National Bankshares, Inc. Reports First Quarter 2021 Earnings

BLACKSBURG, VA., April 22, 2021 -- National Bankshares, Inc. (NASDAQ: NKSH), parent company of The National Bank of Blacksburg, today announced its results of operations for the first quarter of 2021. The Company reported net income of $4.77 million, or $0.74 per common share, for the quarter ended March 31, 2021. This compares to net income of $3.98 million, or $0.61 per common share, for the quarter ended March 31, 2020.  National Bankshares, Inc. ended the first quarter of 2021 with total assets of $1.57 billion.
 
President and Chief Executive Officer F. Brad Denardo commented, “We are very encouraged by the increased earnings generated by our Company in the first quarter. After nearly a year of economic disruption, there have been signs of improvement for our customers and our local economies. As a result, we were able to safely reduce our loan loss provision for the quarter, which along with the very low interest rates on deposits, contributed to improved income. Moving ahead into the second quarter, we look forward to continued improvement in the business climate and a return to serving our customers with lobby service. We also remain confident in our ability to meet our customer's financial service needs while delivering a solid return on your investment. Thank you for your continued support and trust in National Bankshares.”
 
Highlights for the Quarter Ended March 31, 2021
Loan Modifications
  • Of the loans modified for pandemic related hardships, at March 31, 2021, 7 loans totaling $7.8 million remained in deferral and another 6 loans totaling $14.4 million remained on interest-only payments. Each modification is governed by an agreement that provides a date at which the modification will expire. One additional loan with a balance of $4.8 million was provided an extended amortization period.
Paycheck Protection Program Loans
  • We continue to participate in the SBA’s Paycheck Protection Program (“PPP”). The Company assisted local businesses through the PPP by providing 1,164 loans totaling $81.0 million since the program’s inception in April of 2020. During the first quarter of 2021, we funded 351 loans totaling $22.8 million and received pay-off of 302 loans with original amounts totaling $14.5 million.  
  • For the three months ended March 31, 2021, contractual interest earned on PPP loans totaled $100 thousand, while net fees accreted to interest income totaled $113 thousand, and fees recognized at pay off or forgiveness totaled $437 thousand.  Gross PPP loans totaling $45.14 million remain on the balance sheet.
Income Statement
  • The return on average assets and the return on average equity for the three months ended March 31, 2021 were 1.19% and 9.30% respectively, improved from 1.16% and 8.03% respectively, for the three months ended March 31, 2020.
  • Net income of $4.77 million for the three months ended March 31, 2021 benefitted from a reduced loan loss provision when compared with the three months ended March 31, 2020.  Loan loss provision for the three months ended March 31, 2021 was $50 thousand, compared with $479 thousand for the three months ended March 31, 2020. 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.
  • The low interest rate environment that impacted net interest income for the three months ended March 31, 2021 began with Federal Reserve rate cuts on March 3 and March 16, 2020, decreasing the target Fed Funds rate from 1.75% to 0.25%.  The Company reacted by reducing interest rates on customer deposits.  The cost of interest-bearing liabilities decreased from 0.80% for the three months ended March 31, 2020 to 0.34% for the three months ended March 31, 2021. The Company also experienced high levels of calls on securities and loan refinance activity that resulted in a decrease in the yield on earning assets(1) from 3.79% for the three months ended March 31, 2020 to 3.13% for the three months ended March 31, 2021.
  • Fees and interest income from PPP loans helped increase our net interest margin(1). Our margin for the three months ended March 31, 2021 was 2.89%, down from 3.20% for the three months ended March 31, 2020.  For the three months ended March 31, 2021, PPP loans increased average loans by $38.2 million and added $650 thousand in interest and fee income.  If PPP loans are excluded, the net interest margin for the three months ended March 31, 2021 would have been 2.71%. 
  • Total noninterest income for the three months ended March 31, 2021 was up $199 thousand, or 9.32%, when compared to the three months ended March 31, 2021. Higher noninterest income was driven by increased credit and debit card fees and receipt of a one-time bonus from a partnership investment.
  • Noninterest expense was up $69 thousand, or 1.07%, when the three months ended March 30, 2021 is compared with the three months ended March 30, 2020.
Balance Sheet
  • Total assets increased by $249.23 million, or 18.90%, to $1.57 billion.
  • Total deposits increased by $250.41 million, or 22.60%, to $1.36 billion. We expect continued growth in deposits in the second quarter due to additional government stimulus funds received by depositors.
  • Gross loans outstanding were $781.24 million at March 31, 2021, an increase of $51.23 million from March 31, 2020.  PPP loans provided $45.1 million of the growth.
  • Total stockholders’ equity at March 31, 2021 was $189.10 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 111,832 shares in the 1st quarter of 2021. We expect to continue to repurchase shares throughout 2021.
  • Nonperforming loans as a percentage of total loans were 0.47% at March 31, 2021, holding steady from 0.47% at March 31, 2020 and down slightly from 0.48% at December 31, 2020.
  • The efficiency ratio(1) was 53.87% for the quarter ended March 31, 2021, an improvement over the 55.67% reported for the quarter ended March 31, 2020, but up slightly from 53.11% for the year-ended December 31, 2020.
  • The allowance for loan losses to total loans was 1.10% at March 30, 2021. Excluding PPP loans, the ratio was 1.16%.
  • The Company experienced a net recovery of loan losses of $5 thousand for the three months ended March 31, 2021, compared with a net charge off of $373 thousand for the quarter ended March 31, 2020.
  • The book value per common share as of March 30, 2021 was $29.98, an improvement from $ 29.52 as of March 31, 2020, and down slightly from $31.19 as of December 31, 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)

