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.