National Bankshares, Inc. Reports Second Quarter Earnings

 | Source: National Bankshares, Inc. National Bankshares, Inc.

BLACKSBURG, VA--(Marketwire - July 19, 2007) - National Bankshares, Inc. (NASDAQ: NKSH) posted year-to-date net income of nearly $6.26 million on June 30, 2007, an increase over the $6.23 million earned at the end of the second quarter in 2006. Net income earned in the second quarter this year was $3.14 million, slightly behind the $3.23 million reported in the same period last year. These earnings figures translate to 2007 year-to-date basic net income per share of $0.90, as compared with $0.89 last year. Total assets at June 30 were nearly $877.10 million, up by 3.99% over total assets of $843.41 million on June 30, 2006. In a competitive loan market, total loans grew from $490.16 million at the same time last year to $503.12 million at the end of June 2007.

National Bankshares' Chairman, President & CEO James G. Rakes, commented, "The Company has been able to compensate for the continued effects of compression in the net interest margin in three ways. First, the quality of the loan portfolio remains very good, so contributions to the provision for loan losses have been minimal. Second, noninterest income is up by 3.9% over last year. Finally, the May 2006 merger of our two subsidiary banks has produced savings in several expense categories, and total noninterest expense has declined from $10.90 million at June 30 last year to $10.76 million at the same point this year." Mr. Rakes added, "We believe that National Bankshares' history of profitability, together with our practice of sharing those profits with our stockholders in the form of fair dividends, will serve the Company and its stockholders well over time."

National Bankshares, Inc. is the parent company of National Bank, a 117 year-old community bank that operates from 26 offices throughout Southwest Virginia. The Company, which is headquartered in Blacksburg, Virginia, also has a non-bank subsidiary, National Bankshares Financial Services, Inc. which offers insurance and investment products. National Bankshares, Inc. stock trades on the NASDAQ Stock Market under the symbol "NKSH." Additional information is available on the Company's web site at www.nationalbankshares.com. 

                National Bankshares, Inc. And Subsidiaries

(000's), except ratios and
 percent data

Three months ending            June 30, 2007  June 30, 2006      Change
Selected Consolidated Data :
                               -------------  -------------  -------------
Interest income                $      12,695  $      11,849           7.14%
                               -------------  -------------  -------------
Interest expense                       5,370          4,374          22.77%
                               -------------  -------------  -------------
Net interest income                    7,325          7,475          -2.01%
                               -------------  -------------  -------------
Provision for loan losses                 13              7          85.71%
                               -------------  -------------  -------------
Trust income                             360            365          -1.37%
                               -------------  -------------  -------------
Other noninterest income               1,899          1,847           2.82%
                               -------------  -------------  -------------
Salary and benefits                    2,778          2,929          -5.16%
                               -------------  -------------  -------------
Occupancy expense                        412            472         -12.71%
                               -------------  -------------  -------------
Amortization of intangibles              285            285           0.00%
                               -------------  -------------  -------------
Other noninterest expense              2,029          1,715          18.31%
                               -------------  -------------  -------------
Income taxes                            -927         -1,052         -11.88%
                               -------------  -------------  -------------
Net income                     $       3,140  $       3,227          -2.70%
                               -------------  -------------  -------------
Basic net income per share     $        0.45  $        0.46  -$       0.01
                               -------------  -------------  -------------

Daily averages:
                               -------------  -------------  -------------
Gross loans                    $     509,826  $     494,387           3.12%
                               -------------  -------------  -------------
Loans, net                           503,706        488,039           3.21%
                               -------------  -------------  -------------
Total securities                     288,215        271,677           6.09%
                               -------------  -------------  -------------
Total deposits                       756,952        738,669           2.48%
                               -------------  -------------  -------------
Other borrowings                       2,235            753         196.81%
                               -------------  -------------  -------------
Stockholders' equity                 101,105         90,113          12.20%
                               -------------  -------------  -------------
Cash and due from                     14,213         15,830         -10.21%
                               -------------  -------------  -------------
Interest-earning assets              806,828        774,594           4.16%
                               -------------  -------------  -------------
Interest-bearing liabilities         648,844        625,375           3.75%
                               -------------  -------------  -------------
Intangible assets                     15,569         16,640          -6.44%
                               -------------  -------------  -------------
Total assets                         866,915        834,745           3.85%
                               -------------  -------------  -------------

Financial ratios: Note (1)
                               -------------  -------------  -------------
Return on average assets                1.45%          1.57%         -0.12
                               -------------  -------------  -------------
Return on average equity               12.46%         14.52%         -2.06
                               -------------  -------------  -------------
Net interest margin                     4.03%          4.30%         -0.27
                               -------------  -------------  -------------
Average equity to average
 assets                                11.66%         10.80%          0.87
                               -------------  -------------  -------------
 Note (1)  Ratio change
  measured in bp

Allowance for loan losses:
                               -------------  -------------  -------------
Beginning balance              $       5,045  $       5,418          -6.88%
                               -------------  -------------  -------------
Provision for losses                      13              7          85.71%
                               -------------  -------------  -------------
Charge-offs                              -89           -122         -27.05%
                               -------------  -------------  -------------
Recoveries                                31             37         -16.22%
                               -------------  -------------  -------------
Ending balance                 $       5,000  $       5,340          -6.37%
                               -------------  -------------  -------------


