National Bankshares Inc. Annual Report 2009

Plain-text annual report

People-focused. Value-driven. Value-driven. National Bankshares, Inc. | Annual Report 2009 People-focused. Value-driven. National Bankshares, Inc. traces its roots back to 1891 with the founding of its subsidiary bank, the National Bank of Blacksburg. Today we serve communities across southwest Virginia with 25 convenient banking locations and a complete package of ﬁ nancial services. Through our personalized approach to community banking and our commitment to shareholder value, National Bankshares, Inc. embodies the spirit of a people-focused, value-driven institution. Financial Highlights $ in thousands, except per share data 2009 2008 2007 2006 2005 Net income $ 14,319 13,593 12,675 12,632 12,424 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 2.07 2.06 0.84 17.61 583,021 297,417 982,367 852,112 122,076 1.96 1.96 0.80 15.89 569,699 264,999 935,374 817,848 110,108 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 Net Income (in millions) Cash Dividends $13.6 $14.3 $12.4 $12.6 $12.7 $12 $0.84 $0.80 $0.76 $0.71 $0.73 $0.7 9 6 3 0 2005 2006 2007 2008 2009 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Book Value $17.61 $15.89 $15.07 $13.86 $13.10 $15 12 9 6 3 0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Net Loans (in millions) Total Assets (in millions) $583.0 $569.7 $982.4 $935.4 $868.2 $887.6 $841.5 $487.2 $495.5 $500 $518.4 400 300 200 100 0 2005 2006 2007 2008 2009 $800 600 400 200 0 2005 2006 2007 2008 2009 National Bankshares, Inc. Annual Report 2009 | 1 Our Mission Ihillica tiunt. Cerovidem que plit, sunt am, quam verepel. Message to our stockholders National Bankshares, Inc. strives to be an exceptional community bank holding company dedicated to providing shareholder value by offering ﬁ nancial services to customers through subsidiary ﬁ nancial institutions and afﬁ liated companies in an efﬁ cient, friendly, personalized, and cost-effective manner. We recognize that to do this, our ﬁ nancial 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. Tur? Qui a volorep taquatendis core inisto te disimet alitass untur, sus evere quunt ut que aut occusdanis quatquo untur, sus evere quunt ut que aut occusdanis quatquo untur, sus evere quunt ut que aut occusdanis quatquo ditis arum exero et reiume enisi te essiti int et qui ofﬁ cia ditis arum exero et reiume enisi te essiti int et qui ofﬁ cia ditis arum exero et reiume enisi te essiti int et qui ofﬁ cia esecullam, et eatent laut harum. esecullam, et eatent laut harum. esecullam, et eatent laut harum. Management team, from left to right: David K. Skeens, Treasurer and Chief Financial Ofﬁ cer; James G. Rakes, Chairman, President and Chief Executive Ofﬁ cer; Marilyn B. Buhyoff, Secretary and Counsel; F. Brad Denardo, Executive Vice President. 2 | National Bankshares, Inc. Annual Report 2009 These are challenging times for bankers. The ﬁ nancial markets are volatile, and the political climate is negative. The media does not differ- entiate between those large Wall Street invest- ment banks that caused many of the nation’s economic problems and traditional banks, which have continued to work to ﬁ nd solutions to those problems. At National Bankshares, Inc., our strategy for facing today’s challenges is to return to the basics. We focus on who we are. We clearly identify what we can do. And we try to do it well. I am sure that you are aware that National Bankshares, Inc. is a ﬁ nancial holding company with two subsidiar- ies, the National Bank of Blacksburg (National Bank) and National Bankshares Financial Services, Inc. National Bank has been a community bank since its founding in 1891. It is a conservative bank. We do not believe that bigger is always better, and we understand that we can- not be all things to all customers. However, we can and do offer those bank products and services, including loans, deposit accounts and Trust services, that most of the residents and businesses in southwest Virginia want and need. Our customers have convenient 24-hour ac- cess to their accounts with phone and Internet banking. We are able to provide many products and services at a lower cost than some of our larger competitors. Most importantly, when you deal with National Bank, you ex- perience banking with a personal touch. If you call us during business hours, you will reach a real live person, not a computer. Our lenders develop long-term busi- ness relationships with their customers. In fact, a small business customer once told me, “My loans are with Na- tional Bank, because I get a banker, not just a bank.” Our trained, experienced and friendly employees take great pride in offering excellent service to their