National Bankshares, Inc. Reports Second Quarter and First Half Earnings

BLACKSBURG, VA., July 18, 2019 -- National Bankshares, Inc. (NASDAQ: NKSH), parent company of The National Bank of Blacksburg, today announced its results of operations for the second quarter and first half of 2019. The Company reported net income of $8.44 million, or $1.26 per common share, for the six months ended June 30, 2019. National Bankshares, Inc. ended the first half of 2019 with total assets of $1.27 billion.

First Half 2019 Highlights

Net income increased $1.10 million from $7.34 million for the six months ended June 30, 2018 to $8.44 million for the six months ended June 30, 2019.
Earnings per share increased $0.21 from $1.05 for the six months ended June 30, 2018 to $1.26 for the six months ended June 30, 2019.
Return on average assets increased to 1.32% for the six months ended June 30, 2019, from 1.30% for the six months ended June 30, 2018.
Return on average equity increased to 8.97% for the six months ended June 30, 2019, from 8.81% for the six months ended June 30, 2018.
Net loans increased $38.97 million or 5.70% from June 30, 2018 to $722.26 million as of June 30, 2019.

F. Brad Denardo, Chairman, President and CEO, commented, “The first half of 2019 was another good period for Bankshares, with solid growth in earnings and loans. While our proven business model continues to deliver good results, we’re also committing time and resources to new initiatives as we adapt and grow in a changing marketplace. Our recent move to a newly-renovated branch location in downtown Abingdon, Virginia is just one example of this commitment to continually improve our organization for the benefit of our customers, communities and shareholders.”

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 measures 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)	June 30, 2019			June 30, 2018			December 31, 2018
Assets
Cash and due from banks	$	17,170		$	12,530		$	12,882
Interest-bearing deposits		60,038			29,981			43,491
Securities available for sale, at fair value		396,347			467,505			425,010
Restricted stock		1,220			1,221			1,220
Total securities		397,567			468,726			426,230
Mortgage loans held for sale		809			---			72
Loans:
Loans, net of unearned income and deferred fees and costs		729,559			690,863			709,799
Less: allowance for loan losses		(7,304	)		(7,579	)		(7,390	)
Loans, net		722,255			683,284			702,409
Premises and equipment, net		9,012			8,757			8,646
Operating lease right of use asset		2,131			---			---
Accrued interest receivable		5,192			5,400			5,160
Other real estate owned, net		2,025			2,582			2,052
Intangible assets and goodwill		5,848			5,873			5,848
Bank-owned life insurance		35,108			34,212			34,657
Other assets		12,362			15,014			14,585
Total assets	$	1,269,517		$	1,267,477		$	1,256,032

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	203,534		$	195,949		$	195,441
Interest-bearing demand deposits		608,506			625,447			616,527
Savings deposits		143,024			141,943			138,175
Time deposits		114,733			105,442			101,799
Total deposits		1,069,797			1,068,781			1,051,942
Accrued interest payable		145			51			89
Operating lease liability		2,135			---			---
Other liabilities		13,592			12,794			13,763
Total liabilities		1,085,669			1,081,626			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 June 30, 2019 and 6,957,974 shares at June 30, 2018 and December 31, 2018		8,132			8,698			8,698
Retained earnings		180,272			189,194			193,625
Accumulated other comprehensive loss, net		(4,556	)		(12,041	)		(12,085	)
Total stockholders' equity		183,848			185,851			190,238
Total liabilities and stockholders' equity	$	1,269,517		$	1,267,477		$	1,256,032

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, 2019		June 30, 2018		June 30, 2019			June 30, 2018
Interest Income
Interest and fees on loans	$	8,460	$	7,622	$	16,729		$	15,154
Interest on federal funds		---		---		---			---
Interest on interest-bearing deposits		382		226		641			398
Interest on securities - taxable		1,603		1,746		3,286			3,354
Interest on securities - nontaxable		848		1,132		1,775			2,304
Total interest income		11,293		10,726		22,431			21,210
Interest Expense
Interest on time deposits		419		116		716			237
Interest on other deposits		1,495		1,029		2,991			1,989
Total interest expense		1,914		1,145		3,707			2,226
Net interest income		9,379		9,581		18,724			18,984
Provision for loan losses		55		342		255			(130	)
Net interest income after provision for loan losses		9,324		9,239		18,469			19,114
Noninterest Income
Service charges on deposit accounts		607		694		1,197			1,364
Other service charges and fees		51		34		103			67
Credit card fees		356		365		665			709
Trust income		371		374		768			776
Bank-owned life insurance		232		228		451			456
Other income		231		173		1,141			519
Realized securities gain, net		8		---		20			---
Total noninterest income		1,856		1,868		4,345			3,891
Noninterest Expense
Salaries and employee benefits		3,802		3,545		7,623			7,239
Occupancy and furniture and fixtures		477		491		942			963
Data processing and ATM		789		607		1,540			1,340
FDIC assessment		82		90		167			181
Intangibles and goodwill amortization		---		12		---			25
Net cost of other real estate owned		3		164		28			249
Franchise taxes		333		320		647			651
Write-down of insurance receivable		---		287		---			2,010
Other operating expenses		967		908		1,971			1,930
Total noninterest expense		6,453		6,424		12,918			14,588
Income before income tax expense		4,727		4,683		9,896			8,417
Income tax expense		733		642		1,459			1,080
Net Income	$	3,994	$	4,041	$	8,437		$	7,337
Basic net income per share	$	0.61	$	0.58	$	1.26		$	1.05
Fully diluted net income per share	$	0.61	$	0.58	$	1.26		$	1.05
Weighted average number of common shares outstanding
Basic		6,505,574		6,957,974		6,669,853			6,957,974
Diluted		6,505,574		6,957,974		6,669,853			6,957,974
Dividends declared per share	$	0.67	$	0.58	$	0.67		$	0.58
Dividend payout ratio		---		---		51.67	%		55.01	%
Book value per share	$	28.26	$	26.71	$	28.26		$	26.71

