National Bankshares, Inc. Reports Second Quarter and First Half Earnings

BLACKSBURG, VA--(Marketwired - Jul 18, 2013) - Today, National Bankshares, Inc. (NASDAQ: NKSH) announced net income of over $4.43 million for the quarter ended June 30, 2013 which is 2.19% above the total reported for the quarter ended June 30, 2012. Basic earnings per share were $0.64 which compares to $0.63 for second quarter of 2012. The return on average assets for the second quarter of 2013 was 1.63% compared to 1.62% in 2012. The return on average equity was 11.71% and 11.90% for the same two periods.

For the first six months, net income was above $8.65 million. The Company had total assets exceeding $1.09 billion at June 30, 2013.

National Bankshares' Chairman, President & CEO James G. Rakes commented, "Our focus remains on investing in our businesses to grow our bank, creating sustainable stockholder value, and controlling discretionary expenses while maintaining a strong balance sheet. We were pleased to provide stockholders an increase over last June of our semi-annual dividend. We continue to upgrade our capabilities in order to deliver the best services and products possible to our customers and community."

National Bankshares, Inc., headquartered in Blacksburg, Virginia, is the parent company of The 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 operating 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 Sheets
(Unaudited)
($ in thousands, except for per share data)					June 30, 2013				June 30, 2012				December 31, 2012
Assets
Cash and due from banks					$	13,474			$	13,140			$	14,783
Interest-bearing deposits						63,731				105,102				96,597
Securities available for sale						207,362				189,768				191,504
Securities held to maturity						166,915				146,451				160,539
		Total securities				374,277				336,219				352,043
Mortgage loans held for sale						1,950				1,395				2,796
Loans:
	Loans, net of unearned income and deferred fees					588,061				586,223				592,162
	Less: allowance for loan losses					(7,952	)			(8,168	)			(8,349	)
		Loans, net				580,109				578,055				583,813
Bank premises and equipment, net						10,222				10,618				10,401
Accrued interest receivable						6,291				6,273				6,247
Other real estate owned						969				871				1,435
Intangible assets						8,837				9,918				9,377
Bank-owned life insurance						20,858				20,170				20,523
Other assets						10,368				6,507				6,346
		Total assets			$	1,091,086			$	1,088,268			$	1,104,361
Liabilities and Stockholders' Equity
Noninterest-bearing deposits					$	144,164			$	146,899			$	144,252
Interest-bearing demand deposits						461,662				423,272				455,713
Savings deposits						73,095				65,398				69,063
Time deposits						259,600				299,869				277,738
		Total deposits				938,521				935,438				946,766
Accrued interest payable						126				173				139
Other liabilities						6,901				5,970				7,347
		Total liabilities				945,548				941,581				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 June 30, 2013, 6,939,974 at June 30, 2012 and 6,947,974 at December 31, 2012						8,685				8,675				8,685
Retained earnings						149,061				139,036				144,162
Accumulated other comprehensive loss, net						(12,208	)			(1,024	)			(2,738	)
		Total stockholders' equity				145,538				146,687				150,109
			Total liabilities and stockholders' equity		$	1,091,086			$	1,088,268			$	1,104,361

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
				Three Months Ended								Six Months Ended
				June 30, 2013				June 30, 2012				June 30, 2013			June 30, 2012
($ in thousands, except for per share data)
Interest Income
Interest and fees on loans				$	8,192			$	8,753			$	16,511		$	17,631
Interest on federal funds					---				---				---			---
Interest on interest-bearing deposits					58				56				116			127
Interest on securities - taxable					1,725				1,782				3,264			3,371
Interest on securities - nontaxable					1,618				1,591				3,266			3,167
		Total interest income			11,593				12,182				23,157			24,296
Interest Expense
Interest on time deposits of $100,000 or more					230				391				498			816
Interest on other deposits					1,318				1,627				2,729			3,319
Interest on borrowed funds					---				---				---			---
		Total interest expense			1,548				2,018				3,227			4,135
		Net interest income			10,045				10,164				19,930			20,161
Provision for loan losses					355				1,104				1,026			1,776
		Net interest income after provision for loan losses			9,690				9,060				18,904			18,385
Noninterest Income
Service charges on deposit accounts					625				651				1,213			1,282
Other service charges and fees					42				41				102			90
Credit card fees					853				840				1,593			1,634
Trust income					311				440				600			766
Bank-owned life insurance					176				200				364			400
Other income					190				112				340			211
Realized securities gains (losses), net					(11	)			(1	)			84			52
		Total noninterest income			2,186				2,283				4,296			4,435
Noninterest Expense
Salaries and employee benefits					2,992				2,954				5,932			5,910
Occupancy and furniture and fixtures					404				397				836			794
Data processing and ATM					418				424				811			816
FDIC assessment					136				101				272			210
Credit card processing					646				638				1,198			1,210
Intangibles and goodwill amortization					269				271				540			542
Net costs of other real estate owned					65				103				140			151
Franchise taxes					265				226				523			388
Other operating expenses					920				617				1,809			1,421
		Total noninterest expense			6,115				5,731				12,061			11,442
Income before income tax expense					5,761				5,612				11,139			11,378
Income tax expense					1,326				1,272				2,488			2,609
		Net income		$	4,435			$	4,340			$	8,651		$	8,769
Basic net income per share				$	0.64			$	0.63			$	1.25		$	1.26
Fully diluted net income per share				$	0.64			$	0.62			$	1.24		$	1.26
Weighted average outstanding number of common shares
		Basic			6,947,974				6,939,974				6,947,974			6,939,974
		Diluted			6,968,348				6,957,445				6,968,711			6,956,041
Dividends declared per share				$	0.54			$	0.53			$	0.54		$	0.53
Dividend payout ratio					---				---				43.37			41.94
Book value per share				$	20.95			$	21.14			$	20.95		$	21.14

