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

BLACKSBURG, VA--(Marketwired - Jul 28, 2016) -  National Bankshares, Inc. (NASDAQ: NKSH) today announced its results of operations for the second quarter and first half of 2016. The Company reported net income of $7.64 million for the six months ended June 30, 2016 compared to $8.08 million at June 30, 2015. Basic earnings per share were $1.10 at June 30, 2016 compared to $1.16 for the same period in 2015. For the first half of the year, the return on average assets was 1.28% and the return on average equity was 8.65% compared to 1.41% and 9.55%, respectively, for the first six months of 2015. At June 30, 2016, the Company had total assets of $1.21 billion which was an increase of 5.40% when compared to $1.15 billion at the end of June 2015.

Commenting on the Company's financial results, National Bankshares Chairman, President & CEO James G. Rakes said, "The low interest rate environment continues to put pressure on our margins and impact earnings. Increasing competition for loans, along with lower yields for certain investment portfolio assets, are also reflected in the past quarter's numbers. As National Bank commemorates its 125^th anniversary, we are focused on positioning ourselves for future growth by improving our product offerings and exceeding our customers' expectations for personalized service."

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 full service offices and one loan production office 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, 2016				June 30, 2015				December 31, 2015
Assets
Cash and due from banks				$	14,320			$	11,353			$	12,152
Interest-bearing deposits					75,892				83,818				130,811
Federal funds sold					---				---				---
Securities available for sale, at fair value					303,242				218,524				236,131
Securities held to maturity					138,424				155,704				152,028
Restricted stock					1,170				1,129				1,129
		Total securities			442,836				375,357				389,288
Mortgage loans held for sale					663				853				634
Loans:
	Loans, net of unearned income and deferred fees				630,916				626,941				619,008
	Less: allowance for loan losses				(8,195	)			(8,131	)			(8,297	)
		Loans, net			622,721				618,810				610,711
Premises and equipment, net					8,718				8,878				9,020
Accrued interest receivable					5,259				5,857				5,769
Other real estate owned					3,425				4,441				4,165
Intangible assets and goodwill					6,046				6,685				6,224
Bank-owned life insurance					22,699				22,097				22,401
Other assets					7,720				10,122				8,564
		Total assets		$	1,210,299			$	1,148,271			$	1,199,739
Liabilities and Stockholders' Equity
Noninterest-bearing deposits				$	171,350			$	157,983			$	166,453
Interest-bearing demand deposits					575,364				526,749				569,787
Savings deposits					95,484				86,354				90,236
Time deposits					179,540				203,070				192,383
		Total deposits			1,021,738				974,156				1,018,859
Other borrowed funds					---				---				---
Accrued interest payable					56				61				56
Other liabilities					8,577				6,484				8,710
		Total liabilities			1,030,371				980,701				1,027,625
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 June 30, 2016 and December 31, 2015 and 6,954,474 shares at June 30, 2015.					8,697				8,693				8,697
Retained earnings					175,170				167,764				171,353
Accumulated other comprehensive loss, net					(3,939	)			(8,887	)			(7,936	)
		Total stockholders' equity			179,928				167,570				172,114
		Total liabilities and stockholders' equity		$	1,210,299			$	1,148,271			$	1,199,739

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
($ in thousands, except				Three Months Ended						Six Months Ended
for share and per share data)				June 30, 2016			June 30, 2015			June 30, 2016				June 30, 2015
Interest Income
Interest and fees on loans				$	7,289		$	7,600		$	14,623			$	15,210
Interest on federal funds					---			---			---				---
Interest on interest-bearing deposits					150			55			312				119
Interest on securities - taxable					1,567			1,712			3,244				3,446
Interest on securities - nontaxable					1,286			1,357			2,597				2,743
	Total interest income				10,292			10,724			20,776				21,518
Interest Expense
Interest on time deposits					253			315			527				642
Interest on other deposits					810			736			1,604				1,496
Interest on borrowed funds					---			---			---				---
	Total interest expense				1,063			1,051			2,131				2,138
	Net interest income				9,229			9,673			18,645				19,380
Provision for loan losses					654			355			857				556
	Net income after provision for loan losses				8,575			9,318			17,788				18,824
Noninterest Income
Service charges on deposit accounts					569			570			1,129				1,105
Other service charges and fees					46			48			118				119
Credit card fees					969			976			1,839				1,871
Trust Income					354			299			677				588
Bank-owned life insurance					151			150			298				299
Other income					455			419			800				733
Realized securities gain, net					74			5			98				3
	Total noninterest income				2,618			2,467			4,959				4,718
Noninterest Expense
Salaries and employee benefits					2,907			3,232			6,475				6,283
Occupancy and furniture and fixtures					448			420			925				869
Data processing and ATM					595			408			1,006				843
FDIC assessment					145			135			286				270
Credit card processing					712			675			1,334				1,285
Intangibles and goodwill amortization					68			269			178				538
Net cost of other real estate owned					39			43			108				507
Franchise taxes					322			322			653				630
Other operating expenses					1,002			861			1,957				1,820
	Total noninterest expense				6,238			6,365			12,922				13,045
Income before income tax expense					4,955			5,420			9,825				10,497
Income tax expense					1,090			1,310			2,181				2,421
		Net Income		$	3,865		$	4,110		$	7,644			$	8,076
Basic net income per share				$	0.56		$	0.59		$	1.10			$	1.16
Fully diluted net income per share				$	0.56		$	0.59		$	1.10			$	1.16
Weighted average number of common shares outstanding
	Basic				6,957,974			6,952,540			6,957,974				6,951,513
	Diluted				6,957,974			6,956,039			6,957,974				6,955,093
Dividends declared per share				$	0.55		$	0.53		$	0.55			$	0.53
Dividend payout ratio					---			---			50.07	%			45.64	%
Book value per share				$	25.86		$	24.10		$	25.86			$	24.10

