National Bankshares Inc.
Annual Report 2007

Plain-text annual report

National Bankshares COMMITTED TO COMMUNITY BANKING National Bankshares, Inc. strives to be an exceptional community bank holding company dedicated to providing shareholder value by offering financial services to customers through subsidiary financial institutions and affiliated companies in an efficient, friendly, personalized, and cost-effective manner. We recognize that to do this, our financial institutions must retain the ability to make decisions locally and must actively participate in the communities they serve. We are committed to offering competitive and fair employment opportunities and to maintaining the highest standards in all aspects of our business. CONTENTS Financial Highlights .................................................. 1 Letter to Stockholders .............................................. 2 Consolidated Balance Sheets ................................... 4 Consolidated Statements of Income ........................ 5 Boards of Directors ................................................... 6 Corporate Information .............................................. 8 United States Securities & Exchange Commission Form 10-K located in rear folder FINANCIAL HIGHLIGHTS 16 14 12 10 8 6 4 2 0 NET INCOME (in millions of dollars) 12.2 12.4 12.6 12.7 11.4 03 04 05 06 07 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 CASH DIVIDENDS (in dollars) 0.71 0.73 0.76 0.64 0.57 03 04 05 06 07 16 14 12 10 8 6 4 2 0 BOOK VALUE (in dollars) 13.10 12.38 11.47 15.07 13.86 03 04 05 06 07 ($ In thousands, except per share data) 2007 2006 2005 2004 2003 Net income $ 12,675 12,632 12,424 12,230 11,442 Basic net income per share Diluted net income per share Cash dividends per share Book value per share Loans, net Total securities Total assets Total deposits Stockholders’ equity 1.82 1.82 0.76 15.07 518,435 273,343 887,647 776,339 104,800 1.80 1.80 0.73 13.86 495,486 285,489 868,203 764,692 96,755 1.77 1.76 0.71 13.10 487,162 272,541 841,498 745,649 91,939 1.74 1.73 0.64 12.38 472,199 250,708 796,154 705,932 87,088 1.63 1.62 0.57 11.47 401,428 230,154 708,560 625,378 80,641 MARKET REGION & LOCATIONS ● ● ●● ● ● ● ● ● ● ● ● ● ● ● ● ●● ● ● ● ● ● ● ● ● Virginia National Bankshares, Inc. | 1 TO OUR SHAREHOLDERS In these interesting times, I am pleased to report another solid year for National Bankshares, Inc. During 2007, we were challenged with compression of the net interest margin, and we worked to overcome that challenge by adding quality loans to our portfolio and by controlling overhead costs. The result was 2007 total net income of nearly $12.68 million, up slightly over the $12.63 mil- lion earned in 2006. Total assets at December 31, 2007 were nearly $887.65 million, an increase of 2.24% over the same period in 2006. Net loans grew to $518.44 million, an increase of 4.63% from 2006. The 2006 merger of our two bank subsidiaries resulted in savings in salary and benefits, a decline from $11.47 million in 2006 to $10.77 million in 2007, and also in oc- cupancy expense, which dropped to $1.74 mil- lion from $1.96 million when the two periods are compared. Because of positive earnings, we increased stockholder dividends again this year, from $0.73 per share in 2006 to $0.76 per share in 2007. National Bankshares’ loan quality remained very good when viewed from a historical perspective. We did, however, make regular additions to the provision for loan losses during 2007, both be- cause of growth in net loans and because of an increase in total nonperforming assets from 2006’s very low level. 600 500 400 300 200 100 0 NET LOANS (in millions of dollars) 472.2 487.2 495.5 518.4 401.4 03 04 05 06 07 TOTAL ASSETS (in millions of dollars) 1000 800 600 400 200 0 841.5 796.2 868.2 887.6 708.6 03 04 05 06 07 2 | National Bankshares, Inc. During 2007, your Company continued to invest in its technology infrastructure. We took the next step in the Check 21 process and began to ex- change electronic images of checks with the Fed- eral Reserve Bank. This process is very efficient, eliminating the need to ship paper checks around the country. It offers us the potential for addi- tional savings, and it allows us to consider a banking future that is not constrained by geog- raphy and check delivery deadlines. In our opin- ion, up-to-date technology is important because it provides a solid platform from which to offer customers a full range of financial products and services. Our relationship-based business philosophy has guided us since the founding of National Bank in 1891, and it will continue to guide us in the future. Even though we think that technology is impor- tant, we believe that it is even more important for our customers to have a trusted person to help them with their financial