National Bankshares, Inc. Reports Increased Net Income for First Three Quarters of 2012

BLACKSBURG, VA--(Marketwire - Oct 18, 2012) -  Today, National Bankshares, Inc. (NASDAQ: NKSH) announced net income of approximately $13.06 million through September 30, 2012, up $313 thousand, or 2.46%, above the total reported for the first nine months of 2011. Basic earnings per share were $1.88, which compares with $1.84 reported at September 30, 2011. At September 30, 2012, the Company had total assets of $1.08 billion, an increase of 3.73% in total assets since the end of September 2011.

National Bankshares' Chairman, President & CEO James G. Rakes, commented, "While economic factors combined with increased regulatory burden and political uncertainty continue to challenge our market area and the financial industry, our consistent focus on providing our customers the best services and products available continues to bring successful results to our stockholders."

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)						September 30, 2012				September 30, 2011				December 31, 2011
Assets
Cash and due from banks						$	12,445			$	12,180			$	11,897
Interest-bearing deposits							67,394				70,252				98,355
Federal funds sold							---				---				---
Securities available for sale							198,079				180,126				174,918
Securities held to maturity							161,728				138,148				143,995
				Total securities			359,807				318,274				318,913
Mortgage loans held for sale							3,015				1,108				2,623
Loans:
	Loans, net of unearned income and deferred fees						591,461				596,416				588,470
	Less: allowance for loan losses						(8,254	)			(8,719	)			(8,068	)
		Loans, net					583,207				587,697				580,402
Bank premises and equipment, net							10,491				10,328				10,393
Accrued interest receivable							6,291				6,359				6,304
Other real estate owned							1,894				1,759				1,489
Intangible assets							9,648				10,730				10,460
Bank-owned life insurance							20,346				17,580				19,812
Other assets							6,434				5,855				6,454
				Total assets		$	1,080,972			$	1,042,122			$	1,067,102
Liabilities and Stockholders' Equity
Noninterest-bearing deposits						$	147,346			$	140,609			$	142,163
Interest-bearing demand deposits							418,482				381,571				404,801
Savings deposits							66,576				59,395				61,298
Time deposits							291,979				312,660				311,071
				Total deposits			924,383				894,235				919,333
Other borrowed funds							---				---				---
Accrued interest payable							178				207				206
Other liabilities							6,013				5,860				6,264
				Total liabilities			930,574				900,302				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 6,943,974 shares at September 30, 2012, 6,937,974 at September 30, 2011 and 6,939,974 at December 31,2011							8,680				8,672				8,675
Retained earnings							143,383				132,638				133,945
Accumulated other comprehensive gain (loss), net							(1,665	)			510				(1,321	)
		Total stockholders' equity					150,398				141,820				141,299
			Total liabilities and stockholders' equity			$	1,080,972			$	1,042,122			$	1,067,102

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
			Three Months Ended								Nine Months Ended
			September 30, 2012				September 30, 2011				September 30, 2012			September 30, 2011
($ in thousands, except for per share data)
Interest Income
Interest and fees on loans			$	8,923			$	9,184			$	26,554		$	27,386
Interest on federal funds				---				---				---			---
Interest on interest-bearing deposits				60				37				187			104
Interest on securities - taxable				1,620				1,740				4,991			5,115
Interest on securities - nontaxable				1,634				1,616				4,801			4,912
	Total interest income			12,237				12,577				36,533			37,517
Interest Expense
Interest on time deposits of $100,000 or more				355				485				1,171			1,551
Interest on other deposits				1,581				1,797				4,900			5,456
Interest on borrowed funds				---				---				---			---
	Total interest expense			1,936				2,282				6,071			7,007
	Net interest income			10,301				10,295				30,462			30,510
Provision for loan losses				778				643				2,554			2,196
	Net interest income after provision for loan losses			9,523				9,652				27,908			28,314
Noninterest Income
Service charges on deposit accounts				674				692				1,956			1,952
Other service charges and fees				40				57				130			174
Credit card fees				807				805				2,441			2,365
Trust income				271				264				1,037			817
Bank-owned life insurance				205				189				605			559
Other income				130				125				341			293
Realized securities gains (losses), net				(19	)			(3	)			33			(7	)
	Total noninterest income			2,108				2,129				6,543			6,153
Noninterest Expense
Salaries and employee benefits				3,104				2,834				9,014			8,561
Occupancy and furniture and fixtures				387				349				1,181			1,207
Data processing and ATM				390				416				1,206			1,289
FDIC assessment				133				353				343			1,049
Credit card processing				607				639				1,817			1,871
Intangibles and goodwill amortization				270				271				812			813
Net costs of other real estate owned				58				52				209			281
Franchise taxes				258				162				646			619
Other operating expenses				881				811				2,302			2,306
	Total noninterest expense			6,088				5,887				17,530			17,996
Income before income tax expense				5,543				5,894				16,921			16,471
Income tax expense				1,250				1,385				3,859			3,722
	Net income		$	4,293			$	4,509			$	13,062		$	12,749
Basic net income per share			$	0.62			$	0.65			$	1.88		$	1.84
Fully diluted net income per share			$	0.62			$	0.65			$	1.88		$	1.83
Weighted average outstanding number of common shares
	Basic			6,941,757				6,937,974				6,940,573			6,936,100
	Diluted			6,962,852				6,945,174				6,958,316			6,951,155
Dividends declared per share				---				---			$	0.53		$	0.48
Dividend payout ratio				---				---				28.16			26.11
Book value per share			$	---			$	---			$	21.66		$	20.44

