Total liabilities				939,050				892,893				925,803
Stockholders' Equity
Preferred stock of no par value. Authorized 5,000,000 shares; none issued and outstanding						---				---				---
Common stock of $1.25 par value. Authorized 10,000,000 shares; issued and outstanding 6,939,974 shares at March 31, 2012, 6,935,974 at March 31, 2011 and 6,939,974 at December 31, 2011						8,675				8,670				8,675
Retained earnings						138,374				127,218				133,945
Accumulated other comprehensive gain, net						(2,257	)			(2,223	)			(1,321	)
		Total stockholders' equity				144,792				133,665				141,299
			Total liabilities and stockholders' equity		$	1,083,842			$	1,026,558			$	1,067,102

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
				Three Months Ended
($ in thousands, except for per share data)				March 31, 2012			March 31, 2011
Interest Income
Interest and fees on loans				$	8,878		$	9,095
Interest on federal funds					---			---
Interest on interest-bearing deposits					71			32
Interest on securities - taxable					1,589			1,662
Interest on securities - nontaxable					1,576			1,676
		Total interest income			12,114			12,465
Interest Expense
Interest on time deposits of $100,000 or more					425			561
Interest on other deposits					1,692			1,818
Interest on borrowed funds					---			---
		Total interest expense			2,117			2,379
		Net interest income			9,997			10,086
Provision for loan losses					672			800
		Net interest income after provision for loan losses			9,325			9,286
Noninterest Income
Service charges on deposit accounts					631			612
Other service charges and fees					49			58
Credit card fees					794			733
Trust income					326			246
Bank-owned life insurance					200			184
Other income					99			91
Realized securities gains, net					53			10
		Total noninterest income			2,152			1,934
Noninterest Expense
Salaries and employee benefits					2,956			2,904
Occupancy and furniture and fixtures					397			423
Data processing and ATM					392			444
FDIC assessment					109			346
Credit card processing					572			586
Intangibles and goodwill amortization					271			271
Net costs of other real estate owned					48			134
Franchise taxes					162			242
Other operating expenses					804			734
		Total noninterest expense			5,711			6,084
Income before income tax expense					5,766			5,136
Income tax expense					1,337			1,112
		Net income		$	4,429		$	4,024
Basic net income per share				$	0.64		$	0.58
Fully diluted net income per share				$	0.64		$	0.58
Weighted average outstanding number of common shares
		Basic			6,939,974			6,933,780
		Diluted			6,954,637			6,957,450
Dividends declared per share				$	---		$	---
Dividend payout ratio					---			---
Book value per share				$	20.86		$	19.27

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Months Ended
($ in thousands, except for per share data)		March 31, 2012				March 31, 2011
Net income		$	4,429			$	4,024
Other Comprehensive Income, Net of Tax
Unrealized holding gains (losses) on available for sale securities net of deferred taxes of $(489) and $228			(907	)			423
Reclassification adjustment, net of income taxes of $(15) and $(3)			(29	)			(5	)
Other comprehensive income (loss), net of tax of $(504) and $225		$	(936	)		$	418
Total comprehensive income		$	3,493			$	4,442

Key Ratios and Other Data
(Unaudited)
		Three Months Ended
Average Balances		March 31, 2012				March 31, 2011
Cash and due from banks		$	11,865			$	11,420
Interest-bearing deposits			110,901				54,089
Securities available for sale			175,232				187,510
Securities held to maturity			140,743				132,322
Mortgage loans held for sale			1,213				696
Gross loans			585,080				585,444
Loans, net			575,583				576,614
Intangible assets			10,344				11,428
Total assets			1,068,848				1,016,979
Total deposits			918,387				877,294
Other borrowings			---				---
Stockholders' equity			143,603				131,191
Interest-earning assets			1,012,224				959,550
Interest-bearing liabilities			780,804				747,612
Financial Ratios
Return on average assets			1.67	%			1.60	%
Return on average equity			12.40	%			12.44	%
Net interest margin			4.36	%			4.68	%
Net interest income - fully taxable equivalent		$	10,940			$	11,066
Efficiency ratio			43.63	%			46.80	%
Average equity to average assets			13.44	%			12.90	%
Allowance for Loan Losses
Beginning balance		$	8,068			$	7,664
Provision for losses			672				800
Charge-offs			(700	)			(243	)
Recoveries			23				24
Ending balance		$	8,063			$	8,245

Asset Quality Data
(Unaudited)
Nonperforming Assets		March 31, 2012				March 31, 2011
Nonaccrual loans		$	1,789			$	2,339
Nonaccrual restructured loans			3,539				5,314
Total nonperforming loans			5,328				7,653
Other real estate owned			940				2,222
Total nonperforming assets		$	6,268			$	9,875
Accruing restructured loans		$	3,742			$	884
Loans 90 days or more past due		$	209			$	1,078
Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			1.07	%			1.67	%
Allowance for loan losses to total loans			1.38	%			1.40	%
Allowance for loan losses to nonperforming loans			151.33	%			107.74	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.04	%			0.18	%