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
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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.