National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

($ in thousands, except for share and per share data)	December 31, 2015			December 31, 2014
Assets
Cash and due from banks	$	12,152		$	12,894
Interest-bearing deposits		130,811			102,548
Federal funds sold		---			---
Securities available for sale, at fair value		236,131			222,844
Securities held to maturity		152,028			161,452
Restricted stock		1,129			1,089
Total securities		389,288			385,385
Mortgage loans held for sale		634			291
Loans:
Loans, net of unearned income and deferred fees		619,008			605,466
Less: allowance for loan losses		(8,297	)		(8,263	)
Loans, net		610,711			597,203
Premises and equipment, net		9,020			9,131
Accrued interest receivable		5,769			5,748
Other real estate owned		4,165			4,744
Intangible assets and goodwill		6,224			7,223
Bank-owned life insurance		22,401			21,797
Other assets		8,564			7,767
Total assets	$	1,199,739		$	1,154,731

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	166,453		$	150,744
Interest-bearing demand deposits		569,787			533,641
Savings deposits		90,236			81,297
Time deposits		192,383			216,746
Total deposits		1,018,859			982,428
Other borrowed funds		---			---
Accrued interest payable		56			68
Other liabilities		8,710			5,932
Total liabilities		1,027,625			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, 6,957,974 shares at December 31, 2015 and 6,950,474 shares at December 31, 2014.		8,698			8,688
Retained earnings		171,353			163,287
Accumulated other comprehensive loss, net		(7,937	)		(5,672	)
Total stockholders' equity		172,114			166,303
Total liabilities and stockholders' equity	$	1,199,739		$	1,154,731

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, 2015		December 31, 2014			December 31, 2015			December 31, 2014
Interest Income
Interest and fees on loans	$	7,560	$	7,652		$	30,446		$	31,058
Interest on federal funds		---		---			---			---
Interest on interest-bearing deposits		81		69			254			262
Interest on securities - taxable		1,652		1,730			6,776			6,798
Interest on securities - nontaxable		1,343		1,416			5,438			5,826
Total interest income		10,636		10,867			42,914			43,944
Interest Expense
Interest on time deposits		290		346			1,233			1,479
Interest on other deposits		746		796			2,950			3,420
Interest on borrowed funds		---		---			---			---
Total interest expense		1,036		1,142			4,183			4,899
Net interest income		9,600		9,725			38,731			39,045
Provision for loan losses		1,275		481			2,009			1,641
Net income after provision for loan losses		8,325		9,244			36,722			37,404
Noninterest Income
Service charges on deposit accounts		574		601			2,250			2,434
Other service charges and fees		51		42			215			187
Credit card fees		1,018		944			3,861			3,631
Trust income		327		292			1,229			1,213
Bank-owned life insurance		152		154			603			616
Other income		318		254			1,295			1,037
Realized securities gain (loss), net		28		(3	)		33			2
Total noninterest income		2,468		2,284			9,486			9,120
Noninterest Expense
Salaries and employee benefits		3,089		2,716			12,522			11,606
Occupancy and furniture and fixtures		432		453			1,728			1,703
Data processing and ATM		427		461			1,657			1,650
FDIC assessment		138		122			546			533
Credit card processing		706		706			2,692			2,593
Intangibles and goodwill amortization		192		268			999			1,075
Net cost of other real estate owned		39		110			608			369
Franchise taxes		329		308			1,288			1,182
Other operating expenses		905		974			3,595			3,721
Total noninterest expense		6,257		6,118			25,635			24,432
Income before income tax expense		4,536		5,410			20,573			22,092
Income tax expense		978		1,272			4,740			5,178
Net income	$	3,558	$	4,138		$	15,833		$	16,914
Basic net income per share	$	0.51	$	0.60		$	2.28		$	2.43
Fully diluted net income per share	$	0.51	$	0.59		$	2.28		$	2.43
Weighted average number of common shares outstanding
Basic		6,957,213		6,950,474			6,953,849			6,948,789
Diluted		6,959,049		6,955,157			6,957,094			6,959,134
Dividends declared per share	$	0.61	$	0.58		$	1.14		$	1.13
Dividend payout ratio		---		---			50.09	%		46.43	%
Book value per share		---		---		$	24.74		$	23.93

