# EDGAR Filing Document

**Accession Number:** 0000796534
**File Stem:** 0001437749-23-002377
**Filing Date:** 2023-2
**Character Count:** 36830
**Document Hash:** e4673f874a82e1d5eb57b7d74b5a900d
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001437749-23-002377.hdr.sgml**: 20230202

**ACCESSION NUMBER**: 0001437749-23-002377

**CONFORMED SUBMISSION TYPE**: 8-K

**PUBLIC DOCUMENT COUNT**: 15

**CONFORMED PERIOD OF REPORT**: 20230202

**ITEM INFORMATION**: Results of Operations and Financial Condition

**ITEM INFORMATION**: Financial Statements and Exhibits

**FILED AS OF DATE**: 20230202

**DATE AS OF CHANGE**: 20230202

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** NATIONAL BANKSHARES INC
- **CENTRAL INDEX KEY:** 0000796534
- **STANDARD INDUSTRIAL CLASSIFICATION:** NATIONAL COMMERCIAL BANKS [6021]
- **IRS NUMBER:** 541375874
- **STATE OF INCORPORATION:** VA
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 8-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 000-15204
- **FILM NUMBER:** 23581437

**BUSINESS ADDRESS:**
- **STREET 1:** 101 HUBBARD STREET
- **STREET 2:** PO BOX 90002
- **CITY:** BLACKSBURG
- **STATE:** VA
- **ZIP:** 24060
- **BUSINESS PHONE:** 540-951-6300

**MAIL ADDRESS:**
- **STREET 1:** 101 HUBBARD STREET
- **STREET 2:** PO BOX 90002
- **CITY:** BLACKSBURG
- **STATE:** VA
- **ZIP:** 24060

nksh20230127_8k.htm

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Form **8-K**

**CURRENT REPORT**

**Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934**

Date of Report (Date of earliest event reported) February 2, 2023

**NATIONAL BANKSHARES, INC.**

(Exact name of Registrant as specified in its charter)

---

| | | |
|:---|:---|:---|
| **Virginia** | **0-15204** | **54-1375874** |
| (State or other jurisdiction<br> of incorporation) | (Commission File No.) | (I.R.S. Employer Identification No.) |

---

**101 Hubbard Street**

**Blacksburg**, **VA 24060**

(Address of principal executive offices)

**(**540**) **951-6300**

(Registrant's telephone number, including area code)

(Former name or former address, if changed since last report) **Not applicable**

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

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| | | |
|:---|:---|:---|
| &nbsp;&nbsp;&nbsp; Title of each class | &nbsp;&nbsp;&nbsp; Trading Symbol(s) | &nbsp;&nbsp;&nbsp; Name of each exchange on which registered |
| &nbsp;&nbsp;&nbsp; Common Stock | &nbsp;&nbsp;&nbsp; NKSH | &nbsp;&nbsp;&nbsp; NASDAQ |

---

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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ITEM 2.02. **RESULTS OF OPERATIONS, FINANCIAL STATEMENTS AND EXHIBITS**

On February 2, 2023, National Bankshares, Inc. issued a press release announcing and commenting on its financial results for the year and quarter ended December 31, 2022. A copy of the press release is attached as Exhibit 99.1.

ITEM 9.01. **FINANCIAL STATEMENTS AND EXHIBITS**

(d) Exhibits

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| | |
|:---|:---|
| 99.1 | [National Bankshares, Inc. Press Release, dated February 2, 2023.](ex_469299.htm) |

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| | |
|:---|:---|
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |

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SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NATIONAL BANKSHARES, INC.

Date: February 2, 2023

---

| |
|:---|
| By: /s/ F. Brad Denardo |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;F. Brad Denardo<br> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chairman, President & CEO |

---

Page 2 of 2 Pages

## Exhibit 99.1

**Exhibit 99.1**

![a01.jpg](a01.jpg)

**<u>FOR IMMEDIATE RELEASE</u>**

---

| | | |
|:---|:---|:---|
| **CONTACTS:** | F. Brad Denardo, Chairman, President & CEO<br> (540) 951-6213 <u>bdenardo@nbbank.com</u>  | Lora M. Jones, Treasurer & CFO<br> (540) 951-6238 <u>ljones@nbbank.com</u> |

---

**<u>National Bankshares, Inc. Reports Results for the Fourth Quarter and Twelve Months Ended December 31, 2022</u>**

BLACKSBURG, VA., February 2, 2023 -- National Bankshares, Inc. ("the Company") (Nasdaq: NKSH), parent company of The National Bank of Blacksburg ("the Bank"), today announced its results of operations for the year and quarter ended December 31, 2022. The Company reported net income for the year of $25.93 million, or $4.33 per common share, and $9.31 million, or $1.57 per common share, for the fourth quarter. This compares to net income for the year ended December 31, 2021 of $20.38 million, or $3.28 per common share. National Bankshares, Inc. ended December 31, 2022 with total assets of $1.68 billion.

