8-K
NATIONAL BANKSHARES INC (NKSH)
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) October 26, 2023
NATIONAL BANKSHARES, INC.
(Exact name of Registrant as specified in its charter)
| Virginia | 0-15204 | 54-1375874 |
|---|---|---|
| (State or other jurisdiction<br><br> <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:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock | NKSH | 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.
| ITEM 2.02. | RESULTS OF OPERATIONS, FINANCIAL STATEMENTS AND EXHIBITS |
|---|
On October 26, 2023, National Bankshares, Inc. issued a press release reporting its financial results for the period ended September 30, 2023. A copy of the press release is being furnished as an exhibit to this report and is incorporated by reference into this Item 2.02.
| ITEM 9.01. | FINANCIAL STATEMENTS AND EXHIBITS |
|---|---|
| (d) | Exhibits |
| --- | --- |
| 99.1 | National Bankshares, Inc. Press Release, dated October 26, 2023. |
| --- | --- |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| --- | --- |
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 26, 2023 |
|---|---|
| By: | /s/ F. Brad Denardo |
| F. Brad Denardo | |
| Chairman, President & CEO |
Page 2 of 2 Pages
ex_584893.htm
Exhibit 99.1
FOR IMMEDIATE RELEASE
| CONTACTS: | F. Brad Denardo, Chairman, President & CEO | Lora M. Jones, Treasurer & CFO |
|---|---|---|
| (540) 951-6213 bdenardo@nbbank.com | (540) 951-6238 ljones@nbbank.com |
National Bankshares, Inc. Reports Results for the Third Quarter and Nine Months Ended September 30, 2023
BLACKSBURG, VA., October 26, 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 third quarter of 2023. The Company reported net income of $3.07 million, or basic earnings per common share of $0.52, for the third quarter and $11.51 million, or basic earnings per common share of $1.95, for the nine months ended September 30, 2023. This compares to net income of $6.16 million, or basic earnings per common share of $1.03, for the third quarter of 2022 and $16.62 million, or basic earnings per common share of $2.77, for the nine months ended September 30, 2022. National Bankshares, Inc. ended September 30, 2023 with total assets of $1.59 billion.
“An extremely competitive banking environment and shrinking profit margins marked the latest reporting period,” said President and CEO F. Brad Denardo. “The Federal Reserve’s sustained rate increases over the past eighteen months have drastically increased the cost of attracting and retaining deposits, resulting in much higher interest expense and reduced earnings. Under these tough conditions, our dedicated community bankers are working harder than ever to provide exceptional service, grow the business, and return value to our shareholders.”
Mr. Denardo added, "As a part of our plan for future growth, we are excited to announce that this month we will begin construction of our new branch office in Roanoke, Virginia. We look forward to serving the Roanoke Valley with the truly personalized community banking experience that has been our hallmark for over 130 years.”
Highlights
Credit Quality
Loan quality continues to reflect low credit risk, with low charge-off and past due levels. The calculation for the allowance for credit losses on loans (“ACLL”) indicated a decrease in risk when September 30, 2023 is compared with June 30, 2023 and January 1, 2023, resulting in a recovery of previously recognized provision. The Company adopted Accounting Standards Update 2016-13 (“ASU 2016-13”) as of January 1, 2023, which increased the ACL by $2.34 million from December 31, 2022.
Net Income
Net income for the three and nine month periods ended September 30, 2023 decreased when compared with the three months ended June 30, 2023 and September 30, 2022, and the nine months ended September 30, 2022. Key items that impacted results are discussed below.
Net Interest Income
The 525 basis point increase in the Federal Reserve’s benchmark interest rate between March 2022 and July 2023 expanded the yield on earning assets when the three months ended September 30, 2023 is compared with the three months ended June 30, 2023 and September 30, 2022, and when the nine month periods ended September 30, 2023 and 2022 are compared. Many of the Company’s loans are adjustable with repricing dates in the future. If rates remain at the current level or increase, repricing will continue to contribute to improved interest income.
As noted above, the rapidity and magnitude of the Federal Reserve’s rate increases stimulated competition for deposits, resulting in higher cost of funds and compressed net interest margin when results for 2023 are compared with 2022. The Company continuously monitors its deposit base and funding costs. Further information on the Company’s funds management and deposit strategy is discussed under the Deposits section below.
