National Bankshares, Inc. Announces Earnings for 2015

BLACKSBURG, VA--(Marketwired - Feb 25, 2016) - National Bankshares, Inc. (NASDAQ: NKSH) today announced its results of operations for the three and twelve months ended December 31, 2015. The Company reported net income of $15.83 million for the twelve months ended December 31, 2015, a decrease from the $16.91 million earned in 2014. The 2015 return on average assets and return on average equity were 1.37% and 9.22%, respectively. Basic earnings per share in 2015 were $2.28. National Bankshares, Inc. ended 2015 with total assets of almost $1.20 billion.

Commenting on the Company's financial results, National Bankshares Chairman, President & CEO James G. Rakes said, "As National Bank enters its 125^th year, we continue to deliver on our promise of successful community banking to our customers, employees and stockholders. In the fourth quarter of 2015, we experienced unanticipated write downs in loans that contributed to the lower net income. Among other expenses, we had increased employee benefit expenses, mostly the result of pension related costs. We are working hard to deploy our capital in the communities we serve while preserving asset quality and our strong capital legacy."

Mr. Rakes continued, "We were pleased to return profits to our stockholders in the form of dividends of $1.14 per share in 2015. This per share dividend payment amount resulted in a dividend payout ratio of 50.09% in 2015 compared to 46.43% in 2014 and 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 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)				December 31, 2015				December 31, 2014
Assets
Cash and due from banks				$	12,152			$	12,894
Interest-bearing deposits					130,811				102,548
Federal funds sold					---				---
Securities available for sale, at fair value					236,131				222,844
Securities held to maturity					152,028				161,452
Restricted stock					1,129				1,089
	Total securities				389,288				385,385
Mortgage loans held for sale					634				291
Loans:
	Loans, net of unearned income and deferred fees				619,008				605,466
	Less: allowance for loan losses				(8,297	)			(8,263	)
		Loans, net			610,711				597,203
Premises and equipment, net					9,020				9,131
Accrued interest receivable					5,769				5,748
Other real estate owned					4,165				4,744
Intangible assets and goodwill					6,224				7,223
Bank-owned life insurance					22,401				21,797
Other assets					8,564				7,767
		Total assets		$	1,199,739			$	1,154,731
Liabilities and Stockholders' Equity
Noninterest-bearing deposits				$	166,453			$	150,744
Interest-bearing demand deposits					569,787				533,641
Savings deposits					90,236				81,297
Time deposits					192,383				216,746
		Total deposits			1,018,859				982,428
Other borrowed funds					---				---
Accrued interest payable					56				68
Other liabilities					8,710				5,932
		Total liabilities			1,027,625				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, 6,957,974 shares at December 31, 2015 and 6,950,474 shares at December 31, 2014.					8,698				8,688
Retained earnings					171,353				163,287
Accumulated other comprehensive loss, net					(7,937	)			(5,672	)
		Total stockholders' equity			172,114				166,303
		Total liabilities and stockholders' equity		$	1,199,739			$	1,154,731

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, 2015			December 31, 2014				December 31, 2015				December 31, 2014
Interest Income
Interest and fees on loans			$	7,560		$	7,652			$	30,446			$	31,058
Interest on federal funds				---			---				---				---
Interest on interest-bearing deposits				81			69				254				262
Interest on securities - taxable				1,652			1,730				6,776				6,798
Interest on securities - nontaxable				1,343			1,416				5,438				5,826
	Total interest income			10,636			10,867				42,914				43,944
Interest Expense
Interest on time deposits				290			346				1,233				1,479
Interest on other deposits				746			796				2,950				3,420
Interest on borrowed funds				---			---				---				---
	Total interest expense			1,036			1,142				4,183				4,899
	Net interest income			9,600			9,725				38,731				39,045
Provision for loan losses				1,275			481				2,009				1,641
	Net income after provision for loan losses			8,325			9,244				36,722				37,404
Noninterest Income
Service charges on deposit accounts				574			601				2,250				2,434
Other service charges and fees				51			42				215				187
Credit card fees				1,018			944				3,861				3,631
Trust income				327			292				1,229				1,213
Bank-owned life insurance				152			154				603				616
Other income				318			254				1,295				1,037
Realized securities gain (loss), net				28			(3	)			33				2
	Total noninterest income			2,468			2,284				9,486				9,120
Noninterest Expense
Salaries and employee benefits				3,089			2,716				12,522				11,606
Occupancy and furniture and fixtures				432			453				1,728				1,703
Data processing and ATM				427			461				1,657				1,650
FDIC assessment				138			122				546				533
Credit card processing				706			706				2,692				2,593
Intangibles and goodwill amortization				192			268				999				1,075
Net cost of other real estate owned				39			110				608				369
Franchise taxes				329			308				1,288				1,182
Other operating expenses				905			974				3,595				3,721
	Total noninterest expense			6,257			6,118				25,635				24,432
Income before income tax expense				4,536			5,410				20,573				22,092
Income tax expense				978			1,272				4,740				5,178
	Net income		$	3,558		$	4,138			$	15,833			$	16,914
Basic net income per share			$	0.51		$	0.60			$	2.28			$	2.43
Fully diluted net income per share			$	0.51		$	0.59			$	2.28			$	2.43
Weighted average number of common shares outstanding
	Basic			6,957,213			6,950,474				6,953,849				6,948,789
	Diluted			6,959,049			6,955,157				6,957,094				6,959,134
Dividends declared per share			$	0.61		$	0.58			$	1.14			$	1.13
Dividend payout ratio				---			---				50.09	%			46.43	%
Book value per share				---			---			$	24.74			$	23.93