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Months Ended
($ in thousands, except for per share data)		June 30, 2013				June 30, 2012
Net Income		$	4,435			$	4,340
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred taxes of ($4,135) and $662		$	(7,680	)		$	1,229
Reclassification adjustment, net of income taxes of ($4) and $2			(7	)			4
Other comprehensive income (loss), net of tax of ($4,139) and $664		$	(7,687	)		$	1,233
Total Comprehensive Income		$	(3,252	)		$	5,573
		Six Months Ended
($ in thousands, except for per share data)		June 30, 2013				June 30, 2012
Net Income		$	8,651			$	8,769
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred taxes of ($5,070) and $173		$	(9,415	)		$	322
Reclassification adjustment, net of income taxes of $(30) and ($13)			(55	)			(25	)
Other comprehensive income (loss), net of tax of ($5,100) and $160		$	(9,470	)		$	297
Total Comprehensive Income		$	(819	)		$	9,066

Key Ratios and Other Data
(Unaudited)
($ in thousands)		Three Months Ended								Six Months Ended
Average Balances		June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
Cash and due from banks		$	12,023			$	12,121			$	12,075			$	12,169
Interest-bearing deposits			99,216				88,152				89,492				99,352
Securities available for sale			190,938				202,783				201,863				189,004
Securities held to maturity			162,264				142,123				164,574				141,433
Mortgage loans held for sale			1,507				1,264				1,456				1,238
Gross loans			583,337				586,120				583,169				585,600
Loans, net			574,030				576,996				573,878				576,290
Intangible assets			9,262				10,073				9,125				10,209
Total assets			1,092,880				1,076,975				1,096,622				1,072,910
Total deposits			933,185				923,982				936,296				921,187
Other borrowings			---				---				---				---
Stockholders' equity			151,852				146,625				152,774				145,113
Interest-earning assets			1,035,659				1,015,458				1,038,122				1,011,703
Interest-bearing liabilities			795,321				782,875				795,760				781,840
Financial ratios
Return on average assets			1.63	%			1.62	%			1.59	%			1.64	%
Return on average equity			11.71	%			11.90	%			11.42	%			12.15	%
Net interest margin			4.28	%			4.40	%			4.27	%			4.39	%
Net interest income - fully taxable equivalent		$	11,053			$	11,119			$	21,959			$	22,059
Efficiency ratio			46.19	%			42.76	%			45.94	%			43.19	%
Average equity to average assets			13.89	%			13.61	%			13.93	%			13.53	%
Allowance for loan losses
Beginning balance		$	8,291			$	8,063			$	8,349			$	8,068
Provision for losses			355				1,104				1,026				1,776
Charge-offs			(730	)			(1,028	)			(1,484	)			(1,728	)
Recoveries			36				29				61				52
Ending balance		$	7,952			$	8,168			$	7,952			$	8,168

Asset Quality Data
(Unaudited)
($ in thousands)
Nonperforming assets		June 30, 2013				June 30, 2012
Nonaccrual loans		$	10,428			$	3,627
Nonaccrual restructured loans			1,522				3,763
Total nonperforming loans			11,950				7,390
Other real estate owned			969				871
Total nonperforming assets		$	12,919			$	8,261
Accruing restructured loans		$	6,234			$	2,035
Loans 90 days or more past due		$	125			$	242
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees,plus other real estate owned			2.19	%			1.41	%
Allowance for loan losses to total loans			1.35	%			1.39	%
Allowance for loan losses to nonperforming loans			66.54	%			110.53	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.02	%			0.04	%