National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheet

(Unaudited)

($ in thousands, except for share and per share data)	December 31, 2013			December 31, 2012
Assets
Cash and due from banks	$	13,283		$	14,783
Interest-bearing deposits		97,376			96,597
Federal funds sold		---			---
Securities available for sale, at fair value		183,668			189,815
Securities held to maturity		163,983			160,539
Restricted stock		1,414			1,689
Total securities		349,065			352,043
Mortgage loans held for sale		1,276			2,796
Loans:
Loans, net of unearned income and deferred fees		595,690			592,162
Less: allowance for loan losses		(8,227	)		(8,349	)
Loans, net		587,463			583,813
Premises and equipment, net		9,951			10,401
Accrued interest receivable		5,949			6,247
Other real estate owned		4,712			1,435
Intangible assets and goodwill		8,299			9,377
Bank-owned life insurance		21,181			20,523
Other assets		12,075			6,346
Total assets	$	1,110,630		$	1,104,361

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	142,645		$	144,252
Interest-bearing demand deposits		501,541			455,713
Savings deposits		74,141			69,063
Time deposits		241,709			277,738
Total deposits		960,036			946,766
Other borrowed funds		---			---
Accrued interest payable		92			139
Other liabilities		4,610			7,347
Total liabilities		964,738			954,252

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, 6,947,974 shares in 2013 and 2012		8,685			8,685
Retained earnings		154,171			144,162
Accumulated other comprehensive loss, net		(16,964	)		(2,738	)
Total stockholders' equity		145,892			150,109
Total liabilities and stockholders' equity	$	1,110,630		$	1,104,361

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, 2013			December 31, 2012			December 31, 2013			December 31, 2012
Interest Income
Interest and fees on loans	$	8,112		$	8,800		$	32,819		$	35,354
Interest on federal funds		---			---			---			---
Interest on interest-bearing deposits		52			53			213			240
Interest on securities − taxable		1,701			1,622			6,707			6,613
Interest on securities − nontaxable		1,540			1,662			6,388			6,463
Total interest income		11,405			12,137			46,127			48,670

Interest Expense
Interest on time deposits of $100 or more		171			320			865			1,491
Interest on other deposits		1,169			1,496			5,090			6,396
Interest on borrowed funds		---			---			---			---
Total interest expense		1,340			1,816			5,955			7,887
Net interest income		10,065			10,321			40,172			40,783
Provision for loan losses		202			580			1,531			3,134
Net income after provision for loan losses		9,863			9,741			38,641			37,649

Noninterest Income
Service charges on deposit accounts		641			638			2,563			2,594
Other service charges and fees		86			113			225			243
Credit card fees		903			837			3,330			3,278
Trust Income		283			276			1,150			1,313
Bank-owned life insurance		193			209			739			814
Other income		269			131			770			472
Realized securities gains (losses), net		(1	)		12			59			104
Total noninterest income		2,374			2,216			8,836			8,818

Noninterest Expense
Salaries and employee benefits		3,014			2,991			11,978			12,005
Occupancy and furniture and fixtures		385			408			1,616			1,589
Data processing and ATM		412			387			1,700			1,593
FDIC assessment		147			132			554			475
Credit card processing		692			625			2,546			2,442
Intangibles and goodwill amortization		269			271			1,078			1,083
Net cost of other real estate owned		105			(1	)		296			208
Franchise taxes		280			255			1,083			901
Other operating expenses		825			818			3,519			3,179
Total noninterest expense		6,129			5,886			24,370			23,475
Income before income tax expense		6,108			6,071			23,107			22,992
Income tax expense		1,486			1,386			5,317			5,245
Net income	$	4,622		$	4,685		$	17,790		$	17,747

Basic net income per share	$	0.67		$	0.67		$	2.56		$	2.56
Fully diluted net income per share	$	0.66		$	0.67		$	2.55		$	2.55
Weight average outstanding numbers of common shares
Basic		6,947,974			6,947,887			6,947,974			6,942,411
Diluted		6,963,381			6,964,482			6,968,393			6,959,867
Dividends declared per share	$	0.58		$	0.57		$	1.12		$	1.10
Dividends payout ratio		---			---			43.74	%		43.04	%
Book value per share	$	---		$	---		$	21.00		$	21.60