transactions. Our office managers have strong and deep connec- tions to the communities they serve. Our busi- ness lenders have years of experience in our lo- cal markets. National Bank has offered Trust ser- vices for over 40 years. The insurance and in- vestment representatives with National Bank- shares Financial Services, Inc. believe that excel- lent customer service will distinguish them from their many competitors. This relationship-based business philosophy has guided us since the founding of National Bank in 1891, and it will continue to guide us in the future. As we look forward to the challenges of 2008, we intend to stay focused on what we do best. We understand that we cannot be all things to all people. But we do know community banking in Southwest Virginia, and we are committed to offering our friends and neighbors the very best in financial products and services. On the other hand, National Bank has not stayed in business for nearly 117 years only by looking backward. To insure our progress, the National Bankshares, Inc. Board of Directors has decided to under- take an extensive year-long strategic planning initiative in 2008. This process should assist us in making sound plans for our second century of success. Finally, I definitely want to thank you for your continued investment in National Bankshares, Inc. Your loyalty and support are very important to us, particularly in a year like 2007, when all bank stock prices were impacted by the troubles of a few large institutions. I also want to thank our dedicated Directors and hardworking employ- ees for their many contributions. Together, we can be proud of National Bankshares, Inc.’s com- mitment to community banking and its long tra- dition of service to its customers. James G. Rakes Chairman of the Board President and Chief Executive Officer National Bankshares, Inc. | 3 CONSOLIDATED BALANCE SHEETS $ in thousands, except share data December 31,2007 December 31,2006 Assets Cash and due from banks Interest-bearing deposits Securities available for sale, at fair value Securities held to maturity (fair value approximates $115,463 at December 31, 2007 and $115,561 at December 31, 2006) Mortgage loans held for sale Loans: Real estate construction loans Real estate mortgage loans Commercial and industrial loans Loans to individuals Total loans Less unearned income and deferred fees Loans, net of unearned income and deferred fees Less allowance for loan losses Loans, net Premises and equipment, net Accrued interest receivable Other real estate owned, net Intangible assets and goodwill Other assets Total assets Liabilities and Stockholders’ Equity Noninterest-bearing demand deposits Interest-bearing demand deposits Savings deposits Time deposits Total deposits Other borrowed funds Accrued interest payable Other liabilities Total liabilities Commitments and contingencies: 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, 6,952,274 in 2007, and 6,980,234 in 2006 Retained earnings Accumulated other comprehensive (loss), net Total stockholders’ equity $ ) $ $ ) 16,324) 29,687) 158,594) 114,749) 220) ) ) 46,697) 145,542) 216,830) 115,704) 524,773) (1,119) 523,654) (5,219) 518,435) 12,016) 5,711) 263) 14,838) 16,810) 887,647) 113,361) 237,772) 44,349) 380,857) 776,339) 64) 792) 5,652) 782,847) ) ) ---) 8,690) 97,810) (1,700) 104,800) 15,283) 19,617) 169,735) 115,754) 808) ) 33,840) 126,302) 215,244) 126,316) 501,702) (1,059) 500,643) (5,157) 495,486) 12,702) 5,682) 390) 15,976) 16,770) 868,203) 101,167) 233,023) 47,988) 382,514) 764,692) 73) 863) 5,820) 771,448) ---) 8,725) 91,123) (3,093) 96,755) Total liabilities and stockholders’ equity $ 887,647) 868,203) 4 | National Bankshares, Inc. CONSOLIDATED STATEMENTS OF INCOME $ in thousands, except share data Years ended December 31, 2007..... 2006. 2005. Interest Income Interest and fees on loans Interest on interest-bearing deposits Interest on securities - taxable Interest on securities - nontaxable Total interest income Interest Expense Interest on time deposits of $100,000 or more Interest on other deposits Interest on borrowed funds Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Noninterest Income Service charges on deposit accounts Other service charges and fees Credit card fees Trust income Other income Realized securities gains, net Total noninterest income Noninterest Expense Salaries and employee benefits Occupancy and furniture and fixtures Data processing and ATM Credit card processing Intangible assets amortization Net costs of other real estate owned Other operating expenses Total noninterest expense Income before income tax expense Income tax expense Net income Basic net income per share Fully diluted net income per share $ $ $ $ 37,265. 726. 7,476. 5,302. 50,769. 6,519. 15,191. 35. 21,745. 29,024. 423. 28,601. 