President and CEO, F. Brad Denardo commented, "National Bankshares performed very well in 2022. Solid core income growth was bolstered by a gain on the sale of a private equity investment, leading to outstanding earnings for the year. These good earnings translated directly to improved shareholder value, with increased regular dividend payments in 2022 and a special dividend payment in the first quarter of 2023. On behalf of the Board of Directors and the employees of National Bankshares, we thank our shareholders for their continued support."

**Highlights** 

<u>Income Statement</u>

Sale of the private equity investment generated a gain of $3.82 million before tax and $3.02 million after tax during the fourth quarter of 2022. Excluding this gain, "core" net income<sup>(1)</sup> for the year was $22.91 million, or $3.83 per common share. For the fourth quarter, core net income was $6.29 million, or $1.06 per common share.

Core net income grew $2.53 million, or 12.41%, when results for the years ended December 31, 2022 and 2021 are compared. The primary driver of growth was expansion in net interest income. When results for the fourth quarter of 2022 are compared with results from the third quarter of 2022, core net income grew $128 thousand, or 2.08%, primarily due to net interest income.

*Net Interest Income*

Federal Reserve interest rate increases in 2022 as well as growth in earning assets expanded interest income. When results for the years ended December 31, 2022 and 2021 are compared, fully taxable equivalent ("FTE") interest income**<sup>(1)</sup>** increased $5.08 million. Paycheck Protection Program ("PPP") loans boosted interest and fees on loans by $2.71 million in 2021, and were essentially paid off by December 31, 2021.

Interest expense improved $15 thousand and the cost of interest-bearing liabilities improved from 0.28% to 0.26% when results for the years ended December 31, 2022 and 2021 are compared. Elevated levels of deposits and liquidity within the Company, similar to the general banking industry, supported favorable deposit pricing during 2022. During the latter half of 2022, pricing pressure increased, resulting in higher costs for certain large depositors during the fourth quarter.

If the Federal Reserve increases rates or holds rates steady, we expect increased yields on adjustable-rate and new earning assets, as well as increased deposit costs.

*Provision for (Recovery of) Loan Losses*

Provision expense for the year ended December 31, 2022 was $706, compared with a recovery of $398 for the year ended December 31, 2021. Provision expense for the fourth quarter of 2022 was $10, compared with $252 for the third quarter of 2022. Robust loan growth during 2022 was the primary driver of the increase in provision during 2022. The recovery for 2021 was primarily the result of economic conditions that improved as the impact of the pandemic began to recede.

101 Hubbard Street / Blacksburg, Virginia 24060<br> P.O. Box 90002 / Blacksburg, Virginia 24062-9002<br> 540 951-6300 / 800 552-4123<br> www.nationalbankshares.com

------

*Service Charges on Deposit Accounts and Pension Expense*

Service charges on deposit accounts increased $380 thousand when results for the years ended December 31, 2022 and 2021 are compared. Fees for overdraft and nonsufficient funds provided most of the increase, as depositor activity recovered from lower levels earlier in the COVID-19 pandemic.

Pension expense is determined at the beginning of each year by actuarial calculations incorporating demographic and market assumptions. When the years ended December 31, 2022 and 2021 are compared, lower pension expense reduced salary expense by $148 thousand, and decreased other noninterest expense by $597 thousand. Pension expense is subject to fluctuations in equity and bond markets and may differ in coming years.

<u>Balance Sheet</u>

*Deposits*

Customer deposits increased $48.14 million, or 3.22%, from December 31, 2021 to December 31, 2022. From September 30, 2022 to December 31, 2022, the Company began experiencing increased competition and customer deposits decreased $27.92 million.

