National Bankshares, Inc. Reports Income for the Nine Months Ended September 30, 2013

BLACKSBURG, VA--(Marketwired - Oct 17, 2013) -  Today, National Bankshares, Inc. (NASDAQ: NKSH) announced net income of approximately $13.17 million through September 30, 2013, up $106 thousand, or 0.81%, above the total reported for the first nine months of 2012. Basic earnings per share were $1.90, which compares with $1.88 reported at September 30, 2012. The return on average assets for the nine months ended September 30, 2013 was 1.61% compared to 1.62% in 2012. The return on average equity was 11.70% and 12.14% for the same two periods. At September 30, 2013, the Company had total assets of $1.08 billion.

National Bankshares' Chairman, President & CEO James G. Rakes commented, "We continue to focus on bringing successful results to our stockholders by growing our bank with high quality loans, sustaining asset quality and risk management, and providing our customers the best community banking services and products available. In addition, technology and process improvement initiatives are underway to further enhance our customer experience."

National Bankshares, Inc., headquartered in Blacksburg, Virginia, is the parent company of 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 25 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)				September 30, 2013				September 30, 2012				December 31, 2012
Assets
Cash and due from banks				$	13,806			$	12,445			$	14,783
Interest-bearing deposits					62,776				67,394				96,597
Federal funds sold					---				---				---
Securities available for sale					193,639				198,079				191,504
Securities held to maturity					164,752				161,728				160,539
		Total securities			358,391				359,807				352,043
Mortgage loans held for sale					617				3,015				2,796
Loans:
	Loans, net of unearned income and deferred fees				590,664				591,461				592,162
	Less: allowance for loan losses				(8,090	)			(8,254	)			(8,349	)
		Loans, net			582,574				583,207				583,813
Bank premises and equipment, net					10,025				10,491				10,401
Accrued interest receivable					6,044				6,291				6,247
Other real estate owned					973				1,894				1,435
Intangible assets					8,568				9,648				9,377
Bank-owned life insurance					21,020				20,346				20,523
Other assets					12,609				6,434				6,346
		Total assets		$	1,077,403			$	1,080,972			$	1,104,361
Liabilities and Stockholders' Equity
Noninterest-bearing deposits				$	147,928			$	147,346			$	144,252
Interest-bearing demand deposits					453,044				418,482				455,713
Savings deposits					73,952				66,576				69,063
Time deposits					248,574				291,979				277,738
		Total deposits			923,498				924,383				946,766
Other borrowed funds					---				---				---
Accrued interest payable					97				178				139
Other liabilities					7,514				6,013				7,347
		Total liabilities			931,109				930,574				954,252
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 6,947,974 shares at September 30, 2013, 6,943,974 at September 30, 2012 and 6,947,974 at December 31,2012					8,685				8,680				8,685
Retained earnings					153,578				143,383				144,162
Accumulated other comprehensive loss, net					(15,969	)			(1,665	)			(2,738	)
		Total stockholders' equity			146,294				150,398				150,109
	Total liabilities and stockholders' equity			$	1,077,403			$	1,080,972			$	1,104,361

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
			Three Months Ended								Nine Months Ended
			September 30, 2013				September 30, 2012				September 30, 2013			September 30, 2012
($ in thousands, except for share data)
Interest Income
Interest and fees on loans			$	8,196			$	8,923			$	24,707		$	26,554
Interest on federal funds				---				---				---			---
Interest on interest-bearing deposits				45				60				161			187
Interest on securities-taxable				1,743				1,620				5,007			4,991
Interest on securities-nontaxable				1,581				1,634				4,847			4,801
	Total interest income			11,565				12,237				34,722			36,533
Interest Expense
Interest on time deposits of $100 or more				196				355				694			1,171
Interest on other deposits				1,192				1,581				3,921			4,900
Interest on borrowed funds				---				---				---			---
	Total interest expense			1,388				1,936				4,615			6,071
	Net interest income			10,177				10,301				30,107			30,462
Provision for loan losses				303				778				1,329			2,554
	Net interest income after provision for loan losses			9,874				9,523				28,778			27,908
Noninterest Income
Service charges on deposit accounts				709				674				1,922			1,956
Other service charges and fees				37				40				139			130
Credit card fees				834				807				2,427			2,441
Trust income				267				271				867			1,037
Bank-owned life insurance				182				205				546			605
Other income				162				130				502			341
Realized securities gains (losses), net				(82	)			(19	)			2			33
	Total noninterest income			2,109				2,108				6,405			6,543
Noninterest Expense
Salaries and employee benefits				3,031				3,104				8,963			9,014
Occupancy and furniture and fixtures				394				387				1,230			1,181
Data processing and ATM				477				390				1,288			1,206
FDIC assessment				136				133				408			343
Credit card processing				656				607				1,854			1,817
Intangibles and goodwill amortization				269				270				809			812
Net costs of other real estate owned				52				58				192			209
Franchise taxes				280				258				803			646
Other operating expenses				828				881				2,637			2,302
	Total noninterest expense			6,123				6,088				18,184			17,530
Income before income tax expense				5,860				5,543				16,999			16,921
Income tax expense				1,343				1,250				3,831			3,859
	Net income		$	4,517			$	4,293			$	13,168		$	13,062
Basic net income per share			$	0.65			$	0.62			$	1.90		$	1.88
Fully diluted net income per share			$	0.65			$	0.62			$	1.89		$	1.88
Weighted average outstanding number of common shares
	Basic			6,947,974				6,941,757				6,947,974			6,940,573
	Diluted			6,972,769				6,962,852				6,970,063			6,958,316
Dividends declared per share				---				---			$	0.54		$	0.53
Dividend payout ratio				---				---				28.49			28.16
Book value per share				---				---			$	21.06		$	21.66

