National Bankshares, Inc. Posts Record Earnings for 2011

BLACKSBURG, VA--(Marketwire - Feb 9, 2012) - National Bankshares, Inc. (NASDAQ: NKSH) today announced that it had record net income approaching $17.64 million for the twelve months ended December 31, 2011, a 13.29% increase over the nearly $15.57 million earned in 2010. The return on average assets for 2011 was 1.71% and the return on average equity was 12.89%. This compares to 1.57% and 12.07%, respectively, for 2010. Basic earnings per share were $2.54 in 2011 compared to $2.25 for 2010. National Bankshares, Inc. ended 2011 with total assets of almost $1.07 billion, up by 4.39% over the roughly $1.02 billion in total assets reported at December 31, 2010.

For the three months ended December 31, 2011, National Bankshares, Inc. had net income of close to $4.89 million, up from the nearly $3.81 million for the same three month period of 2010. Net interest income increased from $9.66 million for the fourth quarter of 2010 compared to $10.25 million for the last three months of 2011.

Commenting on the Company's financial results for 2011, National Bankshares Chairman, President & CEO James G. Rakes said, "During our 120^th anniversary year of the founding of National Bank, we were able to maintain strong core earnings despite continued challenges in the national and local economies that affect loan growth. Our subsidiary bank maintained its traditional community bank values and focus while finding ways to control costs despite the increased regulatory burden resulting from compliance with additional laws and regulations. Our 2011 record earnings were enhanced by an increase in net interest income, which was driven by an improved net interest margin. Equally important, the quality of our loan portfolio has shown improvement in 2011."

Mr. Rakes continued, "In 2011, we were pleased to be able to share the Company's positive operating results with our shareholders in the form of dividends of $1.00 per share in 2011 compared to $0.91 in 2010. We remain committed to serving our customers and communities in 2012 and continue working hard to find ways to increase yields on earning assets while containing controllable costs."

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, 2011				December 31, 2010
Assets
Cash and due from banks					$	11,897			$	9,858
Interest-bearing deposits						98,355				69,400
Federal funds sold						---				---
Securities available for sale						174,918				184,907
Securities held to maturity						143,995				131,000
		Total securities				318,913				315,907
Mortgage loans held for sale						2,623				2,460
Loans:
	Real estate construction loans					48,531				46,169
	Consumer real estate loans					150,224				153,405
	Commercial real estate loans					303,192				293,171
	Commercial non-real estate loans					39,274				37,547
	Public sector IDA					15,571				12,553
	Consumer non-real estate loans					33,072				34,543
		Total loans				589,864				577,388
	Less: unearned income and deferred fees					(952	)			(945	)
		Loans, net of unearned income and deferred fees				588,912				576,443
	Less: allowance for loan losses					(8,510	)			(7,664	)
		Loans, net				580,402				568,779
Bank premises and equipment, net						10,393				10,470
Accrued interest receivable						6,304				6,016
Other real estate owned						1,489				1,723
Intangible assets						10,460				11,543
Other assets						26,266				26,082
		Total assets			$	1,067,102			$	1,022,238
Liabilities and Stockholders' Equity
Noninterest-bearing deposits					$	142,163			$	131,540
Interest-bearing demand deposits						404,801				365,040
Savings deposits						61,298				55,800
Time deposits						311,071				332,203
		Total deposits				919,333				884,583
Other borrowed funds						---				---
Accrued interest payable						206				257
Other liabilities						6,264				8,211
		Total liabilities				925,803				893,051
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 December 31, 2011 and 6,933,474 at December 31, 2010						8,675				8,667
Retained earnings						133,945				123,161
Accumulated other comprehensive gain, net						(1,321	)			(2,641	)
		Total stockholders' equity				141,299				129,187
			Total liabilities and stockholders' equity		$	1,067,102			$	1,022,238

