National Bankshares, Inc. Reports Higher First Half Earnings

| Source: National Bankshares, Inc. National Bankshares, Inc.

BLACKSBURG, VA--(Marketwire - Jul 14, 2011) - Today, National Bankshares, Inc. (NASDAQ: NKSH) announced net income of over $4.22 million for the quarter ended June 30, 2011. Net income was $8.24 million through June 30, 2011, or nearly 6.12%, above the total reported for the first half of 2010. Basic net income per share was $0.61, which compares with $0.58 for the first six months last year. The return of average assets for the first half of 2011 was 1.63%, and it was 1.60% for the six months ended June 30, 2010. The return on average equity was 12.48% and 12.41% for the same two periods. Total loans at quarter-end, at $594.57 million, increased slightly from the total of $583.93 million at the end of June last year. At June 30, 2011, the Company had total assets of $1.03 billion, an increase of 4.02% over the end of the first half of 2010 and up slightly from total assets of $1.02 billion at year-end.

National Bankshares' Chairman, President & CEO James G. Rakes commented, "The stable interest rate environment during the first half of the year allowed us to maintain a healthy net interest margin, which resulted in an increase in net interest income. We continue to see tentative signs that the economic recovery may be reaching our market area, as commercial loan income has increased 7.31% from the same time last year and total loan income has increased slightly. We look forward to further indications of a sustained recovery."

National Bankshares, Inc., headquartered in Blacksburg, Virginia, is the parent company of 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 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. and Subsidiaries

