National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

($ in thousands, except for share and per share data)	December 31, 2016			December 31, 2015
Assets
Cash and due from banks	$	13,974		$	12,152
Interest-bearing deposits		80,268			130,811
Federal funds sold		---			---
Securities available for sale, at fair value		304,282			236,131
Securities held to maturity		134,957			152,028
Restricted stock		1,170			1,129
Total securities		440,409			389,288
Mortgage loans held for sale		478			634
Loans:
Loans, net of unearned income and deferred fees		647,752			619,008
Less: allowance for loan losses		(8,300	)		(8,297	)
Loans, net		639,452			610,711
Premises and equipment, net		8,853			9,020
Accrued interest receivable		5,260			5,769
Other real estate owned		3,156			4,165
Intangible assets and goodwill		5,966			6,224
Bank-owned life insurance		22,998			22,401
Other assets		13,128			12,344
Total assets	$	1,233,942		$	1,203,519

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	171,946		$	166,453
Interest-bearing demand deposits		605,226			569,787
Savings deposits		96,829			90,236
Time deposits		169,441			192,383
Total deposits		1,043,442			1,018,859
Other borrowed funds		---			---
Accrued interest payable		55			56
Other liabilities		12,182			12,490
Total liabilities		1,055,679			1,031,405

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 December 31, 2016 and December 31, 2015		8,698			8,698
Retained earnings		178,224			171,353
Accumulated other comprehensive loss, net		(8,659	)		(7,937	)
Total stockholders' equity		178,263			172,114
Total liabilities and stockholders' equity	$	1,233,942		$	1,203,519

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ending				Twelve Months Ending
($ in thousands, except for share and per share data)	December 31, 2016		December 31, 2015		December 31, 2016			December 31, 2015
Interest Income
Interest and fees on loans	$	7,333	$	7,560	$	29,365		$	30,446
Interest on federal funds		---		---		---			---
Interest on interest-bearing deposits		123		81		532			254
Interest on securities - taxable		1,285		1,652		5,910			6,776
Interest on securities - nontaxable		1,256		1,343		5,123			5,438
Total interest income		9,997		10,636		40,930			42,914
Interest Expense
Interest on time deposits		223		290		988			1,233
Interest on other deposits		793		746		3,178			2,950
Interest on borrowed funds		---		---		---			---
Total interest expense		1,016		1,036		4,166			4,183
Net interest income		8,981		9,600		36,764			38,731
Provision for loan losses		502		1,275		1,650			2,009
Net income after provision for loan losses		8,479		8,325		35,114			36,722
Noninterest Income
Service charges on deposit accounts		680		574		2,458			2,250
Other service charges and fees		47		51		212			215
Credit card fees		996		1,018		3,798			3,861
Trust Income		339		327		1,346			1,229
Bank-owned life insurance		150		152		597			603
Other income		247		332		1,289			1,295
Realized securities gain, net		33		28		232			33
Total noninterest income		2,492		2,482		9,932			9,486
Noninterest Expense
Salaries and employee benefits		3,078		3,089		12,792			12,522
Occupancy and furniture and fixtures		461		436		1,849			1,743
Data processing and ATM		556		427		2,186			1,657
FDIC assessment		55		138		476			546
Credit card processing		733		706		2,782			2,692
Intangibles and goodwill amortization		39		192		257			999
Net cost of other real estate owned		293		53		472			608
Franchise taxes		322		329		1,296			1,288
Other operating expenses		1,073		901		4,042			3,580
Total noninterest expense		6,610		6,271		26,152			25,635
Income before income tax expense		4,361		4,536		18,894			20,573
Income tax expense		891		978		3,952			4,740
Net Income	$	3,470	$	3,558	$	14,942		$	15,833
Basic net income per share	$	0.50	$	0.51	$	2.15		$	2.28
Fully diluted net income per share	$	0.50	$	0.51	$	2.15		$	2.28
Weighted average number of common shares outstanding
Basic		6,957,974		6,957,213		6,957,974			6,953,849
Diluted		6,957,974		6,959,049		6,957,974			6,957,094
Dividends declared per share	$	0.61	$	0.61	$	1.16		$	1.14
Dividend payout ratio		---		---		54.02	%		50.09	%
Book value per share		---		---	$	25.62		$	24.74

