National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

($ in thousands, except for share and per share data)	March 31, 2015		March 31, 2014		December 31, 2014
Assets
Cash and due from banks	$12,452		$14,723		$12,894
Interest-bearing deposits	87,676		109,181		102,548
Federal funds sold	---		---		---
Securities available for sale, at fair value	238,496		190,061		222,844
Securities held to maturity	156,135		165,398		161,452
Restricted stock	1,129		1,089		1,089
Total securities	395,760		356,548		385,385
Mortgage loans held for sale	1,091		---		291
Loans:
Loans, net of unearned income and deferred fees	622,171		589,048		605,466
Less: allowance for loan losses	(8,257	)	(8,297	)	(8,263	)
Loans, net	613,914		580,751		597,203
Premises and equipment, net	8,998		9,428		9,131
Accrued interest receivable	5,506		5,893		5,748
Other real estate owned	4,573		4,901		4,744
Intangible assets and goodwill	6,954		8,029		7,223
Bank-owned life insurance	21,946		21,335		21,797
Other assets	5,975		12,321		7,767
Total assets	$1,164,845		$1,123,110		$1,154,731

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$160,217		$145,963		$150,744
Interest-bearing demand deposits	526,388		503,596		533,641
Savings deposits	85,615		77,467		81,297
Time deposits	212,737		237,060		216,746
Total deposits	984,957		964,086		982,428
Other borrowed funds	---		---		---
Accrued interest payable	70		78		68
Other liabilities	7,096		5,529		5,932
Total liabilities	992,123		969,693		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, 6,950,474 shares at March 31, 2015 and December 31, 2014 and 6,947,974 shares at March 31, 2014.	8,688		8,685		8,688
Retained earnings	167,253		158,575		163,287
Accumulated other comprehensive loss, net	(3,219	)	(13,843	)	(5,672	)
Total stockholders' equity	172,722		153,417		166,303
Total liabilities and stockholders' equity	$1,164,845		$1,123,110		$1,154,731

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ending
($ in thousands, except for share and per share data)	March 31, 2015		March 31, 2014
Interest Income
Interest and fees on loans	$7,649		$7,935
Interest on federal funds	---		---
Interest on interest-bearing deposits	64		65
Interest on securities - taxable	1,734		1,653
Interest on securities - nontaxable	1,386		1,500
Total interest income	10,833		11,153
Interest Expense
Interest on time deposits of $100 or more	128		153
Interest on other deposits	959		1,162
Interest on borrowed funds	---		---
Total interest expense	1,087		1,315
Net interest income	9,746		9,838
Provision for loan losses	201		103
Net income after provision for loan losses	9,545		9,735
Noninterest Income
Service charges on deposit accounts	535		592
Other service charges and fees	71		65
Credit card fees	895		797
Trust Income	289		293
Bank-owned life insurance	170		175
Other income	282		277
Realized securities gains (losses), net	(2	)	1
Total noninterest income	2,240		2,200
Noninterest Expense
Salaries and employee benefits	3,072		2,999
Occupancy and furniture and fixtures	452		440
Data processing and ATM	434		363
FDIC assessment	135		147
Credit card processing	610		549
Intangibles and goodwill amortization	269		269
Net cost of other real estate owned	471		77
Franchise taxes	308		279
Other operating expenses	957		1,059
Total noninterest expense	6,708		6,182
Income before income tax expense	5,077		5,753
Income tax expense	1,111		1,349
Net income	$3,966		$4,404
Basic net income per share	$0.57		$0.63
Fully diluted net income per share	$0.57		$0.63
Weighted average number of common shares outstanding
Basic	6,950,474		6,947,974
Diluted	6,955,023		6,963,865
Dividends declared per share	$---		$---
Dividend payout ratio	---		---
Book value per share	$24.85		$22.08

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
($ in thousands)	March 31, 2015	March 31, 2014
Net income	$3,966	$4,404

Other Comprehensive Income, net of tax
Unrealized holding gains on available for sale securities net of deferred tax of $1,320 in 2015 and $1,681 in 2014	2,452	3,121
Reclassification adjustment, net of income tax (benefit) of $1 in 2015 and $0 in 2014	1	---
Other comprehensive income, net of tax of $1,321 and $1,681 for the periods ended March 31, 2015 and 2014, respectively	$2,453	$3,121
Total Comprehensive Income	$6,419	$7,525

National Bankshares, Inc. and Subsidiaries

Key Ratios and Other Data

(Unaudited)

	Three Months Ended
$ in thousands	March 31, 2015		March 31, 2014
Average Balances
Cash and due from banks	$11,364		$11,937
Interest-bearing deposits	104,104		103,024
Securities available for sale	222,161		184,497
Securities held to maturity	159,376		162,782
Restricted stock	1,095		1,385
Mortgage loans held for sale	460		382
Gross Loans	605,137		592,338
Loans, net	604,288		583,189
Intangible assets	7,109		8,185
Total assets	1,149,578		1,108,867
Total deposits	973,738		953,703
Other borrowings	---		---
Stockholders' equity	169,289		149,877
Interest-earning assets	1,092,481		1,062,323
Interest-bearing liabilities	821,308		812,690

Financial ratios
Return on average assets	1.40	%	1.61	%
Return on average equity	9.50	%	11.92	%
Net interest margin	3.95	%	4.12	%
Net interest income-fully taxable equivalent	$10,648		$10,799
Efficiency ratio	52.05	%	47.56	%
Average equity to average assets	14.73	%	13.52	%

Allowance for loan losses
Beginning balance	$8,263		$8,227
Provision for losses	201		103
Charge-offs	(260	)	(191	)
Recoveries	53		158
Ending balance	$8,257		$8,297

National Bankshares, Inc. and Subsidiaries

Asset Quality Data

(Unaudited)

$ in thousands
Nonperforming assets	March 31, 2015		March 31, 2014
Nonaccrual loans	$3,102		$5,071
Nonaccrual restructured loans	6,123		1,007
Total nonperforming loans	9,225		6,078
Other real estate owned	4,573		4,901
Total nonperforming assets	$13,798		$10,979
Accruing restructured loans	5,992		6,145
Loans 90 days or more past due	$272		$163

Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned	2.20	%	1.85	%
Allowance for loans losses to total loans	1.33	%	1.41	%
Allowance for loan losses to nonperforming loans	89.51	%	136.51	%
Loans past due 90 days or more to loans net of unearned income and deferred fees	0.04	%	0.03	%