National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

($ in thousands, except for share and per share data)	September 30, 2017			September 30, 2016			December 31, 2016
Assets
Cash and due from banks	$	12,066		$	11,302		$	13,974
Interest-bearing deposits		58,260			80,170			80,268
Federal funds sold		---			---			---
Securities available for sale, at fair value		309,323			291,277			304,282
Securities held to maturity		129,750			138,047			134,957
Restricted stock		1,200			1,170			1,170
Total securities		440,273			430,494			440,409
Mortgage loans held for sale		505			434			478
Loans:
Loans, net of unearned income and deferred fees and costs		660,362			636,241			647,752
Less: allowance for loan losses		(8,473	)		(8,301	)		(8,300	)
Loans, net		651,889			627,940			639,452
Premises and equipment, net		8,458			8,757			8,853
Accrued interest receivable		5,123			5,138			5,260
Other real estate owned		2,923			3,188			3,156
Intangible assets and goodwill		5,911			6,006			5,966
Bank-owned life insurance		33,520			22,848			22,998
Other assets		13,555			10,684			13,128
Total assets	$	1,232,483		$	1,206,961		$	1,233,942

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	184,483		$	172,510		$	171,946
Interest-bearing demand deposits		588,447			565,127			604,093
Savings deposits		140,324			135,931			136,789
Time deposits		118,719			136,440			130,614
Total deposits		1,031,973			1,010,008			1,043,442
Other borrowed funds		---			---			---
Accrued interest payable		51			48			55
Other liabilities		12,798			12,761			12,182
Total liabilities		1,044,822			1,022,817			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 September 30, 2017, December 31, 2016 and September 30, 2016.		8,698			8,698			8,698
Retained earnings		185,331			178,998			178,224
Accumulated other comprehensive loss, net		(6,368	)		(3,552	)		(8,659	)
Total stockholders' equity		187,661			184,144			178,263
Total liabilities and stockholders' equity	$	1,232,483		$	1,206,961		$	1,233,942

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, 2017		September 30, 2016		September 30, 2017			September 30, 2016
Interest Income
Interest and fees on loans	$	7,473	$	7,409	$	22,379		$	22,032
Interest on federal funds		---		---		---			---
Interest on interest-bearing deposits		224		97		603			409
Interest on securities - taxable		1,426		1,381		4,225			4,625
Interest on securities - nontaxable		1,178		1,270		3,627			3,867
Total interest income		10,301		10,157		30,834			30,933
Interest Expense
Interest on time deposits		130		172		410			547
Interest on other deposits		891		847		2,687			2,603
Interest on borrowed funds		---		---		---			---
Total interest expense		1,021		1,019		3,097			3,150
Net interest income		9,280		9,138		27,737			27,783
Provision for loan losses		201		291		724			1,148
Net interest income after provision for loan losses		9,079		8,847		27,013			26,635
Noninterest Income
Service charges on deposit accounts		710		649		2,067			1,778
Other service charges and fees		41		47		151			165
Credit card fees		1,030		963		2,947			2,802
Trust income		365		330		1,127			1,007
Bank-owned life insurance		233		149		522			447
Other income		215		242		735			1,042
Realized securities gain, net		4		101		8			199
Total noninterest income		2,598		2,481		7,557			7,440
Noninterest Expense
Salaries and employee benefits		3,496		3,239		10,477			9,714
Occupancy and furniture and fixtures		459		463		1,366			1,388
Data processing and ATM		563		624		1,669			1,630
FDIC assessment		93		135		279			421
Credit card processing		716		715		2,096			2,049
Intangibles and goodwill amortization		13		40		56			218
Net cost of other real estate owned		58		71		142			179
Franchise taxes		332		321		983			974
Other operating expenses		1,015		1,012		3,312			2,969
Total noninterest expense		6,745		6,620		20,380			19,542
Income before income tax expense		4,932		4,708		14,190			14,533
Income tax expense		1,147		880		3,186			3,061
Net Income	$	3,785	$	3,828	$	11,004		$	11,472
Basic net income per share	$	0.54	$	0.55	$	1.58		$	1.65
Fully diluted net income per share	$	0.54	$	0.55	$	1.58		$	1.65
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		---		---	$	0.56		$	0.55
Dividend payout ratio		---		---		35.41	%		33.36	%
Book value per share	$	26.97	$	26.47	$	26.97		$	26.47

