National Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)

($ in thousands, except for per share data)
           
 Assets
 
December 31, 2009
   
December 31, 2008
 
 Cash and due from banks
  $ 12,894     $ 16,316  
 Interest-bearing deposits
    32,730       29,656  
 Federal funds sold
    ---       ---  
 Securities available for sale
    168,041       147,227  
 Securities held to maturity
    129,376       117,772  
                   Total securities
    297,417       264,999  
 Mortgage loans held for sale
    126       348  
 Loans:
               
      Real estate construction loans
    45,625       60,798  
      Real estate mortgage loans
    165,542       162,757  
      Commercial and industrial loans
    283,998       246,218  
      Consumer loans
    95,844       106,907  
                  Total loans
    591,009       576,680  
      Less: unearned income and deferred fees
    (1,062 )     (1,123 )
                  Loans, net of unearned income and deferred fees
    589,947       575,557  
      Less: allowance for loan losses
    (6,926 )     (5,858 )
                  Loans, net
    583,021       569,699  
 Bank premises and equipment, net
    10,628       11,204  
 Accrued interest receivable
    6,250       5,760  
 Other real estate owned
    2,126       1,984  
 Intangible assets
    12,626       13,719  
 Other assets
    24,549       21,689  
                 Total assets
  $ 982,367     $ 935,374  
                 
 Liabilities and Stockholders' Equity
               
 Noninterest-bearing deposits
  $ 122,549     $ 109,630  
 Interest-bearing demand deposits
    310,629       256,416  
 Savings deposits
    51,622       45,329  
 Time deposits
    367,312       406,473  
                 Total deposits
    852,112       817,848  
 Other borrowed funds
    ---       54  
 Accrued interest payable
    336       655  
 Other liabilities
    7,843       6,709  
                Total liabilities
    860,291       825,266  
                 
 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 December 31, 2009 and 6,929,474 shares at December 31, 2008
    8,667       8,662  
 Retained earnings
    113,901       105,356  
 Accumulated comprehensive income
    (492 )     (3,910 )
               Total stockholders' equity
    122,076       110,108  
 Total liabilities and stockholders' equity
  $ 982,367     $ 935,374  




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

   
Three Months Ended
   
Twelve Months Ended
 
   
December 31, 2009
   
December 31, 2008
   
December 31, 2009
   
December 31, 2008
 
($ in thousands, except for per share data)
                       
Interest Income
                       
Interest and fees on loans
  $ 9,408     $ 9,426     $ 37,578     $ 37,108  
Interest on federal funds
    ---       ---       ---       ---  
Interest on interest-bearing deposits
    17       23       90       449  
Interest on securities - taxable
    1,507       1,641       6,273       6,816  
Interest on securities - nontaxable
    1,650       1,429       6,546       5,738  
              Total interest income
    12,582       12,519       50,487       50,111  
                                 
Interest Expense
                               
Interest on time deposits
    1,054       1,502       5,417       6,004  
Interest on other deposits
    2,208       2,898       10,405       12,802  
Interest on borrowed funds
    1       1       3       12  
             Total interest expense
    3,263       4,401       15,825       18,818  
             Net interest income
    9,319       8,118       34,662       31,293  
Provision for loan losses
    681       604       1,634       1,119  
             Net interest income after provision for loan losses
    8,638       7,514       33,028       30,174  
                                 
Noninterest Income
                               
Service charges on deposit accounts
    808       923       3,314       3,425  
Other service charges and fees
    80       76       343       326  
Credit card fees
    743       707       2,803       2,808  
Trust income
    261       302       1,053       1,231  
Bank owned life insurance
    202       238       756       684  
Other income
    230       124       491       438  
Realized securities gains (losses), net
    (11 )     (14 )     44       175  
              Total noninterest income
    2,313       2,356       8,804       9,087  
                                 
