National Bankshares, Inc. Announces Earnings for 2014

BLACKSBURG, VA--(Marketwired - Feb 19, 2015) -  National Bankshares, Inc. (NASDAQ: NKSH) today announced its results of operations for the three and twelve months ended December 31, 2014. The Company reported net income of $16.91 million for the twelve months ended December 31, 2014, a decrease from the $17.79 million earned in 2013. The 2014 return on average assets and return on average equity were 1.51% and 10.72%, respectively. Basic earnings per share in 2014 were $2.43. National Bankshares, Inc. ended 2014 with total assets of over $1.15 billion.

Commenting on the Company's financial results, National Bankshares Chairman, President & CEO James G. Rakes said, "We are well aware of the many challenges facing our industry and parts of our market area. The low interest rate environment and relatively flat loan demand continue to compress our margins which impact our bottom-line. We remain focused on expense containment, asset quality and continuing to be true to our community banking roots by providing our customers with the very best products and services we can offer. The Company remains a strong performing institution as we look toward the future."

Mr. Rakes continued, "We were pleased to return profits to our stockholders in the form of dividends of $1.13 per share in 2014. This per share dividend payment amount resulted in a dividend payout ratio of 46.43% in 2014 compared to 43.74% in 2013."

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)				December 31, 2014				December 31, 2013
Assets
Cash and due from banks				$	12,894			$	13,283
Interest-bearing deposits					102,548				98,066
Federal funds sold					---				---
Securities available for sale, at fair value					222,844				181,712
Securities held to maturity					161,452				163,983
Restricted stock					1,089				1,414
	Total securities				385,385				347,109
Mortgage loans held for sale					291				1,276
Loans:
	Loans, net of unearned income and deferred fees				605,466				595,690
	Less: allowance for loan losses				(8,263	)			(8,227	)
		Loans, net			597,203				587,463
Premises and equipment, net					9,131				9,951
Accrued interest receivable					5,748				5,949
Other real estate owned					4,744				4,712
Intangible assets and goodwill					7,223				8,299
Bank-owned life insurance					21,797				21,181
Other assets					7,767				13,341
		Total assets		$	1,154,731			$	1,110,630
Liabilities and Stockholders' Equity
Noninterest-bearing deposits				$	150,744			$	142,645
Interest-bearing demand deposits					533,641				501,541
Savings deposits					81,297				74,141
Time deposits					216,746				241,709
		Total deposits			982,428				960,036
Other borrowed funds					---				---
Accrued interest payable					68				92
Other liabilities					5,932				4,610
		Total liabilities			988,428				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
Retained earnings					163,287				154,171
Accumulated other comprehensive loss, net					(5,672	)			(16,964	)
		Total stockholders' equity			166,303				145,892
		Total liabilities and stockholders' equity		$	1,154,731			$	1,110,630

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
				Three Month Ending								Twelve Month Ending
($ in thousands, except for share and per share data)				December 31, 2014				December 31, 2013				December 31, 2014				December 31, 2013
Interest Income
Interest and fees on loans				$	7,697			$	8,112			$	31,217			$	32,819
Interest on federal funds					---				---				---				---
Interest on interest-bearing deposits					69				52				262				213
Interest on securities - taxable					1,730				1,657				6,798				6,585
Interest on securities - nontaxable					1,416				1,541				5,826				6,388
		Total interest income			10,912				11,362				44,103				46,005
Interest Expense
Interest on time deposits of $100 or more					133				171				570				865
Interest on other deposits					1,009				1,169				4,329				5,090
Interest on borrowed funds					---				---				---				---
		Total interest expense			1,142				1,340				4,899				5,955
		Net interest income			9,770				10,022				39,204				40,050
Provision for loan losses					481				202				1,641				1,531
		Net income after provision for loan losses			9,289				9,820				37,563				38,519
Noninterest Income
Service charges on deposit accounts					601				641				2,434				2,563
Other service charges and fees					42				86				187				225
Credit card fees					944				903				3,631				3,330
Trust Income					292				283				1,213				1,150
Bank-owned life insurance					185				193				711				739
Other income					199				310				868				997
Realized securities gains (losses), net					(3	)			(2	)			2				(46	)
		Total noninterest income			2,260				2,414				9,046				8,958
Noninterest Expense
Salaries and employee benefits					2,737				3,015				11,691				11,978
Occupancy and furniture and fixtures					457				386				1,722				1,616
Data processing and ATM					460				412				1,643				1,700
FDIC assessment					122				146				533				554
Credit card processing					706				692				2,593				2,546
Intangibles and goodwill amortization					268				269				1,075				1,078
Net cost of other real estate owned					110				104				369				296
Franchise taxes					308				280				1,182				1,083
Other operating expenses					971				822				3,709				3,519
		Total noninterest expense			6,139				6,126				24,517				24,370
Income before income tax expense					5,410				6,108				22,092				23,107
Income tax expense					1,272				1,486				5,178				5,317
		Net income		$	4,138			$	4,622			$	16,914			$	17,790
Basic net income per share				$	0.60			$	0.66			$	2.43			$	2.56
Fully diluted net income per share				$	0.59			$	0.66			$	2.43			$	2.55
Weighted average number of common shares outstanding
		Basic			6,950,474				6,947,974				6,948,789				6,947,974
		Diluted			6,955,157				6,963,381				6,959,134				6,968,393
Dividends declared per share				$	0.58			$	0.58			$	1.13			$	1.12
Dividend payout ratio					---				---				46.43	%			43.74	%
Book value per share				$	---			$	---			$	23.93			$	21.00

