National Bankshares, Inc. Reports Income for the Nine Months Ended September 30, 2014

BLACKSBURG, VA--(Marketwired - Oct 23, 2014) - Today, National Bankshares, Inc. (NASDAQ: NKSH) announced net income of approximately $12.78 million through September 30, 2014 compared to $13.17 million reported for the first nine months of 2013. Basic earnings per share were $1.84 which compares with $1.90 reported at September 30, 2013. The return on average assets for the nine months ended September 30, 2014 was 1.53% compared to 1.61% in 2013. The return on average equity was 10.99% and 11.70% for the same two periods. At September 30, 2014, the Company had total assets of almost $1.12 billion.

National Bankshares' Chairman, President & CEO James G. Rakes commented, "We continue to seek ways to grow our bank and build value for our stockholders. We have money to lend and are ready to assist with our customers' financial needs. While there continues to be aggressive competition for loan and deposit growth, we are staying true to our community banking fundamentals by delivering the very best products and personal customer service in the communities that we serve." 

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 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)				September 30, 2014				September 30, 2013				December 31, 2013
Assets
Cash and due from banks				$	12,815			$	13,806			$	13,283
Interest-bearing deposits					87,621				63,452				98,066
Federal funds sold					---				---				---
Securities available for sale, at fair value					205,020				190,264				181,712
Securities held to maturity					162,457				164,752				163,983
Restricted stock					1,089				1,414				1,414
	Total securities				368,566				356,430				347,109
Mortgage loans held for sale					725				617				1,276
Loans:
	Loans, net of unearned income and deferred fees				595,801				590,664				595,690
	Less: allowance for loan losses				(8,031	)			(8,090	)			(8,227	)
		Loans, net			587,770				582,574				587,463
Premises and equipment, net					9,445				10,025				9,951
Accrued interest receivable					5,708				6,044				5,949
Other real estate owned					5,145				973				4,712
Intangible assets and goodwill					7,492				8,568				8,299
Bank-owned life insurance					21,643				21,020				21,181
Other assets					9,329				13,894				13,341
		Total assets		$	1,116,259			$	1,077,403			$	1,110,630
Liabilities and Stockholders' Equity
Noninterest-bearing deposits				$	153,118			$	147,928			$	142,645
Interest-bearing demand deposits					492,005				453,044				501,541
Savings deposits					79,870				73,952				74,141
Time deposits					223,930				248,574				241,709
		Total deposits			948,923				923,498				960,036
Other borrowed funds					---				---				---
Accrued interest payable					67				97				92
Other liabilities					4,447				7,514				4,610
		Total liabilities			953,437				931,109				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, 6,950,474 shares in 2014 and 6,947,974 shares in 2013					8,688				8,685				8,685
Retained earnings					163,181				153,578				154,171
Accumulated other comprehensive loss, net					(9,047	)			(15,969	)			(16,964	)
		Total stockholders' equity			162,822				146,294				145,892
		Total liabilities and stockholders' equity		$	1,116,259			$	1,077,403			$	1,110,630

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

			Three Months Ended							Nine Months Ended
			September 30, 2014			September 30, 2013				September 30, 2014				September 30, 2013
($ in thousands, except for share and per share data)
Interest Income
Interest and fees on loans			$	7,766		$	8,196			$	23,520			$	24,707
Interest on federal funds				---			---				---				---
Interest on interest-bearing deposits				64			45				193				161
Interest on securities - taxable				1,718			1,722				5,068				4,928
Interest on securities - nontaxable				1,436			1,581				4,410				4,847
	Total interest income			10,984			11,544				33,191				34,643
Interest Expense
Interest on time deposits of $100 or more				139			196				437				694
Interest on other deposits				1,008			1,192				3,320				3,921
Interest on borrowed funds				---			---				---				---
	Total interest expense			1,147			1,388				3,757				4,615
	Net interest income			9,837			10,156				29,434				30,028
Provision for loan losses				356			303				1,160				1,329
Net income after provision for loan losses				9,481			9,853				28,274				28,699
Noninterest Income
Service charges on deposit accounts				634			709				1,833				1,922
Other service charges and fees				42			37				145				139
Credit card fees				929			834				2,687				2,427
Trust Income				296			267				921				867
Bank-owned life insurance				174			182				526				546
Other income				163			183				669				687
Realized securities gains (losses), net				4			(62	)			5				(44	)
	Total noninterest income			2,242			2,150				6,786				6,544
Noninterest Expense
Salaries and employee benefits				2,948			3,031				8,954				8,963
Occupancy and furniture and fixtures				408			394				1,265				1,230
Data processing and ATM				426			477				1,183				1,288
FDIC assessment				147			136				411				408
Credit card processing				673			656				1,887				1,854
Intangibles and goodwill amortization				269			269				807				809
Net cost of other real estate owned				98			52				259				192
Franchise taxes				308			280				874				803
Other operating expenses				859			848				2,738				2,697
	Total noninterest expense			6,136			6,143				18,378				18,244
Income before income tax expense				5,587			5,860				16,682				16,999
Income tax expense				1,324			1,343				3,906				3,831
	Net income		$	4,263		$	4,517			$	12,776			$	13,168
Basic net income per share			$	0.61		$	0.65			$	1.84			$	1.90
Fully diluted net income per share			$	0.61		$	0.65			$	1.84			$	1.89
Weighted average number of common shares outstanding
	Basic			6,948,681			6,947,974				6,948,212				6,947,974
	Diluted			6,956,777			6,972,769				6,960,444				6,970,063
Dividends declared per share				---			---			$	0.55			$	0.54
Dividend payout ratio				---			---				29.91	%			28.49	%
Book value per share				---			---			$	23.43			$	21.06