 

March 31, 2021

   

March 31, 2020

    December 31, 2020  

Assets

 

Cash and due from banks

  $ 12,677     $ 12,404     $ 13,147  

Interest-bearing deposits

    135,142       71,898       120,725  

Securities available for sale, at fair value

    571,359       439,019       546,742  

Restricted stock

    845       1,279       1,279  

Total securities

    572,204       440,298       548,021  

Mortgage loans held for sale

    424       1,787       866  

Loans:

 

Loans, net of unearned income and deferred fees and costs

    779,360       729,483       768,799  

Less allowance for loan losses

    (8,536 )     (7,240

)

    (8,481

)

Loans, net

    770,824       722,243       760,318  

Premises and equipment, net

    9,955       10,058       10,035  

Accrued interest receivable

    5,367       4,280       5,028  

Other real estate owned, net

    957       1,584       1,553  

Intangible assets and goodwill

    5,848       5,848       5,848  

Bank-owned life insurance

    36,650       35,788       36,444  

Other assets

    18,162       12,788       17,688  

Total assets

  $ 1,568,210     $ 1,318,976     $ 1,519,673  
                         

Liabilities and Stockholders' Equity

 

Noninterest-bearing deposits

  $ 319,126     $ 210,131     $ 276,793  

Interest-bearing demand deposits

    766,582       624,412       763,293  

Savings deposits

    183,231       149,842       167,475  

Time deposits

    89,649       123,798       89,582  

Total deposits

    1,358,588       1,108,183       1,297,143  

Accrued interest payable

    49       137       56  

Other liabilities

    20,504       19,097       21,867  

Total liabilities

    1,379,141       1,127,417       1,319,066  
                         

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 6,320,188 shares at March 31, 2021 and 6,432,020 December 31, 2020 and 6,489,574 shares at March 31, 2020

    7,900       8,112       8,040  

Retained earnings

    190,462       188,099       189,547  

Accumulated other comprehensive income (loss), net

    (9,293 )     (4,652

)

    3,020  

Total stockholders' equity

    189,069       191,559       200,607  

Total liabilities and stockholders' equity

  $ 1,568,210     $ 1,318,976     $ 1,519,673  

 

 

 

 

National Bankshares, Inc.

Consolidated Statements of Income

(Unaudited)

 

 

   

Three Months Ended March 31,

 

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

 

2021

   

2020

 

Interest Income

               

Interest and fees on loans

  $ 8,550     $ 8,466  

Interest on interest-bearing deposits

    28       217  

Interest on securities - taxable

    1,783       2,356  

Interest on securities - nontaxable

    521       349  

Total interest income

    10,882       11,388  

Interest Expense

               

Interest on time deposits

    90       559  

Interest on other deposits

    765       1,237  

Total interest expense

    855       1,796  

Net interest income

    10,027       9,592  

Provision for loan losses

    50       479  

Net interest income after provision for loan losses

    9,977       9,113  

Noninterest Income

               

Service charges on deposit accounts

    469       582  

Other service charges and fees

    41       39  

Credit card fees

    434       306  

Trust income

    415       434  

Bank-owned life insurance

    206       221  

Other income

    764       533  

Realized securities gain, net

    5       20  

Total noninterest income

    2,334       2,135  

Noninterest Expense

               