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended
($ in thousands)	June 30, 2019			June 30, 2018
Net income	$	3,994		$	4,041

Other Comprehensive Income, Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $795 at June 30, 2019 and ($155) at June 30, 2018		2,991			(582	)
Reclassification adjustment for gain included in net income, net of tax of ($2) for the period ended June 30, 2019		(6	)		---
Unrealized holding gain on securities transferred from held to maturity to available for sale, net of tax of $237 for the period ended June 30, 2018		---			891
Other comprehensive income, net of tax	$	2,985		$	309
Total Comprehensive Income	$	6,979		$	4,350

	Six Months Ended
($ in thousands)	June 30, 2019			June 30, 2018
Net income	$	8,437		$	7,337

Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $2,003 at June 30, 2019 and ($861) at June 30, 2018		7,545			(3,237	)
Reclassification adjustment for gain included in net income, net of tax of ($4) for the period ended June 30, 2019		(16	)		---
Unrealized holding gain on securities transferred from held to maturity to available for sale, net of tax of $237 for the period ended June 30, 2018		---			891
Other comprehensive income (loss), net of tax	$	7,529		$	(2,346	)
Total Comprehensive Income	$	15,966		$	4,991

Key Ratios and Other Data

(Unaudited)

	Three Months Ended						Six Months Ended
($ in thousands)	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Average Balances
Cash and due from banks	$	11,266		$	11,100		$	11,254		$	11,173
Interest-bearing deposits		63,456			50,182			53,904			47,973
Securities available for sale		398,602			367,332			407,626			350,342
Securities held to maturity		---			97,399			---			111,145
Restricted stock		1,220			1,221			1,220			1,211
Mortgage loans held for sale		453			221			304			227
Gross Loans		720,910			671,699			715,852			668,599
Loans, net		713,000			663,729			707,886			660,348
Intangible assets		5,848			5,880			5,848			5,887
Total assets		1,260,195			1,263,837			1,254,654			1,255,003
Total deposits		1,061,692			1,066,765			1,053,891			1,057,896
Other borrowings		---			---			---			---
Stockholders' equity		182,201			185,060			184,800			185,103
Interest-earning assets		1,183,638			1,196,542			1,180,872			1,186,829
Interest-bearing liabilities		861,350			874,682			858,001			871,418

Financial Ratios
Return on average assets		1.27	%		1.34	%		1.32	%		1.30	%
Return on average equity		8.79	%		9.13	%		8.97	%		8.81	%
Net interest margin		3.30	%		3.35	%		3.32	%		3.36	%
Net interest income-fully taxable equivalent	$	9,725		$	9,982		$	19,438		$	19,790
Efficiency ratio		55.72	%		51.79	%		55.57	%		53.11	%
Average equity to average assets		14.46	%		14.64	%		14.73	%		14.75	%

Allowance for Loan Losses
Beginning balance	$	7,360		$	7,391		$	7,390		$	7,925
Provision for losses		55			342			255			(130	)
Charge-offs		(180	)		(201	)		(508	)		(340	)
Recoveries		69			47			167			124
Ending balance	$	7,304		$	7,579		$	7,304		$	7,579

(1)

Return on average assets and return on average equity are calculated by annualizing net income to date. For 2019, the annualization factor was not applied to the recovery. 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)	June 30, 2019			June 30, 2018
Nonperforming Assets
Nonaccrual loans	$	856		$	---
Nonaccrual restructured loans		3,406			2,687
Total nonperforming loans		4,262			2,687
Other real estate owned	$	2,025		$	2,582
Total nonperforming assets	$	6,287		$	5,269
Accruing restructured loans		1,954			8,337
Loans 90 days or more past due	$	50		$	61

Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		0.86	%		0.76	%
Allowance for loans losses to total loans		1.00	%		1.10	%
Allowance for loan losses to nonperforming loans		171.37	%		282.06	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.01	%		0.01	%