National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

($ in thousands, except for share and per share data)	December 31, 2014			December 31, 2013
Assets
Cash and due from banks	$	12,894		$	13,283
Interest-bearing deposits		102,548			98,066
Federal funds sold		---			---
Securities available for sale, at fair value		222,844			181,712
Securities held to maturity		161,452			163,983
Restricted stock		1,089			1,414
Total securities		385,385			347,109
Mortgage loans held for sale		291			1,276
Loans:
Loans, net of unearned income and deferred fees		605,466			595,690
Less: allowance for loan losses		(8,263	)		(8,227	)
Loans, net		597,203			587,463
Premises and equipment, net		9,131			9,951
Accrued interest receivable		5,748			5,949
Other real estate owned		4,744			4,712
Intangible assets and goodwill		7,223			8,299
Bank-owned life insurance		21,797			21,181
Other assets		7,767			13,341
Total assets	$	1,154,731		$	1,110,630

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	150,744		$	142,645
Interest-bearing demand deposits		533,641			501,541
Savings deposits		81,297			74,141
Time deposits		216,746			241,709
Total deposits		982,428			960,036
Other borrowed funds		---			---
Accrued interest payable		68			92
Other liabilities		5,932			4,610
Total liabilities		988,428			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, 6,950,474 shares in 2014 and 6,947,974 shares in 2013		8,688			8,685
Retained earnings		163,287			154,171
Accumulated other comprehensive loss, net		(5,672	)		(16,964	)
Total stockholders' equity		166,303			145,892
Total liabilities and stockholders' equity	$	1,154,731		$	1,110,630

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Month Ending						Twelve Month Ending
($ in thousands, except for share and per share data)	December 31, 2014			December 31, 2013			December 31, 2014			December 31, 2013
Interest Income
Interest and fees on loans	$	7,697		$	8,112		$	31,217		$	32,819
Interest on federal funds		---			---			---			---
Interest on interest-bearing deposits		69			52			262			213
Interest on securities - taxable		1,730			1,657			6,798			6,585
Interest on securities - nontaxable		1,416			1,541			5,826			6,388
Total interest income		10,912			11,362			44,103			46,005
Interest Expense
Interest on time deposits of $100 or more		133			171			570			865
Interest on other deposits		1,009			1,169			4,329			5,090
Interest on borrowed funds		---			---			---			---
Total interest expense		1,142			1,340			4,899			5,955
Net interest income		9,770			10,022			39,204			40,050
Provision for loan losses		481			202			1,641			1,531
Net income after provision for loan losses		9,289			9,820			37,563			38,519
Noninterest Income
Service charges on deposit accounts		601			641			2,434			2,563
Other service charges and fees		42			86			187			225
Credit card fees		944			903			3,631			3,330
Trust Income		292			283			1,213			1,150
Bank-owned life insurance		185			193			711			739
Other income		199			310			868			997
Realized securities gains (losses), net		(3	)		(2	)		2			(46	)
Total noninterest income		2,260			2,414			9,046			8,958
Noninterest Expense
Salaries and employee benefits		2,737			3,015			11,691			11,978
Occupancy and furniture and fixtures		457			386			1,722			1,616
Data processing and ATM		460			412			1,643			1,700
FDIC assessment		122			146			533			554
Credit card processing		706			692			2,593			2,546
Intangibles and goodwill amortization		268			269			1,075			1,078
Net cost of other real estate owned		110			104			369			296
Franchise taxes		308			280			1,182			1,083
Other operating expenses		971			822			3,709			3,519
Total noninterest expense		6,139			6,126			24,517			24,370
Income before income tax expense		5,410			6,108			22,092			23,107
Income tax expense		1,272			1,486			5,178			5,317
Net income	$	4,138		$	4,622		$	16,914		$	17,790
Basic net income per share	$	0.60		$	0.66		$	2.43		$	2.56
Fully diluted net income per share	$	0.59		$	0.66		$	2.43		$	2.55
Weighted average number of common shares outstanding
Basic		6,950,474			6,947,974			6,948,789			6,947,974
Diluted		6,955,157			6,963,381			6,959,134			6,968,393
Dividends declared per share	$	0.58		$	0.58		$	1.13		$	1.12
Dividend payout ratio		---			---			46.43	%		43.74	%
Book value per share	$	---		$	---		$	23.93		$	21.00

