National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

($ in thousands, except for share and per share data)	June 30, 2017			June 30, 2016			December 31, 2016
Assets
Cash and due from banks	$	12,936		$	14,320		$	13,974
Interest-bearing deposits		89,096			75,892			80,268
Federal funds sold		---			---			---
Securities available for sale, at fair value		308,435			303,242			304,282
Securities held to maturity		130,712			138,424			134,957
Restricted stock		1,200			1,170			1,170
Total securities		440,347			442,836			440,409
Mortgage loans held for sale		491			663			478
Loans:
Loans, net of unearned income and deferred fees		654,734			630,916			647,752
Less: allowance for loan losses		(8,372	)		(8,195	)		(8,300	)
Loans, net		646,362			622,721			639,452
Premises and equipment, net		8,557			8,718			8,853
Accrued interest receivable		5,139			5,259			5,260
Other real estate owned		3,008			3,425			3,156
Intangible assets and goodwill		5,923			6,046			5,966
Bank-owned life insurance		33,287			22,699			22,998
Other assets		14,208			11,500			13,128
Total assets	$	1,259,354		$	1,214,079		$	1,233,942

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	181,868		$	171,350		$	171,946
Interest-bearing demand deposits		618,223			574,507			604,093
Savings deposits		140,325			136,051			136,789
Time deposits		121,941			139,830			130,614
Total deposits		1,062,357			1,021,738			1,043,442
Other borrowed funds		---			---			---
Accrued interest payable		43			56			55
Other liabilities		12,668			12,357			12,182
Total liabilities		1,075,068			1,034,151			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 June 30, 2017, December 31, 2016 and June 30, 2016.		8,698			8,698			8,698
Retained earnings		181,546			175,169			178,224
Accumulated other comprehensive loss, net		(5,958	)		(3,939	)		(8,659	)
Total stockholders' equity		184,286			179,928			178,263
Total liabilities and stockholders' equity	$	1,259,354		$	1,214,079		$	1,233,942

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended				Six Months Ended
($ in thousands, except for share and per share data)	June 30, 2017		June 30, 2016		June 30, 2017			June 30, 2016
Interest Income
Interest and fees on loans	$	7,453	$	7,289	$	14,906		$	14,623
Interest on federal funds		---		---		---			---
Interest on interest-bearing deposits		231		150		379			312
Interest on securities - taxable		1,397		1,567		2,799			3,244
Interest on securities - nontaxable		1,214		1,286		2,449			2,597
Total interest income		10,295		10,292		20,533			20,776
Interest Expense
Interest on time deposits		135		181		280			375
Interest on other deposits		913		882		1,796			1,756
Interest on borrowed funds		---		---		---			---
Total interest expense		1,048		1,063		2,076			2,131
Net interest income		9,247		9,229		18,457			18,645
Provision for loan losses		464		654		523			857
Net income after provision for loan losses		8,783		8,575		17,934			17,788
Noninterest Income
Service charges on deposit accounts		692		569		1,357			1,129
Other service charges and fees		41		46		110			118
Credit card fees		1,019		969		1,917			1,839
Trust Income		361		354		762			677
Bank-owned life insurance		146		151		289			298
Other income		192		455		520			800
Realized securities gain, net		4		74		4			98
Total noninterest income		2,455		2,618		4,959			4,959
Noninterest Expense
Salaries and employee benefits		3,438		2,907		6,981			6,475
Occupancy and furniture and fixtures		469		448		907			925
Data processing and ATM		541		595		1,106			1,006
FDIC assessment		91		145		186			286
Credit card processing		725		712		1,380			1,334
Intangibles and goodwill amortization		12		68		43			178
Net cost of other real estate owned		55		39		84			108
Franchise taxes		329		322		651			653
Other operating expenses		1,038		1,002		2,297			1,957
Total noninterest expense		6,698		6,238		13,635			12,922
Income before income tax expense		4,540		4,955		9,258			9,825
Income tax expense		970		1,090		2,039			2,181
Net Income	$	3,570	$	3,865	$	7,219		$	7,644
Basic net income per share	$	0.51	$	0.56	$	1.04		$	1.10
Fully diluted net income per share	$	0.51	$	0.56	$	1.04		$	1.10
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	$	0.56		$	0.55
Dividend payout ratio		---		---		53.98	%		50.07	%
Book value per share					$	26.49		$	25.86

