8-K

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: October 15, 2009 Commission File Number: 0-15204

National Bankshares, Inc.

(Exact name of Registrant as specified in its charter)

Virginia	54-1375874
(State or other jurisdiction of incorporation or organization)	(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

Page 1 of 2 Pages

ITEM 2.02.  RESULTS OF OPERATIONS, FINANCIAL STATEMENTS AND

                      EXHIBITS

On October 15, 2009, National Bankshares, Inc. issued a press release announcing its financial results for the third quarter ended September 30, 2009. A copy of the press release is attached as Exhibit 99.1.

ITEM 9.01.  FINANCIAL STATEMENTS AND EXHIBITS

(a) Exhibits

99.1     National Bankshares, Inc. Press Release dated October 15, 2009.

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:    October 15, 2009

By:           /s/ JAMES G. RAKES                                       

James G. Rakes

Chairman

President and CEO

Page 2 of 2 Pages

EX-99

FOR IMMEDIATE RELEASE

CONTACTS: JAMES G. RAKES, CHAIRMAN, PRESIDENT & CEO

(540) 951-6236   jrakes@nbbank.com

DAVID K. SKEENS, TREASURER & CFO

(540) 951-6347   dskeens@nbbank.com

NATIONAL BANKSHARES, INC. POSTS

HIGHER THIRD QUARTER EARNINGS

BLACKSBURG, VA, October 15, 2009:  National Bankshares, Inc. (NASDAQ Capital Market:  NKSH) reported today that the Company had total net income of $3.78 million for the three months ended September 30, 2009.  This compares with net income of nearly $3.62 million for the same period in 2008.  Year-to-date net income for September 30, 2009, was $10.52 million, up over the $10.27 million that National Bankshares, Inc. reported at the end of the third quarter in 2008.  This translates to quarterly basic net income per share of $0.55 and year-to-date net income per share of $1.52, as compared with $0.52 and $1.48, respectively, last year.  Net loans at the end of the third quarter of 2009 totaled $575.19 million, a 6.24% increase over the total on September 30, 2008.  The Company, a financial holding company that is the parent of the National Bank of Blacksburg of Blacksburg, Virginia, ended the third quarter with total assets of nearly $965.89 million, up by 7.05% over the same period in 2009.

The Company’s Chairman, President and CEO, James G. Rakes, said, “I am very pleased to report that National Bankshares, Inc. posted higher third quarter and year-to-date net income.  This is a real achievement in a difficult economy, especially when the Company’s FDIC Deposit Insurance Fund assessments increased from $90,000 at September 30, 2008 to nearly $1.43 million at September 30, 2009.  Even though the FDIC assessments have negatively affected all banks’ earnings, it is important that the banking industry take whatever steps are necessary to be certain that the Deposit Insurance Fund remains strong.”  Mr. Rakes continued, “Because of its conservative and traditional approach to banking and financial services, National Bankshares, Inc. has been successful to date in negotiating the challenges of the economic downturn.  As you would expect, we have experienced an increase in nonperforming assets as an effect of the slow economy.  However, nonperforming assets remain manageable, and the total compares well with peers.  At National Bankshares, Inc., we understand that we are likely to face more challenges before the economy fully recovers.  In the meantime, we are prepared to help our customers and our communities by continuing to make good loans and by safeguarding their deposits in a sound and very well-capitalized bank.”

National Bankshares, Inc. is the parent of the 118 year-old National Bank of Blacksburg, which does business as National Bank from 25 offices in Southwest Virginia.  The Company has a financial services subsidiary that serves the same markets as National Bankshares Investment Services and National Bankshares Insurance Services.  Company stock is traded on the NASDAQ Capital Market under the symbol “NKSH”.  Additional information can be found 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 does not update any forward-looking statements that it may make.

National Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheet

(Unaudited)
        
(Unaudited)
        

        
 ($ in thousands, except for per share data)
        
September 30, 
2009
        
September 30, 
2008
        
December 31, 
2008
        

        
 Assets
        

        
 Cash and due from banks
        
$
11,891
$
16,511
$
16,316

        
 Interest-bearing deposits
        
22,935
12,257
29,656

        
 Federal funds sold
        
---
---
---

        
 Securities available for sale
        
169,457
151,592
147,227

        
 Securities held to maturity
        
132,786
127,108
117,772

        
                   Total securities
        
302,243
278,700
264,999

        
 Mortgage loans held for sale
        
628
95
348

        
 Loans:
        

