Exhibit 99.1

2013 

Third Quarter

Report 

Message to Our Stockholders:

As we enter the final quarter of 2013, I am pleased to report the earnings for National Bankshares, Inc. for the third quarter. Even though we faced a challenging operating environment complicated by further regulatory requirements, we reported net income of approximately $4.52 million for the three months ended September 30, 2013, an increase of $224 thousand, or 5.22%, compared to the $4.29 million reported for the same period in 2012. For the nine months ended September 30, 2013, your Company had net income of almost $13.17 million, up $106 thousand, or 0.81%, above the total reported for the first nine months of 2012. At September 30, 2013, the Company had total assets of $1.08 billion.

Basic earnings per share were $1.90 which compares with $1.88 reported for the nine months ended September 30, 2012. Basic earnings per share for the third quarter of 2013 were $0.65 which compares with $0.62 for the third quarter last year. The return on average assets for the nine months ended September 30, 2013 was 1.61% compared to 1.62% in 2012. The return on average equity was 11.70% and 12.14% for the same two periods.

By the end of the third quarter of 2013, we also initiated a number of technology and process improvements that we believe are providing an even better customer experience. These upgrades include our new mobile banking application and a new debit card and ATM data system to better serve our customers. We will continue to refine and efficiently manage our operations to bring the best community banking services and products to our customers and value to our stockholders.

On behalf of the directors, officers and employees, thank you for your support.

James G. Rakes

Chairman, President

and Chief Executive Officer

National Bankshares

101 Hubbard Street / P.O. Box 90002

Blacksburg, Virginia 24062-9002

National Bankshares, Inc.

Board of Directors

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, LLC Jack M. Lewis President New River Community College Mary G. Miller President Interactive Design & Development, Inc. William A. Peery President Cargo Oil Co., Inc. James G. Rakes Chairman, President and CEO, National Bankshares, Inc.; Chairman, President and CEO, National Bank; Chairman, President and CEO, National Bankshares Financial Services, Inc. Glenn P. Reynolds President Reynolds Architects Incorporated James M. Shuler Vice Chairman of the Board Virginia House of Delegates, Retired

Mission Statement

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, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

($ In thousands, except share data)	September 30, 2013			September 30, 2012
Assets
Cash and due from banks	$	13,806		$	12,445
Interest-bearing deposits		62,776			67,394
Securities available for sale, at fair value		193,639			198,079
Securities held to maturity (fair value 160,676 in 2013 and $172,163 in 2012)		164,752			161,728
Mortgage loans held for sale		617			3,015
Loans:
Loans, net of unearned income and deferred fees		590,664			591,461
Less allowance for loan losses		(8,090	)		(8,254	)
Loans, net		582,574			583,207
Bank premises and equipment, net		10,025			10,491
Accrued interest receivable		6,044			6,291
Other real estate owned, net		973			1,894
Intangible assets		8,568			9,648
Bank-owned life insurance		21,020			20,346
Other assets		12,609			6,434
Total assets	$	1,077,403		$	1,080,972
Liabilities and Stockholders’ Equity
Noninterest-bearing demand deposits	$	147,928		$	147,346
Interest-bearing demand deposits		453,044			418,482
Savings deposits		73,952			66,576
Time deposits		248,574			291,979
Total deposits		923,498			924,383
Other borrowed funds		---			---
Accrued interest payable		97			178
Other liabilities		7,514			6,013
Total liabilities		931,109			930,574
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 6,947,974 shares in 2013 and 6,943,974 shares in 2012		8,685			8,680
Retained earnings		153,578			143,383
Accumulated other comprehensive loss, net		(15,969	)		(1,665	)
Total stockholders’ equity		146,294			150,398
Total liabilities and stockholders’ equity	$	1,077,403		$	1,080,972

This financial information is a high level review and discussion of recent performance and activities. For a full discussion, investors should refer to the 10/17/13 Earnings Press Release and our SEC Filings found at www.sec.gov and on the company’s web site at www.nationalbankshares.com.

 

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

($ In thousands, except per share data)	September 30, 2013		September 30, 2012
Interest Income
Interest and fees on loans	$	24,707	$	26,554
Interest on interest-bearing deposits		161		187
Interest on securities – taxable		5,007		4,991
Interest on securities – nontaxable		4,847		4,801
Total interest income		34,722		36,533
Interest Expense
Interest on time deposits of $100 or more		694		1,171
Interest on other deposits		3,921		4,900
Interest on other borrowed funds		---		---
Total interest expense		4,615		6,071
Net interest income		30,107		30,462
Provision for loan losses		1,329		2,554
Net interest income after provision for loan losses		28,778		27,908
Noninterest Income
Service charges on deposit accounts		1,922		1,956
Other service charges and fees		139		130
Credit card fees		2,427		2,441
Trust income		867		1,037
Bank-owned life insurance		546		605
Other income		502		341
Realized securities gains, net		2		33
Total noninterest income		6,405		6,543
Noninterest Expense
Salaries and employee benefits		8,963		9,014
Occupancy and furniture and fixtures		1,230		1,181
Data processing and ATM		1,288		1,206
FDIC assessment		408		343
Credit card processing		1,854		1,817
Intangibles and goodwill amortization		809		812
Net costs of other real estate owned		192		209
Franchise taxes		803		646
Other operating expense		2,637		2,302
Total noninterest expense		18,184		17,530
Income before income tax expense		16,999		16,921
Income tax expense		3,831		3,859
Net income	$	13,168	$	13,062
Basic net income per share	$	1.90	$	1.88