SOURCE: National Bankshares, Inc.

National Bankshares, Inc.

April 15, 2010 16:30 ET

National Bankshares, Inc.'s First Quarter Earnings Up by More Than 11% Over Last Year

BLACKSBURG, VA--(Marketwire - April 15, 2010) - Today, National Bankshares, Inc. (NASDAQ: NKSH) reported record net income of nearly $3.77 million for the quarter ended March 31, 2010. Net income is 11.28% above the nearly $3.39 million posted by the Company on March 31, 2009, which was itself a record total for the first quarter of the year. Basic net income per share for the first three months of 2010 was $0.54, up from $0.49 per share earned in the same period last year. Net loans were at $580.93 million on March 31, 2010, a 2.2% increase over net loans of $568.60 million at the end of the first quarter of 2009 and a slight decline from the $583.02 million reported at year-end. At March 31, 2010, National Bankshares, Inc. had total assets of $992.94 million, up from both the $982.37 million reported at December 31, 2009 and the $979.79 million in total assets at the end of the first quarter of 2009. At March 31, the Company reported a return on average assets of 1.57%, a return on average equity of 12.27% and a net interest margin of 4.57%.

The Company's Chairman, President and CEO, James G. Rakes, said, "At our National Bank subsidiary during the first quarter of the year, the migration of longer-term, higher-cost time deposits into shorter-term deposits continued. We were able to take advantage of the resulting lower cost of funds in this interest rate environment to maximize the net interest margin. The result has been good earnings. As has been our longtime practice, we also carefully monitored controllable expenses during the quarter." Mr. Rakes went on to say, "This level of earnings has allowed us to continue to prudently add to the allowance for loan losses to help us work through a period of higher nonperforming assets and loan charge-offs. Our trade area was not as seriously impacted as some other parts of the country during the early stages of the recession. But we anticipated that our customers would not be able to totally escape its effects, and we have been preparing for this time. The ratio of nonperforming assets to net loans, plus other real estate owned, grew to 1.77% at March 31, while the ratio of the allowance for loan losses to total loans was 1.21% at the end of the first quarter."

National Bankshares, Inc. is a financial holding company with headquarters in Blacksburg, Virginia. It is the parent company of the National Bank of Blacksburg, which does business as National Bank from 25 offices throughout Southwest Virginia, and of National Bankshares Financial Services, Inc., an insurance and investments subsidiary in the same market. National Bankshares' 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 Sheet

($ in thousands)                             (Unaudited)        (Audited)
                                         March 31,   March 31, December 31,
Assets                                     2010        2009        2009
                                        ----------  ----------  ----------
Cash and due from banks                 $   11,744  $   13,603  $   12,894
Interest-bearing deposits                   55,706      41,929      32,730
Federal funds sold                             ---         ---         ---
Securities available for sale              161,543     166,007     168,041
Securities held to maturity                125,547     134,484     129,376
                                        ----------  ----------  ----------
         Total securities                  287,090     300,491     297,417
                                        ----------  ----------  ----------
Mortgage loans held for sale                 1,358         998         126
Loans:
  Real estate construction loans            47,245      58,645      45,625
  Real estate mortgage loans               165,604     164,684     165,542
  Commercial and industrial loans          284,242     249,925     283,998
  Consumer loans                            92,035     102,533      95,844
                                        ----------  ----------  ----------
         Total loans                       589,126     575,787     591,009
  Less: unearned income and deferred
   fees                                     (1,052)     (1,069)     (1,062)
                                        ----------  ----------  ----------
         Loans, net of unearned income
          and deferred fees                588,074     574,718     589,947
  Less: allowance for loan losses           (7,141)     (6,118)     (6,926)
                                        ----------  ----------  ----------
         Loans, net                        580,933     568,600     583,021
                                        ----------  ----------  ----------
Bank premises and equipment, net            10,729      11,070      10,628
Accrued interest receivable                  6,186       6,209       6,250
Other real estate owned                      2,567       1,918       2,126
Intangible assets                           12,355      13,441      12,626
Other assets                                24,276      21,528      24,549
                                        ----------  ----------  ----------
         Total assets                   $  992,944  $ 979,787   $  982,367
                                        ==========  ==========  ==========

Liabilities and Stockholders' Equity
Noninterest-bearing deposits            $  116,153  $  112,473  $  122,549
Interest-bearing demand deposits           325,214     285,218     310,629
Savings deposits                            53,977      49,178      51,622
Time deposits                              362,124     410,960     367,312
                                        ----------  ----------  ----------
         Total deposits                    857,468     857,829     852,112
                                        ----------  ----------  ----------
Other borrowed funds                           ---          51         ---
Accrued interest payable                       392         650         336
Other liabilities                            8,580       7,701       7,843
                                        ----------  ----------  ----------
         Total liabilities                 866,440     866,231     860,291
                                        ----------  ----------  ----------

Stockholders' Equity
 Preferred stock of no par value.
  Authorized 5,000,000 shares; none
  issued and outstanding                       ---         ---         ---
 Common stock of $1.25 par value.
  Authorized 10,000,000 shares; issued
  and outstanding 6,933,474 shares at
  March 31, 2010, 6,929,474 shares at
  March 31, 2009 and 6,933,474 shares
  at December 31, 2009                       8,667       8,662       8,667
Retained earnings                          117,670     108,743     113,901
Accumulated comprehensive income               167      (3,849)       (492)
                                        ----------  ----------  ----------
         Total stockholders' equity        126,504     113,556     122,076
                                        ----------  ----------  ----------
Total liabilities and stockholders'
 equity                                 $  992,944  $  979,787  $  982,367
                                        ==========  ==========  ==========





