National Bankshares, Inc. Reports First Quarter Income

BLACKSBURG, VA--(Marketwired - Apr 18, 2013) -  Today, National Bankshares, Inc. (NASDAQ: NKSH) announced results for the first quarter of 2013. Net income was $4.22 million for the quarter ended March 31, 2013. Basic net income per share was $0.61. The return on average assets for the first quarter was 1.56% and the return on average equity was 11.26%. At March 31, 2013, the Company had total assets of $1.10 billion, an increase of 1.35% when compared to the end of the first quarter of 2012.

National Bankshares' Chairman, President & CEO James G. Rakes commented, "During the first quarter of 2013, we were faced with the continued compression of the net interest margin and soft loan demand, but we still are delivering a strong financial performance for our stockholders. Although total loans at quarter-end, almost $574.96 million, were down slightly from the total of $584.56 million at the end of March last year, our returns on assets and equity compare favorably among peer financial institutions. We are striving to provide services and loan products to our customers and market area by adding quality loans to our portfolio. It is important to us as community bankers to put deposit dollars from our local markets to work in those same markets by making good loans." Mr. Rakes went on to say, "Our investment in the Company's technology infrastructure continued into the first quarter with the roll-out of our mobile banking product. As community bankers, we believe that it is important to have a solid platform from which to offer customers a full range of products and services. But we think it is even more important for our customers to have a trusted person to help them with their financial transactions. It is this relationship-based business philosophy that has guided us since the founding of National Bank in 1891 and will continue to guide us in the future."

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, 2013				March 31, 2012				December 31, 2012
Assets
Cash and due from banks					$	10,674			$	12,241			$	14,783
Interest-bearing deposits						107,176				101,301				96,597
Securities available for sale						192,954				198,346				191,504
Securities held to maturity						166,947				139,367				160,539
		Total securities				359,901				337,713				352,043
Mortgage loans held for sale						313				1,371				2,796
Loans:
	Loans, net of unearned income and deferred fees					574,958				584,564				592,162
	Less: allowance for loan losses					(8,291	)			(8,063	)			(8,349	)
		Loans, net				566,667				576,501				583,813
Bank premises and equipment, net						10,237				10,563				10,401
Accrued interest receivable						5,878				6,175				6,247
Other real estate owned						1,094				940				1,435
Intangible assets						9,106				10,189				9,377
Bank-owned life insurance						20,690				19,991				20,523
Other assets						6,767				6,857				6,346
		Total assets			$	1,098,503			$	1,083,842			$	1,104,361
Liabilities and Stockholders' Equity
Noninterest-bearing deposits					$	144,815			$	145,070			$	144,252
Interest-bearing demand deposits						449,992				415,352				455,713
Savings deposits						72,420				65,322				69,063
Time deposits						269,892				306,048				277,738
		Total deposits				937,119				931,792				946,766
Accrued interest payable						146				191				139
Other liabilities						7,878				7,067				7,347
		Total liabilities				945,143				939,050				954,252
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 March 31, 2013, 6,939,974 at March 31, 2012 and 6,947,974 at December 31, 2012						8,685				8,675				8,685
Retained earnings						148,378				138,374				144,162
Accumulated other comprehensive loss, net						(3,703	)			(2,257	)			(2,738	)
		Total stockholders' equity				153,360				144,792				150,109
			Total liabilities and stockholders' equity		$	1,098,503			$	1,083,842			$	1,104,361

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
			Three Months Ended
			March 31, 2013			March 31, 2012
($ in thousands, except for per share data)
Interest Income
Interest and fees on loans			$	8,319		$	8,878
Interest on interest-bearing deposits				58			71
Interest on securities - taxable				1,539			1,589
Interest on securities - nontaxable				1,648			1,576
	Total interest income			11,564			12,114
Interest Expense
Interest on time deposits of $100,000 or more				268			425
Interest on other deposits				1,411			1,692
	Total interest expense			1,679			2,117
	Net interest income			9,885			9,997
Provision for loan losses				671			672
	Net interest income after provision for loan losses			9,214			9,325
Noninterest Income
Service charges on deposit accounts				588			631
Other service charges and fees				60			49
Credit card fees				740			794
Trust income				289			326
Bank-owned life insurance				188			200
Other income				150			99
Realized securities gains, net				95			53
	Total noninterest income			2,110			2,152
Noninterest Expense
Salaries and employee benefits				2,940			2,956
Occupancy and furniture and fixtures				432			397
Data processing and ATM				393			392
FDIC assessment				136			109
Credit card processing				552			572
Intangibles and goodwill amortization				271			271
Net costs of other real estate owned				75			48
Franchise taxes				258			162
Other operating expenses				889			804
	Total noninterest expense			5,946			5,711
Income before income tax expense				5,378			5,766
Income tax expense				1,162			1,337
	Net income		$	4,216		$	4,429
Basic net income per share			$	0.61		$	0.64
Fully diluted net income per share			$	0.60		$	0.64
Weighted average outstanding number of common shares
	Basic			6,947,974			6,939,974
	Diluted			6,969,073			6,954,637
Dividends declared per share				---			---
Dividend payout ratio				---			---
Book value per share			$	22.07		$	20.86

Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Months Ended
($ in thousands, except for per share data)		March 31, 2013				March 31, 2012
Net Income		$	4,216			$	4,429
Other Comprehensive Income, net of tax
Unrealized holding losses on available for sale securities net of deferred taxes of ($486) and ($489)			(903	)			(907	)
Reclassification adjustment, net of income taxes of ($33) and ($15)			(62	)			(29	)
Other comprehensive loss, net of tax of ($1,485) and ($504)		$	(965	)		$	(936	)
Total Comprehensive Income		$	3,251			$	3,493

Key Ratios and Other Data
(Unaudited)
Average Balances		March 31, 2013				March 31, 2012
Cash and due from banks		$	12,023			$	11,865
Interest-bearing deposits			99,216				110,901
Securities available for sale			190,938				175,232
Securities held to maturity			162,264				140,743
Mortgage loans held for sale			1,507				1,213
Gross loans			583,337				585,080
Loans, net			574,030				575,583
Intangible assets			9,262				10,344
Total assets			1,092,880				1,068,848
Total deposits			933,185				918,387
Other borrowings			---				---
Stockholders' equity			151,852				143,603
Interest-earning assets			1,033,967				1,012,224
Interest-bearing liabilities			795,321				780,804
Financial ratios
Return on average assets			1.56	%			1.67	%
Return on average equity			11.26	%			12.40	%
Net interest margin			4.28	%			4.36	%
Net interest income - fully taxable equivalent		$	10,906			$	10,940
Efficiency ratio			45.68	%			43.63	%
Average equity to average assets			13.89	%			13.44	%
Allowance for loan losses
Beginning balance		$	8,349			$	8,068
Provision for losses			671				672
Charge-offs			(754	)			(700	)
Recoveries			25				23
Ending balance		$	8,291			$	8,063

Asset Quality Data
(Unaudited)
Nonperforming assets		March 31, 2013				March 31, 2012
Nonaccrual loans		$	10,734			$	1,789
Nonaccrual restructured loans			1,691				3,539
Total nonperforming loans			12,425				5,328
Other real estate owned			1,094				940
Total nonperforming assets		$	13,519			$	6,268
Accruing restructured loans		$	5,732			$	3,742
Loans 90 days or more past due		$	568			$	210
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			2.35	%			1.07	%
Allowance for loan losses to total loans			1.44	%			1.38	%
Allowance for loan losses to nonperforming loans			66.73	%			151.33	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.10	%			0.04	%