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Months Ended
($ in thousands, except for per share data)		September 30, 2012				September 30, 2011
Net Income		$	4,293			$	4,509
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred taxes of ($351) and $536			(653	)			996
Reclassification adjustment, net of income taxes of $6 and $4			12				7
Other comprehensive income (loss), net of tax of ($345) and $540		$	(641	)		$	1,003
Total Comprehensive Income		$	3,652			$	5,512

		Nine Months Ended
($ in thousands, except for per share data)		September 30, 2012				September 30, 2011
Net Income		$	13,062			$	12,749
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred taxes of ($178) and $1,689			(331	)			3,137
Reclassification adjustment, net of income taxes of $(7) and $8			(13	)			14
Other comprehensive income (loss), net of tax of ($185) and $1,697		$	(344	)		$	3,151
Total Comprehensive Income		$	12,718			$	15,900

Key Ratios and Other Data
(Unaudited)
		Three Months Ended								Nine Months Ended
Average Balances		September 30, 2012				September 30, 2011				September 30, 2012				September 30, 2011
Cash and due from banks		$	11,942			$	11,709			$	11,860			$	11,807
Interest-bearing deposits			89,899				57,402				96,410				56,998
Securities available for sale			188,648				191,763				188,885				189,298
Securities held to maturity			153,877				134,519				142,860				133,160
Mortgage loans held for sale			2,028				647				1,503				618
Gross loans			593,634				593,544				588,298				589,074
Loans, net			584,341				583,960				578,993				579,827
Intangible assets			9,803				10,886				10,072				11,155
Total assets			1,084,118				1,032,823				1,073,887				1,025,778
Total deposits			928,783				887,218				923,739				883,309
Other borrowings			---				---				---				---
Stockholders' equity			149,049				138,767				143,685				135,069
Interest-earning assets			1,022,861				973,705				1,012,756				966,796
Interest-bearing liabilities			785,441				749,626				783,049				749,332
Financial ratios
Return on average assets			1.58	%			1.75	%			1.62	%			1.66	%
Return on average equity			11.46	%			13.03	%			12.14	%			12.62	%
Net interest margin			4.39	%			4.64	%			4.40	%			4.62	%
Net interest income - fully taxable equivalent		$	11,298			$	11,259			$	33,357			$	33,405
Efficiency ratio			45.41	%			43.96	%			43.93	%			45.49	%
Average equity to average assets			13.75	%			13.44	%			13.38	%			13.17	%
Allowance for loan losses
Beginning balance		$	8,168			$	8,494			$	8,068			$	7,664
Provision for losses			778				643				2,554				2,196
Charge-offs			(716	)			(446	)			(2,444	)			(1,205	)
Recoveries			24				28				76				64
Ending balance		$	8,254			$	8,719			$	8,254			$	8,719

Asset Quality Data
(Unaudited)
Nonperforming assets		September 30, 2012				September 30, 2011
Nonaccrual loans		$	3,876			$	1,263
Nonaccrual restructured loans			2,254				3,081
Total nonperforming loans			6,130				4,344
Other real estate owned			1,894				1,759
Total nonperforming assets		$	8,024			$	6,103
Accruing restructured loans		$	2,021			$	5,524
Loans 90 days or more past due		$	114			$	339
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			1.35	%			1.02	%
Allowance for loan losses to total loans			1.40	%			1.46	%
Allowance for loan losses to nonperforming loans			134.65	%			200.71	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.02	%			0.06	%