National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

$ in thousands, except for share and per share data	September 30, 2015			September 30, 2014			December 31, 2014
Assets
Cash and due from banks	$	12,446		$	12,815		$	12,894
Interest-bearing deposits		90,295			87,621			102,548
Federal funds sold		---			---			---
Securities available for sale, at fair value		211,232			205,020			222,844
Securities held to maturity		154,644			162,457			161,452
Restricted stock		1,129			1,089			1,089
Total securities		367,005			368,566			385,385
Mortgage loans held for sale		1,331			725			291
Loans:
Loans, net of unearned income and deferred fees		625,755			595,801			605,466
Less: allowance for loan losses		(8,117	)		(8,031	)		(8,263	)
Loans, net		617,638			587,770			597,203
Premises and equipment, net		9,135			9,445			9,131
Accrued interest receivable		5,659			5,708			5,748
Other real estate owned		4,194			5,145			4,744
Intangible assets and goodwill		6,416			7,492			7,223
Bank-owned life insurance		22,248			21,643			21,797
Other assets		7,758			9,329			7,767
Total assets	$	1,144,125		$	1,116,259		$	1,154,731

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	163,877		$	153,118		$	150,744
Interest-bearing demand deposits		514,823			492,005			533,641
Savings deposits		86,659			79,870			81,297
Time deposits		197,171			223,930			216,746
Total deposits		962,530			948,923			982,428
Other borrowed funds		---			---			---
Accrued interest payable		61			67			68
Other liabilities		7,142			4,447			5,932
Total liabilities		969,733			953,437			988,428

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, 6,955,974 shares at September 30, 2015, and 6,950,474 shares at December 31, 2014 and at September 30, 2014, respectively.		8,695			8,688			8,688
Retained earnings		171,996			163,181			163,287
Accumulated other comprehensive loss, net		(6,299	)		(9,047	)		(5,672	)
Total stockholders' equity		174,392			162,822			166,303
Total liabilities and stockholders' equity	$	1,144,125		$	1,116,259		$	1,154,731

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30, 2015		September 30, 2014		September 30, 2015			September 30, 2014
$ in thousands, except for share and per share data
Interest Income
Interest and fees on loans	$	7,676	$	7,729	$	22,886		$	23,406
Interest on federal funds		---		---		---			---
Interest on interest-bearing deposits		54		64		173			193
Interest on securities - taxable		1,678		1,718		5,124			5,068
Interest on securities - nontaxable		1,352		1,436		4,095			4,410
Total interest income		10,760		10,947		32,278			33,077
Interest Expense
Interest on time deposits		301		361		943			1,133
Interest on other deposits		708		786		2,204			2,624
Interest on borrowed funds		---		---		---			---
Total interest expense		1,009		1,147		3,147			3,757
Net interest income		9,751		9,800		29,131			29,320
Provision for loan losses		178		356		734			1,160
Net income after provision for loan losses		9,573		9,444		28,397			28,160
Noninterest Income
Service charges on deposit accounts		571		634		1,676			1,833
Other service charges and fees		45		42		164			145
Credit card fees		972		929		2,843			2,687
Trust Income		314		296		902			921
Bank-owned life insurance		151		153		451			462
Other income		234		200		977			783
Realized securities gains, net		2		4		5			5
Total noninterest income		2,289		2,258		7,018			6,836
Noninterest Expense
Salaries and employee benefits		3,149		2,927		9,433			8,890
Occupancy and furniture and fixtures		436		403		1,296			1,250
Data processing and ATM		384		429		1,230			1,189
FDIC assessment		138		147		408			411
Credit card processing		701		673		1,986			1,887
Intangibles and goodwill amortization		269		269		807			807
Net cost of other real estate owned		52		98		569			259
Franchise taxes		329		307		959			874
Other operating expenses		864		862		2,690			2,747
Total noninterest expense		6,322		6,115		19,378			18,314
Income before income tax expense		5,540		5,587		16,037			16,682
Income tax expense		1,341		1,324		3,762			3,906
Net income	$	4,199	$	4,263	$	12,275		$	12,776
Basic net income per share	$	0.60	$	0.61	$	1.77		$	1.84
Fully diluted net income per share	$	0.60	$	0.61	$	1.76		$	1.84
Weighted average number of common shares outstanding
Basic		6,955,126		6,948,681		6,952,716			6,948,212
Diluted		6,959,168		6,956,777		6,956,689			6,960,444
Dividends declared per share		---		---	$	0.53		$	0.55
Dividend payout ratio		---		---		30.03	%		29.91	%
Book value per share		---		---	$	25.07		$	23.43

