National Bankshares, Inc. Reports First Quarter Earnings

BLACKSBURG, VA--(Marketwired - Apr 28, 2016) - National Bankshares, Inc. (NASDAQ: NKSH) today announced its results of operations for the first quarter of 2016. The Company reported net income of $3.78 million for the quarter ended March 31, 2016 compared to almost $3.97 million at March 31, 2015. Basic earnings per share were $0.54 at March 31, 2016 compared to $0.57 for the same period in 2015. For the first quarter, the return on average assets was 1.28% and the return on average equity was 8.64% compared to 1.40% and 9.50%, respectively, for the first quarter of 2015. At March 31, 2016, the Company had total assets of close to $1.21 billion which was an increase of 3.69% when compared to $1.16 billion at the end of the first quarter of 2015.

Commenting on the Company's financial results, National Bankshares Chairman, President & CEO James G. Rakes said, "We continue to compare very favorably to our peer group in terms of our balance sheet and income statement results. Asset quality remains a priority as nonperforming loans declined over 31% from the first quarter of 2015. In addition, net OREO balances dropped 21% when the same two periods are compared. We still face challenges, such as static loan demand, a low interest rate environment and increased competition, but we are striving to grow loans, manage expenses, and increase noninterest revenue. As we enter our 125^th year of banking, we are focused on continuing to provide long-term value to our stockholders and customers through delivery of superior customer service and products."

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)			March 31, 2016				March 31, 2015				December 31, 2015
Assets
Cash and due from banks			$	9,913			$	12,452			$	12,152
Interest-bearing deposits				129,363				87,676				130,811
Federal funds sold				---				---				---
Securities available for sale, at fair value				270,094				238,496				236,131
Securities held to maturity				144,664				156,135				152,028
Restricted stock				1,170				1,129				1,129
		Total securities		415,928				395,760				389,288
Mortgage loans held for sale				63				1,091				634
Loans:
	Loans, net of unearned income and deferred fees			607,643				622,171				619,008
	Less: allowance for loan losses			(8,107	)			(8,257	)			(8,297	)
		Loans, net		599,536				613,914				610,711
Premises and equipment, net				8,841				8,998				9,020
Accrued interest receivable				5,587				5,506				5,769
Other real estate owned				3,612				4,573				4,165
Intangible assets and goodwill				6,114				6,954				6,224
Bank-owned life insurance				22,548				21,946				22,401
Other assets				6,366				5,975				8,564
		Total assets	$	1,207,871			$	1,164,845			$	1,199,739
Liabilities and Stockholders' Equity
Noninterest-bearing deposits			$	170,207			$	160,217			$	166,453
Interest-bearing demand deposits				570,065				526,388				569,787
Savings deposits				92,944				85,615				90,236
		Time deposits		185,296				212,737				192,383
Total deposits				1,018,512				984,957				1,018,859
Other borrowed funds				---				---				---
Accrued interest payable				62				70				56
Other liabilities				10,061				7,096				8,710
		Total liabilities		1,028,635				992,123				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 March 31, 2016 and December 31, 2015 and 6,950,474 shares at March 31, 2015.				8,697				8,688				8,697
Retained earnings				175,132				167,253				171,353
Accumulated other comprehensive loss, net				(4,593	)			(3,219	)			(7,936	)
		Total stockholders' equity		179,236				172,722				172,114
		Total liabilities and stockholders' equity	$	1,207,871			$	1,164,845			$	1,199,739

