National Bankshares Inc.
Annual Report 2010

Plain-text annual report

120 years ago, the Commonwealth of Virginia issued a charter to a new bank, The Bank of Blacksburg. From our humble beginnings doing business from one room of the Green Hotel, National Bank has grown steadily through the years along with the communities we serve. Today, with 25 locations across southwest Virginia and over $1 billion in assets, our commitment to friendly, personalized service and local decision making remains the key to our success and our highest priority. Financial Highlights $ in thousands, except per share data Net income 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 2010 2009 2008 2007 2006 $ 15,569 $ 14,319 $ 13,593 $ 12,675 $ 12,632 2.25 2.24 0.91 2.07 2.06 0.84 1.96 1.96 0.80 18.63 17.61 15.89 568,779 583,021 569,699 315,907 297,417 264,999 1,022,238 982,367 935,374 884,583 129,187 852,112 817,848 122,076 110,108 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 Net Income dollars in millions Cash Dividends Per Share dollars Book Value Per Share dollars Loans, Net dollars in millions Total Assets dollars in millions Annual Report 2010 1 Annual Report 2010 1 To Our Stockholders In conversations with customers, I am sometimes asked how I define the term “community bank”. My answer has always been that a community bank is determined by philosophy, not by size. Recently, I have heard this question more often. This is because National Bank- shares, Inc. ended 2010 with total assets of $1.02 billion, the first time in its history that the Company ended the year with total assets above $1 billion. While banking regulators and financial analysts might place significance on this figure, we do not. Our goal is the same as it was in 1986, when National Bankshares, Inc. was founded with total assets of $116 million. The goal was then, and it is now, to provide state-of-the art financial services in a friendly, professional atmosphere. We do that by hiring excellent local bankers, providing them with good training and technical support, and then letting them do their jobs. We foster a business philosophy that puts the customer first, and our employees enjoy long-term relationships with their customers. I regularly hear from senior citizens who tell me that they opened their first bank account with us when they were children. They go on to say that they later bought a home with a National Bank mortgage loan. They educated their children with the help of a personal loan from us, and they now have an investment account with the Bank’s Trust Department or with National Bankshares Investment Services. Stories like these reinforce my strong belief that, despite its growth, National Bank remains a community bank. Management team, from left to right: James G. Rakes, Chairman, President and Chief Executive Officer; David K. Skeens, Treasurer and Chief Financial Officer; F. Brad Denardo, Executive Vice President; Marilyn B. Buhyoff, Secretary and Counsel. 2 National Bankshares, Inc. 2 National Bankshares, Inc. As I mentioned, National Bankshares, Inc. will cel- ebrate its 25th anniversary later this year. Although certainly an achievement to be recognized, it pales by comparison to another anniversary celebration in 2011. In May, National Bank will be 120 years old. Alexan- der Black’s idea to open the Bank of Blacksburg in one room of the Green Hotel on Main Street in 1891 has brought financial security to many generations. Many things have changed since the Bank was founded. Tell- ers record deposits on computers, not in ledger books. Paper checks are now converted to electronic images. Communications between our offices are nearly instan- taneous. What has not changed is the desire to help cus- tomers by providing them with a full range of quality financial services. Despite challenges in the national and local economies, National Bankshares, Inc. maintained strong core earn- ings in 2010. Record net income for the twelve months ended December 31, 2010 was nearly $15.57 mil- lion, an 8.7% increase over the nearly $14.32 million earned in 2009. Net income for the year was largely the result of higher net interest income and lower noninter- est expense. Because interest rates were low and stable throughout the year, total interest income was lower than in 2009. However, total interest expense declined by a greater percentage than interest income, result- ing in a 9.58% increase in net interest income, from $34.66 million for 2009 to over $37.98 million for 2010. We think it is important to run an efficient busi- ness and to contain controllable costs. For the year end- ed December 31, 2010, noninterest expense was nearly $23.13 million. This represents a decline of 3.0% from the $23.85 million reported for 2009. Our market area is still dealing with the effects of the prolonged economic downturn. It seems as if South- west Virginia did not feel the full effects of the national recession as early as some other parts of the country. Now the local economy is not recovering as quickly as in certain other regions. Total nonperforming loans increased from $6.75 million at the end of 2009 to $8.42 million at December 31, 2010. The ratio of non- performing assets to loans net of unearned income and deferred fees, plus other real estate owned, increased from 1.50% at year-end 2009 to 1.75% at the end of December 2010. The ratio is high when compared with historical levels here at National Bankshares, but it re- mains reasonable when compared to peers. We felt it was prudent