*Loans*

Loans, net of unearned income and deferred cost, grew by $49.50 million, or 6.16%, when December 31, 2022 is compared with December 31, 2021. Loan volume remained stable from September 30, 2022 to December 31, 2022. During 2022, the Company expanded its lending footprint, opening two new loan production offices in Charlottesville and Staunton.

Loan quality continues to reflect low credit risk, with net charge-offs of $155 thousand, or 0.02% of average loans, for the year ended December 31, 2022. This compares with $409 thousand, or 0.05%, for the year ended December 31, 2021. The allowance for loan losses as a percentage of loans was 0.96% on December 31, 2022 and December 31, 2021.

*Securities*

Securities available for sale at December 31, 2022 decreased $29.23 million from December 31, 2021. Securities are reported at market value, which moves inversely to interest rate movements. The Federal Reserve's aggressive rate hikes during 2022 led to an unrealized loss of $103.07 million at December 31, 2022. This compares with an unrealized gain of $3.61 million at December 31, 2021. The Company's Asset Liability Management Committee is closely monitoring interest rate risk on all of the Company's financial assets and liabilities, and as of December 31, 2022, there are no credit risk concerns with any of the Company's securities.

*Stockholders*' *Equity*

Stockholders' equity decreased $69.06 million, or 36.02%, from December 31, 2021 to December 31, 2022. The ratio of tangible common equity to tangible assets**<sup>(1)</sup>** decreased from 10.96% at December 31, 2021 to 6.99% at December 31, 2022, but improved from 6.28% from September 30, 2022. The unrealized loss on securities impacts stockholders' equity through Accumulated Other Comprehensive Loss. Accumulated Other Comprehensive Loss is excluded from the Bank's regulatory capital and does not impact regulatory capital ratios. The Bank is considered well capitalized, with capital ratios considerably higher than minimum regulatory requirements, and meets all requirements for borrowing from the Federal Home Loan Bank of Atlanta.

The Company paid a cash dividend of $0.78 per common share during the fourth quarter and $0.72 per common share during the second quarter. Share repurchases totaled 67,588 shares during the fourth quarter. For the year ended December 31, 2022, repurchases totaled 174,250 shares. The combined shareholder pay-out of dividends and share repurchases in 2022 totaled $15.29 million, or 58.95% of net income.

<u>Key Ratios</u> 

Key ratios improved when results for 2022 are compared with 2021, including the return on average equity, return on average assets, dividend yield and efficiency ratio.

*Return on Average Equity*

The return on average equity for the year ended December 31, 2022 was 17.81%, compared with 10.59% for the year ended December 31, 2021. Excluding the impact of Accumulated Other Comprehensive Loss, the return on average equity for 2022 was 12.92%, improved from 10.37% for 2021. Using "core" net income and excluding Accumulated Other Comprehensive Loss, return on average equity for 2022 was 11.42%.

*Return on Average Assets*

The return on average assets improved from 1.26% for the year ended December 31, 2021 to 1.52% for the year ended December 31, 2022. Excluding the impact of the unrealized gain (loss) on securities, return on average assets was 1.48% for 2022, compared with 1.26% for 2021. Using "core" net income and excluding the impact of the unrealized loss on securities, return on average assets for 2022 was 1.31%.

------

*Dividend Yield*

The Company's dividend yield improved from 4.04% for the year ended December 31, 2021 to 4.27% for the year ended December 31, 2022.

*Efficiency Ratio*

The Company's efficiency ratio**<sup>(1)</sup>** improved from 51.34% for the year ended December 31, 2021 to 48.01% for the year ended December 31, 2022.

**<sup>(1)</sup>** **Non-GAAP Financial Measures**

In addition to financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), the Company uses certain non-GAAP financial measures that provide useful information for financial and operational decision making, evaluating trends, and comparing financial results to other financial institutions. The non-GAAP financial measures presented in this document include core net income, FTE interest income, the net interest margin, the efficiency ratio, tangible common equity to tangible assets, average assets excluding the impact of unrealized securities loss and average equity excluding accumulated other comprehensive income (loss).

Core net income is only used for 2022 and excludes the one-time gain on the sale of a private equity investment. Interest income and the net interest margin are presented on an FTE basis, using the federal statutory income tax rate of 21%. Efficiency ratio is calculated as noninterest expense divided by the sum of noninterest income, less non-recurring items, and net interest income on an FTE basis. Tangible common equity and tangible assets exclude goodwill. The Company believes certain non-GAAP financial measures enhance the understanding of its business and performance. Non-GAAP financial measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP and may not be comparable to those reported by other financial institutions. For a reconciliation of non-GAAP financial measures, see "Reconciliation of Non-GAAP Financial Measures" at the end of this release.

