National Bankshares, Inc. Reports First Quarter Earnings

BLACKSBURG, Va., April 18, 2019 -- National Bankshares, Inc. (NASDAQ: NKSH), parent company of The National Bank of Blacksburg, today announced its results of operations for the first quarter of 2019. The Company reported net income of $4.44 million, or $0.65 per common share, for the quarter ended March 31, 2019. National Bankshares, Inc. ended the first quarter of 2019 with total assets of $1.26 billion.

First Quarter 2019 Highlights

Net income increased $1.15 million from $3.29 million for the quarter ended March 31, 2018 to $4.44 million for the quarter ended March 31, 2019.
Earnings per share increased $0.18 from $0.47 for the quarter ended March 31, 2018 to $0.65 for the quarter ended March 31, 2019.
Return on average assets increased to 1.34% for the quarter ended March 31, 2019, from 1.32% for the quarter ended March 31, 2018.
Return on average equity increased to 8.92% for the quarter ended March 31, 2019, from 8.85% for the quarter ended March 31, 2018.
Net loans increased $59.74 million or 9.17% from March 31, 2018 to $711.01 million as of March 31, 2019.
The Company repurchased 452,400 common shares during the quarter for almost $18 million.

F. Brad Denardo, President and CEO, commented, “Our Company continued to perform well in the first quarter of 2019. By focusing on the fundamentals of quality customer service and sound lending, we were able to deliver another period of steady growth, increased profits and an improving return on our stockholders’ investment. We are thankful for the customers, communities and shareholders who continue to believe in our brand of independent community banking.”

Non-GAAP Financial Measures
In addition to financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company uses certain non-GAAP financial measures that provide useful information for financial and operational decision making, evaluating trends and comparing financial results to other financial institutions. The non-GAAP financial measures presented in this document include the efficiency ratio and certain financial measures presented on a fully taxable-equivalent (“FTE”) basis. FTE basis is calculated using the federal statutory income tax rate of 21% for the periods after January 1, 2018 and 35% for the periods prior to January 1, 2018. The Company believes certain non-GAAP financial measures enhance the understanding of its business and performance. Non-GAAP financial measures are supplemental and not a substitute for, or more important than, financial measure prepared in accordance with GAAP and may not be comparable to those reported by other financial institutions.

About National Bankshares
National Bankshares, Inc., headquartered in Blacksburg, Virginia, is the parent company of The National Bank of Blacksburg, which does business as National Bank, and of National Bankshares Financial Services, Inc. National Bank is a community bank operating from 25 full service offices and one loan production office throughout Southwest Virginia. National Bankshares Financial Services, Inc. is an investment and insurance subsidiary in the same trade area. The Company’s stock is traded on the NASDAQ Capital Market under the symbol “NKSH.” Additional information is available at www.nationalbankshares.com.

Forward-Looking Statements
Certain statements in this press release may be “forward-looking statements.” Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results that are not statements of historical fact and that involve significant risks and uncertainties. Although the Company believes that its expectations with regard to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual Company results will not differ materially from any future results implied by the forward-looking statements. Actual results may be materially different from past or anticipated results because of many factors, some of which may include changes in economic conditions, the interest rate environment, legislative and regulatory requirements, new products, competition, changes in the stock and bond markets and technology. The Company does not update any forward-looking statements that it may make.

National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

($ in thousands, except for share and per share data)	March 31, 2019			March 31, 2018			December 31, 2018
Assets
Cash and due from banks	$	15,332		$	10,598		$	12,882
Interest-bearing deposits		53,381			76,571			43,491
Securities available for sale, at fair value		404,645			337,211			425,010
Securities held to maturity		---			122,905			---
Restricted stock		1,220			1,221			1,220
Total securities		405,865			461,337			426,230
Mortgage loans held for sale		602			---			72
Loans:
Loans, net of unearned income and deferred fees and costs		718,371			658,663			709,799
Less: allowance for loan losses		(7,360	)		(7,391	)		(7,390	)
Loans, net		711,011			651,272			702,409
Premises and equipment, net		8,830			8,120			8,646
Operating lease right of use asset		2,190			---			---
Accrued interest receivable		5,401			5,360			5,160
Other real estate owned, net		2,025			2,741			2,052
Intangible assets and goodwill		5,848			5,886			5,848
Bank-owned life insurance		34,876			33,984			34,657
Other assets		12,642			14,659			14,585
Total assets	$	1,258,003		$	1,270,528		$	1,256,032

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	199,449		$	190,746		$	195,441
Interest-bearing demand deposits		608,227			628,540			616,527
Savings deposits		142,675			142,019			138,175
Time deposits		109,854			111,635			101,799
Total deposits		1,060,205			1,072,940			1,051,942
Accrued interest payable		140			55			89
Operating lease liability		2,192			---			---
Other liabilities		14,238			11,996			13,763
Total liabilities		1,076,775			1,084,991			1,065,794