3,291. 330. 2,740. 1,333. 1,015. 51. 8,760. 10,773. 1,743. 1,149. 2,146. 1,138. 81. 3,926. 20,956. 16,405. 3,730. 12,675. 1.82. 1.82) 34,879. 684. 7,462. 4,876. 47,901. 4,912. 13,626. 26. 18,564. 29,337. 49. 29,288. 3,361. 370. 2,396. 1,528. 1,117. 30. 8,802. 11,466. 1,957. 1,234. 1,833. 1,137. 19. 4,024. 21,670. 16,420. 3,788. 12,632. 1.80. 1.80) 33,234. 508. 6,501. 5,137. 45,380. 3,942. 10,215. 23. 14,180. 31,200. 567. 30,633. 3,099. 347. 2,179. 1,398. 590. ---. 7,613. 11,265. 1,931. 1,455. 1,687. 1,117. 275. 4,168. 21,898. 16,348. 3,924. 12,424. 1.77. 1.76) National Bankshares, Inc. | 5 BOARD OF DIRECTORS National Bankshares, Inc. From left: Jack W. Bowling, President, H.T. Bowling, Inc.; Jack H. Harry, President, Harry Enterprises, Inc.; Dr. Mary G. Miller, President, Interactive Design and Development, Inc.; William A. Peery, President, Cargo Oil Co., Inc.; Dr. James M. Shuler, Delegate, Virginia House of Delegates; Lawrence J. Ball, President, Moog Components Group; Dr. Jack M. Lewis, President, New River Community College; Glenn P. Reynolds, President, Reynolds Architects, Inc.; James G. Rakes, Chairman, President and Chief Executive Officer, National Bankshares, Inc.; Chairman, President and Chief Executive Officer, National Bank; Chairman, President and Treasurer, National Bankshares Financial Services, Inc. 6 | National Bankshares, Inc. BOARD OF DIRECTORS National Bank From left: James S. Gillespie, Jr., President, Jim Sam Gillespie Farm; Ellen G. Burnop, Co-Owner, New River Office Supply; Dr. J. Lewis Webb, Jr., Dentist; F. Brad Denardo, Executive Vice President/Chief Operating Officer, National Bank; James C. Thompson, Chairman, Thompson & Litton; Dr. James M. Shuler, Delegate, Virginia House of Delegates; Michael E. Dye, Pharmacist/Owner, New Graham Pharmacy; Charles E. Green, III, Financial Planner, AXA Advisors, L.L.C.; James G. Rakes, Chairman, President and Chief Executive Officer, National Bankshares, Inc., Chairman, President and Chief Executive Officer, National Bank, Chairman, President and Treasurer, National Bankshares Financial Services, Inc. National Bank Advisory Boards Montgomery County: Dan A. Dodson, M. Scott Hill, Kathryn S. Oddo, James J. Owen, Arlene A. Saari, James C. Stewart, Marc A. Verniel, T. Cooper Via. Giles County: Dr. Terry E. Arbogast, Mark E. Collins, Lisa W. Epperly, Dr. Robert C. McCracken, Ross E. Martin, Kenneth L. Rakes, Scarlet B. Ratcliffe, Jr., James E. Tyler. Galax: Thomas L. McChesney, Dr. James A. Williams, Jr., David F. Wilson. Radford/Pulaski County: William K. Cunningham, Jack D. Nunley, Laura B. Turk. Christiansburg: Charles R. Beller, III, Gerard W. Higgins, Dr. Kenneth E. Jones, Dr. Peter J. McDonald, L. Scott Wade. Bluefield: Constance M. Saunders. Richlands: Thurmon T. Hackworth, Dr. Marvin D. Harman, Peter M. Mulkey, John M. Warner. Interstate: A. Susan Keene, Stephen A. Lester, II. National Bankshares, Inc. | 7 CORPORATE INFORMATION National Bankshares, Inc. Executive Officers James G. Rakes Chairman, , , , , President and Chief Executive Officer F. Brad Denardo Corporate Officer J. Robert Buchanan Treasurer Marilyn B. Buhyoff Secretary and Counsel Annual Meeting The Annual Meeting of Stockholders will be held on Tuesday, April 8, 2008 at 3:00 p.m. at Custom Catering Center, 902 Patrick Henry Drive, Blacksburg, Virginia. Corporate Stock National Bankshares, Inc. common stock trades on the Nasdaq Capital Market under the symbol “NKSH”. Financial Information Investors and analysts seeking financial information about National Bankshares, Inc. should contact: James G. Rakes Chairman, President and Chief Executive Officer (540) 951-6300 or (800) 552-4123 jrakes@nbbank.com or J. Robert Buchanan Treasurer (540) 951-6300 or (800) 552-4123 bbuchanan@nbbank.com Written requests may be directed to: National Bankshares, Inc. P.O. Box 90002, Blacksburg, VA 24062-9002 Stockholder Services and Stock Transfer Agent Stockholders seeking information about stock transfer requirements, lost certificates, dividends and other stock- holder matters should contact: Marilyn B. Buhyoff Secretary and Counsel (540) 951-6300 or (800) 552-4123 mbuhyoff@nbbank.com or Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016-3572 (800) 368-5948 info@rtco.com A copy of National Bankshares, Inc.’s annual report to the Securities and Exchange Commission on Form 10-K will be furnished without charge to any stockholder upon written request. The Form 10-K and other corporate publica- tions are also available at www.nationalbankshares.com. Corporate Office National Bankshares, Inc. 101 Hubbard Street Blacksburg, Virginia 24060 P.O. Box 90002 Blacksburg, Virginia 24062-9002 www.nationalbankshares.com (540) 951-6300 or (800) 552-4123 8 | National Bankshares, Inc. 

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