Consolidated Balance Sheet
(Unaudited)
($ in thousands, except for per share data) June 30, 2011 June 30, 2010 December 31, 2010
Assets
Cash and due from banks $ 13,113 $ 12,609 $ 9,858
Interest-bearing deposits 54,768 53,311 69,400
Federal funds sold --- --- ---
Securities available for sale 190,674 161,691 184,907
Securities held to maturity 136,399 132,893 131,000
Total securities 327,073 294,584 315,907
Mortgage loans held for sale 248 2,191 2,460
Loans:
Real estate construction loans 47,549 48,604 46,169
Real estate mortgage loans 171,818 173,724 173,533
Commercial and industrial loans 290,694 270,897 269,818
Consumer loans 84,510 90,702 87,868
Total loans 594,571 583,927 577,388
Less: unearned income and deferred fees (999 ) (1,002 ) (945 )
Loans, net of unearned income and deferred fees 593,572 582,925 576,443
Less: allowance for loan losses (8,494 ) (7,553 ) (7,664 )
Loans, net 585,078 575,372 568,779
Bank premises and equipment, net 10,232 10,721 10,470
Accrued interest receivable 6,255 6,023 6,016
Other real estate owned 1,855 3,170 1,723
Intangible assets 11,001 12,084 11,543
Other assets 25,234 24,810 26,082
Total assets $ 1,034,857 $ 994,875 $ 1,022,238
Liabilities and Stockholders' Equity
Noninterest-bearing deposits $ 136,041 $ 125,694 $ 131,540
Interest-bearing demand deposits 384,329 324,038 365,040
Savings deposits 59,909 58,399 55,800
Time deposits 311,908 351,206 332,203
Total deposits 892,187 859,337 884,583
Other borrowed funds --- --- ---
Accrued interest payable 237 356 257
Other liabilities 6,125 7,357 8,211
Total liabilities 898,549 867,050 893,051
Stockholders' Equity
Preferred stock of no par value. Authorized 5,000,000 shares; none issued and outstanding --- --- ---
Common stock of $1.25 par value. Authorized 10,000,000 shares; issued and outstanding 6,937,974 shares at June 30, 2011 and 6,933,474 at December 31, 2010 8,672 8,667 8,667
Retained earnings 128,129 118,615 123,161
Accumulated other comprehensive (loss), net (493 ) 543 (2,641 )
Total stockholders' equity 136,308 127,825 129,187
Total liabilities and stockholders' equity $ 1,034,857 $ 994,875 $ 1,022,238
National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010
($ in thousands, except for per share data)
Interest Income
Interest and fees on loans $ 9,107 $ 9,260 $ 18,202 $ 18,436
Interest on federal funds --- --- --- ---
Interest on interest-bearing deposits 35 30 67 49
Interest on securities – taxable 1,713 1,466 3,375 2,909
Interest on securities – nontaxable 1,620 1,591 3,296 3,193
Total interest income 12,475 12,347 24,940 24,587
Interest Expense
Interest on time deposits of $100,000 or more 505 894 1,066 1,840
Interest on other deposits 1,841 1,956 3,659 3,989
Interest on borrowed funds --- --- --- ---
Total interest expense 2,346 2,850 4,725 5,829
Net interest income 10,129 9,497 20,215 18,758
Provision for loan losses 753 852 1,553 1,499
Net interest income after provision for loan losses 9,376 8,645 18,662 17,259
Noninterest Income
Service charges on deposit accounts 648 772 1,260 1,486
Other service charges and fees 59 54 117 151
Credit card fees 827 760 1,560 1,426
Trust income 307 261 553 530
Bank-owned life insurance 186 176 370 361
Other income 77 89 168 143
Realized securities gains (losses), net (14 ) 11 (4 ) (3 )
Total noninterest income 2,090 2,123 4,024 4,094
Noninterest Expense
Salaries and employee benefits 2,823 2,654 5,727 5,510
Occupancy and furniture and fixtures 435 477 858 968
Data processing and ATM 429 349 873 706
FDIC assessment 350 269 696 532
Credit card processing 646 584 1,232 1,092
Intangibles and goodwill amortization 271 271 542 542
Net costs of other real estate owned 95 27 229 60
Franchise taxes 215 242 457 481
Other operating expenses 761 824 1,495 1,590
Total noninterest expense 6,025 5,697 12,109 11,481
Income before income tax expense 5,441 5,071 10,577 9,872
Income tax expense 1,225 1,075 2,337 2,107
Net income $ 4,216 $ 3,996 $ 8,240 $ 7,765
Basic net income per share $ 0.61 $ 0.58 $ 1.19 $ 1.12
Fully diluted net income per share $ 0.61 $ 0.58 $ 1.19 $ 1.12
Weighted average outstanding number of common shares
Basic 6,936,501 6,933,474 6,935,148 6,932,126
Diluted 6,946,852 6,946,650 6,952,159 6,952,812
Dividends declared per share $ 0.48 $ 0.44 $ 0.48 $ 0.44
Dividend payout ratio --- --- 40.40 39.29
Book value per share $ 19.65 $ 18.44 $ 19.65 $ 18.44
Key Ratios and Other Data
(Unaudited)
Three Months Ended Six Months Ended
Average Balances June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010
Cash and due from banks $ 12,290 $ 11,981 $ 11,857 $ 11,766
Interest-bearing deposits 59,465 51,716 56,792 43,167
Securities available for sale 188,590 162,030 188,044 162,730
Securities held to maturity 132,613 128,068 132,469 126,765
Mortgage loans held for sale 512 996 603 806
Gross loans 588,145 588,103 586,801 588,737
Loans, net 578,824 579,778 577,723 580,533
Intangible assets 11,157 12,240 11,292 12,375
Total assets 1,027,361 989,598 1,022,196 980,852
Total deposits 885,295 853,800 881,319 846,292
Other borrowings --- --- --- ---
Stockholders' equity 135,159 127,713 133,182 126,128
Interest-earning assets 967,328 926,190 963,343 917,795
Interest-bearing liabilities 750,735 729,198 749,182 726,169
Financial ratios
Return on average assets 1.65 % 1.62 % 1.63 % 1.60 %
Return on average equity 12.51 % 12.55 % 12.48 % 12.41 %
Net interest margin 4.59 % 4.53 % 4.64 % 4.55 %
Net interest income -- fully taxable equivalent $ 11,080 $ 10,466 $ 22,146 $ 20,707
Efficiency ratio 45.70 % 45.29 % 46.27 % 46.29 %
Average equity to average assets 13.16 % 12.91 % 13.03 % 12.86 %
Allowance for loan losses
Beginning balance $ 8,245 $ 7,141 $ 7,664 $ 6,926
Provision for losses 753 852 1,553 1,499
Charge-offs (517 ) (515 ) (761 ) (971 )
Recoveries 13 75 38 99
Ending balance $ 8,494 $ 7,553 $ 8,494 $ 7,553
Asset Quality Data
(Unaudited)
Nonperforming assets June 30, 2011 June 30, 2010
Nonaccrual loans $ 1,819 $ 7,167
Nonaccrual restructured loans 5,030 ---
Total nonperforming loans 6,849 7,167
Other real estate owned 1,855 3,170
Total nonperforming assets $ 8,704 $ 10,337
Accruing restructured loans $ 780 $ ---
Loans 90 days or more past due $ 489 $ 389
Asset quality ratios
Nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned 1.46 % 1.76 %
Allowance for loan losses to total loans 1.43 % 1.30 %
Allowance for loan losses to nonperforming loans 124.02 % 105.39 %
Loans past due 90 days or more to loans net of unearned income and deferred fees 0.08 % 0.07 %

Contact Information:

CONTACTS:
JAMES G. RAKES
CHAIRMAN, PRESIDENT & CEO
(540) 951-6236


DAVID K. SKEENS
TREASURER & CFO
(540) 951-6347