National Bankshares Inc.
Annual Report 2011

Plain-text annual report

Our Greatest Asset Is Your Trust 2011 National Bankshares, inc. Annual Report Financial Highlights $ in thousands, except per share data Net income $ 17,638 $ 15,569 $ 14,319 $ 13,593 $ 12,675 2011 2010 2009 2008 2007 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 2.54 2.54 1.00 20.36 580,402 318,913 2.25 2.24 0.91 18.63 568,779 315,907 1,067,102 1,022,238 919,333 141,299 884,583 129,187 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 Net Income dollars in millions Cash Dividends Per Share dollars Book Value Per Share dollars 0 0 . 1 1 9 . 0 4 8 . 0 0 8 . 0 6 7 . 0 6 . 7 1 6 . 5 1 3 . 4 1 6 . 3 1 7 . 2 1 18 15 12 9 6 3 0 1.0 0.8 0.6 0.4 0.2 0.0 6 3 . 0 2 3 6 . 8 1 1 6 . 7 1 9 8 . 5 1 7 0 . 5 1 21 18 15 12 9 6 3 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Loans, Net dollars in millions Total Assets dollars in millions . 7 9 6 5 . 0 3 8 5 . 8 8 6 5 4 . 0 8 5 4 . 8 1 5 600 500 400 300 200 100 0 4 . 2 8 9 2 . 2 2 0 , 1 1 . 7 6 0 1 , . 4 5 3 9 . 6 7 8 8 1200 1000 800 600 400 200 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 120 Years of Community Banking In 2011, National Bankshares, Inc. celebrated its 25th anniversary. However, 25 years paled in comparison to National Bank’s 120th anniversary celebration in 2011. Many things have changed since Alexander Black opened the Bank in 1891 and since we formed National Bankshares in 1986. While the size of the numbers we report may have increased, what has not changed is the desire to help customers by providing them with a full range of quality financial services. We are able to benefit and improve the lives of generations of customers through true community banking and are recognized for more than just lending money and accepting deposits. Our officers and employees take a personal interest in our customers and in the communities we serve. We are relationship-driven, and personalized service will always be the cornerstone of our Bank. During the 120th anniversary year of the founding of National Bank, we were able to maintain strong core earnings despite continued challenges in the national and local economies that affect loan growth. Record net income for the twelve months ended December 31, 2011 approached $17.64 million, a 13.29% increase over the nearly $15.57 million earned in 2010. Our 2011 record earnings were enhanced by an increase in net interest income, which was driven by an improved net in- terest margin. Because interest rates remained low throughout the year, total interest income grew only slightly over that of 2010. However, total interest expense declined significantly, resulting in a 7.32% increase in net interest income, from $37.98 million for 2010 to over $40.76 million in 2011. The return on average assets for 2011 was 1.71% and the return on average equity was 12.89%. This compares to 1.57% and 12.07%, respectively, for 2010. Basic earnings per share were $2.54 in 2011 compared to $2.25 for 2010. National Bankshares, Inc. ended 2011 with total assets of almost $1.07 billion, up by 4.39% over the roughly $1.02 billion in total assets reported at December 31, 2010. Although some of our customers still are dealing with the effects of the recessionary economy, we saw improvement in our asset quality in 2011. Total nonperforming loans decreased from $8.07 million at the end of 2010 to $5.20 million at December 31, 2011. The ratio of nonperforming assets to loans net of unearned income and deferred fees, plus other real estate owned, decreased from 1.69% at year-end 2010 to 1.13% at the end of December 2011. National Bank’s lenders are still working hard to assist customers with the credit needs of our communities. At the end of 2011, National Bank had net loans of $580.40 million, a 2.04% increase from the $568.78 million in net loans at December 31, 2010. As I reported last year, a new federal law took effect that touches nearly every aspect of the financial services industry, in- cluding National Bankshares, Inc. and National Bank. Throughout 2011, banking and securities regulators implemented specific provisions of the Dodd-Frank Act, but the industry is still waiting for implementation of a large part of the Act. As was expected, even small community banks such as ours must bear the cost and the regulatory burden of correcting prob- lems caused by a few large financial services companies. For instance, rules limiting fees that banks can charge took effect in the second half of 2011. While some of these rules exempt banks like us that are less than $10 billion in size, we believe that a two-tiered fee system will not be practical and that the fees will migrate to those permitted for the banks in excess of $10 billion due to competitive pressures. Also, we expect additional overhead costs will be necessary to comply with all of the new regulations expected to arise directly or indirectly from the Dodd-Frank Act. While we attempt to mitigate compliance costs, 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. Despite the additional regulatory pressures, we were pleased to be able to share the National Bankshares’ positive operating results with our shareholders in the form of dividends of $1.00 per share in 2011 compared to $0.91 in 2010. Our 2011 anniversaries gave us an opportunity to reflect on our history, recent and old, and to put current challenges into perspective while helping us celebrate years of providing safe, secure and trusted banking. We are grateful to the Directors and Advisory Directors of National Bankshares, Inc. and National Bank for gener- ously sharing their time and talents. I also want to recognize our employees’ commitment to service which continues to impact those we serve in many positive ways. We remain committed to our community banking focus and to continuously creating long-term value and delivering