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

($ in thousands, expect for share and per share data)	Three Months Ended
	December 31, 2013			December 31, 2012
Net income	$	4,622		$	4,685
Other Comprehensive Income, net of tax
Unrealized holding losses on available for sale securities net of deferred taxes of ($1,523) in 2013 and ($141) in 2012		(2,828	)		(261	)
Reclassification adjustment, net income taxes of $1 in 2013 and $3 in 2012		1			6
Net pension gain (loss) arising during the period, net of taxes of $1,022 in 2013 and ($405) in 2012		1,898			(752	)
Less: amortization of prior service cost included in net periodic pension cost, net of taxes of ($35) in 2013 and ($35) in 2012		(66	)		(66	)
Other comprehensive loss, net of tax of ($535) in 2013 and ($578) in 2012	$	(995	)	$	(1,073	)
Total Comprehensive Income	$	3,627		$	3,612

	Twelve Months Ended
	December 31, 2013			December 31, 2012
Net income	$	17,790		$	17,747
Other Comprehensive Income, net of tax
Unrealized holding losses on available for sale securities net of taxes of ($8,628) in 2013 and ($292) in 2012		(16,023	)		(541	)
Reclassification adjustment for gains included in net income, net of taxes of ($18) in 2013 and ($31) in 2012		(35	)		(58	)
Net pension gain (losses) arising during the period, net of taxes of $1,022 in 2013 and ($405) in 2012		1,898			(752	)
Less: amortization of prior service cost included in net periodic pension cost, net of taxes of ($35) in 2013 and ($35) in 2012		(66	)		(66	)
Other comprehensive loss, net of tax of ($7,659) in 2013 and ($763) in 2012	$	(14,226	)	$	(1,417	)
Total Comprehensive Income	$	3,564		$	16,330

Key Ratios and Other Data

(Unaudited)

$ in thousands

	Three Months Ended						Twelve Months Ended
	December 31 2013			December 31 2012			December 31 2013			December 31 2012
Average Balances
Cash and due from banks	$	12,453		$	8,958		$	12,022		$	11,129
Interest-bearing deposits		80,782			89,703			80,044			94,724
Securities available for sale		189,383			191,037			197,898			188,168
Securities held to maturity		164,512			161,344			164,888			149,566
Restricted stock		1,414			1,687			1,477			1,682
Mortgage loans held for sale		411			2,543			1,016			1,765
Gross Loans		592,768			591,604			586,898			589,129
Loans, net		583,699			582,272			577,746			579,817
Intangible assets		8,452			9,531			8,854			9,936
Total assets		1,090,932			1,091,032			1,090,703			1,080,351
Total deposits		936,048			932,678			933,482			925,986
Other borrowings		---			---			---			---
Stockholders' equity		146,716			151,660			149,491			147,812
Interest-earning assets		1,046,181			1,032,929			1,038,727			1,019,887
Interest-bearing liabilities		792,328			789,684			792,037			784,717

Financial ratios
Return on average assets		1.68	%		1.71	%		1.63	%		1.64	%
Return on average equity		12.50	%		12.29	%		11.90	%		12.01	%
Net interest margin		4.18	%		4.37	%		4.25	%		4.38	%
Net interest income-fully taxable equivalent	$	11,035		$	11,354		$	44,159		$	44,712
Efficiency ratio		45.71	%		43.29	%		45.99	%		43.77	%
Average equity to average assets		13.45	%		13.90	%		13.71	%		13.68	%

Allowance for loan losses
Beginning balance	$	8,090		$	8,254		$	8,349		$	8,068
Provision for losses		202			580			1,531			3,134
Charge-offs		(140	)		(509	)		(1,820	)		(2,953	)
Recoveries		75			24			167			100
Ending balance	$	8,227		$	8,349		$	8,227		$	8,349

Asset Quality Data

(Unaudited)

$ in thousands

	December 31, 2013			December 31, 2012
Nonperforming assets
Nonaccrual loans	$	5,732		$	10,870
Nonaccrual restructured loans		852			2,151
Total nonperforming loans		6,584			13,021
Other real estate owned		4,712			1,435
Total nonperforming assets	$	11,296		$	14,456
Accruing restructured loans	$	6,191		$	2,005
Loans 90 days or more past due	$	190		$	170

Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		1.88	%		2.44	%
Allowance for loans losses to total loans		1.38	%		1.41	%
Allowance for loan losses to nonperforming loans		124.95	%		64.12	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.03	%		0.03	%