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

		Three Months Ended
($ in thousands)		September 30, 2014				September 30, 2013
Net income		$	4,263			$	4,517
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of $919 in 2014 and ($2,048) in 2013			1,708				(3,804	)
Reclassification adjustment, net of income tax (benefit) of ($1) in 2014 and $24 in 2013			(3	)			44
Other comprehensive income (loss), net of tax of $918 in 2014 and ($2,024) in 2013		$	1,705			$	(3,760	)
Total Comprehensive Income		$	5,968			$	757

		Nine Months Ended
($ in thousands)		September 30, 2014				September 30, 2013
Net income		$	12,776			$	13,168
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of $4,264 in 2014 and ($7,142) in 2013			7,920				(13,263	)
Reclassification adjustment, net of income tax (benefit) of ($1) in 2014 and $18 in 2013			(3	)			32
Other comprehensive income (loss), net of tax of $4,263 in 2014 and ($7,124) in 2013		$	7,917			$	(13,231	)
Total Comprehensive Income (Loss)		$	20,693			$	(63	)

Key Ratios and Other Data

(Unaudited)

($ in thousands)		Three Months Ended								Nine Months Ended
Average Balances		September 30, 2014				September 30, 2013				September 30, 2014				September 30, 2013
Cash and due from banks		$	11,863			$	11,486			$	11,811			$	11,877
Interest-bearing deposits			100,349				61,365				101,908				80,414
Securities available for sale			202,113				199,709				193,549				198,866
Securities held to maturity			162,531				165,881				163,268				165,014
Restricted stock			1,089				1,414				1,187				1,498
Mortgage loans held for sale			439				757				359				1,220
Gross Loans			593,165				588,379				592,528				584,920
Loans, net			584,308				579,404				583,521				575,741
Intangible assets			7,646				8,722				7,914				8,989
Total assets			1,121,501				1,078,837				1,115,643				1,090,628
Total deposits			956,804				925,382				955,058				932,620
Other borrowings			---				---				---				---
Stockholders' equity			160,310				145,806				155,447				150,424
Interest-earning assets			1,068,583				1,031,192				1,066,031				1,034,934
Interest-bearing liabilities			808,075				784,421				810,808				791,940
Financial ratios
Return on average assets			1.51	%			1.66	%			1.53	%			1.61	%
Return on average equity			10.55	%			12.29	%			10.99	%			11.70	%
Net interest margin			3.99	%			4.29	%			4.05	%			4.27	%
Net interest income-fully taxable equivalent		$	10,755			$	11,144			$	32,253			$	33,045
Efficiency ratio			47.21	%			46.21	%			47.08	%			46.08	%
Average equity to average assets			14.29	%			13.52	%			13.93	%			13.79	%
Allowance for loan losses
Beginning balance		$	7,971			$	7,952			$	8,227			$	8,349
Provision for losses			356				303				1,160				1,329
Charge-offs			(324	)			(196	)			(1,568	)			(1,680	)
Recoveries			28				31				212				92
Ending balance		$	8,031			$	8,090			$	8,031			$	8,090

Asset Quality Data

(Unaudited)

($ in thousands)		September 30, 2014				September 30, 2013
Nonperforming assets
Nonaccrual loans		$	5,366			$	10,194
Nonaccrual restructured loans			2,360				1,042
Total nonperforming loans			7,726				11,236
Other real estate owned			5,145				973
Total nonperforming assets		$	12,871			$	12,209
Accruing restructured loans			5,947				6,545
Loans 90 days or more past due		$	485			$	149
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			2.14	%			2.06	%
Allowance for loans losses to total loans			1.35	%			1.37	%
Allowance for loan losses to nonperforming loans			103.95	%			72.00	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.08	%			0.03	%