101 Hubbard Street / Blacksburg, Virginia 24060
P.O. Box 90002 / Blacksburg, Virginia 24062-9002
540 951-6300 / 800 552-4123
www.nationalbankshares.com
Noninterest Income
Noninterest income decreased when the third quarter of 2023 is compared with the second quarter of 2023. During the second quarter of 2023, the Company recognized certain non-recurring items, including a gain of $2.97 million on the sale of VISA Class B securities, $1.04 million from the payout of a Bank Owned Life Insurance policy, and a loss of $3.34 million on the sale of securities.
Noninterest income for the nine months ended September 30, 2023 improved when compared with the nine months ended September 30, 2022, due primarily to the same factors discussed above.
Noninterest Expense
Noninterest expense for the third quarter decreased when compared with the second quarter of 2023, primarily due to lower expenses for professional services. Professional services include legal and other expenses for the Company’s response to the proxy contest that amounted to $327 thousand for the second quarter. The Company does not anticipate any further material expense for this matter.
When results for the nine months ended September 30, 2023 are compared with the same period of 2022, noninterest expense increased due to the proxy contest, as discussed above, as well as salary and employee benefits, data processing and ATM, FDIC insurance and pension non-service cost. The Company increased its base compensation during 2022 in order to attract and retain talent, which is reflected in 2023 results. Data processing and ATM expense increased due to higher maintenance costs. FDIC insurance increased due to an industry-wide assessment increase implemented by the FDIC. Pension non-service cost, included in other operating expense, increased $261 thousand based upon actuarial calculations.
Securities
The impact of the Federal Reserve’s interest rate increases decreased the market value of the Company’s bond portfolio. As part of its interest rate risk management, the Company periodically evaluates its position in financial assets. During the second quarter, the Company strategically selected and sold securities with a market value of $25.52 million. The loss on the sale was largely offset by a gain on the sale of the Company’s VISA Class B stock. Additionally, during the first quarter of 2023, the Company sold $18.00 million of securities, resulting in a small net gain. The strategy for both sales prioritized enhancement of long-term earnings. Though not a primary objective, proceeds from the sales also bolstered liquidity.
The Company’s Asset Liability Management Committee is closely monitoring interest rate risk on all of the Company’s financial assets and liabilities. As of September 30, 2023, the Company has the ability to hold securities until maturity and there are no further sales planned. Analysis as of September 30, 2023 did not indicate credit risk concerns with any of the Company’s securities.
Deposits
Competition continued to pressure the Company’s deposits during the third quarter of 2023, a trend that began impacting the Company during the fourth quarter of 2022. The Company implemented competitive pricing on CDs, raised offering rates on other deposits and negotiated with depositors to strengthen the deposit base, at costs well below the cost of borrowing.
The Company’s depositors within its market area are diverse, including individuals, businesses and municipalities. The Company does not have any brokered deposits. Depositors are insured up to the FDIC maximum of $250 thousand. Municipal deposits, which account for approximately 24% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, approximately 20% are uninsured.
Overdraft Policy
During the third quarter, the Company modified its policy to exempt from charge small overdrafts on deposit accounts, and small items that overdraw deposit accounts. The policy change is intended to address recent industry-wide regulatory comments and build goodwill with the Company’s deposit base.
2
Liquidity
The Company’s liquidity position remains solid. The Company maintains borrowing lines with the Federal Home Loan Bank of Atlanta (“FHLB”), the Federal Reserve and another correspondent bank that provide substantial borrowing capacity. During 2023, the Company accessed short-term borrowings with the FHLB and Federal Reserve to reinforce liquidity. The advances were fully repaid due to the success of the Company’s deposit strategy. Combined with a low loan-to-deposit ratio, positive results of the latest liquidity stress testing and success of deposit marketing, the Company believes it is well-positioned to meet foreseeable liquidity demands.
Loans
Loans increased slightly from June 2023. While higher interest rates have challenged loan demand during 2023, the Company is positioned to continue to make every loan that meets its underwriting standards.
Stockholders’ Equity
Stockholders’ equity as of September 30, 2023 decreased from June 30, 2023 due to higher unrealized losses on securities, offset to an extent by earnings. 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 substantially higher than minimum regulatory requirements, and meets all requirements for borrowing from the FHLB.