customers. In 2009, National Bankshares’ people-focused ap- proach to banking created value for our stockholders. I am pleased to report that your Company posted re- cord net income of nearly $14.32 million for the year ended December 31, 2009. Net income for 2009 was 5.34% higher than the $13.59 million earned in 2008. We believe in sharing higher proﬁ ts with stockholders, and cash dividends grew from $0.80 per share in 2008 to $0.84 per share for 2009. Stockholders’ equity expe- rienced a nice increase, growing from $110.11 million at the end of 2008 to nearly $122.08 million at the same period in 2009. Record earnings in 2009 came largely from higher net interest income, coupled with limited increases in controllable noninterest expense. Net interest income grew by almost 10.77%, from $31.29 million for 2008 to $34.66 million for 2009. A good part of the growth in interest income came from meeting the credit needs of borrowers in our market area, as our bankers contin- ued to make good loans despite the difﬁ cult economy. Net loans, which were at $583.02 million at the end of 2009, grew by $13.32 million, or 2.34%, over the total at December 31, 2008. While net interest income was im- proving, we were keeping careful watch on controllable costs. As a result, total nontinterest expense for the year was only $1.83 million above 2008 levels, despite FDIC Deposit Insurance Fund assessments climbing by $1.52 million from 2008 to 2009. National Bankshares, Inc. ended 2009 with total assets of nearly $982.37 million, an increase of 5.02% over the $935.37 million at the end of December in 2008. As many of you well know, our region of the country has not totally escaped the effects of the recession and the slow economic recovery. Fortunately, to date, we have not been as seriously impacted as some other areas. Be- ginning in the last half of 2008, we started seeing rising levels of total nonperforming assets. Anticipating that this trend would continue during 2009, we increased the provision for loan losses as the year progressed. In 2008, the provision for loan losses was $1.12 million, and in 2009 we set aside over $1.63 million. By Decem- ber 31, 2009, the allowance for loan losses had grown to almost $6.93 million, from $5.86 million at the end of 2008. The ratio of the allowance for loan losses to total loans increased from 1.02% at year-end 2008 to 1.17% at December 31, 2009. Because of this prepa- ration and because our earnings and capital levels al- low us to approach loan workouts in a deliberate fash- ion, we feel that we can respond appropriately to the higher level of nonperforming assets that is reported for year-end 2009. Even though nonperforming assets of nearly $8.88 million at December 31, 2009 is high for our Company, the total remains quite low when com- pared with peers. The ratio of nonperforming loans to net loans was at 1.14% at year-end, a reasonable level in today’s challenging economy. We want to thank you for the important role you play in our Company. We are grateful for your investment and for your conﬁ dence in National Bankshares, Inc. I would like to recognize the contributions of our Directors and Advisory Board members. Their time and expertise are invaluable. Finally, we appreciate the skill and dedica- tion of each of the more than 200 talented employees who work together every day to meet our goals. Nation- al Bankshares, Inc. is both people-focused and value- driven. Despite the current challenges, we are proud to be traditional bankers, and we are committed to achiev- ing future success in the communities we serve. James G. Rakes Chairman, President & Chief Executive Ofﬁ cer National Bankshares, Inc. Annual Report 2009 | 3 Consolidated Balance Sheets $ in thousands, except per share data Assets December 31, 2009) December 31, 2008) Cash and due from banks Interest-bearing deposits Securities available for sale, at fair value Securities held to maturity (fair value approximates $129,892 at December 31, 2009 and $117,277 at December 31, 2008) 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, 6,933,474 in 2009, and 6,929,474 in 2008 Retained earnings Accumulated other comprehensive loss, net Total stockholders’ equity Total liabilities and stockholders’ equity $ $ $ $ 12,894) 32,730) 168,041) 129,376) 126) 45,625) 165,542) 283,998) 95,844) 591,009) (1,062) 589,947) (6,926) 583,021) 10,628) 6,250) 2,126) 12,626) 24,549) 982,367) 122,549) 310,629) 51,622) 367,312) 852,112) ---) 336) 7,843) 860,291) ---) ---) 8,667) 113,901) (492) 122,076) 982,367) $ $ $ $ 16,316) 29,656) 147,227) 117,772) 348) 60,798) 162,757) 246,218) 106,907) 576,680) (1,123) 575,557) (5,858) 569,699) 11,204) 5,760) 1,984) 13,719) 21,689) 