National Bankshares, Inc. Reports 2020 Earnings

BLACKSBURG, VA., February 4, 2021 -- National Bankshares, Inc. (NASDAQ: NKSH), parent company of The National Bank of Blacksburg, today announced its results of operations for the quarter and year ended December 31, 2020. The Company reported net income of $16.08 million, or $2.48 per common share, for the year ended December 31, 2020. This compares to net income of $17.47 million, or $2.65 per common share, for the year ended December 31, 2019.  National Bankshares, Inc. ended 2020 with total assets of $1.52 billion.
 
Chairman, President, and Chief Executive Officer F. Brad Denardo commented, “Looking back on an extremely challenging year, I am very proud of the response of our employees in meeting the needs of our customers and communities, and thankful for the continued support of our customers and shareholders through these difficult times.”
 
“Despite the pandemic’s impact on the economy and our earnings, Bankshares was able to generate solid revenue and maintain good shareholder value in 2020. Our Company’s underlying strength allowed us to extend vital help to our customers and communities in 2020, and we are committed to continuing this support as we navigate the ongoing uncertainty. Moving forward, we are cautiously optimistic that the burdens of the pandemic will ease in the year ahead, and we look forward to serving our customers, our communities, and our shareholders in 2021 and beyond.”
 
Highlights for the Year Ended December 31, 2020
In Light of the Pandemic
  • To protect our employees and customers during the COVID-19 pandemic, we shifted to serving customers primarily through branch drive-thrus and digital channels and closed our branch office lobbies on March 20th. We continue to serve customers in person when requested and hope to reopen our lobbies sometime in 2021.
  • To aid our many business customers with pandemic related hardships, we modified or deferred payments in 2020 on 387 loans totaling $174.66 million.
  • Of the loans modified for pandemic-related hardships, at December 31, 2020, 3 loans totaling $6.63 million remained in deferral and another 13 loans totaling $32.51 million remained on interest-only payments.
  • We participated in the Paycheck Protection Program and originated 813 loans grossing $58.22 million.  The loans bear a contractual interest rate of 1%, bolstered by an origination fee to be recognized over the life of the loan.  Loans that are forgiven or paid off prior to maturity result in recognition of the outstanding origination fee at the date of forgiveness or payoff.  As of December 31, 2020, 242 loans with original amounts totaling $21.32 million had been forgiven or paid off.  Contractual interest earned on PPP loans totaled $125 thousand, while net fees accreted to interest income totaled $747 thousand, and fees recognized at pay off or forgiveness totaled $619 thousand.  Gross PPP loans totaling $36.90 million remain on the balance sheet.
  • The Company is participating in the next round of PPP loans.
Income Statement
  • Our net income of $16.08 million includes a loan loss provision of $1.99 million, an increase of $1.86 million over the provision for the year ended December 31, 2019. We will continue to closely monitor our loan portfolio for indications of heightened credit risk and the resulting need for any additional provision for loan losses.
  • During the first three quarters of 2020, we increased the provision for loan losses.  The analysis of credit risk at December 31, 2020 would have permitted us to reverse some of the provision taken.  However, we chose to maintain our surplus at the maximum amount allowed by policy and did not reverse any previously recorded provision.
  • During the first three quarters of 2020, pandemic-related payment deferrals and increased provision for loan loss negatively impacted income.  During the fourth quarter, most of the deferred loans had returned to regular payment status, and fees from PPP loans resulted in increased quarterly income.  The return on average assets steadily improved after the second quarter, ending the twelve months at 1.15%.  This compares with 1.39% for the twelve months ended December 31, 2019.
  • Fees and interest income from PPP loans helped increase our net interest margin(1), offset by lost interest due to payment deferrals and the drop in interest rates in March 2020. Our margin for the year ended December 31, 2020 was 2.98%, down from 3.29% for the year ended December 31, 2019.  PPP loans increased the twelve-month average loans by $36.88 million and added $1.75 million in interest and fee income.  If PPP loans are excluded, the net interest margin for the year ended December 31, 2020 would have been 2.93%.  The average gross PPP loan balance for the fourth quarter was $50.15 million.
  • We recognized $1.37 million in Paycheck Protection Program (PPP) loan fees net of costs in 2020.
  • The cost to fund interest bearing liabilities declined 24 basis points to 0.62% for the year ended December 31, 2020, from 0.86% for the year ended December 31, 2019.
  • Total noninterest income for the twelve months ended December 31, 2020 was down $0.85 million, or 9.62%, when compared to the twelve months ended December 31, 2019. Noninterest income was impacted by fewer service charges on deposit accounts and lower gains from the sale and call of securities.
  • The Company continues to work to contain expenses. Noninterest expense was down $0.78 million, or 3.04%, when the twelve months ended December 31, 2020 are compared with the twelve months ended December 31, 2019.
Balance Sheet
  • Total assets increased by $197.83 million, or 14.97%, to $1.52 billion.
  • Total deposits increased by $177.39 million, or 15.84%, to $1.30 billion. We expect continued growth in deposits in 2021 due to additional government stimulus funds received by depositors.
  • Gross loans outstanding were $770.03 million at December 31, 2020, an increase of $36 million from December 31, 2019, but down from $802.8 million at September 30, 2020.  We received several very large loan payoffs in the 4th quarter.
  • Total stockholders’ equity at December 31, 2020 was $200.61 million. The Company’s capital position provides a source of great strength and continues to significantly exceed all regulatory capital guidelines.
Other Notable Information
  • The Company repurchased 57,554 shares in the 4th quarter of 2020. We expect to continue to repurchase shares in 2021.
  • Nonperforming loans as a percentage of total loans increased slightly to 0.48% at December 31, 2020, from 0.46% at December 31, 2019 and from 0.45% at September 30, 2020
  • The efficiency ratio(1) continues to improve at 53.11% for the year ended December 31, 2020, as compared to 55.10% for the year ended December 31, 2019 and 54.10% for the nine months ended September 30, 2020.
  • The allowance for loan losses to total loans was 1.10% at December 31, 2020. Excluding the PPP loans, the ratio was 1.16%.
  • Net chargeoffs were $373 for the year ended December 31, 2020, compared with $653 for the year ended December 31, 2019.
  • The book value per common share as of December 31, 2020 was $31.19, an improvement from $ 28.31 as of December 31, 2019, and $31.16 as of September 30, 2020.
 
