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SYS-CON MEDIA Authors: Dana Gardner, Elizabeth White, Jnan Dash, Kevin Jackson, Peter Silva

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

BLACKSBURG, VA -- (Marketwired) -- 07/24/14 -- Today, National Bankshares, Inc. (NASDAQ: NKSH) announced net income of over $8.51 million for the six months ended June 30, 2014 compared to $8.65 million for the same period in 2013. Basic earnings per share were $1.23 at June 30, 2014 compared to $1.25 at June 30, 2013. The return on average assets for the six months ending June 30, 2014 was 1.54% compared to 1.59% in 2013. The return on average equity was 11.22% and 11.42% for the same two periods.

For the three month ending June 30, 2014, net income was $4.11 million. The Company had total assets of almost $1.13 billion at June 30, 2014.

National Bankshares' Chairman, President & CEO James G. Rakes commented, "While the interest rate environment and competitive pressures remain very challenging, we are positioning the Bank to take advantage of opportunities on the horizon as economic conditions in our market area improve. We pride ourselves in our community banking philosophy which leads to exceptional service and strong customer relationships. These principles provide a competitive advantage when meeting the needs of our customers."

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 25 offices throughout Southwest Virginia. National Bankshares Financial Services, Inc. is an investment and insurance subsidiary operating 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    June 30,      June 30,    December 31,
 and per share data)                   2014          2013          2013
                                   ------------  ------------  ------------
Assets
Cash and due from banks            $     15,917  $     13,474  $     13,283
Interest-bearing deposits               106,112        64,278        98,066
Federal funds sold                          ---           ---           ---
Securities available for sale, at
 fair value                             195,407       204,096       181,712
Securities held to maturity             162,956       166,915       163,983
Restricted stock                          1,089         1,414         1,414
                                   ------------  ------------  ------------
    Total securities                    359,452       372,425       347,109
                                   ------------  ------------  ------------
Mortgage loans held for sale                383         1,950         1,276
Loans:
    Loans, net of unearned income
     and deferred fees                  593,400       588,061       595,690
    Less allowance for loan losses       (7,971)       (7,952)       (8,227)
                                   ------------  ------------  ------------
      Loans, net                        585,429       580,109       587,463
                                   ------------  ------------  ------------
Premises and equipment, net               9,482        10,222         9,951
Accrued interest receivable               5,798         6,291         5,949
Other real estate owned                   5,293           969         4,712
Intangible assets and goodwill            7,761         8,837         8,299
Bank-owned life insurance                21,491        20,858        21,181
Other assets                             11,361        11,673        13,341
                                   ------------  ------------  ------------
        Total assets               $  1,128,479  $  1,091,086  $  1,110,630
                                   ============  ============  ============

Liabilities and Stockholders'
 Equity
Noninterest-bearing deposits       $    146,727  $    144,164  $    142,645
Interest-bearing demand deposits        510,304       461,662       501,541
Savings deposits                         79,255        73,095        74,141
Time deposits                           231,177       259,600       241,709
                                   ------------  ------------  ------------
        Total deposits                  967,463       938,521       960,036
                                   ------------  ------------  ------------
Other borrowed funds                        ---           ---           ---
Accrued interest payable                     71           126            92
Other liabilities                         4,149         6,901         4,610
                                   ------------  ------------  ------------
Total liabilities                       971,683       945,548       964,738
                                   ------------  ------------  ------------

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, 6,947,974
 shares in 2014 and 2013                  8,685         8,685         8,685
Retained earnings                       158,863       149,061       154,171
Accumulated other comprehensive
 loss, net                              (10,752)      (12,208)      (16,964)
                                   ------------  ------------  ------------
        Total stockholders' equity      156,796       145,538       145,892
                                   ------------  ------------  ------------
        Total liabilities and
         stockholders' equity      $  1,128,479  $  1,091,086  $  1,110,630
                                   ============  ============  ============