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
($ in thousands)	June 30, 2017		June 30, 2016
Net income	$	3,570	$	3,865

Other Comprehensive Income, net of tax
Unrealized holding gain on available for sale securities net of tax of $874 in 2017 and $368 in 2016		1,626		684
Reclassification adjustment for gain included in net income, net of tax of ($16) in 2016		---		(30	)
Other comprehensive income, net of tax of $874 in 2017 and $352 in 2016	$	1,626	$	654
Total Comprehensive Income	$	5,196	$	4,519

	Six Months Ended
($ in thousands)	June 30, 2017		June 30, 2016
Net Income	$	7,219	$	7,644

Other Comprehensive Income, Net of Tax
Unrealized holding gain on available for sale securities net of tax of $1,454 in 2017 and $2,170 in 2016		2,701		4,032
Reclassification adjustment for gain included in net income, net of tax of ($18) in 2016		---		(34	)
Other comprehensive income, net of tax of $1,454 in 2017 and $2,152 in 2016	$	2,701	$	3,998
Total Comprehensive Income	$	9,920	$	11,642

Key Ratios and Other Data

(Unaudited)

	Three Months Ended						Six Months Ended
($ in thousands)	June 30, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Average Balances
Cash and due from banks	$	11,579		$	11,217		$	11,346		$	11,263
Interest-bearing deposits		87,694			118,395			80,050			122,122
Securities available for sale		305,058			283,280			304,833			264,217
Securities held to maturity		132,477			140,415			133,472			144,809
Restricted stock		1,200			1,170			1,186			1,151
Mortgage loans held for sale		262			601			238			514
Gross Loans		652,644			610,657			651,560			610,818
Loans, net		643,702			601,700			642,561			601,628
Intangible assets		5,931			6,085			5,940			6,128
Total assets		1,242,223			1,211,217			1,233,594			1,199,839
Total deposits		1,045,464			1,022,306			1,038,775			1,012,721
Other borrowings		---			---			---			---
Stockholders' equity		184,108			179,452			182,319			177,722
Interest-earning assets		1,181,413			1,152,614			1,174,273			1,142,769
Interest-bearing liabilities		867,065			851,522			864,013			845,232

Financial Ratios
Return on average assets		1.15	%		1.28	%		1.18	%		1.28	%
Return on average equity		7.78	%		8.66	%		7.98	%		8.65	%
Net interest margin		3.42	%		3.52	%		3.46	%		3.59	%
Net interest income-fully taxable equivalent	$	10,074		$	10,089		$	20,122		$	20,397
Efficiency ratio		53.46	%		49.09	%		54.36	%		50.96	%
Average equity to average assets		14.82	%		14.82	%		14.78	%		14.81	%

Allowance for Loan Losses
Beginning balance	$	8,261		$	8,107		$	8,300		$	8,297
Provision for losses		464			654			523			857
Charge-offs		(409	)		(598	)		(552	)		(1,051	)
Recoveries		56			32			101			92
Ending balance	$	8,372		$	8,195		$	8,372		$	8,195

Asset Quality Data

(Unaudited)

($ in thousands)	June 30, 2017			June 30, 2016
Nonperforming Assets
Nonaccrual loans	$	9		$	1,751
Nonaccrual restructured loans		3,188			4,454
Total nonperforming loans		3,197			6,205
Other real estate owned	$	3,008		$	3,425
Total nonperforming assets	$	6,205		$	9,630
Accruing restructured loans		3,711			4,729
Loans 90 days or more past due	$	259		$	316

Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		0.94	%		1.52	%
Allowance for loans losses to total loans		1.28	%		1.30	%
Allowance for loan losses to nonperforming loans		261.87	%		132.07	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.04	%		0.05	%