**About National Bankshares**

National Bankshares, Inc., headquartered in Blacksburg, Virginia, is the parent company of The National Bank of Blacksburg, which does business as National Bank, and of National Bankshares Financial Services, Inc. National Bank is a community bank operating from 24 full-service offices, primarily in southwest Virginia, and three loan production offices. National Bankshares Financial Services, Inc. is an investment and insurance subsidiary in the same trade area. The Company's stock is traded on the Nasdaq Capital Market under the symbol "NKSH." Additional information is available at www.nationalbankshares.com.

*Forward-Looking Statements*

*Certain statements in this press release may be* "*forward-looking statements.*" *Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about future events or results that are not statements of historical fact and that involve significant risks and uncertainties. Although the Company believes that its expectations with regard to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual Company results will not differ materially from any future results implied by the forward-looking statements. Actual results may be materially different from past or anticipated results because of many factors, some of which may include changes in economic conditions, the interest rate environment, legislative and regulatory requirements, new products, competition, changes in the stock and bond markets, and technology. The Company is not obligated to update any forward-looking statements that it may make.*

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**National Bankshares, Inc.** 

**Consolidated Balance Sheets**

**(Unaudited)**

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| | | | |
|:---|:---|:---|:---|
| **($ in thousands, except per share data)** | **December 31,** <br> **2022** | **September 30,** <br> **2022** | **December 31,** <br> **2021** |
| **Assets** |  |  |  |
| Cash and due from banks | $**12403** | $10957 | $8768 |
| Interest-bearing deposits | **59026** | 79466 | 130021 |
| Securities available for sale, at fair value | **656852** | 657410 | 686080 |
| Restricted stock | **941** | 941 | 845 |
| Mortgage loans held for sale | **-** |  | 615 |
| Loans: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loans, net of unearned income and deferred fees and costs | **852744** | 852863 | 803248 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Less: allowance for loan losses | **(8225)** | (8207) | (7674) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loans, net | **844519** | 844656 | 795574 |
| Premises and equipment, net | **10371** | 10183 | 9722 |
| Accrued interest receivable | **6001** | 5822 | 5104 |
| Other real estate owned, net | **662** | 907 | 957 |
| Goodwill | **5848** | 5848 | 5848 |
| Bank-owned life insurance | **43312** | 43072 | 42354 |
| Other assets | **37616** | 39684 | 16287 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total assets** | $**1677551** | $1698946 | $1702175 |
| **Liabilities and Stockholders' Equity** |  |  |  |
| Noninterest-bearing deposits | $**327713** | $358772 | $317430 |
| Interest-bearing demand deposits | **933269** | 917449 | 890124 |
| Savings deposits | **214114** | 217405 | 208065 |
| Time deposits | **67629** | 77023 | 78968 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total deposits | **1542725** | 1570649 | 1494587 |
| Accrued interest payable | **106** | 40 | 48 |
| Other liabilities | **12033** | 16070 | 15789 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total liabilities** | **1554864** | 1586759 | 1510424 |
| 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 5,889,687 shares at December 31, 2022, 5,957,275 shares at September 30, 2022 and 6,063,937 shares at December 31, 2021 | **7362** | 7447 | 7580 |
| Retained earnings | **199091** | 196941 | 188229 |
| Accumulated other comprehensive loss, net | **(83766)** | (92201) | (4058) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total stockholders' equity** | **122687** | 112187 | 191751 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Total liabilities and stockholders' equity** | $**1677551** | $1698946 | $1702175 |

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**National Bankshares, Inc.**