(1)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 the net interest margin, which is presented on a fully taxable-equivalent (“FTE”) basis.  Efficiency ratio is calculated as noninterest expense, less non-recurring items, divided by the sum of noninterest income and net interest income on an 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.

Consolidated Balance Sheets

(Unaudited)

 

 

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

 

December 31,

2020

 

December 31,

2019

Assets

               

Cash and due from banks

  $ 13,147     $ 10,290  

Interest-bearing deposits

    120,725       76,881  

Securities available for sale, at fair value

    546,742       435,263  

Restricted stock

    1,279       1,220  

Total securities

    548,021       436,483  

Mortgage loans held for sale

    866       905  

Loans:

               

Loans, net of unearned income and deferred fees and costs

    768,799       733,451  

Less: allowance for loan losses

    (8,481

)

    (6,863

)

Loans, net

    760,318       726,588  

Premises and equipment, net

    10,035       8,919  

Accrued interest receivable

    5,028       4,285  

Other real estate owned, net

    1,553       1,612  

Intangible assets and goodwill

    5,848       5,848  

Bank-owned life insurance

    36,444       35,567  

Other assets

    17,686       14,459  

Total assets

  $ 1,519,671     $ 1,321,837  
                 

Liabilities and Stockholders' Equity

               

Noninterest-bearing deposits

  $ 276,793     $ 201,866  

Interest-bearing demand deposits

    763,293       643,482  

Savings deposits

    167,475       146,377  

Time deposits

    89,582       128,028  

Total deposits

    1,297,143       1,119,753  

Accrued interest payable

    56       144  

Other liabilities

    21,865       18,214  

Total liabilities

    1,319,064       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 6,432,020 shares at December 31, 2020 and 6,489,574 shares at December 31, 2019

    8,040       8,112  

Retained earnings

    189,547       184,120  

Accumulated other comprehensive loss, net

    3,020       (8,506

)

Total stockholders' equity

    200,607       183,726  

Total liabilities and stockholders' equity

  $ 1,519,671     $ 1,321,837  

 

 

 

National Bankshares, Inc.

