National Bankshares, Inc. Posts Record Earnings for 2013

BLACKSBURG, VA--(Marketwired - Feb 20, 2014) -  National Bankshares, Inc. (NASDAQ: NKSH) today announced that it had record net income of $17.79 million for the twelve months ended December 31, 2013, an increase over the nearly $17.75 million earned in 2012. The 2013 return on average assets and return on average equity were 1.63% and 11.90%, respectively. Basic earnings per share in 2013 remained consistent with the prior year at $2.56. National Bankshares, Inc. ended 2013 with total assets of over $1.11 billion.

Commenting on the Company's financial results, National Bankshares Chairman, President & CEO James G. Rakes said, "We are pleased to report another year of strong earnings. In 2013, we showed an improvement in credit quality as the decrease in net charge-offs indicates. Growth in quality loans remains the key initiative in what remains a less than vibrant market area economy, but we will continue to focus on that growth as well as credit quality and solid expense management. The Company remains a strong institution and is well-positioned to grow in 2014 and beyond."

Mr. Rakes continued, "We also were pleased to return profits to our stockholders in the form of dividends of $1.12 per share in 2013 compared to $1.10 in 2012. This per share dividend payment amount resulted in a dividend payout ratio of 43.74% in 2013 compared to 43.04% in 2012."

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 share and per share data)					December 31, 2013				December 31, 2012
Assets
Cash and due from banks					$	13,283			$	14,783
Interest-bearing deposits						97,376				96,597
Federal funds sold						--				--
Securities available for sale, at fair value						183,668				189,815
Securities held to maturity						163,983				160,539
Restricted stock						1,414				1,689
		Total securities				349,065				352,043
Mortgage loans held for sale						1,276				2,796
Loans:
	Loans, net of unearned income and deferred fees					595,690				592,162
	Less: allowance for loan losses					(8,227	)			(8,349	)
			Loans, net			587,463				583,813
Premises and equipment, net						9,951				10,401
Accrued interest receivable						5,949				6,247
Other real estate owned						4,712				1,435
Intangible assets and goodwill						8,299				9,377
Bank-owned life insurance						21,181				20,523
Other assets						12,075				6,346
			Total assets		$	1,110,630			$	1,104,361
Liabilities and Stockholders' Equity
Noninterest-bearing deposits					$	142,645			$	144,252
Interest-bearing demand deposits						501,541				455,713
Savings deposits						74,141				69,063
Time deposits						241,709				277,738
			Total deposits			960,036				946,766
Other borrowed funds						--				--
Accrued interest payable						92				139
Other liabilities						4,610				7,347
			Total liabilities			964,738				954,252
Stockholders' Equity
Preferred stock, no par value, 5,000,000 shares authorized; none issued and outstanding						--				--
Common stock of $1.25 par value. Authorized 10,000,000 shares; issued and outstanding, 6,947,974 shares in 2013 and 2012						8,685				8,685
Retained earnings						154,171				144,162
Accumulated other comprehensive loss, net						(16,964	)			(2,738	)
			Total stockholders' equity			145,892				150,109
			Total liabilities and stockholders' equity		$	1,110,630			$	1,104,361

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
				Three Months Ending								Twelve Months ending
($ in thousands, except for share and per share data)				December 31, 2013				December 31, 2012				December 31, 2013				December 31, 2012
Interest Income
Interest and fees on loans				$	8,112			$	8,800			$	32,819			$	35,354
Interest on federal funds					--				--				--				--
Interest on interest-bearing deposits					52				53				213				240
Interest on securities - taxable					1,701				1,622				6,707				6,613
Interest on securities - nontaxable					1,540				1,662				6,388				6,463
		Total interest income			11,405				12,137				46,127				48,670
Interest Expense
Interest on time deposits of $100 or more					171				320				865				1,491
Interest on other deposits					1,169				1,496				5,090				6,396
Interest on borrowed funds					--				--				--				--
		Total interest expense			1,340				1,816				5,955				7,887
		Net interest income			10,065				10,321				40,172				40,783
Provision for loan losses					202				580				1,531				3,134
Net income after provision for loan losses					9,863				9,741				38,641				37,649
Noninterest Income
Service charges on deposit accounts					641				638				2,563				2,594
Other service charges and fees					86				113				225				243
Credit card fees					903				837				3,330				3,278
Trust Income					283				276				1,150				1,313
Bank-owned life insurance					193				209				739				814
Other income					269				131				770				472
Realized securities gains (losses), net					(1	)			12				59				104
		Total noninterest income			2,374				2,216				8,836				8,818
Noninterest Expense
Salaries and employee benefits					3,014				2,991				11,978				12,005
Occupancy and furniture and fixtures					385				408				1,616				1,589
Data processing and ATM					412				387				1,700				1,593
FDIC assessment					147				132				554				475
Credit card processing					692				625				2,546				2,442
Intangibles and goodwill amortization					269				271				1,078				1,083
Net cost of other real estate owned					105				(1	)			296				208
Franchise taxes					280				255				1,083				901
Other operating expenses					825				818				3,519				3,179
		Total noninterest expense			6,129				5,886				24,370				23,475
Income before income tax expense					6,108				6,071				23,107				22,992
Income tax expense					1,486				1,386				5,317				5,245
		Net income		$	4,622			$	4,685			$	17,790			$	17,747
Basic net income per share				$	0.67			$	0.67			$	2.56			$	2.56
Fully diluted net income per share				$	0.66			$	0.67			$	2.55			$	2.55
Weight average outstanding numbers of common shares
		Basic			6,947,974				6,947,887				6,947,974				6,942,411
		Diluted			6,963,381				6,964,482				6,968,393				6,959,867
Dividends declared per share				$	0.58			$	0.57			$	1.12			$	1.10
Dividends payout ratio					--				--				43.74	%			43.04	%
Book value per share				$	--			$	--			$	21.00			$	21.60

