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

BLACKSBURG, VA--(Marketwired - Jul 23, 2015) - National Bankshares, Inc. (NASDAQ: NKSH) today announced its results of operations for the second quarter and first half of 2015. The Company reported net income of almost $8.08 million for the six months ended June 30, 2015 compared to $8.51 million at June 30, 2014. Basic earnings per share were $1.16 at June 30, 2015 compared to $1.23 for the same period in 2014. For the first half of the year, the return on average assets was 1.41% and the return on average equity was 9.55% compared to 1.54% and 11.22%, respectively, for the first six months of 2014. At June 30, 2015, the Company had total assets of almost $1.15 billion which was an increase of 1.75% when compared to $1.13 billion at the end of June 2014.

Commenting on the Company's financial results, National Bankshares Chairman, President & CEO James G. Rakes said, "Loan growth of over $33.54 million, or 5.65%, from June 30, 2014 is a positive indicator of a stronger demand for credit. We continue to focus on meeting the financial needs of our customers and our employees are dedicated to striving to meet those needs."

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 26 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)				June 30, 2015				June 30, 2014				December 31, 2014
Assets
Cash and due from banks				$	11,353			$	15,917			$	12,894
Interest-bearing deposits					83,818				106,112				102,548
Federal funds sold					---				---				---
Securities available for sale, at fair value					218,524				195,407				222,844
Securities held to maturity					155,704				162,956				161,452
Restricted stock					1,129				1,089				1,089
		Total securities			375,357				359,452				385,385
Mortgage loans held for sale					853				383				291
Loans:
	Loans, net of unearned income and deferred fees				626,941				593,400				605,466
	Less: allowance for loan losses				(8,131	)			(7,971	)			(8,263	)
		Loans, net			618,810				585,429				597,203
Premises and equipment, net					8,878				9,482				9,131
Accrued interest receivable					5,857				5,798				5,748
Other real estate owned					4,441				5,293				4,744
Intangible assets and goodwill					6,685				7,761				7,223
Bank-owned life insurance					22,097				21,491				21,797
Other assets					10,122				11,361				7,767
		Total assets		$	1,148,271			$	1,128,479			$	1,154,731
Liabilities and Stockholders' Equity
Noninterest-bearing deposits				$	157,983			$	146,727			$	150,744
Interest-bearing demand deposits					526,749				510,304				533,641
Savings deposits					86,354				79,255				81,297
Time deposits					203,070				231,177				216,746
		Total deposits			974,156				967,463				982,428
Other borrowed funds					---				---				---
Accrued interest payable					61				71				68
Other liabilities					6,484				4,149				5,932
		Total liabilities			980,701				971,683				988,428
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, 6,954,474 shares at June 30, 2015, 6,950,474 at December 31, 2014 and 6,947,974 shares at June 30, 2014.					8,693				8,685				8,688
Retained earnings					167,764				158,863				163,287
Accumulated other comprehensive loss, net					(8,887	)			(10,752	)			(5,672	)
		Total stockholders' equity			167,570				156,796				166,303
		Total liabilities and stockholders' equity		$	1,148,271			$	1,128,479			$	1,154,731

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, 2015			June 30, 2014			June 30, 2015				June 30, 2014
Interest Income
Interest and fees on loans			$	7,673		$	7,819		$	15,322			$	15,754
Interest on federal funds				---			---			---				---
Interest on interest-bearing deposits				55			64			119				129
Interest on securities - taxable				1,712			1,697			3,446				3,350
Interest on securities - nontaxable				1,357			1,474			2,743				2,974
	Total interest income			10,797			11,054			21,630				22,207
Interest Expense
Interest on time deposits of $100 or more				120			145			248				298
Interest on other deposits				931			1,150			1,890				2,312
Interest on borrowed funds				---			---			---				---
	Total interest expense			1,051			1,295			2,138				2,610
	Net interest income			9,746			9,759			19,492				19,597
Provision for loan losses				355			701			556				804
	Net income after provision for loan losses			9,391			9,058			18,936				18,793
Noninterest Income
Service charges on deposit accounts				570			607			1,105				1,199
Other service charges and fees				48			38			119				103
Credit card fees				976			961			1,871				1,758
Trust Income				299			332			588				625
Bank-owned life insurance				172			177			342				352
Other income				349			229			631				506
Realized securities gains, net				5			---			3				1
	Total noninterest income			2,419			2,344			4,659				4,544
Noninterest Expense
Salaries and employee benefits				3,254			3,007			6,326				6,006
Occupancy and furniture and fixtures				417			417			869				857
Data processing and ATM				409			394			843				757
FDIC assessment				135			117			270				264
Credit card processing				675			665			1,285				1,214
Intangibles and goodwill amortization				269			269			538				538
Net cost of other real estate owned				46			84			517				161
Franchise taxes				322			287			630				566
Other operating expenses				863			820			1,820				1,879
	Total noninterest expense			6,390			6,060			13,098				12,242
Income before income tax expense				5,420			5,342			10,497				11,095
Income tax expense				1,310			1,233			2,421				2,582
	Net income		$	4,110		$	4,109		$	8,076			$	8,513
Basic net income per share			$	0.59		$	0.59		$	1.16			$	1.23
Fully diluted net income per share			$	0.59		$	0.59		$	1.16			$	1.22
Weighted average number of common shares outstanding
	Basic			6,952,540			6,947,974			6,951,513				6,947,974
	Diluted			6,956,039			6,960,683			6,955,093				6,962,274
Dividends declared per share			$	0.53		$	0.55		$	0.53			$	0.55
Dividend payout ratio				---			---			45.64	%			44.89	%
Book value per share			$	24.85		$	22.57		$	24.10			$	22.57