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
				Three Months Ending
($ in thousands, except for share and per share data)				March 31, 2016				March 31, 2015
Interest Income
Interest and fees on loans				$	7,334			$	7,610
Interest on federal funds					---				---
Interest on interest-bearing deposits					162				64
Interest on securities - taxable					1,677				1,734
Interest on securities - nontaxable					1,311				1,386
		Total interest income			10,484				10,794
Interest Expense
Interest on time deposits					274				327
Interest on other deposits					794				760
Interest on borrowed funds					---				---
		Total interest expense			1,068				1,087
		Net interest income			9,416				9,707
Provision for loan losses					203				201
		Net income after provision for loan losses			9,213				9,506
Noninterest Income
Service charges on deposit accounts					560				535
Other service charges and fees					72				71
Credit card fees					870				895
Trust Income					323				289
Bank-owned life insurance					147				149
Other income					345				314
Realized securities gains (losses), net					24				(2	)
		Total noninterest income			2,341				2,251
Noninterest Expense
Salaries and employee benefits					3,568				3,051
Occupancy and furniture and fixtures					477				449
Data processing and ATM					411				435
FDIC assessment					141				135
Credit card processing					622				610
Intangibles and goodwill amortization					110				269
Net cost of other real estate owned					69				464
Franchise taxes					331				308
Other operating expenses					955				959
		Total noninterest expense			6,684				6,680
Income before income tax expense					4,870				5,077
Income tax expense					1,091				1,111
		Net Income		$	3,779			$	3,966
Basic net income per share				$	0.54			$	0.57
Fully diluted net income per share				$	0.54			$	0.57
Weighted average number of common shares outstanding
		Basic			6,957,974				6,950,474
		Diluted			6,957,974				6,955,023
Dividends declared per share				$	---			$	---
Dividend payout ratio					0.00	%			0.00	%
Book value per share				$	25.76			$	24.85

National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
		Three Months Ended
($ in thousands)		March 31, 2016				March 31, 2015
Net Income		$	3,779			$	3,966
Other Comprehensive Income, Net of Tax
Unrealized holding gains on available for sale securities net of tax of $1,809 and $1,320 for the periods ended March 31, 2016 and 2015, respectively			3,359				2,452
Reclassification adjustment for losses (gains) included in net income, net of tax of ($8) and $1 for the periods ended March 31, 2016 and 2015, respectively			(16	)			1
Other comprehensive income, net of tax of $1,801 and $1,321 for the periods ended March 31, 2016 and 2015, respectively		$	3,343			$	2,453
Total comprehensive income		$	7,122			$	6,419

Key Ratios and Other Data
(Unaudited)
		Three Months Ended
$ in thousands		March 31, 2016				March 31, 2015
Average Balances
Cash and due from banks		$	11,309			$	11,364
Interest-bearing deposits			125,849				104,104
Securities available for sale			245,153				222,161
Securities held to maturity			149,202				159,376
Restricted stock			1,133				1,095
Mortgage loans held for sale			427				460
Gross Loans			610,979				605,137
Loans, net			601,557				604,288
Intangible assets			6,170				7,109
Total assets			1,188,462				1,149,578
Total deposits			1,003,136				973,738
Other borrowings			---				---
Stockholders' equity			175,991				169,289
Interest-earning assets			1,132,925				1,092,481
Interest-bearing liabilities			838,943				821,308
Financial Ratios
Return on average assets			1.28	%			1.40	%
Return on average equity			8.64	%			9.50	%
Net interest margin			3.66	%			3.94	%
Net interest income-fully taxable equivalent		$	10,307			$	10,608
Efficiency ratio			52.85	%			51.95	%
Average equity to average assets			14.81	%			14.73	%
Allowance for Loan Losses
Beginning balance		$	8,297			$	8,263
Provision for losses			203				201
Charge-offs			(453	)			(260	)
Recoveries			60				53
Ending balance		$	8,107			$	8,257

Asset Quality Data
(Unaudited)
$ in thousands		March 31, 2016				March 31, 2015
Nonperforming Assets
Nonaccrual loans		$	1,901			$	3,102
Nonaccrual restructured loans			4,504				6,123
Total nonperforming loans			6,405				9,225
Other real estate owned		$	3,612			$	4,573
Total nonperforming assets		$	10,017			$	13,798
Accruing restructured loans			7,724				5,992
Loans 90 days or more past due		$	328			$	272
Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned			1.64	%			2.20	%
Allowance for loans losses to total loans			1.33	%			1.33	%
Allowance for loan losses to nonperforming loans			126.57	%			89.51	%
Loans past due 90 days or more to loans net of unearned income and deferred fees			0.05	%			0.04	%