**Consolidated Statements of Income**

**(Unaudited)**

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended**  | **Three Months Ended**  | **Twelve Months Ended** | **Twelve Months Ended** |
| **($ in thousands, except per share data)** | **December 31,** <br> **2022** | **September 30,** <br> **2022** | **December 31,** <br> **2022** | **December 31,** <br> **2021** |
| **Interest Income** |  |  |  |  |
| Interest and fees on loans | $**9013** | $8816 | $**34253** | $34923 |
| Interest on interest-bearing deposits | **596** | 506 | **1353** | 170 |
| Interest on securities - taxable | **3941** | 3425 | **12788** | 7960 |
| Interest on securities - nontaxable | **432** | 408 | **1715** | 1934 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total interest income | **13982** | 13155 | **50109** | 44987 |
| **Interest Expense** |  |  |  |  |
| Interest on time deposits | **36** | 31 | **141** | 267 |
| Interest on other deposits | **992** | 722 | **2942** | 2831 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total interest expense | **1028** | 753 | **3083** | 3098 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net interest income | **12954** | 12402 | **47026** | 41889 |
| Provision for (recovery of) loan losses | **10** | 252 | **706** | (398) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net interest income after provision for (recovery of) loan losses | **12944** | 12150 | **46320** | 42287 |
| **Noninterest Income**  |  |  |  |  |
| Service charges on deposit accounts | **599** | 661 | **2425** | 2045 |
| Other service charges and fees | **57** | 51 | **214** | 179 |
| Credit and debit card fees, net | **493** | 448 | **1916** | 1869 |
| Trust income | **443** | 492 | **1817** | 1792 |
| BOLI income | **240** | 239 | **958** | 910 |
| Gain on sale of mortgage loans | **21** | 40 | **157** | 364 |
| Gain on sale of private equity investment | **3823** |  | **3823** |  |
| Other income | **182** | 209 | **1091** | 1261 |
| Realized securities gain, net | **-** |  | **-** | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total noninterest income | **5858** | 2140 | **12401** | 8426 |
| **Noninterest Expense** |  |  |  |  |
| Salaries and employee benefits | **4386** | 4144 | **16519** | 15747 |
| Occupancy and furniture and fixtures | **502** | 476 | **1934** | 1842 |
| Data processing and ATM | **832** | 774 | **3186** | 3039 |
| FDIC assessment | **141** | 114 | **477** | 422 |
| Net costs of other real estate owned | **247** | 68 | **325** | 51 |
| Franchise taxes | **375** | 375 | **1483** | 1425 |
| Other operating expenses | **815** | 785 | **3034** | 3554 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total noninterest expense | **7298** | 6736 | **26958** | 26080 |
| Income before income tax expense | **11504** | 7554 | **31763** | 24633 |
| Income tax expense | **2194** | 1392 | **5831** | 4251 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Net Income**  | $**9310** | $6162 | $**25932** | $20382 |
| Basic and fully diluted net income per common share | $**1.57** | $1.03 | $**4.33** | $3.28 |
| Weighted average number of common shares outstanding |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Basic and Diluted | **5933201** | 5974961 | **5989601** | 6209929 |
| Dividends declared per common share | $**0.78** | $- | $**1.50** | $1.44 |
| Dividend payout ratio | **-** |  | **34.51%** | 43.20% |
| Book value per share | $**20.83** | $18.83 | $**20.83** | $31.62 |

---

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**National Bankshares, Inc.**

**Consolidated Statements of Comprehensive Income (Loss) Income**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **Three Months Ended** | **Three Months Ended** |
| **($ in thousands)** | **December 31,**<br> **2022** | **September 30,** <br> **2022** |
| Net income | $**9310** | $6162 |
| **Other Comprehensive Income (Loss), Net of Tax** |  |  |
| Unrealized holding gain (loss) on available for sale securities net of tax of $1,028 for the period ended December 31, 2022 and ($7822) for the period ended September 30, 2022 | **3868** | (29424) |
| Net pension gain arising during the period, net of taxes of $1,214 for the period ended December 31, 2022 | **4567** |  |
| Other comprehensive income (loss), net of tax | $**8435** | $(29424) |
| **Total Comprehensive Income (Loss)**  | $**17745** | $(23262) |

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| | | |
|:---|:---|:---|
|  | **Twelve Months Ended** | **Twelve Months Ended** |
| **($ in thousands)** | **December 31,** <br> **2022** | **December 31,** <br> **2021** |
| Net income | $**25932** | $20382 |
| **Other Comprehensive Loss, Net of Tax** |  |  |
| Unrealized holding loss on available for sale securities net of tax of ($22403) for the period ended December 31, 2022 and ($2740) for the period ended December 31, 2021 | **(84275)** | (10308) |
| Reclassification adjustment for gain included in net income, net of tax of ($1) for the period ended December 31, 2021 | **-** | (5) |
| Net pension gain arising during the period, net of tax of $1,214 for the period ended December 31, 2022 and $862 for the period ended December 31, 2021 | **4567** | 3244 |
| Less amortization of prior service cost included in net periodic pension cost, net of tax of ($2) for the period ended December 31, 2021 | **-** | (9) |
| Other comprehensive loss, net of tax | $**(79708)** | $(7078) |
| **Total Comprehensive (Loss) Income** | $**(53776)** | $13304 |

