National Bankshares, Inc. Posts Record Earnings for 2012

BLACKSBURG, VA--(Marketwire - Feb 14, 2013) - National Bankshares, Inc. (NASDAQ: NKSH) today announced that it had record net income approaching $17.75 million for the twelve months ended December 31, 2012, an increase over the nearly $17.64 million earned in 2011. The 2012 return on average assets and return on average equity was 1.64% and 12.01%, respectively. Basic earnings per share were $2.56 in 2012 compared to $2.54 for 2011. National Bankshares, Inc. ended 2012 with total assets of over $1.10 billion, up by 3.49% over the roughly $1.07 billion in total assets reported at December 31, 2011.

Commenting on the Company's financial results, National Bankshares Chairman, President & CEO James G. Rakes said, "We are pleased with our strong operating results for 2012 and, in 2013, we will continue to focus on banking fundamentals and serving our existing and new customers, as well as our community. We are mindful of controlling costs, but will move forward with our efforts to invest in technology and innovations to enhance our customers' banking experience."

Mr. Rakes continued, "Even with the additional regulatory burdens and economic challenges in our market area, we were able to provide our stockholders dividends of $1.10 per share in 2012 compared to $1.00 in 2011. This per share dividend payment amount resulted in a dividend payout ratio of 43.04% in 2012 compared to 39.34% in 2011."

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)					December 31, 2012				December 31, 2011
Assets
Cash and due from banks					$	14,783			$	11,897
Interest-bearing deposits						96,597				98,355
Federal funds sold						---				---
Securities available for sale						191,504				174,918
Securities held to maturity						160,539				143,995
		Total securities				352,043				318,913
Mortgage loans held for sale						2,796				2,623
Loans:
	Loans, net of unearned income and deferred fees					592,162				588,470
	Less allowance for loan losses					(8,349	)			(8,068	)
		Loans, net				583,813				580,402
Bank premises and equipment, net						10,401				10,393
Accrued interest receivable						6,247				6,304
Other real estate owned						1,435				1,489
Intangible assets						9,377				10,460
Bank-owned life insurance						20,523				19,812
Other assets						6,346				6,454
		Total assets			$	1,104,361			$	1,067,102
Liabilities and Stockholders' Equity
Noninterest-bearing deposits					$	144,252			$	142,163
Interest-bearing demand deposits						455,713				404,801
Savings deposits						69,063				61,298
Time deposits						277,738				311,071
		Total deposits				946,766				919,333
Accrued interest payable						139				206
Other liabilities						7,347				6,264
		Total liabilities				954,252				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 6,947,974 shares at December 31, 2012 and 6,939,974 at December 31, 2011						8,685				8,675
Retained earnings						144,162				133,945
Accumulated other comprehensive loss						(2,738	)			(1,321	)
		Total stockholders' equity				150,109				141,299
			Total liabilities and stockholders' equity		$	1,104,361			$	1,067,102

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
			Three Months Ended								Twelve Months Ended
			December 31, 2012				December 31, 2011				December 31, 2012			December 31, 2011
($ in thousands, except for per share data)
Interest Income
Interest and fees on loans			$	8,800			$	9,128			$	35,354		$	36,514
Interest on federal funds				---				---				---			---
Interest on interest-bearing deposits				53				51				240			155
Interest on securities - taxable				1,622				1,630				6,613			6,745
Interest on securities - nontaxable				1,662				1,620				6,463			6,532
	Total interest income			12,137				12,429				48,670			49,946
Interest Expense
Interest on time deposits of $100,000 or more				320				468				1,491			2,019
Interest on other deposits				1,496				1,709				6,396			7,165
	Total interest expense			1,816				2,177				7,887			9,184
	Net interest income			10,321				10,252				40,783			40,762
Provision for loan losses				580				753				3,134			2,949
	Net interest income after provision for loan losses			9,741				9,499				37,649			37,813
Noninterest Income
Service charges on deposit accounts				638				665				2,594			2,617
Other service charges and fees				113				113				243			287
Credit card fees				837				832				3,278			3,197
Trust income				276				270				1,313			1,087
Bank-owned life insurance				209				203				814			762
Other income				131				156				472			449
Realized securities gains (losses), net				(8	)			18				25			11
	Total noninterest income			2,196				2,257				8,739			8,410
Noninterest Expense
Salaries and employee benefits				2,991				2,796				12,005			11,357
Occupancy and furniture and fixtures				408				392				1,589			1,599
Data processing and ATM				387				412				1,593			1,701
FDIC assessment				132				(372	)			475			677
Credit card processing				625				614				2,442			2,485
Intangibles and goodwill amortization				271				270				1,083			1,083
Net costs of other real estate owned				(1	)			237				208			518
Franchise taxes				255				161				901			780
Other operating expenses				798				832				3,100			3,138
	Total noninterest expense			5,866				5,342				23,396			23,338
Income before income tax expense				6,071				6,414				22,992			22,885
Income tax expense				1,386				1,525				5,245			5,247
	Net income		$	4,685			$	4,889			$	17,747		$	17,638
Basic net income per share			$	0.67			$	0.70			$	2.56		$	2.54
Fully diluted net income per share			$	0.67			$	0.70			$	2.55		$	2.54
Weighted average outstanding number of common shares
	Basic			6,947,887				6,939,148				6,942,411			6,936,869
	Diluted			6,964,482				6,949,960				6,959,867			6,950,863
Dividends declared per share			$	0.57			$	0.52			$	1.10		$	1.00
Dividend payout ratio				---				---				43.04			39.34
Book value per share			$	---			$	---			$	21.60		$	20.36