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Month Ended
($ in thousands)	December 31, 2015			December 31, 2014
Net income	$	3,558		$	4,138
Other Comprehensive Income (Loss), net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of ($237) in 2015 and $2,428 in 2014		(440	)		4,511
Reclassification adjustment, net of tax of ($10) in 2015 and $1 in 2014		(18	)		1
Net pension loss arising during the period, net of tax of ($597) in 2015 and ($574) in 2014		(1,108	)		(1,066	)
Less: amortization of prior service cost included in net periodic pension cost net of tax of ($38) in 2015 and ($39) in 2014		(72	)		(71	)
Other comprehensive income (loss), net of tax of ($882) in 2015 and $1,816 in 2014	$	(1,638	)	$	3,375
Total Comprehensive Income (Loss)	$	1,920		$	7,513

	Twelve Month Ended
($ in thousands)	December 31, 2015			December 31, 2014
Net income	$	15,833		$	16,914
Other Comprehensive Income, net of tax
Unrealized holding gains (losses) on available for sale securities net of deferred tax of ($571) in 2015 and $6,693 in 2014		(1,064	)		12,430
Reclassification adjustment, net of tax of ($12) in 2015 and ($1) in 2014		(21	)		(1	)
Net pension loss arising during the period, net of tax of ($597) in 2015 and ($574) in 2014		(1,108	)		(1,066	)
Less: amortization of prior service cost included in net periodic pension cost net of tax of ($38) in 2015 and ($39) in 2014		(72	)		(71	)
Other comprehensive income (loss), net of tax of ($1,218) in 2015 and $6,079 in 2014	$	(2,265	)	$	11,292
Total Comprehensive Income	$	13,568		$	28,206

Key Ratios and Other Data

(Unaudited)

($ in thousands)	Three Month Ended						Twelve Month Ended
Average Balances	December 31, 2015			December 31, 2014			December 31, 2015			December 31, 2014
Cash and due from banks	$	12,166		$	12,050		$	11,672		$	11,872
Interest-bearing deposits		111,162			107,512			96,677			103,320
Securities available for sale		223,245			207,081			222,937			196,960
Securities held to maturity		152,977			161,823			155,747			162,906
Restricted stock		1,129			1,089			1,121			1,162
Mortgage loans held for sale		861			453			802			383
Gross loans		624,754			597,690			620,594			593,829
Loans, net		615,801			588,819			611,554			584,857
Intangible assets		6,319			7,376			6,707			7,778
Total assets		1,172,071			1,136,287			1,155,594			1,120,848
Total deposits		989,853			965,415			976,597			957,684
Other borrowings		---			---			---			---
Stockholders' equity		174,258			164,907		$	171,732			157,832
Interest-earning assets		1,116,759			1,081,536			1,099,517			1,069,940
Interest-bearing liabilities		822,540			812,171			816,768			811,152

Financial ratios
Return on average assets		1.20	%		1.44	%		1.37	%		1.51	%
Return on average equity		8.10	%		9.96	%		9.22	%		10.72	%
Net interest margin		3.74	%		3.90	%		3.86	%		4.00	%
Net interest income-fully taxable equivalent	$	10,514		$	10,631		$	42,394		$	42,771
Efficiency ratio		48.20	%		47.37	%		49.41	%		47.08	%
Average equity to average assets		14.87	%		14.51	%		14.86	%		14.08	%

Allowance for loan losses
Beginning balance	$	8,117		$	8,031		$	8,263		$	8,227
Provision for losses		1,275			481			2,009			1,641
Charge-offs		(1,118	)		(292	)		(2,120	)		(1,860	)
Recoveries		23			43			145			255
Ending balance	$	8,297		$	8,263		$	8,297		$	8,263

Asset Quality Data

(Unaudited)

$ in thousands	December 31, 2015			December 31, 2014
Asset Quality
Nonaccrual loans	$	2,043		$	3,999
Nonaccrual restructured loans		4,639			5,288
Total nonperforming loans	$	6,682		$	9,287
Other real estate owned	$	4,165		$	4,744
Total nonperforming assets	$	10,847		$	14,031

Accruing restructured loans	$	8,814		$	6,040
Loans 90 days or more past due	$	156		$	207

Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		1.74	%		2.30	%
Allowance for loans losses to total loans		1.34	%		1.36	%
Allowance for loan losses to nonperforming loans		124.17	%		88.97	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.03	%		0.03	%