National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

($ in thousands, except for share and per share data)	September 30, 2016			September 30, 2015			December 31, 2015
Assets
Cash and due from banks	$	11,302		$	12,446		$	12,152
Interest-bearing deposits		80,170			90,295			130,811
Federal funds sold		---			---			---
Securities available for sale, at fair value		291,277			211,232			236,131
Securities held to maturity		138,047			154,644			152,028
Restricted stock		1,170			1,129			1,129
Total securities		430,494			367,005			389,288
Mortgage loans held for sale		434			1,331			634
Loans:
Loans, net of unearned income and deferred fees		636,241			625,755			619,008
Less: allowance for loan losses		(8,301	)		(8,117	)		(8,297	)
Loans, net		627,940			617,638			610,711
Premises and equipment, net		8,757			9,135			9,020
Accrued interest receivable		5,138			5,659			5,769
Other real estate owned		3,188			4,194			4,165
Intangible assets and goodwill		6,006			6,416			6,224
Bank-owned life insurance		22,848			22,248			22,401
Other assets		6,904			7,758			8,564
Total assets	$	1,203,181		$	1,144,125		$	1,199,739

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	172,510		$	163,877		$	166,453
Interest-bearing demand deposits		566,213			514,823			569,787
Savings deposits		95,496			86,659			90,236
Time deposits		175,789			197,171			192,383
Total deposits		1,010,008			962,530			1,018,859
Other borrowed funds		---			---			---
Accrued interest payable		48			61			56
Other liabilities		8,981			7,142			8,710
Total liabilities		1,019,037			969,733			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 September 30, 2016 and December 31, 2015 and 6,955,974 shares at September 30, 2015.		8,697			8,695			8,697
Retained earnings		178,998			171,996			171,353
Accumulated other comprehensive loss, net		(3,551	)		(6,299	)		(7,936	)
Total stockholders' equity		184,144			174,392			172,114
Total liabilities and stockholders' equity	$	1,203,181		$	1,144,125		$	1,199,739

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended				Nine Months Ended
($ in thousands, except for share and per share data)	September 30, 2016		September 30, 2015		September 30, 2016			September 30, 2015
Interest Income
Interest and fees on loans	$	7,409	$	7,676	$	22,032		$	22,886
Interest on federal funds		---		---		---			---
Interest on interest-bearing deposits		97		54		409			173
Interest on securities - taxable		1,381		1,678		4,625			5,124
Interest on securities - nontaxable		1,270		1,352		3,867			4,095
Total interest income		10,157		10,760		30,933			32,278
Interest Expense
Interest on time deposits		238		301		765			943
Interest on other deposits		781		708		2,385			2,204
Interest on borrowed funds		---		---		---			---
Total interest expense		1,019		1,009		3,150			3,147
Net interest income		9,138		9,751		27,783			29,131
Provision for loan losses		291		178		1,148			734
Net income after provision for loan losses		8,847		9,573		26,635			28,397
Noninterest Income
Service charges on deposit accounts		649		571		1,778			1,676
Other service charges and fees		47		45		165			164
Credit card fees		963		972		2,802			2,843
Trust Income		330		314		1,007			902
Bank-owned life insurance		149		152		447			451
Other income		242		230		1,042			963
Realized securities gain, net		101		2		199			5
Total noninterest income		2,481		2,286		7,440			7,004
Noninterest Expense
Salaries and employee benefits		3,239		3,150		9,714			9,433
Occupancy and furniture and fixtures		463		438		1,388			1,307
Data processing and ATM		624		387		1,630			1,230
FDIC assessment		135		138		421			408
Credit card processing		715		701		2,049			1,986
Intangibles and goodwill amortization		40		269		218			807
Net cost of other real estate owned		71		48		179			555
Franchise taxes		321		329		974			959
Other operating expenses		1,012		859		2,969			2,679
Total noninterest expense		6,620		6,319		19,542			19,364
Income before income tax expense		4,708		5,540		14,533			16,037
Income tax expense		880		1,341		3,061			3,762
Net Income	$	3,828	$	4,199	$	11,472		$	12,275
Basic net income per share	$	0.55	$	0.60	$	1.65		$	1.77
Fully diluted net income per share	$	0.55	$	0.60	$	1.65		$	1.76
Weighted average number of common shares outstanding
Basic		6,957,974		6,955,126		6,957,974			6,952,716
Diluted		6,957,974		6,959,168		6,957,974			6,956,689
Dividends declared per share		---		---	$	0.55		$	0.53
Dividend payout ratio		---		---		33.36	%		30.03	%
Book value per share	$	26.47	$	25.07	$	26.47		$	25.07