935,374) 109,630) 256,416) 45,329) 406,473) 817,848) 54) 655) 6,709) 825,266) ---) ---) 8,662) 105,356) (3,910) 110,108) 935,374) 4 | National Bankshares, Inc. Annual Report 2009 Consolidated Statements of Income $ in thousands, except per share data Years ended December 31, 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 BOLI income Other income Realized securities gains, net Total noninterest income Noninterest Expense Salaries and employee beneﬁ ts Occupancy and furniture and ﬁ xtures Data processing and ATM FDIC assessment Credit card processing Intangible assets amortization Net costs of other real estate owned Franchise taxes 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 2009 37,578 90 6,273 6,546 50,487 5,417 10,405 3 15,825 34,662 1,634 33,028 3,314 343 2,803 1,053 756 491 44 8,804 11,336 1,792 1,371 1,727 2,121 1,093 393 885 3,135 23,853 17,979 3,660 14,319 2.07 2.06 $ $ $ $ 2008 37,108 449 6,816 5,738 50,111 6,004 12,802 12 18,818 31,293 1,119 30,174 3,425 326 2,808 1,231 684 438 175 9,087 11,168 1,751 1,381 209 2,105 1,119 100 823 3,367 22,023 17,238 3,645 13,593 1.96 1.96 $ $ $ $ 2007 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 1,333 592 423 51 8,760 10,773 1,743 1,149 89 2,146 1,138 81 578 3,259 20,956 16,405 3,730 12,675 1.82 1.82 $ $ $ $ National Bankshares, Inc. Annual Report 2009 | 5 National Bankshares, Inc. Board of Directors Standing, from left: William A. Peery, President, Cargo Oil Co., Inc.; Lawrence J. Ball, President, Moog Components Group; Jack H. Harry, President, Harry Enterprises, Inc.; Glenn P. Reynolds, President, Reynolds Architects, Inc. Seated, from left: Jack W. Bowling, President, H.T. Bowling, Inc.; Dr. Mary G. Miller, President, Interactive Design and Development, Inc.; Dr. James M. Shuler, Delegate, Virginia House of Delegates; Dr. Jack M. Lewis, President, New River Community College; James G. Rakes, Chairman, President and Chief Executive Ofﬁ cer, National Bankshares, Inc.; Chairman, President and Chief Executive Ofﬁ cer, National Bank; Chairman, President and Treasurer, National Bankshares Financial Services, Inc. 6 | National Bankshares, Inc. Annual Report 2009 National Bank Board of Directors Standing, from left: James S. Gillespie, Jr., President, Jim Sam Gillespie Farm; Carl M. McNeil, Realtor, Founder McNeil Real Estate, Inc.; Dr. J. Lewis Webb, Jr., Retired Dentist; James C. Thompson, Chairman, Thompson & Litton, Inc. Seated from left: Ellen G. Burnop, Co-Owner and President, New River Ofﬁ ce Supply, Inc.; Charles E. Green, III, Financial Planner, AXA Advisors, L.L.C.; Dr. James M. Shuler, Delegate, Virginia House of Delegates; F. Brad Denardo, Executive Vice President, National Bankshares, Inc., Executive Vice President/Chief Operating Ofﬁ cer, National Bank; James G. Rakes, Chairman, President and Chief Executive Ofﬁ cer, National Bankshares, Inc., Chairman, President and Chief Executive Ofﬁ cer, National Bank, Chairman, President and Treasurer, National Bankshares Financial Services, Inc. Not pictured: Michael E. Dye, Pharmacist/Owner, New Graham Pharmacy. 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, Scarlet B. Ratcliffe, James E. Tyler. Galax: Thomas L. McChesney, Dr. James A. Williams, Jr., David F. Wilson. Christiansburg/Radford/Pulaski County: Charles R. Beller, III, William K. Cunningham, Gerard W. Higgins, Dr. Kenneth E. Jones, Dr. Peter J. McDonald, L. Scott Wade. 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. Annual Report 2009 | 7 Corporate Information National Bankshares, Inc. Executive Ofﬁ cers James G. Rakes Chairman, President and Chief Executive Ofﬁ cer David K. Skeens Treasurer and Chief Financial Ofﬁ cer F. Brad Denardo Executive Vice President Marilyn B. Buhyoff Secretary and Counsel Annual Meeting The Annual Meeting of Stockholders will be held on Tuesday, April 13, 2010 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 ﬁ nancial information about National Bankshares, Inc. should contact: James G. Rakes Chairman, President and Chief Executive Ofﬁ cer (540) 951-6300 or (800) 552-4123 jrakes@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 certiﬁ cates, dividends and other stockholder matters should contact: Marilyn B. Buhyoff Secretary and Counsel (540) 951-6300 or (800) 552-4123 mbuhyoff@nbbank.com - or - Transfer Agent 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 publications are also available at www.nationalbankshares.com. Proxy materials for the Annual Meeting of Stockholders are available at www.nationalbanksharesproxy.com. Corporate Ofﬁ ce 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. Annual Report 2009 National Bankshares, Inc. | Annual Report 2009

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