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