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
($ in thousands)		Three Months Ended
		June 30, 2016				June 30, 2015
Net income		$	3,865			$	4,110
Other Comprehensive Income (Loss), net of tax
Unrealized holding gain (loss) on available for sale securities net of tax of $368 and ($3,048) for the periods ended June 30, 2016 and 2015, respectively			684				(5,665	)
Reclassification adjustment for gain included in net income, net of tax of ($16) and ($2) for the periods ended June 30, 2016 and 2015, respectively			(30	)			(3	)
Other comprehensive income (loss), net of tax of $352 and ($3,050) for the periods ended June 30, 2016 and 2015, respectively		$	654			$	(5,668	)
Total Comprehensive Income (Loss)		$	4,519			$	(1,558	)

		Six Months Ended
($ in thousands)		June 30, 2016				June 30, 2015
Net Income		$	7,644			$	8,076
Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $2,171 and ($1,728) for the periods ended June 30, 2016 and 2015, respectively			4,031				(3,213	)
Reclassification adjustment for gain included in net income, net of tax of ($18) and ($1) for the periods ended June 30, 2016 and 2015, respectively			(34	)			(2	)
Other comprehensive income (loss), net of tax of $2,153 and ($1,729) for the periods ended June 30, 2016 and 2015, respectively			3,997				(3,215	)
Total Comprehensive Income		$	11,641			$	4,861

Key Ratios and Other Data
(Unaudited)
($ in thousands)		Three Months Ended								Six Months Ended
		June 30, 2016				June 30, 2015				June 30, 2016				June 30, 2015
Average Balances
Cash and due from banks		$	11,217			$	11,537			$	11,263			$	11,451
Interest-bearing deposits			118,395				86,617				122,122				95,314
Securities available for sale			283,280				229,447				264,217				225,824
Securities held to maturity			140,415				155,736				144,809				157,547
Restricted stock			1,170				1,130				1,151				1,112
Mortgage loans held for sale			601				893				514				678
Gross Loans			610,657				624,598				610,818				614,922
Loans, net			601,700				623,764				601,628				605,808
Intangible assets			6,085				6,839				6,128				6,974
Total assets			1,211,217				1,155,852				1,199,839				1,152,732
Total deposits			1,022,306				976,427				1,012,721				975,118
Other borrowings			---				1				---				---
Stockholders' equity			179,452				171,616				177,722				170,461
Interest-earning assets			1,152,614				1,098,866				1,142,769				1,095,694
Interest-bearing liabilities			851,522				817,674				845,232				819,481
Financial Ratios
Return on average assets			1.28	%			1.43	%			1.28	%			1.41	%
Return on average equity			8.66	%			9.61	%			8.65	%			9.55	%
Net interest margin			3.52	%			3.87	%			3.59	%			3.90	%
Net interest income-fully taxable equivalent		$	10,089			$	10,599			$	20,397			$	21,207
Efficiency ratio			49.09	%			48.71	%			50.96	%			50.32	%
Average equity to average assets			14.82	%			14.85	%			14.81	%			14.79	%
Allowance for Loan Losses
Beginning balance		$	8,107			$	8,257			$	8,297			$	8,263
Provision for losses			654				355				857				556
Charge-offs			(598	)			(516	)			(1,051	)			(776	)
Recoveries			32				35				92				88
Ending balance		$	8,195			$	8,131			$	8,195			$	8,131

Asset Quality Data
(Unaudited)
($ in thousands)		June 30, 2016				June 30, 2015
Nonperforming Assets
Nonaccrual loans		$	1,751			$	2,870
Nonaccrual restructured loans			4,454				6,035
Total nonperforming loans		$	6,205			$	8,905
Other real estate owned		$	3,425			$	4,441
Total nonperforming assets		$	9,630			$	13,346
Accruing restructured loans		$	4,729			$	5,943
Loans 90 days or more past due		$	316			$	80
Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			1.52	%			2.11	%
Allowance for loans losses to total loans			1.30	%			1.30	%
Allowance for loan losses to nonperforming loans			132.07	%			91.31	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.05	%			0.01	%