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Months Ended
($ in thousands, except for share and per share data)		June 30, 2015				June 30, 2014
Net income		$	4,110			$	4,109
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of ($3,048) in 2015 and $1,664 in 2014			(5,665	)			3,091
Reclassification adjustment, net of income tax (benefit) of ($2) in 2015 and $0 in 2014			(3	)			---
Other comprehensive income (loss), net of tax of ($3,050) in 2015 and $1,664 in 2014		$	(5,668	)		$	3,091
Total Comprehensive Income (Loss)		$	(1,558	)		$	7,200

		Six Months Ended
($ in thousands)		June 30, 2015				June 30, 2014
Net income		$	8,076			$	8,513
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of ($1,728) in 2015 and $3,345 in 2014			(3,213	)			6,212
Reclassification adjustment, net of income tax (benefit) of ($1) in 2015 and $0 in 2014			(2	)			---
Other comprehensive income (loss), net of tax of ($1,729) in 2015 and $3,345 in 2014		$	(3,215	)		$	6,212
Total Comprehensive Income		$	4,861			$	14,725

National Bankshares, Inc. and Subsidiaries
Key Ratios and Other Data
(Unaudited)
($ in thousands)		Three Months Ended								Six Months Ended
		June 30, 2015				June 30, 2014				June 30, 2015				June 30, 2014
Average Balances
Cash and due from banks		$	11,537			$	11,636			$	11,451			$	11,786
Interest-bearing deposits			86,617				102,409				95,314				102,698
Securities available for sale			229,447				193,854				225,824				189,196
Securities held to maturity			155,736				164,476				157,547				163,643
Restricted stock			1,130				1,089				1,112				1,237
Mortgage loans held for sale			893				256				678				319
Gross Loans			624,598				592,073				614,922				592,205
Loans, net			623,764				583,054				605,809				583,121
Intangible assets			6,839				7,915				6,974				8,050
Total assets			1,154,036				1,116,461				1,152,733				1,112,664
Total deposits			976,427				954,592				975,118				954,163
Other borrowings			1				1				---				---
Stockholders' equity			171,616				156,045				170,461				152,975
Interest-earning assets			1,098,870				1,067,136				1,095,696				1,064,732
Interest-bearing liabilities			817,675				811,711				819,481				812,197
Financial ratios
Return on average assets			1.43	%			1.48	%			1.41	%			1.54	%
Return on average equity			9.61	%			10.56	%			9.55	%			11.22	%
Net interest margin			3.90	%			4.02	%			3.92	%			4.07	%
Net interest income-fully taxable equivalent		$	10,672			$	10,699			$	21,320			$	21,498
Efficiency ratio			48.81	%			46.46	%			50.42	%			47.01	%
Average equity to average assets			14.87	%			13.98	%			14.79	%			13.75	%
Allowance for loan losses
Beginning balance		$	8,257			$	8,297			$	8,263			$	8,227
Provision for losses			355				701				556				804
Charge-offs			(516	)			(1,053	)			(776	)			(1,244	)
Recoveries			35				26				88				184
Ending balance		$	8,131			$	7,971			$	8,131			$	7,971

National Bankshares, Inc. and Subsidiaries
Asset Quality Data
(Unaudited)
$ in thousands
Nonperforming assets		June 30, 2015				June 30, 2014
Nonaccrual loans		$	2,870			$	2,335
Nonaccrual restructured loans			6,035				2,674
Total nonperforming loans		$	8,905			$	5,009
Other real estate owned			4,441				5,293
Total nonperforming assets		$	13,346			$	10,302
Accruing restructured loans		$	5,943			$	6,240
Loans 90 days or more past due		$	80			$	266
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			2.11	%			1.72	%
Allowance for loans losses to total loans			1.30	%			1.34	%
Allowance for loan losses to nonperforming loans			91.31	%			159.13	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.01	%			0.04	%