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

BLACKSBURG, VA., July 19, 2022 -- 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 2022. The Company reported net income of $10.46 million, or $1.74 per common share, for the six months ended June 30, 2022. This compares to net income of $9.38 million, or $1.49 per common share, for the six months ended June 30, 2021. National Bankshares, Inc. ended the first half of 2022 with total assets of $1.73 billion.

President and Chief Executive Officer F. Brad Denardo commented, “We are pleased to report good results for the first half of 2022, with solid growth in net income, loans, and fee income. We made key investments during the period, opening a new Loan Production Office in Charlottesville and adding Zelle® payment services to our digital banking platform, all while maintaining costs at a level consistent with last year. Serving our customers, supporting our communities, and rewarding our shareholders have been and will remain our key priorities.”

Highlights for the Six Months Ended June 30, 2022
Income Statement

The return on average assets for the six months ended June 30, 2022 was 1.22%, compared with 1.18% for the six months ended June 30, 2021.
The return on average equity for the six months ended June 30, 2022 was 12.45%, up from 9.63% for the six months ended June 30, 2021.
The cost of interest-bearing liabilities was 0.22% for the six months ended June 30, 2022, improved from 0.32% for the six months ended June 30, 2021.
The yield on earning assets(1) decreased to 2.86% for the six months ended June 30, 2022, from 3.03% for the six months ended June 30, 2021. Excluding Paycheck Protection Plan (PPP) loans, the yield on earning assets(1) for the six months ended June 30, 2021 was 2.89%.
Our net interest margin(1) for the six months ended June 30, 2022 was 2.70%, down from 2.80% for the six months ended June 30, 2021. Excluding PPP loans, the net interest margin for the six months ended June 30, 2021 would have been 2.66%.

Balance Sheet

Total assets increased from June 30, 2021 by $67.94 million, or 4.09%, to $1.73 billion at June 30, 2022.
Total deposits increased from June 30, 2021 by $128.21 million, or 8.84%, to $1.58 billion at June 30, 2022.
Gross loans outstanding were $849.27 million at June 30, 2022, an increase of $42.07 million from June 30, 2021.
Total stockholders’ equity at June 30, 2022 was $136.24 million, a decrease from $191.24 million at June 30, 2021. Accumulated other comprehensive loss, a component of total stockholders’ equity, worsened from a loss of $2.06 million at June 30, 2021 to a loss of $62.78 million at June 30, 2022, reflecting unrealized losses in the securities portfolio.

Other Notable Information

The Company repurchased 41,977 shares in the 2nd quarter of 2022.
Nonperforming loans as a percentage of total loans were 0.35% at June 30, 2022, down from 0.47% at June 30, 2021.
The efficiency ratio(1) was 49.40% for the six months ended June 30, 2022, an improvement from the 53.26% reported for the six months ended June 30, 2021.
The allowance for loan losses to total loans was 0.95% at June 30, 2022, down from 1.00% at June 30, 2021, a reflection of our continuing good credit quality.
Net charge offs for the six months ended June 30, 2022 were $49 thousand, compared with net charge offs of $458 thousand for the six months ended June 30, 2021.
The book value per common share as of June 30, 2022 was $22.78, down from $30.99 as of June 30, 2021.
Following our Strategic Plan, we opened a loan production office in Charlottesville in June.

⁽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 24 full-service offices and two loan production offices 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, 2022			June 30, 2021			December 31, 2021
Assets
Cash and due from banks	$	11,798		$	13,813		$	8,768
Interest-bearing deposits		95,812			150,708			130,021
Securities available for sale, at fair value		682,251			617,756			686,080
Restricted stock		941			845			845
Total securities		683,192			618,601			686,925
Mortgage loans held for sale		488			222			615
Loans:
Loans, net of unearned income and deferred fees and costs		848,814			805,194			803,248
Less: allowance for loan losses		(8,069	)		(8,077	)		(7,674	)
Loans, net		840,745			797,117			795,574
Premises and equipment, net		9,773			9,896			9,722
Accrued interest receivable		5,506			5,275			5,104
Other real estate owned, net		957			1,007			957
Intangible assets and goodwill		5,848			5,848			5,848
Bank-owned life insurance		42,833			41,860			42,354
Other assets		32,636			17,305			16,287
Total assets	$	1,729,588		$	1,661,652		$	1,702,175

Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	334,576		$	332,944		$	317,430
Interest-bearing demand deposits		943,574			838,254			890,124
Savings deposits		218,716			190,094			208,065
Time deposits		80,965			88,332			78,968
Total deposits		1,577,831			1,449,624			1,494,587
Accrued interest payable		46			48			48
Other liabilities		15,471			20,745			15,789
Total liabilities		1,593,348			1,470,417			1,510,424

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 5,980,775 shares at June 30, 2022, 6,063,937 shares at December 31, 2021 and 6,170,058 at June 30, 2021		7,476			7,713			7,580
Retained earnings		191,541			185,580			188,229
Accumulated other comprehensive loss, net		(62,777	)		(2,058	)		(4,058	)
Total stockholders' equity		136,240			191,235			191,751
Total liabilities and stockholders' equity	$	1,729,588		$	1,661,652		$	1,702,175

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, 2022		June 30, 2021		June 30, 2022			June 30, 2021
Interest Income
Interest and fees on loans	$	8,324	$	8,466	$	16,424		$	17,016
Interest on federal funds		-		-		-			-
Interest on interest-bearing deposits		202		39		251			67
Interest on securities - taxable		2,949		1,910		5,422			3,693
Interest on securities - nontaxable		447		482		875			1,003
Total interest income		11,922		10,897		22,972			21,779
Interest Expense
Interest on time deposits		37		72		74			162
Interest on other deposits		610		762		1,228			1,527
Total interest expense		647		834		1,302			1,689
Net interest income		11,275		10,063		21,670			20,090
Provision for loan losses		310		4		444			54
Net interest income after provision for loan losses		10,965		10,059		21,226			20,036
Noninterest Income
Service charges on deposit accounts		603		471		1,165			940
Other service charges and fees		51		43		106			84
Credit card fees		535		479		975			913
Trust income		439		434		882			849
Bank-owned life insurance		241		210		479			416
Other income		243		304		796			1,068
Realized securities gain, net		-		-		-			5
Total noninterest income		2,112		1,941		4,403			4,275

Noninterest Expense
Salaries and employee benefits		4,011		3,952		7,989			7,858
Occupancy and furniture and fixtures		464		443		956			931
Data processing and ATM		793		786		1,580			1,564
FDIC assessment		111		93		222			176
Net cost of other real estate owned		-		1		10			38
Franchise taxes		371		357		733			692
Other operating expenses		561		815		1,434			1,724
Total noninterest expense		6,311		6,447		12,924			12,983
Income before income tax expense		6,766		5,553		12,705			11,328
Income tax expense		1,192		940		2,245			1,949
Net Income	$	5,574	$	4,613	$	10,460		$	9,379
Basic and fully diluted net income per share	$	0.93	$	0.74	$	1.74		$	1.49
Weighted average number of common shares outstanding
Basic and Diluted		6,004,425		6,214,079		6,025,709			6,310,347
Dividends declared per share	$	0.72	$	0.70	$	0.72		$	0.70
Dividend payout ratio		---		---		41.34	%		46.05	%
Book value per share	$	22.78	$	30.99	$	22.78		$	30.99

National Bankshares, Inc.