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
($ in thousands)	September 30, 2016			September 30, 2015
Net income	$	3,828		$	4,199

Other Comprehensive Income, net of tax
Unrealized holding gain on available for sale securities net of tax of $243 and $1,394 for the periods ended September 30, 2016 and 2015, respectively		454			2,589
Reclassification adjustment for gain included in net income, net of tax of ($35) and ($1) for the periods ended September 30, 2016 and 2015, respectively		(66	)		(1	)
Other comprehensive income, net of tax of $208 and $1,393 for the periods ended September 30, 2016 and 2015, respectively	$	388		$	2,588
Total Comprehensive Income	$	4,216		$	6,787

	Nine Months Ended
($ in thousands)	September 30, 2016			September 30, 2015
Net Income	$	11,472		$	12,275

Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $2,415 and ($334) for the periods ended September 30, 2016 and 2015, respectively		4,484			(624	)
Reclassification adjustment for gain included in net income, net of tax of ($54) and ($2) for the periods ended September 30, 2016 and 2015, respectively		(99	)		(3	)
Other comprehensive income (loss), net of tax of $2,361 and ($336) for the periods ended September 30, 2016 and 2015, respectively	$	4,385		$	(627	)
Total Comprehensive Income	$	15,857		$	11,648

National Bankshares, Inc. and Subsidiaries

Key Ratios and Other Data

(Unaudited)

	Three Months Ended						Nine Months Ended
$ in thousands	September 30,			September 30,			September 30,			September 30,
	2016			2015			2016			2015
Average Balances
Cash and due from banks	$	11,248		$	11,612		$	11,258		$	11,506
Interest-bearing deposits		76,870			84,882			106,928			91,791
Securities available for sale		298,422			216,949			275,702			222,823
Securities held to maturity		138,186			154,978			142,585			156,678
Restricted stock		1,170			1,129			1,158			1,118
Mortgage loans held for sale		666			986			565			781
Gross Loans		630,234			627,596			617,337			619,204
Loans, net		621,251			618,611			608,217			610,135
Intangible assets		6,029			6,571			6,094			6,838
Total assets		1,200,629			1,144,723			1,200,104			1,150,026
Total deposits		1,009,786			966,199			1,011,736			972,104
Other borrowings		---			---			---			---
Stockholders' equity		182,096			171,698			179,191			170,883
Interest-earning assets		1,141,981			1,089,803			1,142,505			1,093,699
Interest-bearing liabilities		835,984			805,655			842,127			814,800

Financial Ratios
Return on average assets		1.27	%		1.46	%		1.28	%		1.43	%
Return on average equity		8.36	%		9.70	%		8.55	%		9.60	%
Net interest margin		3.48	%		3.89	%		3.55	%		3.90	%
Net interest income-fully taxable equivalent	$	9,986		$	10,673		$	30,383		$	31,881
Efficiency ratio		53.10	%		48.76	%		51.67	%		49.80	%
Average equity to average assets		15.17	%		15.00	%		14.93	%		14.86	%

Allowance for Loan Losses
Beginning balance	$	8,195		$	8,131		$	8,297		$	8,263
Provision for losses		291			178			1,148			734
Charge-offs		(216	)		(226	)		(1,267	)		(1,002	)
Recoveries		31			34			123			122
Ending balance	$	8,301		$	8,117		$	8,301		$	8,117

National Bankshares, Inc. and Subsidiaries

Asset Quality Data

(Unaudited)

$ in thousands	September 30, 2016			September 30, 2015
Nonperforming Assets
Nonaccrual loans	$	1,592		$	3,207
Nonaccrual restructured loans		3,901			5,781
Total nonperforming loans		5,493			8,988
Other real estate owned		3,188			4,194
Total nonperforming assets	$	8,681		$	13,182
Accruing restructured loans	$	4,662		$	6,080
Loans 90 days or more past due	$	195		$	47

Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		1.36	%		2.09	%
Allowance for loans losses to total loans		1.30	%		1.30	%
Allowance for loan losses to nonperforming loans		151.12	%		90.31	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.03	%		0.01	%