Salaries and employee benefits

    3,906       3,873  

Occupancy, furniture and fixtures

    488       450  

Data processing and ATM

    778       791  

FDIC assessment

    83       ---  

Net cost of other real estate owned

    37       22  

Franchise taxes

    335       343  

Other operating expenses

    909       988  

Total noninterest expense

    6,536       6,467  

Income before income tax expense

    5,775       4,781  

Income tax expense

    1,009       802  

Net Income

  $ 4,766     $ 3,979  

Basic net income per share

  $ 0.74     $ 0.61  

Fully diluted net income per share

  $ 0.74     $ 0.61  

Weighted average number of common shares outstanding

               

Basic and diluted

    6,407,685       6,489,574  

Dividends declared per share

    ---       ---  

Dividend payout ratio

    ---       ---  

Book value per share

  $ 29.98     $ 29.52  

 

 

 

 

National Bankshares, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

 

   

Three Months Ended March 31,

 

($ in thousands)

 

2021

   

2020

 

Net income

  $ 4,766     $ 3,979  
                 

Other Comprehensive Income (Loss), Net of Tax

               

Unrealized holding gain (loss) on available for sale securities net of tax of ($3,271) in 2021 and $1,028 in 2020

    (12,309

)

    3,870  

Reclassification adjustment for gain included in net income, net of tax of ($1) in 2021 and ($4) in 2020

    (4

)

    (16

)

Other comprehensive income (loss), net of tax

  $ (12,313

)

  $ 3,854  

Total Comprehensive Income (Loss)

  $ (7,547

)

  $ 7,833  

 

 

 

 

National Bankshares, Inc.

Key Ratios and Other Data

(Unaudited)

 

 

   

Three Months Ended March 31,

 

($ in thousands)

 

2021

   

2020

 

Average Balances

               

Cash and due from banks

  $ 11,665     $ 11,205  

Interest-bearing deposits

    119,311       66,583  

Securities available for sale

    558,181       438,916  

Restricted stock

    1,230       1,225  

Mortgage loans held for sale

    854       493  

Loans, gross

    770,733       731,418  

Loans, net

    760,823       723,971  

Intangible assets

    5,848       5,848  

Total assets

    1,530,908       1,312,427  

Total deposits

    1,315,029       1,104,176  

Stockholders' equity

    195,595       189,516  

Interest-earning assets

    1,439,854       1,233,067  

Interest-bearing liabilities

    1,025,226       904,080  
                 

Financial Ratios

               

Return on average assets (1)

    1.19 %     1.16 %

Return on average equity (1)

    9.30 %     8.03 %

Net interest margin(2)

    2.89 %     3.20 %

Net interest income-fully taxable equivalent(2)

  $ 10,272     $ 9,811  

Efficiency ratio (3)

    53.87 %     55.67 %

Average equity to average assets

    12.78 %     14.44 %
                 

Allowance for Loan Losses

               

Beginning balance

  $ 8,481     $ 6,863  

Provision for losses

    50       479  

Charge-offs

    (47

)

    (175

)

Recoveries

    52       73  

Ending balance

  $ 8,536     $ 7,240  

 

 

(1)

The return on average assets and return on average equity are calculated by annualizing net income and dividing by average year-to-date assets or equity, respectively. When net income includes certain nonrecurring items, the annualization factor magnifies their effect. In order to reduce distortion within the ratios, the Company removes from net income certain non-recurring items prior to annualization, applies the annualization factor to the adjusted net income and then adds back the items to annualized net income.

 

 

(2)

The net interest margin is calculated by dividing annualized taxable equivalent net interest income by total average earning assets. Because a portion of interest income earned by the Company is nontaxable, the tax equivalent net interest income is considered in the calculation of this ratio. Tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit is 21%.

 

 

(3)

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

 

 

 

 

National Bankshares, Inc.

Asset Quality Data

(Unaudited)

 

 

($ in thousands)

 

March 31, 2021

   

March 31, 2020

 

Nonperforming Assets

               

Nonaccrual loans

  $ 784     $ 261  

Nonaccrual restructured loans

    2,907       3,191  

Total nonperforming loans

    3,691       3,452  

Other real estate owned

  $ 957     $ 1,584  

Total nonperforming assets

  $ 4,648     $ 5,036  

Accruing restructured loans

    1,378       1,592  

Loans 90 days or more past due

  $ 12     $ 170  
                 

Asset Quality Ratios

               

Nonperforming assets to loans(1) plus other real estate owned

    0.60 %     0.69 %

Allowance for loans losses to total loans(1)

    1.10 %     0.99 %

Allowance for loans losses to total loans(1), excluding SBA PPP loans

    1.16 %  

NR

 

Allowance for loan losses to nonperforming loans

    231.27 %     209.73 %

Loans past due 90 days or more to loans(1)

    0.00 %     0.02 %

 

(1)

Loans are net of unearned income and deferred fees and costs