Consolidated Statements of Income

(Unaudited)

 

 

   

Three Months Ended

 

Twelve Months Ended

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

 

December 31,

2020

 

December 31,

2019

 

December 31,

2020

 

December 31,

2019

Interest Income

                               

Interest and fees on loans

  $ 9,032     $ 8,592     $ 34,523     $ 33,869  

Interest on federal funds

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

Interest on interest-bearing deposits

    28       475       276       1,523  

Interest on securities - taxable

    1,592       1,874       7,383       6,725  

Interest on securities - nontaxable

    510       487       1,826       3,030  

Total interest income

    11,162       11,428       44,008       45,147  

Interest Expense

                               

Interest on time deposits

    188       566       1,664       1,805  

Interest on other deposits

    835       1,242       4,173       5,575  

Total interest expense

    1,023       1,808       5,837       7,380  

Net interest income

    10,139       9,620       38,171       37,767  

Provision (recovery) for loan losses

    6       (224

)

    1,991       126  

Net interest income after provision for loan losses

    10,133       9,844       36,180       37,641  

Noninterest Income

                               

Service charges on deposit accounts

    536       613       1,966       2,453  

Other service charges and fees

    49       49       162       198  

Credit card fees

    369       383       1,400       1,398  

Trust income

    418       414       1,662       1,622  

Bank-owned life insurance

    218       229       877       910  

Other income

    536       275       1,769       1,643  

Realized securities gain, net

    12       384       108       566  

Total noninterest income

    2,138       2,347       7,944       8,790  

Noninterest Expense

                               

Salaries and employee benefits

    3,697       3,757       14,579       14,920  

Occupancy and furniture and fixtures

    435       456       1,795       1,866  

Data processing and ATM

    762       808       3,158       3,171  

FDIC assessment

    87       ---       214       167  

Net cost of other real estate owned

    3       2       39       47  

Franchise taxes

    331       343       1,340       1,333  

Other operating expenses

    991       1,084       3,845       4,250  

Total noninterest expense

    6,306       6,450       24,970       25,754  

Income before income tax expense

    5,965       5,741       19,154       20,677  

Income tax expense

    1,017       964       3,077       3,211  

Net Income

  $ 4,948     $ 4,777     $ 16,077     $ 17,466  

Basic net income per share

  $ 0.77     $ 0.74     $ 2.48     $ 2.65  

Fully diluted net income per share

  $ 0.77     $ 0.74     $ 2.48     $ 2.65  

Weighted average number of common shares outstanding

                               

Basic

    6,464,338       6,489,574       6,483,230       6,580,659  

Diluted

    6,464,338       6,489,574       6,483,230       6,580,659  

Dividends declared per share

  $ 0.72     $ 0.72     $ 1.39     $ 1.39  

Dividend payout ratio

    ---       ---       55.98 %     51.71 %

Book value per share

  $ 31.19     $ 28.31     $ 31.19     $ 28.31  

 

 

 

National Bankshares, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

   

Three Months Ended

($ in thousands)

 

December 31, 2020

 

December 31, 2019

Net income

  $ 4,948     $ 4,777  
                 

Other Comprehensive Loss, Net of Tax

               

Unrealized holding gain (loss) on available for sale securities net of tax of $375 for the period ended December 31, 2020 and ($663) for the period ended December 31, 2019

    1,413       (2,494

)

Reclassification adjustment for gain included in net income, net of tax of ($3) for the period ended December 31, 2020 and ($81) for the period ended December 31, 2019

    (9

)

    (303

)

Net pension loss arising during the period, net of taxes of ($393) for the period ended December 31, 2020 and ($394) for the period ended December 31, 2019

    (1,478

)

    (1,482

)

Less amortization of prior service cost included in net periodic pension cost, net of tax of ($23) for the period ended December 31, 2020 and ($23) for the period ended December 31, 2019

    (87

)

    (87

)

Other comprehensive loss, net of tax

  $ (161

)

  $ (4,366

)

Total Comprehensive Income

  $ 4,787     $ 411  

 

 

   

Twelve Months Ended

($ in thousands)

 

December 31, 2020

 