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
$ in thousands	September 30, 2015			September 30, 2014
Net income	$	4,199		$	4,263

Other Comprehensive Income, net of tax
Unrealized holding gains on available for sale securities net of tax of $1,396 in 2015 and $919 in 2014		2,587			1,708
Reclassification adjustment for gains included in net income, net of tax of ($1) in 2015 and ($1) in 2014		(1	)		(3	)
Other comprehensive income, net of tax of $1,395 in 2015 and $918 in 2014	$	2,586		$	1,705
Total Comprehensive Income	$	6,785		$	5,968

	Nine Months Ended
$ in thousands	September 30, 2015			September 30, 2014
Net income	$	12,275		$	12,776

Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of tax of ($334) in 2015 and $4,264 in 2014		(624	)		7,920
Reclassification adjustment for gains included in net income, net of tax of ($2) in 2015 and ($1) in 2014		(3	)		(3	)
Other comprehensive income (loss), net of tax of ($336) in 2015 and $4,263 in 2014	$	(627	)	$	7,917
Total Comprehensive Income	$	11,648		$	20,693

National Bankshares, Inc. and Subsidiaries

Key Ratios and Other Data

(Unaudited)

$ in thousands	Three Months Ended						Nine Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Average Balances
Cash and due from banks	$	11,612		$	11,863		$	11,506		$	11,811
Interest-bearing deposits		84,882			100,349			91,791			101,908
Securities available for sale		216,949			202,113			222,823			193,549
Securities held to maturity		154,978			162,531			156,678			163,268
Restricted stock		1,129			1,089			1,118			1,187
Mortgage loans held for sale		986			439			781			359
Gross Loans		627,596			593,165			619,204			592,528
Loans, net		618,611			584,308			610,135			583,521
Intangible assets		6,571			7,646			6,838			7,914
Total assets		1,144,723			1,121,501			1,150,026			1,115,643
Total deposits		966,199			956,804			972,104			955,058
Other borrowings		---			---			---			---
Stockholders' equity		171,698			160,310			170,883			155,447
Interest-earning assets		1,089,803			1,068,583			1,093,699			1,066,031
Interest-bearing liabilities		805,655			808,075			814,800			810,808

Financial ratios
Return on average assets		1.46	%		1.51	%		1.43	%		1.53	%
Return on average equity		9.70	%		10.55	%		9.60	%		10.99	%
Net interest margin		3.89	%		3.98	%		3.90	%		4.03	%
Net interest income-fully taxable equivalent	$	10,673		$	10,719		$	31,881		$	32,139
Efficiency ratio		48.77	%		47.12	%		49.82	%		46.99	%
Average equity to average assets		15.00	%		14.29	%		14.86	%		13.93	%

Allowance for loan losses
Beginning balance	$	8,131		$	7,971		$	8,263		$	8,227
Provision for losses		178			356			734			1,160
Charge-offs		(226	)		(324	)		(1,002	)		(1,568	)
Recoveries		34			28			122			212
Ending balance	$	8,117		$	8,031		$	8,117		$	8,031

National Bankshares, Inc. and Subsidiaries

Asset Quality Data

(Unaudited)

$ in thousands	September 30, 2015			September 30, 2014
Nonperforming assets
Nonaccrual loans	$	3,207		$	5,366
Nonaccrual restructured loans		5,781			2,360
Total nonperforming loans		8,988			7,726
Other real estate owned		4,194			5,145
Total nonperforming assets	$	13,182		$	12,871
Accruing restructured loans		6,080			5,947
Loans 90 days or more past due	$	47		$	485

Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		2.09	%		2.14	%
Allowance for loans losses to total loans		1.30	%		1.35	%
Allowance for loan losses to nonperforming loans		90.31	%		103.95	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.01	%		0.08	%