outstanding results to our shareholders and customers. Thank you for your continued support and for the opportunity to serve you and earn your business each and every day. James G. Rakes Chairman, President & CEO 1 National Bankshares, Inc. Annual Report 2011Meet Our Team While we talk a lot about the numbers every year in our Annual Report, it is truly our people – our directors, employees, shareholders and customers – that define the National Bankshares family. In that spirit we’re pleased to introduce our senior management team. Experienced bankers and active participants in the community, their vision, leadership and hard work have made our continued success possible. From left: Phillip M. Baker, Senior Vice President/Loans; David K. Skeens, Senior Vice President/Operations & Risk Management, Treasurer & Chief Financial Officer; James G. Rakes, Chairman, President & Chief Executive Officer; F. Brad Denardo, Executive Vice President/Chief Operating Officer; Lawrence K. Hayes, Senior Vice President/Information Systems, Chief Information Officer; Shelby M. Evans, Vice President/Audit & Compliance. From left: Robert E. Bryant, Senior Vice President/Trust Officer; Jeffery L. Tickle, Senior Vice President/Regional Manager; Bryson J. Hunter, Senior Vice President, Secretary & Counsel; Lara E. Ramsey, Senior Vice President/ Administration; Frederick A. Reed, Jr., Senior Vice President/Regional Manager. 2 National Bankshares, Inc. Annual Report 2011National Bankshares, Inc. Annual Report 2011 Board of Directors National Bankshares, Inc. Standing, from left: Glenn P. Reynolds, President, Reynolds Architects, Inc.; William A. Peery, President, Cargo Oil Co., Inc.; Lawrence J. Ball, President, Moog Components Group; Charles E. Green, III, Financial Planner, AXA Advisors, L.L.C. 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, Retired; 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 Chief Executive Officer, National Bankshares Financial Services, Inc. 3 Consolidated Balance Sheets $ in thousands, except per share data Assets December 31, 2011) December 31, 2010) Cash and due from banks Interest-bearing deposits Securities available for sale, at fair value Securities held to maturity (fair value approximates $151,429 at December 31, 2011 and $129,913 at December 31, 2010) $ Total securities Mortgage loans held for sale Loans: Real estate construction loans Consumer real estate loans Commercial real estate loans Commercial non-real estate loans Public sector and IDA Consumer non-real estate loans 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 Bank-owned life insurance 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: 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, 6,939,974 shares in 2011 and 6,933,474 shares in 2010 Retained earnings Accumulated other comprehensive (loss), net Total stockholders’ equity Total liabilities and stockholders’ equity 4 $ $ $ 11,897) 98,355) 174,918) 143,995) 318,913) 2,623) 48,531) 150,224) 303,192) 38,832) 15,571) 33,072) 589,422) (952) 588,470) (8,068) 580,402) 10,393) 6,304) 1,489) 10,460) 19,812) 6,454) 1,067,102) 142,163) 404,801) 61,298) 311,071) 919,333) 206) 6,264) 925,803) ---) $ $ $ 9,858) 69,400) 184,907) 131,000) 315,907) 2,460) 46,169) 153,405) 293,171) 37,547) 12,553) 34,543) 577,388) (945) 576,443) (7,664) 568,779) 10,470) 6,016) 1,723) 11,543) 17,252) 8,830) 1,022,238) 131,540) 365,040) 55,800) 332,203) 884,583) 257) 8,211) 893,051) ---) ---) ---) 8,675) 133,945) (1,321) 141,299) 1,067,102) 8,667) 123,161) (2,641) 129,187) 1,022,238) $ National Bankshares, Inc. Annual Report 2011 Consolidated Statements of Income $ in thousands, except per share data 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 common share Fully diluted net income per common share Years ended December 31, 2011) 36,514) 155) 6,745) 6,532) 49,946) 2,019) 7,165) ---) 9,184) 40,762) 2,949) 37,813) 2,617) 287) 3,197) 1,087) 762) 449) 11) 8,410) 11,357) 1,599) 1,701) 677) 2,485) 1,083) 518) 780) 3,138) 23,338) 22,885) 5,247) 17,638) 2.54) 2.54) $ $ $ $ 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 $ $ $ $ 5 National Bankshares, Inc. Annual Report 2011 Board of Directors National Bank Standing, from left: Michael E. Dye, Pharmacist/Owner, New Graham Pharmacy; Dr. J. Lewis Webb, Jr., Retired Dentist; Carl N. McNeil, Realtor, Founder McNeil Real Estate, Inc. Seated from left: James C. Thompson, Chairman, Thompson & Litton, Inc.; Ellen G. Burnop, Co- Owner and President, New River Office Supply, Inc.; Dr. James M. Shuler, Delegate, Virginia House of Delegates, Retired; F. Brad Denardo, Executive Vice President, National Bankshares, Inc., Executive Vice President/Chief Operating Officer, National Bank, Treasurer, National Bankshares Financial Services, Inc.; James G. Rakes, Chairman, President and Chief Executive Officer, National Bankshares, Inc., Chairman, President and Chief Executive Officer, National Bank, Chairman, President and Chief Executive Officer, 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 6 Our Locations Virginia 7 Corporate Information National Bankshares, Inc. Executive Officers James G. Rakes Chairman, President and Chief Executive Officer F. Brad Denardo Executive Vice President David K. Skeens Treasurer and Chief Financial Officer Bryson J. Hunter Secretary and Counsel Annual Meeting The Annual Meeting of Stockholders will be held on Tuesday, April 10, 2012 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: Bryson J. Hunter Secretary and Counsel (540) 951-6300 or (800) 552-4123 bhunter@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 (800) 552-4123 8 National Bankshares, Inc. Annual Report 2011 Our Mission 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. National Bankshares 101 Hubbard Street | P.O. Box 90002 Blacksburg, Virginia 24062-9002 www.nationalbankshares.com 

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