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

                                Three Months Ended      Six Months Ended
($ in thousands, except for   June 30,    June 30,    June 30,    June 30,
share and per share data)        2014        2013       2014        2013
                             ----------- ----------- ----------  ----------
Interest Income
Interest and fees on loans   $     7,819 $     8,192 $   15,754  $   16,511
Interest on federal funds            ---         ---        ---         ---
Interest on interest-bearing
 deposits                             64          58        129         116
Interest on securities -
 taxable                           1,697       1,694      3,350       3,206
Interest on securities -
 nontaxable                        1,474       1,618      2,974       3,266
                             ----------- ----------- ----------  ----------
    Total interest income         11,054      11,562     22,207      23,099
                             ----------- ----------- ----------  ----------
Interest Expense
Interest on time deposits of
 $100 or more                        145         230        298         498
Interest on other deposits         1,150       1,318      2,312       2,729
Interest on borrowed funds           ---         ---        ---         ---
                             ----------- ----------- ----------  ----------
    Total interest expense         1,295       1,548      2,610       3,227
                             ----------- ----------- ----------  ----------
    Net interest income            9,759      10,014     19,597      19,872
Provision for loan losses            701         355        804       1,026
                             ----------- ----------- ----------  ----------
    Net income after
     provision for loan
     losses                        9,058       9,659     18,793      18,846
                             ----------- ----------- ----------  ----------
Noninterest Income
Service charges on deposit
 accounts                            607         625      1,199       1,213
Other service charges and
 fees                                 38          42        103         102
Credit card fees                     961         853      1,758       1,593
Trust Income                         332         311        625         600
Bank-owned life insurance            177         176        352         364
Other income                         229         223        506         504
Realized securities gains,
 net                                 ---           9          1          18
                             ----------- ----------- ----------  ----------
    Total noninterest income       2,344       2,239      4,544       4,394
                             ----------- ----------- ----------  ----------
Noninterest Expense
Salaries and employee
 benefits                          3,007       2,992      6,006       5,932
Occupancy and furniture and
 fixtures                            417         404        857         836
Data processing and ATM              394         418        757         811
FDIC assessment                      117         136        264         272
Credit card processing               665         646      1,214       1,198
Intangibles and goodwill
 amortization                        269         269        538         540
Net cost of other real
 estate owned                         84          65        161         140
Franchise taxes                      287         265        566         523
Other operating expenses             820         942      1,879       1,849
                             ----------- ----------- ----------  ----------
    Total noninterest
     expense                       6,060       6,137     12,242      12,101
                             ----------- ----------- ----------  ----------
Income before income tax
 expense                           5,342       5,761     11,095      11,139
Income tax expense                 1,233       1,326      2,582       2,488
                             ----------- ----------- ----------  ----------
    Net income               $     4,109 $     4,435 $    8,513  $    8,651
                             =========== =========== ==========  ==========
Basic net income per share   $      0.59 $      0.64 $     1.23  $     1.25
                             =========== =========== ==========  ==========
Fully diluted net income per
 share                       $      0.59 $      0.64 $     1.22  $     1.24
                             =========== =========== ==========  ==========
Weighted average number of
 common shares outstanding
    Basic                      6,947,974   6,947,974  6,947,974   6,947,974
                             =========== =========== ==========  ==========
    Diluted                    6,960,683   6,968,348  6,962,274   6,968,711
                             =========== =========== ==========  ==========
Dividends declared per share $      0.55 $      0.54 $     0.55  $     0.54
                             =========== =========== ==========  ==========
Dividends payout ratio               ---         ---      44.89%      43.37%
                             =========== =========== ==========  ==========
Book value per share               22.57 $     20.95      22.57  $    20.95
                             =========== =========== ==========  ==========



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

                                                       Three Months Ended
                                                       June 30,   June 30,
($ in thousands)                                         2014       2013
                                                     ----------- ----------
Net income                                           $     4,109 $    4,435

Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for
 sale securities net of deferred tax of $1,664 in
 2014 and ($4,577) in 2013                                 3,091     (8,500)
Reclassification adjustment, net of income tax
 (benefit) of $0 in 2014 and $(3) in 2013                    ---         (6)
                                                     ----------- ----------
Other comprehensive income (loss), net of tax of
 $1,664 in 2014 and ($4,580) in 2013                 $     3,091 $   (8,506)
                                                     ----------- ----------
Total Comprehensive Income (Loss)                    $     7,200 $   (4,071)
                                                     =========== ==========