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
($ in thousands)	September 30, 2017			September 30, 2016
Net income	$	3,785		$	3,828

Other Comprehensive Income (Loss), net of tax
Unrealized holding gain (loss) on available for sale securities net of tax of ($219) in 2017 and $244 in 2016		(407	)		453
Reclassification adjustment for gain included in net income, net of tax of ($1) in 2017 and ($35) in 2016		(3	)		(66	)
Other comprehensive income (loss), net of tax of ($220) in 2017 and $209 in 2016		(410	)		387
Total Comprehensive Income	$	3,375		$	4,215

	Nine Months Ended
($ in thousands)	September 30, 2017			September 30, 2016
Net Income	$	11,004		$	11,472

Other Comprehensive Income, Net of Tax
Unrealized holding gain on available for sale securities net of tax of $1,235 in 2017 and $2,415 in 2016		2,294			4,484
Reclassification adjustment for gain included in net income, net of tax of ($1) in 2017 and ($54) in 2016		(3	)		(99	)
Other comprehensive income, net of tax of $1,234 in 2017 and $2,361 in 2016		2,291			4,385
Total Comprehensive Income	$	13,295		$	15,857

Key Ratios and Other Data

(Unaudited)

	Three Months Ended						Nine Months Ended
($ in thousands)	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Average Balances
Cash and due from banks	$	11,182		$	11,248		$	11,291		$	11,258
Interest-bearing deposits		69,994			76,870			76,661			106,928
Securities available for sale		308,725			298,422			306,145			275,702
Securities held to maturity		130,140			138,186			132,349			142,585
Restricted stock		1,200			1,170			1,190			1,158
Mortgage loans held for sale		549			666			343			565
Gross Loans		651,577			630,234			651,566			617,337
Loans, net		642,521			621,251			642,547			608,217
Intangible assets		5,918			6,029			5,933			6,094
Total assets		1,234,789			1,200,629			1,233,997			1,200,104
Total deposits		1,036,317			1,009,786			1,037,947			1,011,736
Other borrowings		---			---			---			---
Stockholders' equity		185,967			182,096			183,549			179,191
Interest-earning assets		1,163,054			1,141,981			1,170,491			1,142,505
Interest-bearing liabilities		855,777			835,984			861,237			842,127

Financial Ratios
Return on average assets		1.22	%		1.27	%		1.19	%		1.28	%
Return on average equity		8.07	%		8.36	%		8.02	%		8.55	%
Net interest margin		3.44	%		3.48	%		3.45	%		3.55	%
Net interest income-fully taxable equivalent	$	10,082		$	9,986		$	30,204		$	30,383
Efficiency ratio		53.19	%		53.10	%		53.97	%		51.67	%
Average equity to average assets		15.06	%		15.17	%		14.87	%		14.93	%

Allowance for Loan Losses
Beginning balance	$	8,372		$	8,195		$	8,300		$	8,297
Provision for losses		201			291			724			1,148
Charge-offs		(137	)		(216	)		(689	)		(1,267	)
Recoveries		37			31			138			123
Ending balance	$	8,473		$	8,301		$	8,473		$	8,301

Asset Quality Data

(Unaudited)

($ in thousands)	September 30, 2017			September 30, 2016
Nonperforming Assets
Nonaccrual loans	$	7		$	1,592
Nonaccrual restructured loans		3,149			3,901
Total nonperforming loans		3,156			5,493
Other real estate owned	$	2,923		$	3,188
Total nonperforming assets	$	6,079		$	8,681
Accruing restructured loans		4,815			4,662
Loans 90 days or more past due	$	250		$	195

Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		0.92	%		1.36	%
Allowance for loans losses to total loans		1.28	%		1.30	%
Allowance for loan losses to nonperforming loans		268.47	%		151.12	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.04	%		0.03	%