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Month Ended
($ in thousands)	December 31, 2014			December 31, 2013
Net income	$	4,138		$	4,622

Other Comprehensive Income (Loss), net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of $2,428 in 2014 and ($1,524) in 2013		4,511			(2,827	)
Reclassification adjustment, net of income tax (benefit) of $1 in 2014 and $1 in 2013		1			1
Net pension gain (loss) arising during the period net of taxes of $ (574) in 2014 and $1,022 in 2013		(1,066	)		1,898
Less: amortization of prior service cost included in net periodic pension cost net of taxes of $(39) in 2014 and ($35) in 2013		(71	)		(66	)
Other comprehensive income (loss), net of tax of $1,816 in 2014 and ($536) in 2013	$	3,375		$	(994	)
Total Comprehensive Income	$	7,513		$	3,628

	Twelve Month Ended
($ in thousands)	December 31, 2014			December 31, 2013
Net income	$	16,914		$	17,790

Other Comprehensive Income (Loss), net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of $6,693 in 2014 and ($8,665) in 2013		12,430			(16,091	)
Reclassification adjustment, net of income tax (benefit) of ($1) in 2014 and $19 in 2013		(1	)		33
Net pension gain (loss) arising during the period net of taxes of $(574) in 2014 and $1,022 in 2013		(1,066	)		1,898
Less: amortization of prior service cost included in net periodic pension cost net of taxes of $(39) in 2014 and ($35) in 2013		(71	)		(66	)
Other comprehensive income (loss), net of tax of $6,079 in 2014 and ($7,659) in 2013	$	11,292		$	(14,226	)
Total Comprehensive Income	$	28,206		$	3,564

Key Ratios and Other Data

(Unaudited)

($ in thousands)	Three Month Ended						Twelve Month Ended
Average Balances	December 31, 2014			December 31, 2013			December 31, 2014			December 31, 2013
Cash and due from banks	$	12,050		$	12,453		$	11,872		$	12,022
Interest-bearing deposits		107,512			81,513			103,320			80,690
Securities available for sale		207,081			187,375			196,960			195,970
Securities held to maturity		161,823			164,512			162,906			164,888
Restricted stock		1,089			1,414			1,162			1,477
Mortgage loans held for sale		453			411			383			1,016
Gross Loans		597,690			592,768			593,829			586,898
Loans, net		588,819			583,699			584,857			577,746
Intangible assets		7,376			8,452			7,778			8,854
Total assets		1,136,287			1,090,932			1,120,848			1,090,703
Total deposits		965,415			936,048			957,684			933,482
Other borrowings		---			---			---			---
Stockholders' equity		164,907			146,716			157,832			149,491
Interest-earning assets		1,081,536			1,044,90			1,069,940			1,037,445
Interest-bearing liabilities		812,171			792,328			811,152			792,037

Financial ratios
Return on average assets		1.44	%		1.68	%		1.51	%		1.63	%
Return on average equity		9.96	%		12.50	%		10.72	%		11.90	%
Net interest margin		3.92	%		4.17	%		4.01	%		4.24	%
Net interest income-fully taxable equivalent	$	10,677		$	10,992		$	42,930		$	44,037
Efficiency ratio		47.45	%		45.70	%		47.17	%		45.99	%
Average equity to average assets		14.51	%		13.45	%		14.08	%		13.71	%

Allowance for loan losses
Beginning balance	$	8,031		$	8,090		$	8,227		$	8,349
Provision for losses		481			202			1,641			1,531
Charge-offs		(292	)		(140	)		(1,860	)		(1,820	)
Recoveries		43			75			255			167
Ending balance	$	8,263		$	8,227		$	8,263		$	8,227

Asset Quality Data

(Unaudited)

($ in thousands)	December 31, 2014			December 31, 2013
Nonperforming assets
Nonaccrual loans	$	3,999		$	5,732
Nonaccrual restructured loans		5,288			852
Total nonperforming loans		9,287			6,584
Other real estate owned		4,744			4,712
Total nonperforming assets	$	14,031		$	11,296
Accruing restructured loans		6,040			6,191
Loans 90 days or more past due	$	207		$	190

Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		2.30	%		1.88	%
Allowance for loans losses to total loans		1.36	%		1.38	%
Allowance for loan losses to nonperforming loans		88.97	%		124.95	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.03	%		0.03	%