Noninterest Expense
                               
Salaries and employee benefits
    2,927       2,773       11,336       11,168  
Occupancy and furniture and fixtures
    448       423       1,792       1,751  
Data processing and ATM
    355       348       1,371       1,381  
FDIC  assessment
    298       119       1,727       209  
Credit card processing
    570       535       2,121       2,105  
Intangibles and goodwill amortization
    271       278       1,093       1,119  
Net costs of other real estate owned
    293       36       393       100  
Franchise taxes
    219       204       885       823  
Other operating expenses
    771       1,013       3,135       3,367  
              Total noninterest expense
    6,152       5,729       23,853       22,023  
Income before income tax expense
    4,799       4,141       17,979       17,238  
Income tax expense
    1,004       813       3,660       3,645  
             Net income
  $ 3,795     $ 3,328     $ 14,319     $ 13,593  
                                 
Basic net income per share
  $ 0.55     $ 0.48     $ 2.07     $ 1.96  
Fully diluted net income per share
  $ 0.55     $ 0.48     $ 2.06     $ 1.96  
Weighted average outstanding number of common shares
                               
            Basic
    6,933,474       6,928,632       6,932,126       6,929,755  
            Diluted
    6,953,970       6,932,755       6,945,530       6,935,950  
Dividends declared per share
    ---       ---     $ 0.84     $ 0.80  
Dividend payout ratio
    ---       ---       40.67       40.78  
Book value per share
    ---       ---     $ 17.61     $ 15.89  



Key Ratios and Other Data
(Unaudited)

   
Three Months Ending
   
Twelve Months Ended
 
Average Balances
 
December 31, 2009
   
December 31, 2008
   
December 31, 2009
   
December 31, 2008
 
Cash and due from banks
  $ 11,858     $ 12,194     $ 11,879     $ 12,467  
Interest-bearing deposits
    27,338       18,879       35,841       21,440  
Securities available for sale
    167,023       148,292       166,592       157,291  
Securities held to maturity
    130,924       125,525       131,645       124,076  
Mortgage loans held for sale
    940       371       911       386  
Gross loans
    587,198       562,464       579,766       539,593  
Loans, net
    579,633       555,864       572,438       533,190  
Intangible assets
    12,781       13,878       13,187       14,296  
Total assets
    969,092       914,111       971,538       899,462  
Total deposits
    838,866       797,757       846,637       783,774  
Other borrowings
    44       55       49       297  
Stockholders' equity
    122,276       109,445       117,086       108,585  
Interest-earning assets
    909,411       854,414       913,091       841,675  
Interest-bearing liabilities
    718,632       687,184       731,446       671,463  
                                 
Financial Ratios
                               
Return on average assets
    1.55 %     1.45 %     1.47 %     1.51 %
Return on average equity
    12.31 %     12.10 %     12.23 %     12.52 %
Net interest margin
    4.51 %     4.20 %     4.23 %     4.12 %
Net interest income - fully taxable equivalent
  $ 10,331     $ 8,971     $ 38,595     $ 34,715  
Efficiency ratio
    48.61 %     50.58 %     50.32 %     50.28 %
Average equity to average assets
    12.62 %     11.97 %     12.05 %     12.07 %
                                 
Allowance for Loan Losses
                               
Beginning balance
  $ 6,453     $ 5,435     $ 5,858     $ 5,219  
Provision for losses
    681       604       1,634       1,119  
Charge-offs
    (225 )     (202 )     (647 )     (611 )
Recoveries
    17       21       81       131  
Ending balance
  $ 6,926     $ 5,858     $ 6,926     $ 5,858  




Asset Quality Data
(Unaudited)

Nonperforming assets
 
December 31, 2009
   
December 31, 2008
 
Nonaccrual loans
  $ 4,098     $ 1,333  
Restructured loans
    2,652       ---  
Total nonperforming loans
    6,750       1,333  
Other real estate owned
    2,126       1,984  
Total nonperforming assets
  $ 8,876     $ 3,317  
Loans 90 days or more past due
  $ 1,697     $ 1,127  
                 
Asset Quality Ratios
               
Nonperforming loans to loans net of unearned income and deferred fees, plus other real estate owned
    1.14 %     0.23 %
Allowance for loan losses to total loans
    1.17 %     1.02 %
Allowance for loan losses to nonperforming loans
    169.01 %     439.46 %
Loans past due 90 days or more to loans net of unearned income and deferred fees
    0.29 %     0.20 %