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focus
Personal
attention
Strength &
stability
A future you can bank on
2012 Annual Report
National Bankshares
Financial
Highlights
In 2012, National Bankshares increased net income,
total assets and net loans in what remains a challenging
economic environment.
By executing our core philosophy of providing excellent customer service, making
prudent loans and serving the needs of our communities, we were able to continue
our tradition of rewarding shareholders with an increased dividend.
2012
2011
2010
2009
2008
Net income
$ 17,747
$ 17,638
$ 15,569
$ 14,319
$ 13,593
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
2.56
2.55
1.10
21.60
583,813
352,043
2.54
2.54
1.00
20.36
580,402
318,913
2.25
2.24
0.91
18.63
568,779
315,907
1,104,361
1,067,102
1,022,238
946,766
150,109
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
Net Income
($ in millions)
Cash Dividends Per Share
($)
Book Value Per Share
($)
6
.
7
1
7
.
7
1
6
.
5
1
.
3
4
1
6
.
3
1
20
15
10
5
0
0
1
.
1
0
0
.
1
1
9
.
0
4
8
.
0
0
8
.
0
1.2
1.0
0.8
0.6
0.4
0.2
0.0
25
20
15
10
5
0
0
6
.
1
2
6
3
.
0
2
3
6
.
8
1
1
6
.
7
1
9
8
.
5
1
2008 2009 2010 2011 2012
2008 2009 2010 2011 2012
2008 2009 2010 2011 2012
Loans, Net
($ in millions)
Total Assets
($ in millions)
7
.
9
6
5
0
.
3
8
5
8
.
8
6
5
4
.
0
8
5
8
.
3
8
5
600
500
400
300
200
100
0
4
.
2
8
9
2
.
2
2
0
,
1
4
.
5
3
9
4
.
4
0
1
,
1
1
.
7
6
0
,
1
1200
1000
800
600
400
200
0
2008 2009 2010 2011 2012
2008 2009 2010 2011 2012
To Our
Shareholders
We are pleased to provide you with National Bankshares’ 2012 financial results.
During our 121st year of community banking, we are proud to report to you that
we have again achieved record earnings even with the continued economic and
regulatory challenges that we are facing and will continue to face.
Increased Earnings in 2012
to work to maximize our net interest margins, control
In 2012, Bankshares earned close to $17.75 million, a
our costs and explore new ways to enhance our revenue
slight increase over the $17.64 million earned in 2011.
streams.
This resulted in a return on average assets of 1.64% and
a return on average equity of 12.01%. In spite of the
Growth in Other Key Areas
fact that interest rates remain at historically low levels
causing our net interest margin to decrease from 4.59%
to 4.38%, this increase in earnings resulted primarily from
a small increase in our net interest income from $40.76
million in 2011 to $40.78 million in 2012 and from a nice
By the end of 2012, your Company has grown to total
assets of $1.10 billion, an increase of 3.49% from
$1.07 billion at December 31, 2011. Our good earnings
mentioned above and our increase in total assets has
allowed our basic earnings per share to increase to $2.56
improvement in our noninterest income from $8.41
from the $2.54 reported last year.
million in 2011 to $8.74 million in 2012. We will continue
>>>
National Bankshares Executive Officers (from left): F. Brad Denardo, Executive Vice President/Chief Operating Officer;
James G. Rakes, Chairman, President & Chief Executive Officer; David K. Skeens, Senior Vice President/Operations & Risk
Management, Treasurer & Chief Financial Officer.
1
To Our
Shareholders
Bankshares continues to perform well, and in return for
that performance we were pleased to be able to increase
the dividends paid to our stockholders to $1.10 per share
from the total dividend of $1.00 paid in 2011.
Loan Portfolio Offers Challenges
Delivering Dividends
We continue to have challenges in our loan portfolio.
The challenges mentioned above notwithstanding,
Our total nonperforming loans increased to $5.62 million
Bankshares continues to perform well, and in return for
at the end of 2012 from $5.20 million in 2011. Although
that performance we were pleased to be able to increase
these numbers compare very favorably with our peer
the dividends paid to our stockholders to $1.10 per share
institutions, we are devoting a great deal of attention
from the total dividend of $1.00 paid in 2011. This resulted
to them. To further compensate for this increase,
in an increase in the dividend payout ratio to 43.04% in
our allowance for loan losses at the end of 2012 was
2012 from the ratio of 39.34% in 2011.
increased to $8.35 million, or 1.41% of outstanding loans,
an increase from $8.07 million, or 1.37% of outstanding
Thank You
loans, at December 31, 2011.
