National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

($ in thousands, except for share and per share data)	December 31, 2017			December 31, 2016
Assets
Cash and due from banks	$	12,926		$	13,974
Interest-bearing deposits		51,233			80,268
Federal funds sold		---			---
Securities available for sale, at fair value		331,387			304,282
Securities held to maturity		127,164			134,957
Restricted stock		1,200			1,170
Total securities		459,751			440,409
Mortgage loans held for sale		260			478
Loans:
Loans, net of unearned income and deferred fees and costs		668,069			647,752
Less: allowance for loan losses		(7,925	)		(8,300	)
Loans, net		660,144			639,452
Premises and equipment, net		8,221			8,853
Accrued interest receivable		5,297			5,260
Other real estate owned		2,817			3,156
Intangible assets and goodwill		5,898			5,966
Bank-owned life insurance		33,756			22,998
Other assets		16,454			13,128
Total assets	$	1,256,757		$	1,233,942

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	182,511		$	171,946
Interest-bearing demand deposits		622,189			604,093
Savings deposits		140,150			136,789
Time deposits		114,884			130,614
Total deposits		1,059,734			1,043,442
Other borrowed funds		---			---
Accrued interest payable		62			55
Other liabilities		12,065			12,182
Total liabilities		1,071,861			1,055,679

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, 2017 and December 31, 2016.		8,698			8,698
Retained earnings		185,893			178,224
Accumulated other comprehensive loss, net		(9,695	)		(8,659	)
Total stockholders' equity		184,896			178,263
Total liabilities and stockholders' equity	$	1,256,757		$	1,233,942

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended					Twelve Months Ended
($ in thousands, except for share and per share data)	December 31, 2017			December 31, 2016		December 31, 2017			December 31, 2016
Interest Income
Interest and fees on loans	$	7,553		$	7,333	$	29,932		$	29,365
Interest on federal funds		---			---		---			---
Interest on interest-bearing deposits		188			123		791			532
Interest on securities - taxable		1,486			1,285		5,711			5,910
Interest on securities - nontaxable		1,199			1,256		4,826			5,123
Total interest income		10,426			9,997		41,260			40,930
Interest Expense
Interest on time deposits		127			160		537			707
Interest on other deposits		901			856		3,588			3,459
Interest on borrowed funds		---			---		---			---
Total interest expense		1,028			1,016		4,125			4,166
Net interest income		9,398			8,981		37,135			36,764
Provision for loan losses		(567	)		502		157			1,650
Net interest income after provision for loan losses		9,965			8,479		36,978			35,114
Noninterest Income
Service charges on deposit accounts		709			680		2,776			2,458
Other service charges and fees		54			47		205			212
Credit card fees		1,001			996		3,948			3,798
Trust income		403			339		1,530			1,346
Bank-owned life insurance		236			150		758			597
Other income		413			247		1,148			1,289
Realized securities gain, net		6			33		14			232
Total noninterest income		2,822			2,492		10,379			9,932
Noninterest Expense
Salaries and employee benefits		3,269			3,078		13,746			12,792
Occupancy and furniture and fixtures		454			461		1,820			1,849
Data processing and ATM		606			556		2,275			2,186
FDIC assessment		85			55		364			476
Credit card processing		652			733		2,748			2,782
Intangibles and goodwill amortization		12			39		68			257
Net cost of other real estate owned		63			293		205			472
Franchise taxes		332			322		1,315			1,296
Other operating expenses		1,119			1,073		4,431			4,042
Total noninterest expense		6,592			6,610		26,972			26,152
Income before income tax expense		6,195			4,361		20,385			18,894
Income tax expense		3,107			891		6,293			3,952
Net Income	$	3,088		$	3,470	$	14,092		$	14,942
Basic net income per share	$	0.44		$	0.50	$	2.03		$	2.15
Fully diluted net income per share	$	0.44		$	0.50	$	2.03		$	2.15
Weighted average number of common shares outstanding
Basic		6,957,974			6,957,974		6,957,974			6,957,974
Diluted		6,957,974			6,957,974		6,957,974			6,957,974
Dividends declared per share	$	0.61		$	0.61	$	1.17		$	1.16
Dividend payout ratio		---			---		57.77	%		54.02	%
Book value per share	$	---		$	---	$	26.57		$	25.62

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended
($ in thousands)	December 31, 2017			December 31, 2016
Net income	$	3,088		$	3,470