                                                        Six Months Ended
                                                       June 30,   June 30,
($ in thousands)                                         2014       2013
                                                     ----------- ----------
Net income                                           $     8,513 $    8,651

Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for
 sale securities net of deferred tax of $3,345 in
 2014 and ($5,094) in 2013                                 6,212     (9,458)
Reclassification adjustment, net of income tax
 (benefit)of $0 in 2014 and ($6) in 2013                     ---        (12)
                                                     ----------- ----------
Other comprehensive income (loss), net of tax of
 3,345 in 2013 and ($5,100) in 2013                  $     6,212 $   (9,470)
                                                     ----------- ----------
Total Comprehensive Income (Loss)                    $    14,725 $     (819)
                                                     =========== ==========



                         Key Ratios and Other Data
                                (Unaudited)

($ in thousands)               Three Months Ended       Six Months Ended
                              June 30,    June 30,    June 30,    June 30,
                                2014        2013        2014        2013
                             ----------  ----------  ----------  ----------
Average Balances
Cash and due from banks      $   11,636  $   12,126  $   11,786  $   12,076
Interest-bearing deposits       102,409      80,447     102,698      90,099
Securities available for
 sale                           193,854     209,367     189,196     198,436
Securities held to maturity     164,476     166,859     163,643     164,574
Restricted stock                  1,089       1,414       1,237       1,541
Mortgage loans held for sale        256       1,405         319       1,456
Gross Loans                     592,073     582,988     592,205     583,161
Loans, net                      583,054     573,727     583,121     573,877
Intangible assets                 7,915       8,991       8,050       9,125
Total assets                  1,116,461   1,100,325   1,112,664   1,096,620
Total deposits                  954,592     939,379     954,163     936,297
Other borrowings                      1         ---         ---         ---
Stockholders' equity            156,045     153,684     152,975     152,775
Interest-earning assets       1,067,136   1,040,900   1,064,732   1,036,833
Interest-bearing liabilities    811,711     796,195     812,197     795,760

Financial ratios
Return on average assets           1.48%       1.62%       1.54%       1.59%
Return on average equity          10.56%      11.58%      11.22%      11.42%
Net interest margin                4.02%       4.25%       4.07%       4.26%
Net interest income-fully
 taxable equivalent          $   10,699  $   11,022  $   21,498  $   21,901
Efficiency ratio                  46.46%      46.28%      47.01%      46.02%
Average equity to average
 assets                           13.98%      13.97%      13.75%      13.93%

Allowance for loan losses
Beginning balance            $    8,297  $    8,291  $    8,227  $    8,349
Provision for losses                701         355         804       1,026
Charge-offs                      (1,053)       (730)     (1,244)     (1,484)
Recoveries                           26          36         184          61
                             ----------  ----------  ----------  ----------
Ending balance               $    7,971  $    7,952  $    7,971  $    7,952
                             ==========  ==========  ==========  ==========



                             Asset Quality Data
                                (Unaudited)

($ in thousands)
                                                      June 30,    June 30,
Nonperforming assets                                    2014        2013
Nonaccrual loans                                     $    2,335  $   10,428
Nonaccrual restructured loans                             2,674       1,522
                                                     ----------  ----------
Total nonperforming loans                                 5,009      11,950
Other real estate owned                                   5,293         969
                                                     ----------  ----------
Total nonperforming assets                           $   10,302  $   12,919
                                                     ==========  ==========
Accruing restructured loans                               6,240       6,234
                                                     ----------  ----------
Loans 90 days or more past due                       $      266  $      125
                                                     ==========  ==========

Asset quality ratios
Nonperforming assets to loans net of unearned income
 and deferred fees, plus other real estate owned           1.72%       2.19%
Allowance for loans losses to total loans                  1.34%       1.35%
Allowance for loan losses to nonperforming loans         159.13%      66.54%
Loans past due 90 days or more to loans net of
 unearned income and deferred fees                         0.04%       0.02%

CONTACTS:
James G. Rakes
Chairman, President & CEO
(540) 951-6236
Email Contact

David K. Skeens
Treasurer & CFO
(540) 951-6347
Email Contact

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