National Bankshares, Inc. Reports Income for Third Quarter and Nine Months Ended September 30, 2019

BLACKSBURG, VA., October 17, 2019 – National Bankshares, Inc. (the “Company”) (NASDAQ: NKSH), parent company of The National Bank of Blacksburg, today reported net income of $4.25 million, or $0.65 per common share, for the quarter ended September 30, 2019. Net income was $12.69 million or $1.92 per common share, for the nine months ended September 30, 2019. At September 30, 2019, the Company had total assets of $1.27 billion.

Highlights for the Nine Months Ended September 30, 2019

Net income increased $1.10 million from $11.59 million for the nine months ended September 30, 2018 to $12.69 million for the nine months ended September 30, 2019.
Earnings per share increased $0.25 from $1.67 for the nine months ended September 30, 2018 to $1.92 for the nine months ended September 30, 2019.
Return on average assets increased to 1.34% for the nine months ended September 30, 2019, from 1.28% for the nine months ended September 30, 2018.
Return on average equity increased to 9.13% for the nine months ended September 30, 2019, from 8.61% for the nine months ended September 30, 2018.
In spite of curtailments totaling more than $10 million, net loans increased $20.90 million or 3.01% from September 30, 2018 to $715.03 million as of September 30, 2019.
The Company repurchased 16,000 common shares during the third quarter.

“National Bankshares continues to perform well in 2019 with another strong quarterly result,” said F. Brad Denardo, Chairman, President and CEO. “We believe that our focus on making quality loans, providing outstanding customer service and increasing efficiencies will allow us to deliver above-average results for our shareholders now and well into the future.”

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%. 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)	September 30, 2019			September 30, 2018			December 31, 2018
Assets
Cash and due from banks	$	14,206		$	11,533		$	12,882
Interest-bearing deposits		135,490			28,328			43,491
Securities available for sale, at fair value		334,150			448,485			425,010
Restricted stock		1,220			2,708			1,220
Total securities		335,370			451,193			426,230
Mortgage loans held for sale		2,333			1,027			72
Loans:
Loans, net of unearned income and deferred fees and costs		722,287			701,834			709,799
Less: allowance for loan losses		(7,262	)		(7,713	)		(7,390	)
Loans, net		715,025			694,121			702,409
Premises and equipment, net		8,993			8,727			8,646
Operating lease right of use asset		2,351			---			---
Accrued interest receivable		4,233			5,589			5,160
Other real estate owned, net		1,470			2,214			2,052
Intangible assets and goodwill		5,848			5,861			5,848
Bank-owned life insurance		35,338			34,434			34,657
Other assets		12,064			15,262			14,585
Total assets	$	1,272,721		$	1,258,289		$	1,256,032

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	217,720		$	199,953		$	195,441
Interest-bearing demand deposits		580,533			584,305			616,527
Savings deposits		145,188			141,751			138,175
Time deposits		124,586			96,167			101,799
Total deposits		1,068,027			1,022,176			1,051,942
Other borrowed funds		---			35,000			---
Accrued interest payable		133			165			89
Operating lease liability		2,358			---			---
Other liabilities		14,215			12,791			13,763
Total liabilities		1,084,733			1,070,132			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 6,489,574 shares at September 30, 2019 and 6,957,974 shares at September 30, 2018 and December 31, 2018		8,112			8,698			8,698
Retained earnings		184,016			193,445			193,625
Accumulated other comprehensive loss, net		(4,140	)		(13,986	)		(12,085	)
Total stockholders' equity		187,988			188,157			190,238
Total liabilities and stockholders' equity	$	1,272,721		$	1,258,289		$	1,256,032

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands, except for share and per share data)	2019		2018		2019			2018
Interest Income
Interest and fees on loans	$	8,548	$	8,005	$	25,277		$	23,159
Interest on federal funds		---		---		---			---
Interest on interest-bearing deposits		407		111		1,048			509
Interest on securities - taxable		1,565		1,771		4,851			5,125
Interest on securities - nontaxable		768		1,058		2,543			3,362
Total interest income		11,288		10,945		33,719			32,155
Interest Expense
Interest on time deposits		523		107		1,239			344
Interest on other deposits		1,342		1,034		4,333			3,023
Interest on borrowed funds		---		104		---			104
Total interest expense		1,865		1,245		5,572			3,471
Net interest income		9,423		9,700		28,147			28,684
Provision for loan losses		95		223		350			93
Net interest income after provision for loan losses		9,328		9,477		27,797			28,591
Noninterest Income
Service charges on deposit accounts		643		673		1,840			2,037
Other service charges and fees		46		20		149			87
Credit card fees		350		362		1,015			1,071
Trust income		440		355		1,208			1,131
Bank-owned life insurance		230		222		681			678
Other income		227		282		1,368			801
Realized securities gain, net		162		---		182			---
Total noninterest income		2,098		1,914		6,443			5,805
Noninterest Expense
Salaries and employee benefits		3,823		3,639		11,446			10,878
Occupancy and furniture and fixtures		468		433		1,410			1,396
Data processing and ATM		823		684		2,363			2,024
FDIC assessment		---		88		167			269
Intangibles and goodwill amortization		---		12		---			37
Net cost of other real estate owned		17		274		45			523
Franchise taxes		343		314		990			965
Write-down of insurance receivable		---		---		---			2,010
Other operating expenses		912		1,019		2,883			2,949
Total noninterest expense		6,386		6,463		19,304			21,051
Income before income tax expense		5,040		4,928		14,936			13,345
Income tax expense		788		677		2,247			1,757
Net Income	$	4,252	$	4,251	$	12,689		$	11,588
Basic net income per share	$	0.65	$	0.61	$	1.92		$	1.67
Fully diluted net income per share	$	0.65	$	0.61	$	1.92		$	1.67
Weighted average number of common shares outstanding
Basic		6,499,957		6,957,974		6,611,354			6,957,974
Diluted		6,499,957		6,957,974		6,611,354			6,957,974
Dividends declared per share		---		---	$	0.67		$	0.58
Dividend payout ratio		---		---		34.35	%		34.83	%
Book value per share		---		---	$	28.97		$	27.04