Year to Date                   June 30, 2007  June 30, 2006       Change
Selected Consolidated Data :
                               -------------  -------------  -------------
Interest income                $      25,225  $      23,432           7.65%
                               -------------  -------------  -------------
Interest expense                      10,786          8,612          25.24%
                               -------------  -------------  -------------
Net interest income                   14,439         14,820          -2.57%
                               -------------  -------------  -------------
Provision for loan losses                 10             24         -58.33%
                               -------------  -------------  -------------
Trust income                             733            745          -1.61%
                               -------------  -------------  -------------
Other noninterest income               3,705          3,526           5.08%
                               -------------  -------------  -------------
Salary and benefits                    5,619          5,840          -3.78%
                               -------------  -------------  -------------
Occupancy expense                        897          1,005         -10.75%
                               -------------  -------------  -------------
Amortization of intangibles              569            569           0.00%
                               -------------  -------------  -------------
Other noninterest expense              3,676          3,486           5.45%
                               -------------  -------------  -------------
Income taxes                          -1,850         -1,937          -4.49%
                               -------------  -------------  -------------
Net income                     $       6,256  $       6,230           0.42%
                               -------------  -------------  -------------
Basic net income per share     $        0.90  $        0.89  $        0.01
                               -------------  -------------  -------------
Fully diluted net income per
 share                         $        0.89  $        0.89  $        0.00
                               -------------  -------------  -------------
Dividends per share                        0              0  $        0.00
                               -------------  -------------  -------------
Dividend payout ratio                  41.30          40.53  $        0.77
                               -------------  -------------  -------------
Book value per share           $       14.14  $       13.29  $        0.85
                               -------------  -------------  -------------

Balance sheet at period-end:
                               -------------  -------------  -------------
Gross loans                    $     509,232  $     496,476           2.57%
                               -------------  -------------  -------------
Loans, net                     $     503,118  $     490,160           2.64%
                               -------------  -------------  -------------
Total securities                     282,955        267,677           5.71%
                               -------------  -------------  -------------
Cash and due From                     16,934         19,037         -11.05%
                               -------------  -------------  -------------
Total deposits                       771,316        746,581           3.31%
                               -------------  -------------  -------------
Other borrowings                         141             78          80.77%
                               -------------  -------------  -------------
Stockholders' equity                  98,674         93,173           5.90%
                               -------------  -------------  -------------
Intangible assets                     15,407         16,544          -6.87%
                               -------------  -------------  -------------
Total assets                         877,095        843,407           3.99%
                               -------------  -------------  -------------

Daily averages:
                               -------------  -------------  -------------
Gross loans                    $     506,452  $     492,905           2.75%
                               -------------  -------------  -------------
Loans, net                           500,292        486,541           2.83%
                               -------------  -------------  -------------
Total securities                     286,073        272,151           5.12%
                               -------------  -------------  -------------
Total deposits                       759,874        740,298           2.64%
                               -------------  -------------  -------------
Other borrowings                       1,160            772          50.26%
                               -------------  -------------  -------------
Stockholders' equity                  99,086         91,754           7.99%
                               -------------  -------------  -------------
Cash and due from                     14,453         16,493         -12.37%
                               -------------  -------------  -------------
Interest-earning assets              806,790        776,117           3.95%
                               -------------  -------------  -------------
Interest-bearing liabilities         654,345        627,882           4.21%
                               -------------  -------------  -------------
Intangible assets                     15,714         16,734          -6.10%
                               -------------  -------------  -------------
Total assets                         867,003        837,315           3.55%
                               -------------  -------------  -------------

Financial ratios: Note (1)
                               -------------  -------------  -------------
Return on average assets                1.46%          1.50%         -0.04
                               -------------  -------------  -------------
Return on average equity               12.73%         13.69%         -0.96
                               -------------  -------------  -------------
Net interest margin                     4.00%          4.22%         -0.22
                               -------------  -------------  -------------
Efficiency ratio                       52.55%         52.96%         -0.41
                               -------------  -------------  -------------
Average equity to average
 assets                                11.43%         10.96%          0.47
                               -------------  -------------  -------------
Note (1) Ratio change measured in bp

Allowance for loan losses:
                               -------------  -------------  -------------
Beginning balance              $       5,157  $       5,449          -5.36%
                               -------------  -------------  -------------
Provision for losses                      10             24         -58.33%
                               -------------  -------------  -------------
Charge-offs                             -225           -209           7.66%
                               -------------  -------------  -------------
Recoveries                                58             76         -23.68%
                               -------------  -------------  -------------
Ending balance                 $       5,000  $       5,340          -6.37%
                               -------------  -------------  -------------

Nonperforming assets:
                               -------------  -------------  -------------
Nonaccrual loans                       1,136            ---            ---
                               -------------  -------------  -------------
Restructured loans                       ---            ---            ---
                               -------------  -------------  -------------
Total nonperforming loans Note
 (2)                                   1,136              0            ---
                               -------------  -------------  -------------
Other real estate owned                  306            390         -21.54%
                               -------------  -------------  -------------
Total nonperforming assets     $       1,442  $         390         269.74%
                               -------------  -------------  -------------

Asset quality ratios: Note (3)
                               -------------  -------------  -------------
Nonperforming loans to total
 loans                                 0.224%           ---            ---
                               -------------  -------------  -------------
Allowance for loan losses to
 total loans                            0.98%          1.08%         -9.60%
                               -------------  -------------  -------------
Allowance for loan losses
to nonperforming loans                440.14%           ---            ---
                               -------------  -------------  -------------

Note (2)  Loans 90 days past due or more not included
Note (3)  Ratio change measured in bp

Contact Information: CONTACTS: James G. Rakes Chairman, President & CEO (540) 951-6236 J. Robert Buchanan Treasurer (276) 979-0341

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