Other Comprehensive Loss, Net of tax
Unrealized holding loss on available for sale securities net of tax of ($940) in 2017 and ($2,845) in 2016		(1,747	)		(5,285	)
Reclassification adjustment for gain included in net income, net of tax of ($2) in 2017 and ($12) in 2016		(4	)		(21	)
Reclassification of stranded tax effects from change in tax rate – available for sale securities		(656	)		---
Net pension gain arising during the period, net of taxes of $115 in 2017 and $132 in 2016		213			271
Less amortization of prior service cost included in net periodic pension cost, net of tax of ($38) in 2017 and ($38) in 2016		(71	)		(72	)
Reclassification adjustment for stranded tax effects from changes in tax rate – pension		(1,062	)		---
Other comprehensive loss, net of tax of ($865) in 2017 and ($2,763) in 2016	$	(3,327	)	$	(5,107	)
Total Comprehensive Loss	$	(239	)	$	(1,637	)

	Twelve Months Ended
($ in thousands)	December 31, 2017			December 31, 2016
Net Income	$	14,092		$	14,942

Other Comprehensive Loss, Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $296 in 2017 and ($431) in 2016		546			(800	)
Reclassification adjustment for gain included in net income, net of tax of ($4) in 2017 and ($65) in 2016		(6	)		(121	)
Reclassification of stranded tax effects from change in tax rate – available for sale securities		(656	)		---
Net pension gain arising during the period, net of tax of $115 in 2017 and $132 in 2016		213			271
Less amortization of prior service cost included in net periodic pension cost, net of tax of ($38) in 2017 and ($38) in 2016		(71	)		(72	)
Reclassification adjustment for stranded tax effects from change in tax rate – pension		(1,062	)		---
Other comprehensive loss, net of tax of $369 in 2017 and ($402) in 2016		(1,036	)		(722	)
Total Comprehensive Income	$	13,056		$	14,220

Key Ratios and Other Data

(Unaudited)

	Three Months Ended						Twelve Months Ended
($ in thousands)	December 31, 2017			December 31, 2016			December 31, 2017			December 30, 2016
Average Balances
Cash and due from banks	$	11,895		$	11,825		$	11,443		$	11,401
Interest-bearing deposits		56,593			90,581			71,603			102,819
Securities available for sale		318,687			287,754			309,306			278,731
Securities held to maturity		129,384			136,372			131,602			141,023
Restricted stock		1,200			1,170			1,193			1,161
Mortgage loans held for sale		538			645			392			585
Gross Loans		661,402			637,821			654,045			622,486
Loans, net		652,271			628,702			644,998			613,366
Intangible assets		5,905			5,989			5,926			6,068
Total assets		1,240,972			1,215,267			1,235,755			1,206,745
Total deposits		1,040,485			1,019,896			1,038,586			1,013,787
Other borrowings		---			---			---			---
Stockholders' equity		187,480			182,598			184,540			180,047
Interest-earning assets		1,170,033			1,153,744			1,170,376			1,145,329
Interest-bearing liabilities		855,845			847,362			859,878			843,443

Financial Ratios
Return on average assets		0.99	%		1.14	%		1.14	%		1.24	%
Return on average equity		6.53	%		7.56	%		7.64	%		8.30	%
Net interest margin		3.47	%		3.39	%		3.45	%		3.51	%
Net interest income-fully taxable equivalent	$	10,228		$	9,818		$	40,432		$	40,201
Efficiency ratio		50.51	%		53.70	%		53.08	%		52.17	%
Average equity to average assets		15.11	%		15.03	%		14.93	%		14.92	%

Allowance for Loan Losses
Beginning balance	$	8,473		$	8,301		$	8,300		$	8,297
Provision for losses		(567	)		502			157			1,650
Charge-offs		(130	)		(539	)		(819	)		(1,806	)
Recoveries		149			36			287			159
Ending balance	$	7,925		$	8,300		$	7,925		$	8,300

Asset Quality Data

(Unaudited)

($ in thousands)	December 31, 2017			December 31, 2016
Nonperforming Assets
Nonaccrual loans	$	6		$	1,168
Nonaccrual restructured loans		2,763			4,687
Total nonperforming loans		2,769			5,855
Other real estate owned	$	2,817		$	3,156
Total nonperforming assets	$	5,586		$	9,011
Accruing restructured loans		5,134			3,769
Loans 90 days or more past due	$	51		$	63

Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		0.83	%		1.38	%
Allowance for loans losses to total loans		1.19	%		1.28	%
Allowance for loan losses to nonperforming loans		268.20	%		141.76	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.01	%		0.01	%