National Bankshares, Inc. Reports Income for the Nine Months Ended September 30, 2016

BLACKSBURG, VA--(Marketwired - Oct 27, 2016) - Today, National Bankshares, Inc. (NASDAQ: NKSH) announced net income of approximately $11.47 million through September 30, 2016 compared to $12.28 million reported for the first nine months of 2015. Basic earnings per share were $1.65 which compares with $1.77 reported at September 30, 2015. The return on average assets for the nine months ended September 30, 2016 was 1.28% compared to 1.43% in 2015. The return on average equity was 8.55% and 9.60% for the same two periods. At September 30, 2016, the Company had total assets of over $1.20 billion.

Commenting on the company's financial results, National Bankshares' Chairman, President & CEO James G. Rakes said, "We continue to grow our asset and deposit base in a steady, consistent manner by making quality loans and providing superior customer service. We've also seen positive results from our efforts to increase noninterest income and improve overall efficiency. While we still face a challenging interest rate environment, we continue to invest in the people, technology and infrastructure that will position National Bankshares for long-term growth and increased profitability."

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)				September 30, 2016				September 30, 2015				December 31, 2015
Assets
Cash and due from banks				$	11,302			$	12,446			$	12,152
Interest-bearing deposits					80,170				90,295				130,811
Federal funds sold					---				---				---
Securities available for sale, at fair value					291,277				211,232				236,131
Securities held to maturity					138,047				154,644				152,028
Restricted stock					1,170				1,129				1,129
	Total securities				430,494				367,005				389,288
Mortgage loans held for sale					434				1,331				634
Loans:
	Loans, net of unearned income and deferred fees				636,241				625,755				619,008
	Less: allowance for loan losses				(8,301	)			(8,117	)			(8,297	)
		Loans, net			627,940				617,638				610,711
Premises and equipment, net					8,757				9,135				9,020
Accrued interest receivable					5,138				5,659				5,769
Other real estate owned					3,188				4,194				4,165
Intangible assets and goodwill					6,006				6,416				6,224
Bank-owned life insurance					22,848				22,248				22,401
Other assets					6,904				7,758				8,564
		Total assets		$	1,203,181			$	1,144,125			$	1,199,739
Liabilities and Stockholders' Equity
Noninterest-bearing deposits				$	172,510			$	163,877			$	166,453
Interest-bearing demand deposits					566,213				514,823				569,787
Savings deposits					95,496				86,659				90,236
Time deposits					175,789				197,171				192,383
		Total deposits			1,010,008				962,530				1,018,859
Other borrowed funds					---				---				---
Accrued interest payable					48				61				56
Other liabilities					8,981				7,142				8,710
		Total liabilities			1,019,037				969,733				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 September 30, 2016 and December 31, 2015 and 6,955,974 shares at September 30, 2015.					8,697				8,695				8,697
Retained earnings					178,998				171,996				171,353
Accumulated other comprehensive loss, net					(3,551	)			(6,299	)			(7,936	)
		Total stockholders' equity			184,144				174,392				172,114
		Total liabilities and stockholders' equity		$	1,203,181			$	1,144,125			$	1,199,739

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
			Three Months Ended						Nine Months Ended
($ in thousands, except for share and per share data)			September 30, 2016			September 30, 2015			September 30, 2016				September 30, 2015
Interest Income
Interest and fees on loans			$	7,409		$	7,676		$	22,032			$	22,886
Interest on federal funds				---			---			---				---
Interest on interest-bearing deposits				97			54			409				173
Interest on securities - taxable				1,381			1,678			4,625				5,124
Interest on securities - nontaxable				1,270			1,352			3,867				4,095
	Total interest income			10,157			10,760			30,933				32,278
Interest Expense
Interest on time deposits				238			301			765				943
Interest on other deposits				781			708			2,385				2,204
Interest on borrowed funds				---			---			---				---
	Total interest expense			1,019			1,009			3,150				3,147
	Net interest income			9,138			9,751			27,783				29,131
Provision for loan losses				291			178			1,148				734
	Net income after provision for loan losses			8,847			9,573			26,635				28,397
Noninterest Income
Service charges on deposit accounts				649			571			1,778				1,676
Other service charges and fees				47			45			165				164
Credit card fees				963			972			2,802				2,843
Trust Income				330			314			1,007				902
Bank-owned life insurance				149			152			447				451
Other income				242			230			1,042				963
Realized securities gain, net				101			2			199				5
	Total noninterest income			2,481			2,286			7,440				7,004
Noninterest Expense
Salaries and employee benefits				3,239			3,150			9,714				9,433
Occupancy and furniture and fixtures				463			438			1,388				1,307
Data processing and ATM				624			387			1,630				1,230
FDIC assessment				135			138			421				408
Credit card processing				715			701			2,049				1,986
Intangibles and goodwill amortization				40			269			218				807
Net cost of other real estate owned				71			48			179				555
Franchise taxes				321			329			974				959
Other operating expenses				1,012			859			2,969				2,679
	Total noninterest expense			6,620			6,319			19,542				19,364
Income before income tax expense				4,708			5,540			14,533				16,037
Income tax expense				880			1,341			3,061				3,762
	Net Income		$	3,828		$	4,199		$	11,472			$	12,275
Basic net income per share			$	0.55		$	0.60		$	1.65			$	1.77
Fully diluted net income per share			$	0.55		$	0.60		$	1.65			$	1.76
Weighted average number of common shares outstanding
	Basic			6,957,974			6,955,126			6,957,974				6,952,716
	Diluted			6,957,974			6,959,168			6,957,974				6,956,689
Dividends declared per share				---			---		$	0.55			$	0.53
Dividend payout ratio				---			---			33.36	%			30.03	%
Book value per share			$	26.47		$	25.07		$	26.47			$	25.07

