National Bankshares, Inc. Reports Income for Third Quarter and Nine Months Ended September 30, 2020

BLACKSBURG, VA., October 22, 2020 -- National Bankshares, Inc. (NASDAQ: NKSH), parent company of The National Bank of Blacksburg, today announced its results of operations for the third quarter and nine months ended September 30, 2020. The Company reported net income of $11.13 million, or $1.71 per common share, for the nine months ended September 30, 2020. This compares to net income of $12.69 million, or $1.92 per common share, for the nine months ended September 30, 2019.  National Bankshares, Inc. ended the first nine months of 2020 with total assets of $1.44 billion.
Chairman, President, and CEO F. Brad Denardo commented, “The economic effects of the COVID-19 pandemic continue to impact our income statement. An increased loan loss allowance, low interest rates on loans, and reduced noninterest income all contributed to lower year-over-year income for the first nine months of 2020. While the broader economic outlook is still uncertain, we remain focused on serving our customers safely and effectively, while controlling costs and maintaining a strong capital position. To our customers, communities, and shareholders, we thank you for your continued support.”
Highlights for the Nine Months Ended September 30, 2020
In Light of the Pandemic
  • To protect our employees and customers during the COVID-19 pandemic, we shifted to serving customers primarily though branch drive-thrus and digital channels by closing our branch office lobbies on March 20th. We continue to serve customers in person when requested and hope to reopen our lobbies within the next few months.
  • To aid our many business customers with pandemic related financial hardship, we have modified or deferred payments on 361 loans totaling $160.23 million as of September 30, 2020. Requests for modifications and/or deferrals greatly subsided during the third quarter as many of our business customers experienced improved revenue.
Income Statement
  • Our current net income includes a loan loss provision of $1.99 million, an increase of $1.64 million over the provision for the first three quarters of 2019. We continue to approach estimation of loan losses and the resulting provision with sensitivity to the current economic environment.
  • Despite the emphasis on bolstering our allowance for loan losses, the return on average assets improved from 1.03% for the six months ended June 30, 2020 to 1.08% for the nine months ended September 30, 2020.
  • The drop in interest rates has resulted in low rates on new loans and refinancing of higher-rate existing loans, straining the net interest margin. The net interest margin for the nine months ended September 30, 2020 is 2.98%, down from 3.31% for the first three quarters of 2019, and from 3.05% for the first half of 2020.
  • Noninterest income was down 9.89%, or $0.64 million, compared to the nine months ended September 30, 2019. This decrease was primarily in service charges and fees on deposit accounts as our customers have been careful not to overdraw their accounts or incur other fees.
  • The Company has worked to contain expenses. Noninterest expense decreased 3.32%, or $0.64 million compared to the nine months ending September 30, 2019.
Balance Sheet
  • Total assets increased by $162.78 million, or 12.79%, from September 30, 2019, to $1.44 billion.
  • Total deposits have increased $145.56 million, or 13.63%, from September 30, 2019, to $1.21 billion. We expect the deposit base to remain fairly stable through the end of 2020.
  • Gross loans have grown by $80.04 million since September 30, 2019. Small Business Administration Paycheck Protection Program (PPP) loans represent $58.03 million of that growth. We expect total loans to decrease in the fourth quarter as some PPP loans will be forgiven and a large loan is scheduled to be paid off.
  • With total stockholders’ equity of $202.19 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. However, with PPP loans starting to be forgiven, which provides us with much more liquidity, we may consider repurchases in the fourth quarter or early in 2021.
  • Nonperforming loans as a percentage of total loans decreased to 0.45% at September 30, 2020, a 20.3% decrease from 0.56% at September 30, 2019, and a decrease from 0.48% at June 30, 2020.
  • The efficiency ratio continues to improve at 54.10% for the nine months ended September 30, 2020, as compared to 55.30% for the nine months ended September 2019 and 54.50% for the six months ended June 30, 2020.
  • The allowance for loan losses to total loans as of September 30, 2020 remained at a similar level to June 30, 2020,  at 1.05%.  Excluding the Paycheck Protection Program loans, the ratio is  1.13%.
  • The book value per common share as of September 30, 2020 was $31.16, an improvement from $28.97 as of September 30, 2019, and $30.17 as of June 30, 2020.
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
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.