---

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**National Bankshares, Inc.**

**Net Interest Margin**

**(Unaudited)**

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Three Months Ended December 31, 2022** | **Three Months Ended December 31, 2022** | **Three Months Ended December 31, 2022** | **Three Months Ended September 30, 2022** | **Three Months Ended September 30, 2022** | **Three Months Ended September 30, 2022** |
|  | **Average**<br> **Balance** | **Interest** | **Average**<br> **Yield/**<br> **Rate** | **Average**<br> **Balance** | **Interest** | **Average**<br> **Yield/**<br> **Rate** |
| Interest-earning assets: |  |  |  |  |  |  |
| Loans <sup>(1)(2)(4)</sup> | $**845373** | $**9095** | **4.27%** | $849929 | $8900 | 4.15% |
| Taxable securities <sup>(5)(6)</sup> | **689370** | **3941** | **2.27%** | 683490 | 3425 | 1.99% |
| Nontaxable securities <sup>(1)(5)</sup> | **74540** | **580** | **3.09%** | 74670 | 556 | 2.95% |
| Interest-bearing deposits | **62393** | **596** | **3.79%** | 89165 | 506 | 2.25% |
| Total interest-earning assets | $**1671676** | $**14212** | **3.37%** | $1697254 | $13387 | 3.13% |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Interest-bearing demand deposits | $**908209** | $**955** | **0.42%** | $936368 | $686 | 0.29% |
| Savings deposits | **215594** | **37** | **0.07%** | 217637 | 36 | 0.07% |
| Time deposits | **70874** | **36** | **0.20%** | 78198 | 31 | 0.16% |
| Total interest-bearing liabilities | $**1194677** | $**1028** | **0.34%** | $1232203 | $753 | 0.24% |
| Net interest income and interest rate spread |  | $**13184** | **3.03%** |  | $12634 | 2.89% |
| Net yield on average interest-earning assets |  |  | **3.13%** |  |  | 2.95% |

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Twelve Months Ended December 31, 2022** | **Twelve Months Ended December 31, 2022** | **Twelve Months Ended December 31, 2022** | **Twelve Months Ended December 31, 2021** | **Twelve Months Ended December 31, 2021** | **Twelve Months Ended December 31, 2021** |
|  | **Average**<br> **Balance** | **Interest** | **Average**<br> **Yield/**<br> **Rate** | **Average**<br> **Balance** | **Interest** | **Average**<br> **Yield/**<br> **Rate** |
| Interest-earning assets: |  |  |  |  |  |  |
| Loans <sup>(1)(3)(4)</sup> | $**833226** | $**34579** | **4.15%** | $787754 | $35241 | 4.47% |
| Taxable securities <sup>(5)(6)</sup> | **669515** | **12788** | **1.91%** | 524818 | 7960 | 1.52% |
| Nontaxable securities <sup>(1)(5)</sup> | **75487** | **2308** | **3.06%** | 80059 | 2577 | 3.22% |
| Interest-bearing deposits | **88963** | **1353** | **1.52%** | 133020 | 170 | 0.13% |
| Total interest-earning assets <sup>(7)</sup> | $**1667191** | $**51028** | **3.06%** | $1525651 | $45948 | 3.01% |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Interest-bearing demand deposits | $**910989** | $**2794** | **0.31%** | $811661 | $2657 | 0.33% |
| Savings deposits | **216414** | **148** | **0.07%** | 190997 | 174 | 0.09% |
| Time deposits | **77686** | **141** | **0.18%** | 86089 | 267 | 0.31% |
| Total interest-bearing liabilities | $**1205089** | $**3083** | **0.26%** | $1088747 | $3098 | 0.28% |
| Net interest income and interest rate spread |  | $**47945** | **2.80%** |  | $42850 | 2.73% |
| Net yield on average interest-earning assets |  |  | **2.88%** |  |  | 2.81% |

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<sup>(1)</sup> Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%. See "Reconciliation of Non-GAAP Financial Measures" at the end of this release.