Consolidated Statements of Comprehensive Loss

(Unaudited)

	Three Months Ended
($ in thousands)	June 30, 2022			June 30, 2021
Net income	$	5,574		$	4,613

Other Comprehensive (Loss) Income, Net of Tax
Unrealized holding (loss) gain on available for sale securities net of tax of ($6,617) for the period ended June 30, 2022 and $1,922 for the period ended June 30, 2021		(24,893	)		7,235
Other comprehensive (loss) income, net of tax	$	(24,893	)	$	7,235
Total Comprehensive (Loss) Income	$	(19,319	)	$	11,848

	Six Months Ended
($ in thousands)	June 30, 2022			June 30, 2021
Net income	$	10,460		$	9,379

Other Comprehensive (Loss) Income, Net of Tax
Unrealized holding loss on available for sale securities net of tax of ($15,609) for the period ended June 30, 2022 and ($1,349) for the period ended June 30, 2021		(58,719	)		(5,074	)
Reclassification adjustment for gain included in net income, net of tax of ($1) for the period ended June 30, 2021		-			(4	)
Other comprehensive loss, net of tax	$	(58,719	)	$	(5,078	)
Total Comprehensive (Loss) Income	$	(48,259	)	$	4,301

National Bankshares, Inc.

Key Ratios and Other Data

(Unaudited)

	Three Months Ended						Six Months Ended
($ in thousands)	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Average Balances
Cash and due from banks	$	12,063		$	12,102		$	11,879		$	11,885
Interest-bearing deposits		90,606			143,812			102,365			131,629
Securities available for sale		696,399			589,746			696,860			574,051
Restricted stock		941			845			899			1,036
Mortgage loans held for sale		141			409			179			631
Gross Loans		833,576			792,211			818,841			781,532
Loans, net		825,307			781,615			810,643			771,276
Intangible assets		5,848			5,848			5,848			5,848
Total assets		1,719,128			1,609,876			1,711,248			1,570,610
Total deposits		1,554,048			1,400,107			1,528,123			1,357,803
Stockholders' equity		149,019			189,394			167,072			192,477
Interest-earning assets⁽¹⁾		1,676,001			1,520,458			1,649,631			1,480,379
Interest-bearing liabilities		1,215,253			1,075,058			1,196,599			1,050,279

Financial Ratios
Return on average assets⁽²⁾		1.30	%		1.15	%		1.22	%		1.18	%
Return on average equity⁽²⁾		15.00	%		9.77	%		12.45	%		9.63	%
Net interest margin⁽³⁾		2.75	%		2.72	%		2.70	%		2.80	%
Net interest income-fully taxable equivalent⁽³⁾	$	11,505		$	10,301		$	22,127		$	20,574
Efficiency ratio⁽⁴⁾		46.35	%		52.66	%		49.40	%		53.26	%
Average equity to average assets		8.67	%		11.76	%		9.76	%		12.25	%

Allowance for Loan Losses
Beginning balance	$	7,788		$	8,536		$	7,674		$	8,481
Provision for losses		310			4			444			54
Charge-offs		(75	)		(539	)		(135	)		(586	)
Recoveries		46			76			86			128
Ending balance	$	8,069		$	8,077		$	8,069		$	8,077

(1)	Does not included the unrealized gain/loss on securities available for sale or the allowance for loan losses.

(2)

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, 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.

(3)

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%.

(4)	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)	June 30, 2022			June 30, 2021
Nonperforming Assets
Nonaccrual loans	$	168		$	713
Nonaccrual restructured loans		2,811			3,109
Total nonperforming loans		2,979			3,822
Other real estate owned	$	957		$	1,007
Total nonperforming assets	$	3,936		$	4,829
Accruing restructured loans		2,998			3,011
Loans 90 days or more past due	$	7		$	28

Asset Quality Ratios
Nonperforming assets to loans⁽¹⁾ plus other real estate owned		0.46	%		0.60	%
Allowance for loans losses to total loans⁽¹⁾		0.95	%		1.00	%
Allowance for loan losses to total loans⁽¹⁾, excluding SBA PPP loans		0.95	%		1.04	%
Allowance for loan losses to nonperforming loans		270.86	%		211.33	%
Loans past due 90 days or more to loans⁽¹⁾		0.00	%		0.00	%

(1)	Loans are net of unearned income and deferred fees and costs