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended September 30,
($ in thousands)	2019			2018
Net income	$	4,252		$	4,251

Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $146 at September 30, 2019 and ($517) at September 30, 2018		544			(1,945	)
Reclassification adjustment for gain included in net income, net of tax of ($34) for the period ended September 30, 2019		(128	)		---
Other comprehensive income (loss), net of tax	$	416		$	(1,945	)
Total Comprehensive Income	$	4,668		$	2,306

	Nine Months Ended September 30,
($ in thousands)	2019			2018
Net income	$	12,689		$	11,588

Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gain (loss) on available for sale securities net of tax of $2,149 at September 30, 2019 and ($1,378) at September 30, 2018		8,089			(5,182	)
Reclassification adjustment for gain included in net income, net of tax of ($38) for the period ended September 30, 2019		(144	)		---
Unrealized holding gain on securities transferred from held to maturity to available for sale, net of tax of $237 for the period ended September 30, 2018		---			891
Other comprehensive income (loss), net of tax	$	7,945		$	(4,291	)
Total Comprehensive Income	$	20,634		$	7,297

Key Ratios and Other Data

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
($ in thousands)	2019			2018			2019			2018
Average Balances
Cash and due from banks	$	11,590		$	11,026		$	11,367		$	11,123
Interest-bearing deposits		75,581			22,432			61,209			39,366
Securities available for sale		376,792			459,745			397,235			387,210
Securities held to maturity		---			---			---			73,690
Restricted stock		1,220			1,899			1,220			1,443
Mortgage loans held for sale		914			592			509			350
Gross Loans		721,238			694,606			717,667			677,363
Loans, net		713,463			686,366			709,766			669,116
Intangible assets		5,848			5,868			5,848			5,881
Total assets		1,250,473			1,254,055			1,253,245			1,254,684
Total deposits		1,050,817			1,037,798			1,052,855			1,051,123
Other borrowings		---			15,978			---			5,385
Stockholders' equity		183,273			187,996			184,286			186,078
Interest-earning assets		1,171,425			1,186,219			1,177,688			1,186,623
Interest-bearing liabilities		847,489			856,299			854,458			866,323

Financial Ratios
Return on average assets ⁽¹⁾		1.35	%		1.34	%		1.34	%		1.28	%
Return on average equity⁽¹⁾		9.20	%		8.97	%		9.13	%		8.61	%
Net interest margin		3.30	%		3.38	%		3.31	%		3.37	%
Net interest income-fully taxable equivalent	$	9,748		$	10,096		$	29,186		$	29,886
Efficiency ratio⁽²⁾		53.91	%		53.81	%		55.01	%		53.35	%
Average equity to average assets		14.66	%		14.99	%		14.70	%		14.83	%

Allowance for Loan Losses
Beginning balance	$	7,304		$	7,579		$	7,390		$	7,925
Provision for losses		95			223			350			93
Charge-offs		(188	)		(147	)		(696	)		(487	)
Recoveries		51			58			218			182
Ending balance	$	7,262		$	7,713		$	7,262		$	7,713

(1)

Return on average assets and return on average equity are calculated by annualizing net income to date. For the nine months ended September 30, 2019, the annualization factor was not applied to the insurance recovery. For nine months ended September 30, 2018, the annualization factor was not applied to the insurance write-off.

(2)

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

Asset Quality Data

(Unaudited)

($ in thousands)	September 30,
	2019			2018
Nonperforming Assets
Nonaccrual loans	$	698		$	220
Nonaccrual restructured loans		3,378			2,856
Total nonperforming loans		4,076			3,076
Other real estate owned	$	1,470		$	2,214
Total nonperforming assets	$	5,546		$	5,290
Accruing restructured loans		1,879			7,843
Loans 90 days or more past due	$	212		$	63

Asset Quality Ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned		0.77	%		0.75	%
Allowance for loans losses to total loans		1.01	%		1.10	%
Allowance for loan losses to nonperforming loans		178.16	%		250.75	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.03	%		0.01	%