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Months Ended
($ in thousands)		December 31, 2012				December 31, 2011
Net Income		$	4,685			$	4,889
Other Comprehensive Income, Net of Tax
Unrealized holding losses on available for sale securities net of deferred taxes of ($141) in 2012 and ($222) in 2011			(261	)			(412	)
Reclassification adjustment, net of income taxes of $3 in 2012 and $2 in 2011			6				3
Net pension loss arising during the period, net of taxes of ($405) in 2012 and ($731) in 2011			(752	)			(1,356	)
Less: amortization of prior service cost included in net periodic pension cost, net taxes of ($35) in 2012 and ($35) in 2011			(66	)			(66	)
Other comprehensive loss, net of tax of ($578) and ($986)		$	(1,073	)		$	(1,831	)
Total Comprehensive Income		$	3,612			$	3,058

		Twelve Months Ended
($ in thousands)		December 31, 2012				December 31, 2011
Net Income		$	17,747			$	17,638
Other Comprehensive Income, Net of Tax
Unrealized holding gains (losses) on available for sale securities net of deferred taxes of ($320) in 2012 and $1,468 in 2011			(592	)			2,725
Reclassification adjustment, net of income taxes of ($3) in 2012 and $9 in 2011			(7	)			17
Net pension loss arising during the period, net of taxes of ($405) in 2012 and ($731) in 2011			(752	)			(1,356	)
Less: amortization of prior service cost included in net periodic pension cost, net taxes of ($35) in 2012 and ($35) in 2011			(66	)			(66	)
Other comprehensive income (loss), net of tax of ($763) and $711		$	(1,417	)		$	1,320
Total Comprehensive Income		$	16,330			$	18,958

Key Ratios and Other Data
(Unaudited)
		Three Months Ended								Twelve Months Ended
Average Balances		December 31, 2012				December 31, 2011				December 31, 2012				December 31, 2011
Cash and due from banks		$	8,958			$	12,548			$	11,129			$	11,654
Interest-bearing deposits			89,703				87,266				94,724				64,977
Securities available for sale			192,724				177,387				189,850				186,296
Securities held to maturity			161,344				139,318				149,566				134,612
Mortgage loans held for sale			2,543				1,411				1,765				818
Gross loans			591,604				590,425				589,129				589,414
Loans, net			582,272				580,766				579,817				580,037
Intangible assets			9,531				10,614				9,936				11,019
Total assets			1,091,032				1,050,417				1,080,351				1,031,899
Total deposits			932,678				902,055				925,986				888,044
Other borrowings			---				---				---				---
Stockholders' equity			151,660				142,292				147,812				136,794
Interest-earning assets			1,032,929				990,999				1,019,887				973,171
Interest-bearing liabilities			789,684				760,567				784,717				752,164
Financial ratios
Return on average assets			1.71	%			1.85	%			1.64	%			1.71	%
Return on average equity			12.29	%			13.63	%			12.01	%			12.89	%
Net interest margin			4.37	%			4.50	%			4.39	%			4.59	%
Net interest income - fully taxable equivalent		$	11,354			$	11,230			$	44,712			$	41,914
Efficiency ratio			43.29	%			39.66	%			43.77	%			44.00	%
Average equity to average assets			13.90	%			13.55	%			13.68	%			13.26	%
Allowance for loan losses
Beginning balance		$	8,254			$	8,719			$	8,068			$	7,664
Provision for losses			580				753				3,134				2,949
Charge-offs			(509	)			(1,423	)			(2,953	)			(2,628	)
Recoveries			24				19				100				83
Ending balance		$	8,349			$	8,068			$	8,349			$	8,068

Asset Quality Data
(Unaudited)
Nonperforming assets		December 31, 2012				December 31, 2011
Nonaccrual loans		$	3,466			$	1,398
Nonaccrual restructured loans			2,151				3,806
Total nonperforming loans			5,617				5,204
Other real estate owned			1,435				1,489
Total nonperforming assets		$	7,052			$	6,693
Accruing restructured loans		$	2,005			$	3,756
Loans 90 days or more past due		$	170			$	481
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			1.19	%			1.13	%
Allowance for loan losses to total loans			1.41	%			1.37	%
Allowance for loan losses to nonperforming loans			148.64	%			155.03	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.03	%			0.08	%