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Months Ended
($ in thousands)		September 30, 2013				September 30, 2012
Net Income		$	4,517			$	4,293
Other Comprehensive Income, net of tax
Unrealized holding losses on available for sale securities net of deferred taxes of ($2,056) and ($351)			(3,818	)			(653	)
Reclassification adjustment, net of income taxes of $31 and $6			57				12
Other comprehensive loss, net of tax of ($2,025) and ($345)		$	(3,761	)		$	(641	)
Total comprehensive income		$	756			$	3,652

		Nine Months Ended
($ in thousands)		September 30,2013				September 30, 2012
Net Income		$	13,168			$	13,062
Other Comprehensive Income, net of tax
Unrealized holding losses on available for sale securities net of deferred taxes of ($7,126) and ($178)			(13,234	)			(331	)
Reclassification adjustment, net of income taxes of $1 and ($7)			3				(13	)
Other comprehensive loss, net of tax of ($7,125) and ($185)		$	(13,231	)		$	(344	)
Total comprehensive income (loss)		$	(63	)		$	12,718

Key Ratios and Other Data
(Unaudited)
($ in thousands)		Three Months Ended								Nine Months Ended
Average Balances		September 30, 2013				September 30, 2012				September 30, 2013				September 30, 2012
Cash and due from banks		$	11,486			$	11,942			$	11,877			$	11,860
Interest-bearing deposits			60,718				89,899				79,795				96,410
Securities available for sale			203,067				188,648				202,268				188,885
Securities held to maturity			165,881				153,877				165,014				142,860
Mortgage loans held for sale			757				2,028				1,220				1,503
Gross loans			588,379				593,634				584,920				588,298
Loans, net			579,404				584,341				575,741				578,993
Intangible assets			8,722				9,803				8,989				10,072
Total assets			1,078,837				1,084,118				1,090,630				1,073,887
Total deposits			925,382				928,783				932,620				923,739
Other borrowings			---				---				---				---
Stockholders' equity			145,806				149,049				150,425				143,685
Interest-earning assets			1,032,490				1,022,861				1,036,218				1,012,756
Interest-bearing liabilities			784,421				785,441				791,940				783,049
Financial ratios
Return on average assets			1.66	%			1.58	%			1.61	%			1.62	%
Return on average equity			12.29	%			11.46	%			11.70	%			12.14	%
Net interest margin			4.29	%			4.39	%			4.27	%			4.40	%
Net interest income - fully taxable equivalent		$	11,165			$	11,298			$	33,124			$	33,357
Efficiency ratio			46.13	%			45.41	%			46.00	%			43.93	%
Average equity to average assets			13.52	%			13.75	%			13.79	%			13.38	%
Allowance for loan losses
Beginning balance		$	7,952			$	8,168			$	8,349			$	8,068
Provision for losses			303				778				1,329				2,554
Charge-offs			(196	)			(716	)			(1,680	)			(2,444	)
Recoveries			31				24				92				76
Ending balance		$	8,090			$	8,254			$	8,090			$	8,254

Asset Quality Data
(Unaudited)
($ in thousands)
Nonperforming assets		September 30, 2013				September 30, 2012
Nonaccrual loans		$	10,194			$	3,876
Nonaccrual restructured loans			1,042				2,254
Total nonperforming loans			11,236				6,130
Other real estate owned			973				1,894
Total nonperforming assets		$	12,209			$	8,024
Accruing restructured loans		$	6,545			$	2,021
Loans 90 days or more past due		$	149			$	114
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			2.06	%			1.35	%
Allowance for loan losses to total loans			1.37	%			1.40	%
Allowance for loan losses to nonperforming loans			72.00	%			134.65	%
Loans past due 90 days or more and still accruing to loans net of unearned income and deferred fees			0.03	%			0.02	%