to increase the provision for loan losses during 2010, and the ratio of the allowance for loan losses to total loans grew from 1.17% at December 31, 2009 to 1.33% at December 31, 2010. National Bank’s lenders are still making many good loans and are working hard to meet the credit needs of our communities. At the end of 2010, National Bankshares, Inc. had net loans of $568.78 million, a slight 2.44% decline from the $583.02 million in net loans at December 31, 2009. During 2010, the focus on traditional community bank- ing served National Bankshares, Inc. well. To keep pace with growth and with changes in technology, the Com- pany invested in a new enterprise server last year. This major computer upgrade was accomplished without in- terrupting customer service. On July 21, 2010, a new federal law took effect that will touch nearly every as- pect of the American financial services industry, includ- ing National Bankshares, Inc. and National Bank. The Dodd-Frank Wall Street Reform and Consumer Protec- tion Act was passed by Congress in an attempt to deal with the abuses that led to the financial crisis of 2008. The legislation is massive, and the full impact of the law and its implementing regulations are unknown at this time. What is known is that the entire banking indus- try, including small- and medium-sized banks and bank holding companies, will share in the costs and the regu- latory burden of correcting problems caused by a few large financial services companies. Going forward, we are prepared to devote the resources necessary to comply with the new laws to ensure that National Bankshares, Inc. continues to offer quality products and services well into the future. Milestones like the anniversaries in 2011 give us an op- portunity to reflect on our history and to put current challenges into perspective. They also help us appreciate the important contributions of stockholders, employees and directors, both past and present. I would particu- larly like to thank you for your confidence and invest- ment in our Company. We are grateful to the Directors and Advisory Directors of National Bankshares, Inc. and National Bank for generously sharing their time and talents. Finally, I want to especially recognize the dedication of our employees, who work hard every day to ensure our Company’s future success. We are proud of our heritage as traditional bankers, and we look forward to serving our communities for many years to come. James G. Rakes Chairman, President & Chief Executive Officer Downtown Blacksburg circa 1912 Annual Report 2010 3 Annual Report 2010 3 Consolidated Balance Sheets $ in thousands, except per share data Assets December 31, 2010 December 31, 2009 Cash and due from banks Interest-bearing deposits Securities available for sale, at fair value Securities held to maturity (fair value approximates $129,913 at December 31, 2010 and $129,892 at December 31, 2009) 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 Accrued interest payable Other liabilities Total liabilities Commitments and contingencies Stockholders’ equity: $ $ $ 9,858 69,400 184,907 131,000 2,460 46,169 173,533 269,818 87,868 577,388 (945) 576,443 (7,664) 568,779 10,470 6,016 1,723 11,543 26,082 1,022,238 131,540 365,040 55,800 332,203 884,583 257 8,211 893,051 --- $ $ $ 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 --- 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 shares in 2010 and 2009 Retained earnings Accumulated other comprehensive loss, net Total stockholders’ equity Total liabilities and stockholders’ equity --- --- 8,667 123,161 (2,641) 129,187 1,022,238 $ 8,667 113,901 (492) 122,076 982,367 $ 4 National Bankshares, Inc. 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 (losses), net Total noninterest income Noninterest Expense Salaries and employee benefits Occupancy and furniture and fixtures 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 2010 36,919 128 5,588 6,504 49,139 3,439 7,719 --- 11,158 37,981 3,409 34,572 2,858 317 2,954 1,118 760 354 (14) 8,347 10,963 1,875 1,499 1,080 2,300 1,083 214 963 3,150 23,127 19,792 4,223 15,569 2.25 2.24 $ $ $ $ 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 $ $ $ $ Annual Report 2010 5 National Bankshares, Inc. Board of Directors Standing, from left: Jack H. Harry, President, Harry Enterprises, Inc.; Lawrence J. Ball, President, Moog Components Group; William A. Peery, President, Cargo Oil Co., 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 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. National Bank Board of Directors Standing, from left: Michael E. Dye, Pharmacist/Owner, New Graham Pharmacy; 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 Office 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 Officer, National Bank; 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, Lisa W. Epperly, Dr. Robert C. McCracken, 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 Annual Report 2010 7 Corporate Information National Bankshares, Inc. Executive Officers James G. Rakes Chairman, President and Chief Executive Officer David K. Skeens Treasurer and Chief Financial Officer 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 12, 2011 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 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 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 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 (8 00) 552-4123 8 National Bankshares, Inc. 

Continue reading text version or see original annual report in PDF format above