As always, we are extremely grateful to the Directors
and Advisory Directors of National Bankshares and the
Regulations Continue to Increase
National Bank for the time, energy, talents and dedication
Bankshares and National Bank continue to be subjected
they continue to give to us. I also want to thank our
to additional regulatory burdens imposed by laws that
employees whose efforts continue to prove the value of
emanated from the economic downturn. These new
a community banking model that emphasizes superior
regulations limit our ability to realize revenue in certain
customer service and the development of strong
areas of our Company and they certainly add to our
business relationships. And lastly, I want to thank you, our
compliance costs. Since there appears to be no end
stockholders, for your continued support and trust.
in sight to the new regulations, we will continue to
devote the resources necessary to comply with all new
requirements while at the same time trying to minimize
the impact on our loyal customers.
Creating a Better Customer Experience
We continue to invest in technology that improves our
customers’ banking experience. In 2012 we introduced
an improved version of our Internet Banking that is more
user-friendly and now includes paperless eStatements
for our customers. Early in 2013 we introduced Mobile
Banking. This new product will allow our many customers
to manage their accounts anytime and from anywhere
through their mobile devices.
2
James G. Rakes
Chairman, President &
Chief Executive Officer
National
Bankshares,
Inc. Board of
Directors
National Bankshares recognizes the importance of an
active, accountable and representative board of directors
in the leadership of our Company.
We are fortunate to work with leaders from public and private institutions that
represent some of the key economic sectors in our region. Their experience,
vision and high ethical standards contribute greatly to the success of our
Company and we are proud to have them as part of our team.
Glenn P. Reynolds
President
Reynolds Architects, Inc.
Dr. James M. Shuler
Delegate
Virginia House of Delegates, Retired
Lawrence J. Ball
President
Moog Components Group
John E. Dooley
Chief Executive Officer
Virginia Tech Foundation, Inc.
Charles E. Green, III
Financial Planner
AXA Advisors, L.L.C.
Dr. Jack M. Lewis
President
New River Community College
William A. Peery
President
Cargo Oil Co., Inc.
Dr. Mary G. Miller
President
Interactive Design and
Development, 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.
Standing, from left: Glenn P. Reynolds, Lawrence J. Ball, William A. Peery, John E. Dooley.
Seated, from left: Charles E. Green, III, Dr. Mary G. Miller, Dr. James M. Shuler, Dr. Jack M. Lewis, James G. Rakes.
3
Consolidated
Balance
Sheets
Assets
December 31, 2012)
December 31, 2011)
Cash and due from banks
Interest-bearing deposits
Securities available for sale, at fair value
Securities held to maturity (fair value approximates $170,846 at
December 31, 2012 and $151,429 at December 31, 2011)
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, 6,947,974 shares in 2012 and 6,939,974
shares in 2011
Retained earnings
Accumulated other comprehensive (loss), net
Total stockholders’ equity
Total liabilities and stockholders’ equity
4
$
$
$
$
14,783)
96,597)
191,504)
160,539)
352,043)
2,796)
50,313)
143,262)
304,308)
37,349)
26,169)
31,714)
593,115)
(953)
592,162)
(8,349)
583,813)
10,401)
6,247)
1,435)
9,377)
20,523)
6,346)
1,104,361)
144,252)
455,713)
69,063)
277,738)
946,766)
139)
7,347)
954,252)
---)
$
$
$
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)
---)
---)
---)
8,685)
144,162)
(2,738)
150,109)
1,104,361)
8,675)
133,945)
(1,321)
141,299)
1,067,102)
$
Consolidated
Statements of
Income
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
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)
$
$
$
$
2012)
35,354)
240)
6,613)
6,463)
48,670)
1,491)
6,396)
7,887)
40,783)
3,134)
37,649)
2,594)
243)
3,278)
1,313)
814)
472)
25)
8,739)
12,005)
1,589)
1,593)
475)
2,442)
1,083)
208)
901)
3,100)
23,396)
22,992)
5,245)
17,747)
2.56)
2.55)
$
$
$
$
5
National Bank
Board of
Directors
Standing, from left: Michael E. Dye, Pharmacist/Owner, New Graham Pharmacy; Dr. J.
Lewis Webb, Jr., Retired Dentist; James C. Thompson, Chairman, Thompson & Litton, Inc.
Seated from left: Dr. James M. Shuler, Delegate, Virginia House of Delegates, Retired;
Mildred R. Johnson, Director of Undergraduate Admissions, Virginia Polytechnic Institute
and State University; 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, 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
6
About National Bankshares
Headquartered in Blacksburg, Virginia, National Bankshares, Inc. is committed
to providing comprehensive and personalized financial service solutions
for individuals, businesses and institutions in communities throughout
Southwest Virginia. We offer a complete line of banking products and services
through our primary subsidiary, National Bank, a 121 year-old community
bank with 25 branch offices. We also offer a full spectrum of insurance and
investment solutions through our financial services subsidiary, National
Bankshares Financial Services, Inc.
For more information, visit the National Bankshares website at:
www.nationalbankshares.com
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
Annual Meeting
The Annual Meeting of Stockholders
will be held on Tuesday, April 9, 2013
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”.
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
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
8
National Bankshares
101 Hubbard Street P.O. Box 90002
Blacksburg, Virginia 24062-9002
www.nationalbankshares.com