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
			Three Months Ended								Twelve Months Ended
			December 31, 2011				December 31, 2010				December 31, 2011			December 31, 2010
($ in thousands, except for per share data)
Interest Income
Interest and fees on loans			$	9,128			$	9,199			$	36,514		$	36,919
Interest on federal funds				---				---				---			---
Interest on interest-bearing deposits				51				43				155			128
Interest on securities - taxable				1,630				1,354				6,745			5,588
Interest on securities - nontaxable				1,620				1,669				6,532			6,504
	Total interest income			12,429				12,265				49,946			49,139
Interest Expense
Interest on time deposits of $100,000 or more				468				744				2,019			3,439
Interest on other deposits				1,709				1,859				7,165			7,719
Interest on borrowed funds				---				---				---			---
	Total interest expense			2,177				2,603				9,184			11,158
	Net interest income			10,252				9,662				40,762			37,981
Provision for loan losses				753				1,200				2,949			3,409
	Net interest income after provision for loan losses			9,499				8,462				37,813			34,572
Noninterest Income
Service charges on deposit accounts				665				666				2,617			2,858
Other service charges and fees				113				103				287			317
Credit card fees				832				783				3,197			2,954
Trust income				270				272				1,087			1,118
Bank-owned life insurance				203				202				762			760
Other income				156				139				449			354
Realized securities gains (losses), net				18				(13	)			11			(14	)
	Total noninterest income			2,257				2,152				8,410			8,347
Noninterest Expense
Salaries and employee benefits				2,796				2,758				11,357			10,963
Occupancy and furniture and fixtures				392				456				1,599			1,875
Data processing and ATM				412				379				1,701			1,499
FDIC assessment				(372	)			275				677			1,080
Credit card processing				614				620				2,485			2,300
Intangibles and goodwill amortization				270				271				1,083			1,083
Net costs of other real estate owned				237				34				518			214
Franchise taxes				161				241				780			963
Other operating expenses				832				786				3,138			3,150
	Total noninterest expense			5,342				5,820				23,338			23,127
Income before income tax expense				6,414				4,794				22,885			19,792
Income tax expense				1,525				987				5,247			4,223
	Net income		$	4,889			$	3,807			$	17,638		$	15,569
Basic net income per share			$	0.70			$	0.55			$	2.54		$	2.25
Fully diluted net income per share			$	0.70			$	0.55			$	2.54		$	2.24
Weighted average outstanding number of common shares
	Basic			6,939,148				6,933,474				6,936,869			6,933,474
	Diluted			6,949,660				6,957,364				6,950,788			6,949,936
Dividends declared per share			$	0.52			$	0.47			$	1.00		$	0.91
Dividend payout ratio				---				---				39.34			40.52
Book value per share			$	---			$	---			$	20.36		$	18.63

Key Ratios and Other Data
(Unaudited)
		Three Months Ended								Twelve Months Ended
Average Balances		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
Cash and due from banks		$	12,548			$	12,186			$	11,654			$	11,862
Interest-bearing deposits			87,266				73,785				64,977				55,477
Securities available for sale			177,387				164,993				186,296				161,504
Securities held to maturity			139,318				129,123				134,612				128,028
Mortgage loans held for sale			1,411				1,811				818				1,339
Gross loans			590,425				580,533				589,414				585,604
Loans, net			580,766				571,961				580,037				577,210
Intangible assets			10,614				11,698				11,019				12,102
Total assets			1,050,417				1,007,740				1,031,899				989,952
Total deposits			902,055				866,988				888,044				852,953
Other borrowings			---				---				---				---
Stockholders' equity			142,292				133,122				136,794				129,003
Interest-earning assets			990,999				944,837				973,171				926,901
Interest-bearing liabilities			760,567				740,745				752,164				730,135
Financial ratios
Return on average assets			1.85	%			1.50	%			1.71	%			1.57	%
Return on average equity			13.63	%			11.35	%			12.89	%			12.07	%
Net interest margin			4.50	%			4.47	%			4.59	%			4.52	%
Net interest income - fully taxable equivalent		$	11,230			$	10,654			$	44,635			$	41,914
Efficiency ratio			39.66	%			45.40	%			44.00	%			46.01	%
Average equity to average assets			13.55	%			13.21	%			13.26	%			13.03	%
Allowance for loan losses
Beginning balance		$	8,719			$	7,794			$	7,664			$	6,926
Provision for losses			753				1,200				2,949				3,409
Charge-offs			(983	)			(1,351	)			(2,186	)			(2,810	)
Recoveries			21				21				83				139
Ending balance		$	8,510			$	7,664			$	8,510			$	7,664

Asset Quality Data
(Unaudited)
Nonperforming assets		December 31, 2011				December 31, 2010
Nonaccrual loans		$	1,229			$	1,938
Nonaccrual restructured loans			2,742				6,133
Total nonperforming loans			3,971				8,071
Other real estate owned			1,489				1,723
Total nonperforming assets		$	5,460			$	9,794
Accruing restructured loans		$	4,820			$	350
Loans 90 days or more past due		$	766			$	1,336
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			0.92	%			1.69	%
Allowance for loan losses to total loans			1.45	%			1.33	%
Allowance for loan losses to nonperforming loans			214.30	%			94.96	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.13	%			0.23	%