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
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.