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
($ in thousands, expect for share and per share data)		Three Months Ended
		December 31, 2013				December 31, 2012
Net income		$	4,622			$	4,685
Other Comprehensive Income, net of tax
Unrealized holding losses on available for sale securities net of deferred taxes of ($1,523) in 2013 and ($141) in 2012			(2,828	)			(261	)
Reclassification adjustment, net income taxes of $1 in 2013 and $3 in 2012			1				6
Net pension gain (loss) arising during the period, net of taxes of $1,022 in 2013 and ($405) in 2012			1,898				(752	)
Less: amortization of prior service cost included in net periodic pension cost, net of taxes of ($35) in 2013 and ($35) in 2012			(66	)			(66	)
Other comprehensive loss, net of tax of ($535) in 2013 and ($578) in 2012		$	(995	)		$	(1,073	)
Total Comprehensive Income		$	3,627			$	3,612
		Twelve Months Ended
		December 31, 2013				December 31, 2012
Net income		$	17,790			$	17,747
Other Comprehensive Income, net of tax
Unrealized holding losses on available for sale securities net of taxes of ($8,628) in 2013 and ($292) in 2012			(16,023	)			(541	)
Reclassification adjustment for gains included in net income, net of taxes of ($18) in 2013 and ($31) in 2012			(35	)			(58	)
Net pension gain (losses) arising during the period, net of taxes of $1,022 in 2013 and ($405) in 2012			1,898				(752	)
Less: amortization of prior service cost included in net periodic pension cost, net of taxes of ($35) in 2013 and ($35) in 2012			(66	)			(66	)
Other comprehensive loss, net of tax of ($7,659) in 2013 and ($763) in 2012		$	(14,226	)		$	(1,417	)
Total Comprehensive Income		$	3,564			$	16,330

Key Ratios and Other Data
(Unaudited)
$ in thousands
		Three Months Ended								Twelve Months Ended
		December 31				December 31				December 31				December 31
		2013				2012				2013				2012
Average Balances
Cash and due from banks		$	12,453			$	8,958			$	12,022			$	11,129
Interest-bearing deposits			80,782				89,703				80,044				94,724
Securities available for sale			189,383				191,037				197,898				188,168
Securities held to maturity			164,512				161,344				164,888				149,566
Restricted stock			1,414				1,687				1,477				1,682
Mortgage loans held for sale			411				2,543				1,016				1,765
Gross Loans			592,768				591,604				586,898				589,129
Loans, net			583,699				582,272				577,746				579,817
Intangible assets			8,452				9,531				8,854				9,936
Total assets			1,090,932				1,091,032				1,090,703				1,080,351
Total deposits			936,048				932,678				933,482				925,986
Other borrowings			--				--				--				--
Stockholders' equity			146,716				151,660				149,491				147,812
Interest-earning assets			1,046,181				1,032,929				1,038,727				1,019,887
Interest-bearing liabilities			792,328				789,684				792,037				784,717
Financial ratios
Return on average assets			1.68	%			1.71	%			1.63	%			1.64	%
Return on average equity			12.50	%			12.29	%			11.90	%			12.01	%
Net interest margin			4.18	%			4.37	%			4.25	%			4.38	%
Net interest income-fully taxable equivalent		$	11,035			$	11,354			$	44,159			$	44,712
Efficiency ratio			45.71	%			43.29	%			45.99	%			43.77	%
Average equity to average assets			13.45	%			13.90	%			13.71	%			13.68	%
Allowance for loan losses
Beginning balance		$	8,090			$	8,254			$	8,349			$	8,068
Provision for losses			202				580				1,531				3,134
Charge-offs			(140	)			(509	)			(1,820	)			(2,953	)
Recoveries			75				24				167				100
Ending balance		$	8,227			$	8,349			$	8,227			$	8,349

Asset Quality Data
(Unaudited)
$ in thousands
		December 31, 2013				December 31, 2012
Nonperforming assets
Nonaccrual loans		$	5,732			$	10,870
Nonaccrual restructured loans			852				2,151
Total nonperforming loans			6,584				13,021
Other real estate owned			4,712				1,435
Total nonperforming assets		$	11,296			$	14,456
Accruing restructured loans		$	6,191			$	2,005
Loans 90 days or more past due		$	190			$	170
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			1.88	%			2.44	%
Allowance for loans losses to total loans			1.38	%			1.41	%
Allowance for loan losses to nonperforming loans			124.95	%			64.12	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.03	%			0.03	%