December 31, 2019

Net income

  $ 16,077     $ 17,466  
                 

Other Comprehensive Income, Net of Tax

               

Unrealized holding gain on available for sale securities net of tax of $3,502 for the period ended December 31, 2020 and $1,486 for the period ended December 31, 2019

    13,176       5,595  

Reclassification adjustment for gain included in net income, net of tax of ($23) for the period ended December 31, 2020 and ($119) for the period ended December 31, 2019

    (85

)

    (447

)

Net pension loss arising during the period, net of taxes of ($393) for the period ended December 31, 2020 and ($349) for the period ended December 31, 2019

    (1,478

)

    (1,482

)

Less amortization of prior service cost included in net periodic pension cost, net of tax of ($23) for the period ended December 31, 2020 and ($23) for the period ended December 31, 2019

    (87

)

    (87

)

Other comprehensive income, net of tax

  $ 11,526     $ 3,579  

Total Comprehensive Income

  $ 27,603     $ 21,045  

 

 

 

National Bankshares, Inc.

Key Ratios and Other Data

(Unaudited)

 

 

   

Three Months Ended

 

Twelve Months Ended

($ in thousands)

 

December 31, 2020

 

December 31, 2019

 

December 31, 2020

 

December 31, 2019

Average Balances

                               

Cash and due from banks

  $ 11,743     $ 12,142     $ 11,358     $ 11,562  

Interest-bearing deposits

    103,511       114,048       81,639       74,527  

Securities available for sale

    514,328       378,157       473,669       393,136  

Restricted stock

    1,279       1,220       1,265       1,220  

Mortgage loans held for sale

    2,334       1,411       1,426       737  

Gross Loans

    780,439       725,848       768,938       719,729  

Loans, net

    771,201       725,294       760,641       711,851  

Intangible assets

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

Total assets

    1,477,384       1,296,594       1,403,671       1,255,934  

Total deposits

    1,256,873       1,091,846       1,188,572       1,062,683  

Stockholders' equity

    201,271       187,689       195,768       176,906  

Interest-earning assets

    1,386,835       1,217,232       1,316,284       1,188,366  

Interest-bearing liabilities

    979,370       883,240       940,180       861,713  
                                 

Financial Ratios

                               

Return on average assets

    1.33 %     1.39 %     1.15 %     1.39 %

Return on average equity

    9.77 %     9.62 %     8.21 %     9.87 %

Net interest margin(1)

    2.98 %     3.22 %     2.98 %     3.29 %

Net interest income-fully taxable equivalent(1)

  $ 10,387     $ 9,868     $ 39,179     $ 39,056  

Efficiency ratio(2)

    50.40 %     54.52 %     53.11 %     55.10 %

Average equity to average assets

    13.62 %     14.48 %     13.95 %     14.09 %
                                 

Allowance for Loan Losses

                               

Beginning balance

  $ 8,428     $ 7,262     $ 6,863     $ 7,390  

Provision for losses

    6       (224

)

    1,991       126  

Charge-offs

    (81

)

    (224

)

    (720

)

    (920

)

Recoveries

    128       49       347       267  

Ending balance

  $ 8,481     $ 6,863     $ 8,481     $ 6,863  

 

 

(1)

Non-GAAP financial measures presented on an FTE basis. Interest income that is not taxable is grossed up at the Company's federal statutory income tax rate of 21% to reflect the tax benefit.

 

(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.

 

 

 

National Bankshares, Inc.

Asset Quality Data

(Unaudited)

 

 

($ in thousands)

 

December 31, 2020

 

December 31, 2019

Nonperforming Assets

               

Nonaccrual loans

  $ 846     $ 164  

Nonaccrual restructured loans

    2,839       3,211  

Total nonperforming loans

    3,685       3,375  

Other real estate owned

  $ 1,553     $ 1,612  

Total nonperforming assets

  $ 5,238     $ 4,987  

Accruing restructured loans

    1,410       1,729  

Accruing loans 90 days or more past due

  $ 17     $ 231  
                 

Asset Quality Ratios

               

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

    0.68 %     0.68 %

Allowance for loans losses to total loans

    1.10 %     0.94 %

Allowance for loan losses to nonperforming loans

    230.15 %     203.35 %

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

    0.00 %     0.03 %