<sup>(2)</sup> Interest income includes loan fees of $35 and $82 for the three months ended December 31, 2022 and September 30, 2022, respectively.

<sup>(3)</sup> Interest income includes loan fees of $230 and $2,558 for the twelve months ended December 31, 2022 and 2021, respectively.

<sup>(4)</sup> Includes loans held for sale and nonaccrual loans.

<sup>(5)</sup> Daily averages are shown at amortized cost.

<sup>(6)</sup> Includes restricted stock.

<sup>(7)</sup> In 2021, PPP loans contributed 17 basis points to the FTE yield on earning assets. On a comparable basis, excluding PPP loans from 2021, the yield on earning assets was 2.84%.

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**National Bankshares, Inc.**

**Key Ratios and Other Data**

**(Unaudited)**

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended** | **Three Months Ended** | **Twelve Months Ended** | **Twelve Months Ended** |
| **($ in thousands)** | **December 31,** <br> **2022** | **September 30,** <br> **2022** | **December 31,** <br> **2022** | **December 31,** <br> **2021** |
| **Average Balances** |  |  |  |  |
| Cash and due from banks | $**11641** | $11275 | $**11667** | $11875 |
| Interest-bearing deposits | **62393** | 89165 | **88963** | 133020 |
| Securities available for sale | **653153** | 686303 | **683183** | 611696 |
| Mortgage loans held for sale | **75** | 194 | **156** | 650 |
| Loans, gross | **845713** | 850175 | **833512** | 788628 |
| Loans, net of unearned income and deferred fees and costs | **845298** | 849735 | **833070** | 787104 |
| Loans, net of allowance for loan losses | **837063** | 841619 | **825110** | 778920 |
| Goodwill | **5848** | 5848 | **5848** | 5848 |
| Total assets | **1672102** | 1728040 | **1705614** | 1618642 |
| Noninterest bearing deposits | **348779** | 341030 | **338269** | 316976 |
| Interest-bearing and savings deposits | **1123803** | 1154005 | **1127403** | 1002658 |
| Time deposits | **70874** | 78198 | **77686** | 86089 |
| Total deposits | **1543456** | 1573233 | **1543358** | 1405723 |
| Stockholders' equity | **110331** | 138787 | **145641** | 192545 |
| **Financial Ratios** |  |  |  |  |
| Return on average assets<sup>(1)</sup> | **1.67%** | 1.41% | **1.52%** | 1.26% |
| Return on average equity<sup>(1)</sup> | **25.36%** | 17.61% | **17.81%** | 10.59% |
| Dividend yield<sup>(2)</sup> |  |  | **4.27%** | 4.04% |
| Efficiency ratio<sup>(3)</sup> | **47.95%** | 45.59% | **48.01%** | 51.34% |
| Average equity to average assets | **6.60%** | 8.03% | **8.54%** | 11.90% |
| **Allowance for Loan Losses** |  |  |  |  |
| Beginning balance | $**8207** | $8069 | $**7674** | $8481 |
| Provision for (recovery of) loan losses | **10** | 252 | **706** | (398) |
| Charge-offs | **(51)** | (181) | **(367)** | (755) |
| Recoveries | **59** | 67 | **212** | 346 |
| Ending balance | $**8225** | $8207 | $**8225** | $7674 |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) The return on average assets and return on average equity are calculated by annualizing net income and dividing by average period-to-date assets or equity, respectively. Any significant nonrecurring items within net income are not annualized. See "Reconciliation of Non-GAAP Financial Measures" at the end of this release.

&nbsp;&nbsp;&nbsp;&nbsp;(2) The dividend yield is calculated as annual dividends per common share divided by the average closing share price over the year.

&nbsp;&nbsp;&nbsp;&nbsp;(3) The efficiency ratio is calculated as noninterest expense divided by the sum of noninterest income, less non-recurring items, and net interest income on a fully taxable equivalent basis. See "Reconciliation of Non-GAAP Financial Measures" at the end of this release.