        
      Real estate construction loans
        
47,671
63,880
60,798

        
      Real estate mortgage loans
        
167,589
144,510
162,757

        
      Commercial and industrial loans
        
268,868
232,648
246,218

        
      Consumer loans
        
98,632
106,914
106,907

        
                  Total loans
        
582,760
547,952
576,680

        
      Less: unearned income and deferred fees
        
(1,119
)
(1,113
)
(1,123
)
        
                  Loans, net of unearned income and deferred fees
        
581,641
546,839
575,557

        
      Less: allowance for loan losses
        
(6,453
)
(5,435
)
(5,858
)
        
                  Loans, net
        
575,188
541,404
569,699

        
 Bank premises and equipment, net
        
10,734
11,470
11,204

        
 Accrued interest receivable
        
6,322
6,001
5,760

        
 Other real estate owned
        
1,944
1,037
1,984

        
 Intangible assets
        
12,897
13,997
13,719

        
 Other assets
        
21,106
20,811
21,689

        
                 Total assets
        
$
965,888
$
902,283
$
935,374

        
 Liabilities and Stockholders' Equity
        

        
 Noninterest-bearing deposits
        
$
122,519
$
113,936
$
109,630

        
 Interest-bearing demand deposits
        
277,884
235,809
256,416

        
 Savings deposits
        
50,241
46,453
45,329

        
 Time deposits
        
385,229
389,788
406,473

        
                 Total deposits
        
835,873
785,986
817,848

        
 Other borrowed funds
        
46
56
54

        
 Accrued interest payable
        
473
636
655

        
 Other liabilities
        
8,025
6,132
6,709

        
                Total liabilities
        
844,417
792,810
825,266

        
<
/td>

        
 Stockholders' Equity
        

        
 Preferred stock of no par value. Authorized 5,000,000 shares; none issued and outstanding.
        
---
---
---

        
 Common stock of $1.25 par value. Authorized 10,000,000 shares; issued and outstanding 6,933,474 shares at September 30, 2009, 6,926,974 shares at  September 30, 2008 and 6,929,474 shares at December 31, 2008
        
8,667
8,659
8,662

        
 Retained earnings
        
113,087
104,843
105,356

        
 Accumulated comprehensive income
        
(283
)
(4,029
)

(3,910
)
        
               Total stockholders' equity
        
121,471
109,473
110,108

        
Total liabilities and stockholders' equity
        
$
965,888
$
902,283
$<
/td>
935,374

        
             
        
        
        
        
        
National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)

Three Months Ended
        
Nine Months Ended
        
        
September 30, 
2009
        
September 30, 
2008
        
September 30, 
2009
        
September 30, 
2008
        
        
 ($ in thousands, except for per share data)
        

