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

BLACKSBURG, VA., July 16, 2020 -- 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 2020.  The Company reported net income of $6.96 million, or $1.07 per common share, for the six months ended June 30, 2020. For the six months ended June 30, 2019, the Company reported net income of $8.44 million or $1.27 per common share.  National Bankshares, Inc. ended the first half of 2020 with total assets of $1.43 billion. Additionally, the Company declared a semi-annual dividend to common shareholders of sixty-seven cents ($0.67) per common share during the second quarter of 2020.
 
Chairman, President, and CEO F. Brad Denardo commented, “National Bankshares and our subsidiaries have been working throughout the COVID-19 pandemic to meet the everyday banking needs as well as the emergency relief needs of our customers and communities. The situation is ongoing and the economic outlook remains uncertain, and we see this reflected in the second quarter numbers. Nonetheless, we remain committed to serving our customers through these difficult times, and are thankful for the continuing support of our customers, our communities, and our shareholders.”
 
First Half Highlights

In Light of the Pandemic
  • In order to protect our employees and customers during the COVID-19 Pandemic, we closed our branch offices on March 20th and they have remained closed. We continue to serve customers through other channels or in person when requested. We plan to reopen those offices sometime in third quarter.
  • In order to aid our many business customers in their time of financial hardship, we have modified or deferred payments on 297 loans totaling $119.70 million.
  • Through July 6, 2020, National Bank has originated 806 Paycheck Protection Program loans totaling $58.1 million. We will continue to accept applications until August 8, 2020.
Income Statement
  • Our current net income includes a loan loss provision of $1.83 million, an increase of $1.58 million over the provision for the first half of 2019. The additional provision was taken in order to recognize the potential effect of the slowdown in business activity.
  • Despite the significant increase in the loan loss provision, the return on average assets was still a positive 1.03% for the first six months of 2020.
  • The net interest margin decreased to 3.05% for the six months ended June 30, 2020 from 3.32% for the six months ended June 30, 2019.
  • The Company has worked to contain expenses such that total noninterest expense for the six months ended June 30, 2020 is $0.374 million less than for the same period ending June 30, 2019.
Balance Sheet
  • Total assets have increased from June 30, 2019 by $164 million to $1.43 billion at June 30, 2020.
  • Total deposits have increased from June 30, 2019 by $149.8 million to $1.22 billion at June 30, 2020.
  • With total stockholders equity of $195.8 million, the Company’s capital position provides a source of strength and continues to significantly exceed all regulatory capital guidelines.
 Other Notables
  • No shares of the Company’s common stock were repurchased this quarter.
  • Nonperforming loans as a percentage of total loans decreased to 0.48% at June 30, 2020, a 17.1% decrease from June 30, 2019.
  • The efficiency ratio decreased to 54.5% for the six months ended June 30, 2020, down from 55.6% for the six months ended June 2019.
  • The allowance for loan losses to total loans increased to 1.05%, compared with 1.00% at June 30, 2019. Excluding the Paycheck Protection Program loans, that ratio increases to 1.13% at June 30, 2020.
  • Book value per common share at June 30, 2020 increased to $30.17 from $28.26 at June 30, 2019.
 
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%.  Further, the Company elects not to annualize net securities gains and losses in 2020 and 2019 or the insurance recovery received in 2019 in calculating the return on average equity and return on average assets. 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.

Consolidated Balance Sheets

(Unaudited)

  

 

($ in thousands, except for share and per share data)

 

June 30,

2020

   

June 30,

2019

   

December 31,

2019

 

Assets

                       

Cash and due from banks

  $ 13,315     $ 17,170     $ 10,290  

Interest-bearing deposits

    73,251       60,038       76,881  

Securities available for sale, at fair value

    489,926       396,347       435,263  

Restricted stock

    1,279       1,220       1,220  

Total securities

    491,205       397,567       436,483  

Mortgage loans held for sale

    2,367       809       905  

Loans:

                       

Loans, net of unearned income and deferred fees and costs

    791,002       729,559       733,451  

Less: allowance for loan losses

     (8,308

)

    (7,304

)

    (6,863

)

Loans, net

    782,694       722,255       726,588  

Premises and equipment, net

    9,955       9,012       8,919  

Accrued interest receivable

    4,797       5,192       4,285  

Other real estate owned, net

    1,553       2,025       1,612  

Intangible assets and goodwill

    5,848       5,848       5,848  

Bank-owned life insurance

    36,007       35,108       35,567  

Other assets

    12,758       14,493       14,459  

Total assets

  $ 1,433,750     $ 1,269,517     $ 1,312,837  
                         

Liabilities and Stockholders' Equity

                       