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**National Bankshares, Inc.**

**Asset Quality Data**

**(Unaudited)**

---

| | | |
|:---|:---|:---|
| **($ in thousands)** | **December 31,** <br> **2022** | **September 30,** <br> **2022** |
| **Nonperforming Assets** |  |  |
| Nonaccrual loans | $**91** | $118 |
| Nonaccrual restructured loans | **2756** | 2770 |
| Total nonperforming loans | **2847** | 2888 |
| Other real estate owned | $**662** | $907 |
| Total nonperforming assets | $**3509** | $3795 |
| Accruing restructured loans | **276** | 279 |
| Loans 90 days or more past due and accruing | $**8** | $48 |
| **Asset Quality Ratios** |  |  |
| Nonperforming assets to loans<sup>(1)</sup> plus other real estate owned | **0.41%** | 0.44% |
| Allowance for loans losses to total loans<sup>(1)</sup> | **0.96%** | 0.96% |
| Allowance for loan losses to nonperforming loans | **288.90%** | 284.18% |
| Loans past due 90 days or more to loans<sup>(1)</sup> | **0.00%** | 0.01% |

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&nbsp;&nbsp;&nbsp;&nbsp;(1) Loans are net of unearned income and deferred fees and costs

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**National Bankshares, Inc.**

**Reconciliation of Non-GAAP Financial Measures**

**(Unaudited)**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended**  | **Three Months Ended**  | **Twelve Months Ended** | **Twelve Months Ended** |
| **($ in thousands)** | **December 31, 2022** | **September 30, 2022** | **December 31, 2022** | **December 31, 2021** |
| **Core Net Income** |  |  |  |  |
| Net Income (GAAP) | $**9310** | $6162 | $**25932** | $20382 |
| Less: gain on sale of private equity investment | **(3823)** |  | **(3823)** |  |
| Tax on gain on sale of private equity investment | **803** |  | **803** |  |
| Core Net Income (non-GAAP) | $**6290** | $6162 | $**22912** | $20382 |
| **Net Interest Income, FTE** |  |  |  |  |
| Total interest income (GAAP) | $**13982** | $13155 | $**50109** | $44987 |
| FTE adjustment | **230** | 232 | **919** | 961 |
| Total interest income (non-GAAP) | **14212** | 13387 | **51028** | 45948 |
| Total interest expense (GAAP) | **1028** | 753 | **3083** | 3098 |
| Net interest income, FTE (non-GAAP) | $**13184** | $12634 | $**47945** | $42850 |
| **Total Income for Efficiency Ratio** |  |  |  |  |
| Noninterest income (GAAP) | $**5858** | $2140 | $**12401** | $8426 |
| Less: securities gains | **-** |  | **-** | (6) |
| Less: partnership income | **-** |  | **(367)** | (467) |
| Less: gain on sale of private equity investment | **(3823)** |  | **(3823)** |  |
| Noninterest income (non-GAAP) | **2035** | 2140 | **8211** | 7953 |
| Net interest income, FTE (non-GAAP) | **13184** | 12634 | **47945** | 42850 |
| Total income for efficiency ratio (non-GAAP) | $**15219** | $14774 | $**56156** | $50803 |

---

---

| | | | |
|:---|:---|:---|:---|
| **($ in thousands)** | **December 31, 2022** | **September 30, 2022** | **December 31, 2021** |
| **Tangible Assets** |  |  |  |
| Total assets (GAAP) | $**1677551** | $1698946 | $1702175 |
| Less: Goodwill | **(5848)** | (5848) | (5848) |
| Tangible assets (non-GAAP) | $**1671703** | $1693098 | $1696327 |
| **Tangible Common Equity** |  |  |  |
| Total stockholders' equity (GAAP) | $**122687** | $112187 | $191751 |
| Less: Goodwill | **(5848)** | (5848) | (5848) |
| Tangible common equity (non-GAAP) | $**116839** | $106339 | $185903 |
| **Average Assets Excluding Unrealized Loss on Securities** |  |  |  |
| Average assets (GAAP) | $**1705614** | $1716907 | $1618642 |
| Average unrealized loss (gain) on securities | **60899** | 44414 | (7759) |
| Average deferred tax (asset) liability, unrealized loss on securities | **(12789)** | (9327) | 1012 |
| Average assets excluding unrealized loss on securities (non-GAAP) | $**1753724** | $1751994 | $1611895 |
| **Average Stockholders**' **Equity Excluding AOCI** |  |  |  |
| Average stockholders' equity (GAAP) | $**145641** | $157540 | $192545 |
| Average accumulated other comprehensive loss | **55009** | 41999 | 4008 |
| Average stockholders' equity excluding AOCI (non-GAAP) | $**200650** | $199539 | $196553 |

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