                National Bankshares, Inc. and Subsidiaries
                     Consolidated Statements of Income
                                (Unaudited)

                                                       Three Months Ended

                                                      March 31,   March 31,
                                                        2010        2009
                                                      ---------  ----------
  ($ in thousands, except for per share data)
  Interest Income
  Interest and fees on loans                          $   9,176  $    9,462
  Interest on federal funds                                 ---         ---
  Interest on interest-bearing deposits                      19          24
  Interest on securities - taxable                        1,443       1,561
  Interest on securities - nontaxable                     1,602       1,531
                                                      ---------  ----------
      Total interest income                              12,240      12,578
                                                      ---------  ----------

  Interest Expense
  Interest on time deposits of $100,000 or more             946       1,491
  Interest on other deposits                              2,033       2,920
  Interest on borrowed funds                                ---           1
                                                      ---------  ----------
      Total interest expense                              2,979       4,412
                                                      ---------  ----------
      Net interest income                                 9,261       8,166
  Provision for loan losses                                 647         370
                                                      ---------  ----------
      Net interest income after provision for
       loan losses                                        8,614       7,796
                                                      ---------  ----------

  Noninterest Income
  Service charges on deposit accounts                       714         804
  Other service charges and fees                             47          73
  Credit card fees                                          666         625
  Trust income                                              269         276
  BOLI income                                               185         172
  Other income                                              104          77
  Realized securities gains (losses), net                   (14)         80
                                                      ---------  ----------
      Total noninterest income                            1,971       2,107
                                                      ---------  ----------

  Noninterest Expense
  Salaries and employee benefits                          2,856       2,831
  Occupancy and furniture and fixtures                      491         469
  Data processing and ATM                                   357         322
  FDIC assessment                                           263         121
  Credit card processing                                    508         463
  Intangibles and goodwill amortization                     271         278
  Net costs of other real estate owned                       33          60
  Franchise taxes                                           239         227
  Other operating expenses                                  766         859
                                                      ---------  ----------
      Total noninterest expense                           5,784       5,630
                                                      ---------  ----------
  Income before income tax expense                        4,801       4,273
  Income tax expense                                      1,032         886
                                                      ---------  ----------
      Net income                                      $   3,769  $    3,387
                                                      =========  ==========

  Basic net income per share                          $    0.54  $     0.49
                                                      =========  ==========
  Fully diluted net income per share                  $    0.54  $     0.49
                                                      =========  ==========
  Weighted average outstanding number of common shares
      Basic                                           6,933,474   6,929,474
                                                      =========  ==========
      Diluted                                         6,952,812   6,934,846
                                                      =========  ==========
  Dividends declared per share                              ---         ---
                                                      =========  ==========
  Dividend payout ratio                                     ---         ---
                                                      =========  ==========
  Book value per share                                $   18.25  $    16.39
                                                      =========  ==========



                        Key Ratios and Other Data
                               (Unaudited)


($ in thousands)                                     Three Months Ending
                                                    March 31,   March 31,
Average Balances                                       2010        2009
                                                    ----------  ----------
Cash and due from banks                             $   11,197  $   11,811
Interest-bearing deposits                               34,866      41,121
Securities available for sale                          163,438     160,767
Securities held to maturity                            125,448     125,712
Mortgage loans held for sale                               619       1,091
Gross loans                                            589,379     574,246
Loans, net                                             581,296     567,190
Intangible assets                                       12,511      13,601
Total assets                                           971,844     960,824
Total deposits                                         838,697     839,828
Other borrowings                                           ---          53
Stockholders' equity                                   124,529     113,111
Interest-earning assets                                909,654     901,837
Interest-bearing liabilities                           723,107     730,963

Financial Ratios
Return on average assets                                  1.57%       1.43%
Return on average equity                                 12.27%      12.14%
Net interest margin                                       4.57%       4.08%
Net interest income - fully taxable equivalent      $   10,241  $    9,077
Efficiency ratio                                         47.36%      50.34%
Average equity to average assets                         12.81%      11.77%

($ in thousands)
Allowance for Loan Losses
Beginning balance                                   $    6,926  $    5,858
Provision for losses                                       647         370
Charge-offs                                               (455)       (123)
Recoveries                                                  23          13
                                                    ----------  ----------
Ending balance                                      $    7,141  $    6,118
                                                    ==========  ==========



                            Asset Quality Data
                               (Unaudited)

  ($ in thousands)
                                                      March 31,  March 31,
  Nonperforming assets                                  2010       2009
                                                      ---------  ---------
  Nonaccrual loans                                    $   7,743  $   1,337
  Restructured loans                                        ---        ---
                                                      ---------  ---------
  Total nonperforming loans                               7,743      1,337
  Other real estate owned                                 2,567      1,918
                                                      ---------  ---------
  Total nonperforming assets                          $  10,310  $   3,255
                                                      =========  =========
  Loans 90 days or more past due                      $   2,217  $   1,607
                                                      =========  =========

  Asset Quality Ratios
  Nonperforming assets to loans net of unearned
   income and deferred fees, plus other real estate
   owned                                                   1.77%      0.56%
  Allowance for loan losses to total loans                 1.21%      1.06%
  Allowance for loan losses to nonperforming loans        92.23%    457.59%
  Loans past due 90 days or more to loans net of
   unearned income and deferred fees                       0.38%      0.28%

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