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Month Ended
($ in thousands)		December 31, 2015				December 31, 2014
Net income		$	3,558			$	4,138
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of ($237) in 2015 and $2,428 in 2014			(440	)			4,511
Reclassification adjustment, net of tax of ($10) in 2015 and $1 in 2014			(18	)			1
Net pension loss arising during the period, net of tax of ($597) in 2015 and ($574) in 2014			(1,108	)			(1,066	)
Less: amortization of prior service cost included in net periodic pension cost net of tax of ($38) in 2015 and ($39) in 2014			(72	)			(71	)
Other comprehensive income (loss), net of tax of ($882) in 2015 and $1,816 in 2014		$	(1,638	)		$	3,375
Total Comprehensive Income (Loss)		$	1,920			$	7,513

		Twelve Month Ended
($ in thousands)		December 31, 2015				December 31, 2014
Net income		$	15,833			$	16,914
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of ($571) in 2015 and $6,693 in 2014			(1,064	)			12,430
Reclassification adjustment, net of tax of ($12) in 2015 and ($1) in 2014			(21	)			(1	)
Net pension loss arising during the period, net of tax of ($597) in 2015 and ($574) in 2014			(1,108	)			(1,066	)
Less: amortization of prior service cost included in net periodic pension cost net of tax of ($38) in 2015 and ($39) in 2014			(72	)			(71	)
Other comprehensive income (loss), net of tax of ($1,218) in 2015 and $6,079 in 2014		$	(2,265	)		$	11,292
Total Comprehensive Income		$	13,568			$	28,206

Key Ratios and Other Data
(Unaudited)
($ in thousands)		Three Month Ended								Twelve Month Ended
Average Balances		December 31, 2015				December 31, 2014				December 31, 2015				December 31, 2014
Cash and due from banks		$	12,166			$	12,050			$	11,672			$	11,872
Interest-bearing deposits			111,162				107,512				96,677				103,320
Securities available for sale			223,245				207,081				222,937				196,960
Securities held to maturity			152,977				161,823				155,747				162,906
Restricted stock			1,129				1,089				1,121				1,162
Mortgage loans held for sale			861				453				802				383
Gross loans			624,754				597,690				620,594				593,829
Loans, net			615,801				588,819				611,554				584,857
Intangible assets			6,319				7,376				6,707				7,778
Total assets			1,172,071				1,136,287				1,155,594				1,120,848
Total deposits			989,853				965,415				976,597				957,684
Other borrowings			---				---				---				---
Stockholders' equity			174,258				164,907			$	171,732				157,832
Interest-earning assets			1,116,759				1,081,536				1,099,517				1,069,940
Interest-bearing liabilities			822,540				812,171				816,768				811,152
Financial ratios
Return on average assets			1.20	%			1.44	%			1.37	%			1.51	%
Return on average equity			8.10	%			9.96	%			9.22	%			10.72	%
Net interest margin			3.74	%			3.90	%			3.86	%			4.00	%
Net interest income-fully taxable equivalent		$	10,514			$	10,631			$	42,394			$	42,771
Efficiency ratio			48.20	%			47.37	%			49.41	%			47.08	%
Average equity to average assets			14.87	%			14.51	%			14.86	%			14.08	%
Allowance for loan losses
Beginning balance		$	8,117			$	8,031			$	8,263			$	8,227
Provision for losses			1,275				481				2,009				1,641
Charge-offs			(1,118	)			(292	)			(2,120	)			(1,860	)
Recoveries			23				43				145				255
Ending balance		$	8,297			$	8,263			$	8,297			$	8,263

Asset Quality Data
(Unaudited)
$ in thousands		December 31, 2015				December 31, 2014
Asset Quality
Nonaccrual loans		$	2,043			$	3,999
Nonaccrual restructured loans			4,639				5,288
Total nonperforming loans		$	6,682			$	9,287
Other real estate owned		$	4,165			$	4,744
Total nonperforming assets		$	10,847			$	14,031
Accruing restructured loans		$	8,814			$	6,040
Loans 90 days or more past due		$	156			$	207
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			1.74	%			2.30	%
Allowance for loans losses to total loans			1.34	%			1.36	%
Allowance for loan losses to nonperforming loans			124.17	%			88.97	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.03	%			0.03	%