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

BLACKSBURG, VA--(Marketwired - Jul 24, 2014) -  Today, National Bankshares, Inc. (NASDAQ: NKSH) announced net income of over $8.51 million for the six months ended June 30, 2014 compared to $8.65 million for the same period in 2013. Basic earnings per share were $1.23 at June 30, 2014 compared to $1.25 at June 30, 2013. The return on average assets for the six months ending June 30, 2014 was 1.54% compared to 1.59% in 2013. The return on average equity was 11.22% and 11.42% for the same two periods.

For the three month ending June 30, 2014, net income was $4.11 million. The Company had total assets of almost $1.13 billion at June 30, 2014.

National Bankshares' Chairman, President & CEO James G. Rakes commented, "While the interest rate environment and competitive pressures remain very challenging, we are positioning the Bank to take advantage of opportunities on the horizon as economic conditions in our market area improve. We pride ourselves in our community banking philosophy which leads to exceptional service and strong customer relationships. These principles provide a competitive advantage when meeting the needs of our customers."

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 share and per share data)						June 30, 2014				June 30, 2013				December 31, 2013
Assets
Cash and due from banks						$	15,917			$	13,474			$	13,283
Interest-bearing deposits							106,112				64,278				98,066
Federal funds sold							---				---				---
Securities available for sale, at fair value							195,407				204,096				181,712
Securities held to maturity							162,956				166,915				163,983
Restricted stock							1,089				1,414				1,414
		Total securities					359,452				372,425				347,109
Mortgage loans held for sale							383				1,950				1,276
Loans:
		Loans, net of unearned income and deferred fees					593,400				588,061				595,690
		Less allowance for loan losses					(7,971	)			(7,952	)			(8,227	)
			Loans, net				585,429				580,109				587,463
Premises and equipment, net							9,482				10,222				9,951
Accrued interest receivable							5,798				6,291				5,949
Other real estate owned							5,293				969				4,712
Intangible assets and goodwill							7,761				8,837				8,299
Bank-owned life insurance							21,491				20,858				21,181
Other assets							11,361				11,673				13,341
				Total assets		$	1,128,479			$	1,091,086			$	1,110,630
Liabilities and Stockholders' Equity
Noninterest-bearing deposits						$	146,727			$	144,164			$	142,645
Interest-bearing demand deposits							510,304				461,662				501,541
Savings deposits							79,255				73,095				74,141
Time deposits							231,177				259,600				241,709
				Total deposits			967,463				938,521				960,036
Other borrowed funds							---				---				---
Accrued interest payable							71				126				92
Other liabilities							4,149				6,901				4,610
Total liabilities							971,683				945,548				964,738
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 2014 and 2013							8,685				8,685				8,685
Retained earnings							158,863				149,061				154,171
Accumulated other comprehensive loss, net							(10,752	)			(12,208	)			(16,964	)
				Total stockholders' equity			156,796				145,538				145,892
				Total liabilities and stockholders' equity		$	1,128,479			$	1,091,086			$	1,110,630

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
				Three Months Ended						Six Months Ended
($ in thousands, except for share and per share data)				June 30, 2014			June 30, 2013			June 30, 2014				June 30, 2013
Interest Income
Interest and fees on loans				$	7,819		$	8,192		$	15,754			$	16,511
Interest on federal funds					---			---			---				---
Interest on interest-bearing deposits					64			58			129				116
Interest on securities - taxable					1,697			1,694			3,350				3,206
Interest on securities - nontaxable					1,474			1,618			2,974				3,266
		Total interest income			11,054			11,562			22,207				23,099
Interest Expense
Interest on time deposits of $100 or more					145			230			298				498
Interest on other deposits					1,150			1,318			2,312				2,729
Interest on borrowed funds					---			---			---				---
		Total interest expense			1,295			1,548			2,610				3,227
		Net interest income			9,759			10,014			19,597				19,872
Provision for loan losses					701			355			804				1,026
		Net income after provision for loan losses			9,058			9,659			18,793				18,846
Noninterest Income
Service charges on deposit accounts					607			625			1,199				1,213
Other service charges and fees					38			42			103				102
Credit card fees					961			853			1,758				1,593
Trust Income					332			311			625				600
Bank-owned life insurance					177			176			352				364
Other income					229			223			506				504
Realized securities gains, net					---			9			1				18
		Total noninterest income			2,344			2,239			4,544				4,394
Noninterest Expense
Salaries and employee benefits					3,007			2,992			6,006				5,932
Occupancy and furniture and fixtures					417			404			857				836
Data processing and ATM					394			418			757				811
FDIC assessment					117			136			264				272
Credit card processing					665			646			1,214				1,198
Intangibles and goodwill amortization					269			269			538				540
Net cost of other real estate owned					84			65			161				140
Franchise taxes					287			265			566				523
Other operating expenses					820			942			1,879				1,849
		Total noninterest expense			6,060			6,137			12,242				12,101
Income before income tax expense					5,342			5,761			11,095				11,139
Income tax expense					1,233			1,326			2,582				2,488
		Net income		$	4,109		$	4,435		$	8,513			$	8,651
Basic net income per share				$	0.59		$	0.64		$	1.23			$	1.25
Fully diluted net income per share				$	0.59		$	0.64		$	1.22			$	1.24
Weighted average number of common shares outstanding
		Basic			6,947,974			6,947,974			6,947,974				6,947,974
		Diluted			6,960,683			6,968,348			6,962,274				6,968,711
Dividends declared per share				$	0.55		$	0.54		$	0.55			$	0.54
Dividends payout ratio					---			---			44.89	%			43.37	%
Book value per share					22.57		$	20.95			22.57			$	20.95