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 6,505,574 shares at March 31, 2019 and 6,957,974 shares at March 31, 2018 and December 31, 2018		8,132			8,698			8,698
Retained earnings		180,637			189,189			193,625
Accumulated other comprehensive loss, net		(7,541	)		(12,350	)		(12,085	)
Total stockholders' equity		181,228			185,537			190,238
Total liabilities and stockholders' equity	$	1,258,003		$	1,270,528		$	1,256,032

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended
($ in thousands, except for per share data)	March 31, 2019		March 31, 2018
Interest Income
Interest and fees on loans	$	8,269	$	7,532
Interest on interest-bearing deposits		259		172
Interest on securities - taxable		1,683		1,608
Interest on securities - nontaxable		927		1,172
Total interest income		11,138		10,484
Interest Expense
Interest on time deposits		297		121
Interest on other deposits		1,496		960
Total interest expense		1,793		1,081
Net interest income		9,345		9,403
Provision for (recovery of) loan losses		200		(472	)
Net interest income after provision for loan losses		9,145		9,875
Noninterest Income
Service charges on deposit accounts		590		670
Other service charges and fees		52		33
Credit card fees		309		344
Trust income		397		402
Bank-owned life insurance		219		228
Other income		910		346
Realized securities gain, net		12		---
Total noninterest income		2,489		2,023
Noninterest Expense
Salaries and employee benefits		3,821		3,694
Occupancy, furniture and fixtures		465		472
Data processing and ATM		751		733
FDIC assessment		85		91
Intangibles and goodwill amortization		---		12
Net cost of other real estate owned		25		85
Franchise taxes		314		331
Write-down of insurance receivable		---		1,724
Other operating expenses		1,004		1,022
Total noninterest expense		6,465		8,164
Income before income tax expense		5,169		3,734
Income tax expense		726		438
Net Income	$	4,443	$	3,296
Basic net income per share	$	0.65	$	0.47
Fully diluted net income per share	$	0.65	$	0.47
Weighted average number of common shares outstanding
Basic and diluted		6,839,733		6,957,974
Dividends declared per share		---		---
Dividend payout ratio		---		---
Book value per share	$	27.86	$	26.67

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
($ in thousands)	March 31, 2019			March 31, 2018
Net income	$	4,443		$	3,296

Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $1,209 in 2019 and ($706) in 2018		4,553			(2,655	)
Reclassification adjustment for gain included in net income, net of tax of ($3) for the period ended March 31, 2019		(9	)		---
Other comprehensive income (loss), net of tax	$	4,544		$	(2,655	)
Total Comprehensive Income	$	8,987		$	641

Key Ratios and Other Data

(Unaudited)

	Three Months Ended
($ in thousands)	March 31, 2019			March 31, 2018
Average Balances
Cash and due from banks	$	11,243		$	11,246
Interest-bearing deposits		44,264			45,740
Securities available for sale		416,750			333,163
Securities held to maturity		---			125,045
Restricted stock		1,220			1,201
Mortgage loans held for sale		153			233
Gross Loans		710,738			665,466
Loans, net		702,716			656,930
Intangible assets		5,848			5,893
Total assets		1,249,052			1,246,071
Total deposits		1,046,003			1,048,929
Other borrowings		---			---
Stockholders' equity		187,429			185,147
Interest-earning assets		1,177,911			1,177,009
Interest-bearing liabilities		854,614			868,118

Financial Ratios
Return on average assets ⁽¹⁾		1.34	%		1.32	%
Return on average equity ⁽¹⁾		8.92	%		8.85	%
Net interest margin		3.34	%		3.38	%
Net interest income-fully taxable equivalent	$	9,712		$	9,808
Efficiency ratio ⁽²⁾		55.43	%		54.44	%
Average equity to average assets		15.01	%		14.86	%

Allowance for Loan Losses
Beginning balance	$	7,390		$	7,925
Provision for losses		200			(472	)
Charge-offs		(328	)		(139	)
Recoveries		98			77
Ending balance	$	7,360		$	7,391

(1)	Return on average assets and return on average equity are calculated by annualizing net income to date. For 2018, the annualization factor was not applied to the recovery of loan losses and the insurance write-off.

(2)	Efficiency ratio is calculated as noninterest expense, less non-recurring items, divided by the sum of noninterest income and net interest income on a fully taxable equivalent basis.

Asset Quality Data

(Unaudited)

($ in thousands)	March 31, 2019			March 31, 2018
Nonperforming Assets
Nonaccrual loans	$	294		$	6
Nonaccrual restructured loans		3,440			2,758
Total nonperforming loans		3,734			2,764
Other real estate owned	$	2,025		$	2,741
Total nonperforming assets	$	5,759		$	5,505
Accruing restructured loans		1,995			7,890
Loans 90 days or more past due	$	55		$	52

Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		0.80	%		0.83	%
Allowance for loans losses to total loans		1.02	%		1.12	%
Allowance for loan losses to nonperforming loans		197.11	%		267.40	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.01	%		0.01	%