Noninterest-bearing deposits

  $ 263,113     $ 203,534     $ 201,866  

Interest-bearing demand deposits

    678,062       608,506       643,482  

Savings deposits

    160,551       143,024       146,377  

Time deposits

    117,882       114,733       128,028  

Total deposits

    1,219,608       1,069,797       1,119,753  

Accrued interest payable

    117       145       144  

Other liabilities

    18,244       15,727       18,214  

Total liabilities

    1,237,969       1,085,669       1,138,111  
                         

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 June 30, 2020 and December 31, 2019 and 6,505,574 at June 30, 2019

    8,112       8,132       8,112  

Retained earnings

    186,733       180,272       184,120  

Accumulated other comprehensive loss, net

    936       (4,556

)

    (8,506

)

Total stockholders' equity

    195,781       183,848       183,726  

Total liabilities and stockholders' equity

  $ 1,433,750     $ 1,269,517     $ 1,321,837  

 

 

 

National Bankshares, Inc.

Consolidated Statements of Income

(Unaudited)

 

 

   

Three Months Ended

   

Six Months Ended

 

($ in thousands, except for share and per share data)

 

June 30, 2020

   

June 30, 2019

   

June 30, 2020

   

June 30, 2019

 

Interest Income

                               

Interest and fees on loans

  $ 8,419     $ 8,460     $ 16,885     $ 16,729  

Interest on federal funds

    ---       ---       ---       ---  

Interest on interest-bearing deposits

    14       382       231       641  

Interest on securities - taxable

    1,863       1,603       4,219       3,286  

Interest on securities - nontaxable

    454       848       803       1,775  

Total interest income

    10,750       11,293       22,138       22,431  

Interest Expense

                               

Interest on time deposits

    522       419       1,081       716  

Interest on other deposits

    1,076       1,495       2,313       2,991  

Total interest expense

    1,598       1,914       3,394       3,707  

Net interest income

    9,152       9,379       18,744       18,724  

Provision for loan losses

    1,352       55       1,831       255  

Net interest income after provision for loan losses

    7,800       9,324       16,913       18,469  

Noninterest Income

                               

Service charges on deposit accounts

    377       607       959       1,197  

Other service charges and fees

    37       51       76       103  

Credit card fees

    386       356       692       665  

Trust income

    387       371       821       768  

Bank-owned life insurance

    219       232       440       451  

Other income

    277       231       810       1,141  

Realized securities gain, net

    62       8       82       20  

Total noninterest income

    1,745       1,856       3,880       4,345  

Noninterest Expense

                               

Salaries and employee benefits

    3,692       3,802       7,671       7,623  

Occupancy and furniture and fixtures

    458       477       908       942  

Data processing and ATM

    806       789       1,597       1,540  

FDIC assessment

    40       82       40       167  

Net cost of other real estate owned

    (4

)

    3       18       28  

Franchise taxes

    335       333       678       647  

Other operating expenses

    750       967       1,632       1,971  

Total noninterest expense

    6,077       6,453       12,544       12,918  

Income before income tax expense

    3,468       4,727       8,249       9,896  

Income tax expense

    486       733       1,288       1,459  

Net Income

  $ 2,982     $ 3,994     $ 6,961     $ 8,437  

Basic net income per share

  $ 0.46     $ 0.61     $ 1.07     $ 1.27  

Fully diluted net income per share

  $ 0.46     $ 0.61     $ 1.07     $ 1.27  

Weighted average number of common shares outstanding

                               

Basic

    6,489,574       6,505,574       6,489,574       6,668,038  

Diluted

    6,489,574       6,505,574       6,489,574       6,668,038  

Dividends declared per share

  $ 0.67     $ 0.67     $ 0.67     $ 0.67  

Dividend payout ratio

    ---       ---       62.46 %     51.67 %

Book value per share

  $ 30.17     $ 28.26     $ 30.17     $ 28.26  

 

 

 

National Bankshares, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

   

Three Months Ended

 

($ in thousands)

 

June 30, 2020

   

June 30, 2019

 

Net income

  $ 2,982     $ 3,994  
                 

Other Comprehensive Income, Net of Tax

               

Unrealized holding gain on available for sale securities net of tax of $1,498 for the period ended June 30, 2020 and $795 for the period ended June 30, 2019

    5,637       2,991  

Reclassification adjustment for gain included in net income, net of tax of ($13) for the period ended June 30, 2020 and ($2) for the period ended June 30, 2019

    (49

)

    (6

)