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
($ in thousands)	December 31, 2016			December 31, 2015
Net income	$	3,470		$	3,558
Other Comprehensive Income (Loss), net of tax
Unrealized holding loss on available for sale securities net of tax of ($2,845)in 2016 and ($237) in 2015		(5,285	)		(440	)
Reclassification adjustment for gain included in net income, net of tax of ($12) in 2016 and ($10) in 2015		(21	)		(18	)
Net pension gain (loss) arising during the period, net of tax of $132 in 2016 and ($597) in 2015		271			(1,108	)
Less: amortization of prior service cost included in net periodic pension cost net of tax of ($38) in 2016 and ($38) in 2015		(72	)		(72	)
Other comprehensive loss, net of tax of ($2,763) in 2016 and ($882) in 2015	$	(5,107	)	$	(1,638	)
Total Comprehensive Income (Loss)	$	(1,637	)	$	1,920

	Twelve Months Ended
($ in thousands)	December 31, 2016			December 31, 2015
Net Income	$	14,942		$	15,833
Other Comprehensive Income (Loss), Net of Tax
Unrealized holding loss on available for sale securities net of tax of ($431) in 2016 and ($571) in 2015		(800	)		(1,064	)
Reclassification adjustment for gain included in net income, net of tax of ($65) in 2016 and ($12) in 2015		(121	)		(21	)
Net pension gain (loss) arising during the period net of tax of $132 in 2016 and ($597) in 2015		271			(1,108	)
Less: amortization of prior service cost included in net periodic pension cost net of tax of ($38) in 2016 and ($38) in 2015		(72	)		(72	)
Other comprehensive loss, net of tax of ($402) in 2016 and ($1,218) in 2015	$	(722	)	$	(2,265	)
Total Comprehensive Income	$	14,220		$	13,568

Key Ratios and Other Data

(Unaudited)

($ in thousands)	Three Months Ended						Twelve Months Ended
	December 31,			December 31,			December 31,			December 31,
Average Balances	2016			2015			2016			2015
Cash and due from banks	$	11,825		$	12,166		$	11,401		$	11,672
Interest-bearing deposits		90,581			111,162			102,819			96,677
Securities available for sale, at fair value		287,754			223,245			278,731			222,937
Securities held to maturity		136,372			152,977			141,023			155,747
Restricted stock		1,170			1,129			1,161			1,121
Mortgage loans held for sale		645			861			585			802
Gross Loans		637,821			624,754			622,486			620,594
Loans, net		628,702			615,801			613,366			611,554
Intangible assets		5,989			6,319			6,068			6,707
Total assets		1,215,267			1,172,071			1,206,745			1,155,594
Total deposits		1,019,896			989,853			1,013,787			976,597
Other borrowings		---			---			---			---
Stockholders' equity		182,598			174,258			180,047			171,732
Interest-earning assets		1,153,744			1,116,759			1,145,329			1,099,517
Interest-bearing liabilities		847,362			822,540			843,443			816,768

Financial Ratios
Return on average assets		1.14	%		1.20	%		1.24	%		1.37	%
Return on average equity		7.56	%		8.10	%		8.30	%		9.22	%
Net interest margin		3.39	%		3.74	%		3.51	%		3.86	%
Net interest income-fully taxable equivalent	$	9,818		$	10,514		$	40,201		$	42,394
Efficiency ratio		53.70	%		48.25	%		52.17	%		49.41	%
Average equity to average assets		15.03	%		14.87	%		14.92	%		14.86	%

Allowance for Loan Losses
Beginning balance	$	8,301		$	8,117		$	8,297		$	8,263
Provision for losses		502			1,275			1,650			2,009
Charge-offs		(539	)		(1,118	)		(1,806	)		(2,120	)
Recoveries		36			23			159			145
Ending balance	$	8,300		$	8,297		$	8,300		$	8,297

Asset Quality Data

(Unaudited)

($ in thousands)	December 31, 2016			December 31, 2015
Nonperforming Assets
Nonaccrual loans	$	1,168		$	2,043
Nonaccrual restructured loans		4,687			4,639
Total nonperforming loans		5,855			6,682
Other real estate owned	$	3,156		$	4,165
Total nonperforming assets	$	9,011		$	10,847
Accruing restructured loans		3,769			8,814
Loans 90 days or more past due	$	63		$	156

Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		1.38	%		1.74	%
Allowance for loans losses to total loans		1.28	%		1.34	%
Allowance for loan losses to nonperforming loans		141.76	%		124.17	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.01	%		0.03	%