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
		Three Months Ended
($ in thousands)		June 30, 2014			June 30, 2013
Net income		$	4,109		$	4,435
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of $1,664 in 2014 and ($4,577) in 2013			3,091			(8,500	)
Reclassification adjustment, net of income tax (benefit) of $0 in 2014 and $(3) in 2013			---			(6	)
Other comprehensive income (loss), net of tax of $1,664 in 2014 and ($4,580) in 2013		$	3,091		$	(8,506	)
Total Comprehensive Income (Loss)		$	7,200		$	(4,071	)

		Six Months Ended
($ in thousands)		June 30, 2014			June 30, 2013
Net income		$	8,513		$	8,651
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of $3,345 in 2014 and ($5,094) in 2013			6,212			(9,458	)
Reclassification adjustment, net of income tax (benefit)of $0 in 2014 and ($6) in 2013			---			(12	)
Other comprehensive income (loss), net of tax of 3,345 in 2013 and ($5,100) in 2013		$	6,212		$	(9,470	)
Total Comprehensive Income (Loss)		$	14,725		$	(819	)

Key Ratios and Other Data
(Unaudited)
($ in thousands)		Three Months Ended								Six Months Ended
		June 30, 2014				June 30, 2013				June 30, 2014				June 30, 2013
Average Balances
Cash and due from banks		$	11,636			$	12,126			$	11,786			$	12,076
Interest-bearing deposits			102,409				80,447				102,698				90,099
Securities available for sale			193,854				209,367				189,196				198,436
Securities held to maturity			164,476				166,859				163,643				164,574
Restricted stock			1,089				1,414				1,237				1,541
Mortgage loans held for sale			256				1,405				319				1,456
Gross Loans			592,073				582,988				592,205				583,161
Loans, net			583,054				573,727				583,121				573,877
Intangible assets			7,915				8,991				8,050				9,125
Total assets			1,116,461				1,100,325				1,112,664				1,096,620
Total deposits			954,592				939,379				954,163				936,297
Other borrowings			1				---				---				---
Stockholders' equity			156,045				153,684				152,975				152,775
Interest-earning assets			1,067,136				1,040,900				1,064,732				1,036,833
Interest-bearing liabilities			811,711				796,195				812,197				795,760
Financial ratios
Return on average assets			1.48	%			1.62	%			1.54	%			1.59	%
Return on average equity			10.56	%			11.58	%			11.22	%			11.42	%
Net interest margin			4.02	%			4.25	%			4.07	%			4.26	%
Net interest income-fully taxable equivalent		$	10,699			$	11,022			$	21,498			$	21,901
Efficiency ratio			46.46	%			46.28	%			47.01	%			46.02	%
Average equity to average assets			13.98	%			13.97	%			13.75	%			13.93	%
Allowance for loan losses
Beginning balance		$	8,297			$	8,291			$	8,227			$	8,349
Provision for losses			701				355				804				1,026
Charge-offs			(1,053	)			(730	)			(1,244	)			(1,484	)
Recoveries			26				36				184				61
Ending balance		$	7,971			$	7,952			$	7,971			$	7,952

Asset Quality Data
(Unaudited)
($ in thousands)
Nonperforming assets		June 30, 2014				June 30, 2013
Nonaccrual loans		$	2,335			$	10,428
Nonaccrual restructured loans			2,674				1,522
Total nonperforming loans			5,009				11,950
Other real estate owned			5,293				969
Total nonperforming assets		$	10,302			$	12,919
Accruing restructured loans			6,240				6,234
Loans 90 days or more past due		$	266			$	125
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			1.72	%			2.19	%
Allowance for loans losses to total loans			1.34	%			1.35	%
Allowance for loan losses to nonperforming loans			159.13	%			66.54	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.04	%			0.02	%