Other comprehensive income, net of tax

  $ 5,588     $ 2,985  

Total Comprehensive Income

  $ 8,570     $ 6,979  

 

 

 

   

Six Months Ended

 

($ in thousands)

 

June 30, 2020

   

June 30, 2019

 

Net income

  $ 6,961     $ 8,437  
                 

Other Comprehensive Income, Net of Tax

               

Unrealized holding gain on available for sale securities net of tax of $2,526 for the period ended June 30, 2020 and $2,003 for the period ended June 30, 2019

    9,507       7,545  

Reclassification adjustment for gain included in net income, net of tax of ($17) for the period ended June 30, 2020 and ($4) for the period ended June 30, 2019

    (65

)

    (16

)

Other comprehensive income, net of tax

  $ 9,442     $ 7,529  

Total Comprehensive Income

  $ 16,403     $ 15,966  

 

 

 

National Bankshares, Inc.

Key Ratios and Other Data

(Unaudited)

 

 

   

Three Months Ended

   

 Six Months Ended

 

($ in thousands)

 

June 30, 2020

   

June 30, 2019

   

June 30, 2020

   

June 30, 2019

 

Average Balances

                               

Cash and due from banks

  $ 11,466     $ 11,266     $ 11,335     $ 11,254  

Interest-bearing deposits

    91,425       63,456       79,004       53,904  

Securities available for sale

    452,549       398,602       445,733       407,626  

Restricted stock

    1,279       1,220       1,252       1,220  

Mortgage loans held for sale

    1,406       453       949       304  

Gross Loans

    764,336       720,910       747,876       715,852  

Loans, net

    756,590       713,000       740,280       707,886  

Intangible assets

    5,848       5,848       5,848       5,848  

Total assets

    1,393,227       1,260,195       1,352,827       1,254,654  

Total deposits

    1,180,484       1,061,692       1,142,330       1,053,891  

Stockholders' equity

    193,260       182,201       191,388       184,800  

Interest-earning assets

    1,303,352       1,183,803       1,268,209       1,180,872  

Interest-bearing liabilities

    931,099       861,350       917,589       858,001  
                                 

Financial Ratios

                               

Return on average assets(1)

    0.85 %     1.27 %     1.03 %     1.32 %

Return on average equity(1)

    6.13 %     8.78 %     7.28 %     8.96 %

Net interest margin

    2.90 %     3.30 %     3.05 %     3.32 %

Net interest income-fully taxable equivalent

  $ 9,409     $ 9,726     $ 19,220     $ 19,438  

Efficiency ratio(2)

    54.79 %     55.75 %     54.50 %     55.62 %

Average equity to average assets

    13.87 %     14.46 %     14.15 %     14.73 %
                                 

Allowance for Loan Losses

                               

Beginning balance

  $ 7,240     $ 7,360     $ 6,863     $ 7,390  

Provision for losses

    1,352       55       1,831       255  

Charge-offs

    (365

)

    (180

)

    (540

)

    (508

)

Recoveries

    81       69       154       167  

Ending balance

  $ 8,308     $ 7,304     $ 8,308     $ 7,304  

 

 

 

(1)

Return on average assets and return on average equity are calculated by dividing adjusted annualized net income by average assets or average equity, respectively. Net income is adjusted by removing securities gains, net of tax in 2020 and 2019 and the insurance recovery in 2019 net of tax and annualizing the remainder. Securities gains net of tax in 2020 and 2019 and the insurance recovery net of tax in 2019 are then added back to arrive at adjusted annualized net income.

 

(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.

 

(3)

Net interest margin is calculated as net interest income on a fully taxable equivalent basis divided by average interest earning assets.

 

 

 

National Bankshares, Inc.

Asset Quality Data

(Unaudited)

 

 

($ in thousands)

 

June 30, 2020

   

June 30, 2019

 

Nonperforming Assets

               

Nonaccrual loans

  $ 943     $ 856  

Nonaccrual restructured loans

    2,887       3,406  

Total nonperforming loans

    3,830       4,262  

Other real estate owned

  $ 1,553     $ 2,025  

Total nonperforming assets

  $ 5,383     $ 6,287  

Accruing restructured loans

    1,453       1,954  

Loans 90 days or more past due

  $ 237     $ 50  
                 

Asset Quality Ratios

               

Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned

    0.68 %     0.86 %

Allowance for loans losses to total loans

    1.05 %     1.00 %

Allowance for loan losses to nonperforming loans

    216.92 %     171.37 %

Loans past due 90 days or more to loans net of unearned income and deferred fees

    0.03 %     0.01 %