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Months Ended
($ in thousands)		September 30, 2016				September 30, 2015
Net income		$	3,828			$	4,199
Other Comprehensive Income, net of tax
Unrealized holding gain on available for sale securities net of tax of $243 and $1,394 for the periods ended September 30, 2016 and 2015, respectively			454				2,589
Reclassification adjustment for gain included in net income, net of tax of ($35) and ($1) for the periods ended September 30, 2016 and 2015, respectively			(66	)			(1	)
Other comprehensive income, net of tax of $208 and $1,393 for the periods ended September 30, 2016 and 2015, respectively		$	388			$	2,588
Total Comprehensive Income		$	4,216			$	6,787

		Nine Months Ended
($ in thousands)		September 30, 2016				September 30, 2015
Net Income		$	11,472			$	12,275
Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $2,415 and ($334) for the periods ended September 30, 2016 and 2015, respectively			4,484				(624	)
Reclassification adjustment for gain included in net income, net of tax of ($54) and ($2) for the periods ended September 30, 2016 and 2015, respectively			(99	)			(3	)
Other comprehensive income (loss), net of tax of $2,361 and ($336) for the periods ended September 30, 2016 and 2015, respectively		$	4,385			$	(627	)
Total Comprehensive Income		$	15,857			$	11,648

National Bankshares, Inc. and Subsidiaries
Key Ratios and Other Data
(Unaudited)
		Three Months Ended								Nine Months Ended
$ in thousands		September 30,				September 30,				September 30,				September 30,
		2016				2015				2016				2015
Average Balances
Cash and due from banks		$	11,248			$	11,612			$	11,258			$	11,506
Interest-bearing deposits			76,870				84,882				106,928				91,791
Securities available for sale			298,422				216,949				275,702				222,823
Securities held to maturity			138,186				154,978				142,585				156,678
Restricted stock			1,170				1,129				1,158				1,118
Mortgage loans held for sale			666				986				565				781
Gross Loans			630,234				627,596				617,337				619,204
Loans, net			621,251				618,611				608,217				610,135
Intangible assets			6,029				6,571				6,094				6,838
Total assets			1,200,629				1,144,723				1,200,104				1,150,026
Total deposits			1,009,786				966,199				1,011,736				972,104
Other borrowings			---				---				---				---
Stockholders' equity			182,096				171,698				179,191				170,883
Interest-earning assets			1,141,981				1,089,803				1,142,505				1,093,699
Interest-bearing liabilities			835,984				805,655				842,127				814,800
Financial Ratios
Return on average assets			1.27	%			1.46	%			1.28	%			1.43	%
Return on average equity			8.36	%			9.70	%			8.55	%			9.60	%
Net interest margin			3.48	%			3.89	%			3.55	%			3.90	%
Net interest income-fully taxable equivalent		$	9,986			$	10,673			$	30,383			$	31,881
Efficiency ratio			53.10	%			48.76	%			51.67	%			49.80	%
Average equity to average assets			15.17	%			15.00	%			14.93	%			14.86	%
Allowance for Loan Losses
Beginning balance		$	8,195			$	8,131			$	8,297			$	8,263
Provision for losses			291				178				1,148				734
Charge-offs			(216	)			(226	)			(1,267	)			(1,002	)
Recoveries			31				34				123				122
Ending balance		$	8,301			$	8,117			$	8,301			$	8,117

National Bankshares, Inc. and Subsidiaries
Asset Quality Data
(Unaudited)
$ in thousands		September 30, 2016				September 30, 2015
Nonperforming Assets
Nonaccrual loans		$	1,592			$	3,207
Nonaccrual restructured loans			3,901				5,781
Total nonperforming loans			5,493				8,988
Other real estate owned			3,188				4,194
Total nonperforming assets		$	8,681			$	13,182
Accruing restructured loans		$	4,662			$	6,080
Loans 90 days or more past due		$	195			$	47
Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			1.36	%			2.09	%
Allowance for loans losses to total loans			1.30	%			1.30	%
Allowance for loan losses to nonperforming loans			151.12	%			90.31	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.03	%			0.01	%