        
 Interest Income
        

        
 Interest and fees on loans
        
$
9,316
$
9,196
$
28,170
$
27,682
        
 Interest on federal funds
        
---
---
---
---
        
 Interest on interest-bearing deposits
        
23
36
73
426
        
 Interest on securities - taxable
        
1,600
1,726
4,766
5,175
        
 Interest on securities - nontaxable
        
1,677
1,451
4,896
4,309
        
              Total interest income
        
12,616
12,409
37,905
37,592

        
<
/td>
<
/td>

        
 Interest Expense
        


        
 Interest on time deposits
        
1,379
1,323
4,363
4,502
        
 Interest on other deposits
        
2,496
2,865
8,197
9,904
        
 Interest on borrowed funds
        
1
7
2
11
        
             Total interest expense
        
3,876
4,195
12,562
14,417
        
             Net interest income
        
8,740
8,214
25,343
23,175
        
 Provision for loan losses
        
305
280
953
515
        
             Net interest income after provision for loan losses
        
8,435
7,934
24,390
22,660
        
 Noninterest Income
        


        
 Service charges on deposit accounts
        
865
930
2,506
2,502
        
 Other service charges and fees
        
107
88
263
250
        
 Credit card fees
        
723
728
2,060
2,101
        
 Trust income
        
255
307
792
929
        
 Bank owned life insurance
        
201
144
554
446
        
 Other income
        
78
87
263
314
        
 Realized securities gains/(losses), net
        
(17
)
(76
)
53
189
        
              Total noninterest income
        
2,212
2,208
6,491
6,731
        
 Noninterest Expense
        


        
 Salaries and employee benefits
        
2,784
2,792
8,409
8,395
        
 Occupancy and furniture and fixtures
        
450
437
1,344
1,328
        
 Data processing and ATM
        
380
355
1,016
1,033
        
 FDIC  assessment
        
423
47
1,429
90
        
 Credit card processing
        
550
546
1,551
1,570
        
 Intangibles and goodwill amortization
        
271
279
822
841
        
 Net costs of other real estate owned
        
29
52
100
64
        
 Franchise taxes
        
221
208
666
619
        
 Other operating expenses
        
783
815
2,364
2,354
        
              Total noninterest expense
        
5,891
5,531
17,701
16,294
        
 Income before income tax expense
        
4,756
4,611
13,180
13,097
        
 Income tax expense
        
976
996
2,656
2,832
        
             Net income
        
$
3,780
$
3,615
$
10,524
$
10,265
        
<
/td>
<
/td>

        
 Basic net income per share
        
$
0.55
$
0.52
$
1.52
$
1.48
        
 Fully diluted net income per share
        
$
0.54
$
0.52
$
1.52
$
1.48
        
 Weighted average outstanding number of common shares
        


        
            Basic
        
6,933,474
6,926,974
6,931,672
6,930,133
        
            Diluted
        
6,948,083
6,932,438
6,942,712
6,937,018
        
 Dividends declared per share
        
---
---
$
0.41
$
0.39
        
 Dividend payout ratio
        
---
---
27.01
26.32
        
 Book value per share
        
---
---
$
17.52
$
15.80
        
        
        
        
        
        
        
Key Ratios and Other Data
(Unaudited)

Three Months Ended
        
Nine Months Ended
        

        
Average Balances
        
September 30, 
2009
        
        
        
September 30, 
2008
        
        
September 30, 
2009
        
        
September 30, 
2008
        
        

        
Cash and due from banks
        
$
11,368
$
12,789
$
11,886
$
12,848

        
Interest-bearing deposits
        
34,418
7,607
38,706
22,011

        
Securities available for sale
        
169,149
156,309
166,446
160,312

        
Securities held to maturity
        
135,419
128,915
131,888
123,590

        
Mortgage loans held for sale
        
636
356
901
391

        
Gross loans
        
579,248
540,911
577,262
531,914

        
Loans, net
        
571,837
534,504
570,014
525,577

        
Intangible assets
        
13,053
14,158
13,324
14,436

        
Total assets
        
974,574
892,260
972,363
894,544

        
Total deposits
        
848,836
775,614
849,255
779,078

        
Other borrowings
        
48
1,004
50
379

        
Stockholders' equity
        
117,868
108,974
115,337
108,297

        
Interest-earning assets
        
916,773
831,899
914,332
836,105

        
Interest-bearing liabilities
        
730,628
661,912
735,764
666,185

        
<
/td>
<
/td>

        
Financial ratios
        


        
Return on average assets
        
1.56
%
1.61
%
1.45
%
1.53
%
        
Return on average equity
        
12.86
%
13.20
%
12.20
%
12.66
%
        
Net interest margin
        
4.26
%
4.34
%
4.13
%
4.11
%
        
Net interest income - fully taxable equivalent
        
$
9,735
$
9,084
$
28,265
$
25,743

        
Efficiency ratio
        
49.24
%
48.65
%
50.93
%
50.17
%
        
Average equity to average assets
        
12.09
%
12.21
%
11.86
%
12.11
%
        
<
/td>
<
/td>

        
Allowance for loan losses
        


        
Beginning balance
        
$
6,284
$
5,267
$
5,858
$
5,219

        
Provision for losses
        
305
280
953
515

        
Charge-offs
        
(168
)
(127
)
(422
)
(409
)
        
Recoveries
        
32
15
64
110

        
Ending balance
        
$
6,453
$
5,435
$
6,453
$
5,435

        
 
        
 
Asset Quality Data
(Unaudited)

Nonperforming assets
        
September 30, 
2009
        
September 30, 
2008
        

        
Nonaccrual loans
        
$
3,888
$
2,003

        
Restructured loans
        
---
---

        
Total nonperforming loans
        
3,888
2,003

        
Other real estate owned
        
1,944
1,037

        
Total nonperforming assets
        
$
5,832
$
3,040

        
Loans 90 days or more past due
        
$
2,153
$
1,324

        
<
/td>

        
Asset quality ratios
        

        
Nonperforming loans to loans net of unearned income and deferred fees, plus other real estate owned
        
0.67
 %
0.37 
%
        
Allowance for loan losses to total loans
        
1.11
%
0.99
%
        
Allowance for loan losses to nonperforming loans
        
165.97
%
271.34
%
        
Loans past due 90 days or more to loans net of unearned income and deferred fees
        
0.37
%
0.24
%