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