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Month Ended
($ in thousands)		December 31, 2014				December 31, 2013
Net income		$	4,138			$	4,622
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of $2,428 in 2014 and ($1,524) in 2013			4,511				(2,827	)
Reclassification adjustment, net of income tax (benefit) of $1 in 2014 and $1 in 2013			1				1
Net pension gain (loss) arising during the period net of taxes of $ (574) in 2014 and $1,022 in 2013			(1,066	)			1,898
Less: amortization of prior service cost included in net periodic pension cost net of taxes of $(39) in 2014 and ($35) in 2013			(71	)			(66	)
Other comprehensive income (loss), net of tax of $1,816 in 2014 and ($536) in 2013		$	3,375			$	(994	)
Total Comprehensive Income		$	7,513			$	3,628

		Twelve Month Ended
($ in thousands)		December 31, 2014				December 31, 2013
Net income		$	16,914			$	17,790
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of $6,693 in 2014 and ($8,665) in 2013			12,430				(16,091	)
Reclassification adjustment, net of income tax (benefit) of ($1) in 2014 and $19 in 2013			(1	)			33
Net pension gain (loss) arising during the period net of taxes of $(574) in 2014 and $1,022 in 2013			(1,066	)			1,898
Less: amortization of prior service cost included in net periodic pension cost net of taxes of $(39) in 2014 and ($35) in 2013			(71	)			(66	)
Other comprehensive income (loss), net of tax of $6,079 in 2014 and ($7,659) in 2013		$	11,292			$	(14,226	)
Total Comprehensive Income		$	28,206			$	3,564

Key Ratios and Other Data
(Unaudited)
($ in thousands)		Three Month Ended								Twelve Month Ended
Average Balances		December 31, 2014				December 31, 2013				December 31, 2014				December 31, 2013
Cash and due from banks		$	12,050			$	12,453			$	11,872			$	12,022
Interest-bearing deposits			107,512				81,513				103,320				80,690
Securities available for sale			207,081				187,375				196,960				195,970
Securities held to maturity			161,823				164,512				162,906				164,888
Restricted stock			1,089				1,414				1,162				1,477
Mortgage loans held for sale			453				411				383				1,016
Gross Loans			597,690				592,768				593,829				586,898
Loans, net			588,819				583,699				584,857				577,746
Intangible assets			7,376				8,452				7,778				8,854
Total assets			1,136,287				1,090,932				1,120,848				1,090,703
Total deposits			965,415				936,048				957,684				933,482
Other borrowings			---				---				---				---
Stockholders' equity			164,907				146,716				157,832				149,491
Interest-earning assets			1,081,536				1,044,90				1,069,940				1,037,445
Interest-bearing liabilities			812,171				792,328				811,152				792,037
Financial ratios
Return on average assets			1.44	%			1.68	%			1.51	%			1.63	%
Return on average equity			9.96	%			12.50	%			10.72	%			11.90	%
Net interest margin			3.92	%			4.17	%			4.01	%			4.24	%
Net interest income-fully taxable equivalent		$	10,677			$	10,992			$	42,930			$	44,037
Efficiency ratio			47.45	%			45.70	%			47.17	%			45.99	%
Average equity to average assets			14.51	%			13.45	%			14.08	%			13.71	%
Allowance for loan losses
Beginning balance		$	8,031			$	8,090			$	8,227			$	8,349
Provision for losses			481				202				1,641				1,531
Charge-offs			(292	)			(140	)			(1,860	)			(1,820	)
Recoveries			43				75				255				167
Ending balance		$	8,263			$	8,227			$	8,263			$	8,227

Asset Quality Data
(Unaudited)
($ in thousands)		December 31, 2014				December 31, 2013
Nonperforming assets
Nonaccrual loans		$	3,999			$	5,732
Nonaccrual restructured loans			5,288				852
Total nonperforming loans			9,287				6,584
Other real estate owned			4,744				4,712
Total nonperforming assets		$	14,031			$	11,296
Accruing restructured loans			6,040				6,191
Loans 90 days or more past due		$	207			$	190
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			2.30	%			1.88	%
Allowance for loans losses to total loans			1.36	%			1.38	%
Allowance for loan losses to nonperforming loans			88.97	%			124.95	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.03	%			0.03	%