Dividends
The Company paid a semiannual dividend of $0.73 per share in June 2023. Along with a special one-time cash dividend of $1.00 per common share during the first quarter of 2023, the Company rewarded shareholders with a dividend payout ratio of 88.55% for the first nine months of 2023.
Key Ratios
The impact of margin compression accounts for the decrease in the return on average equity and the return on average assets and the increase in the efficiency ratio when results for the three and nine months ended September 30, 2023 are compared with the same period of 2022 and the second quarter of 2023.
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.”
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by use of words such as “may,” “will,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,” and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast and are subject to significant uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results in the future may differ materially from those indicated herein. For details on factors that could affect these expectations, see the risk factors and other cautionary language included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and in the Company’s other periodic and current reports filed with the SEC. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company’s past results are not necessarily indicative of future performance.
3
National Bankshares, Inc.
Consolidated Balance Sheets
(Unaudited)
| ( in thousands, except per share data) | June 30,<br><br> <br>2023 | September 30,<br><br> <br>2022 | ||||||
|---|---|---|---|---|---|---|---|---|
| Assets | **** | **** | **** | **** | **** | **** | **** | **** |
| Cash and due from banks | 13,089 | $ | 14,815 | $ | 10,957 | |||
| Interest-bearing deposits | 40,353 | 55,241 | 79,466 | |||||
| Securities available for sale, at fair value | 591,552 | 614,178 | 657,410 | |||||
| Restricted stock, at cost | 1,264 | 929 | 941 | |||||
| Mortgage loans held for sale | 82 | - | - | |||||
| Loans: | ||||||||
| Real estate construction loans | 64,181 | 56,984 | 62,821 | |||||
| Consumer real estate loans | 226,671 | 226,453 | 219,617 | |||||
| Commercial real estate loans | 424,765 | 423,396 | 435,185 | |||||
| Commercial non real estate loans | 42,940 | 56,079 | 52,409 | |||||
| Public sector and IDA loans | 51,591 | 47,791 | 48,912 | |||||
| Consumer non-real estate loans | 39,269 | 36,236 | 34,328 | |||||
| Total loans | 849,417 | 846,939 | 853,272 | |||||
| Less: unearned income and deferred fees and costs | (442 | ) | (398 | ) | (409 | ) | ||
| Loans, net of unearned income and deferred fees and costs | 848,975 | 846,541 | 852,863 | |||||
| Less: allowance for credit losses | (10,181 | ) | (10,626 | ) | (8,207 | ) | ||
| Loans, net | 838,794 | 835,915 | 844,656 | |||||
| Premises and equipment, net | 11,091 | 11,044 | 10,183 | |||||
| Accrued interest receivable | 6,180 | 5,718 | 5,822 | |||||
| Other real estate owned, net | 662 | 662 | 907 | |||||
| Goodwill | 5,848 | 5,848 | 5,848 | |||||
| Bank-owned life insurance | 43,327 | 43,081 | 43,072 | |||||
| Other assets | 39,660 | 38,110 | 39,684 | |||||
| Total assets | 1,591,902 | $ | 1,625,541 | $ | 1,698,946 | |||
| Liabilities and Stockholders' Equity | **** | **** | **** | **** | **** | **** | **** | **** |
| Noninterest-bearing deposits | 303,166 | $ | 300,713 | $ | 358,772 | |||
| Interest-bearing demand deposits | 789,148 | 841,382 | 917,449 | |||||
| Savings deposits | 184,801 | 197,958 | 217,405 | |||||
| Time deposits | 187,885 | 146,979 | 77,023 | |||||
| Total deposits | 1,465,000 | 1,487,032 | 1,570,649 | |||||
| Accrued interest payable | 551 | 260 | 40 | |||||
| Other liabilities | 10,238 | 9,805 | 16,070 | |||||
| Total liabilities | 1,475,789 | 1,497,097 | 1,586,759 | |||||
| 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 5,891,739 (including 2,052 unvested) shares at September 30, 2023 and June 30, 2023 and 5,957,275 at September 30, 2022 | 7,383 | 7,367 | 7,447 | |||||
| Retained earnings | 198,394 | 195,320 | 196,941 | |||||
| Accumulated other comprehensive loss, net | (89,664 | ) | (74,243 | ) | (92,201 | ) | ||
| Total stockholders' equity | 116,113 | 128,444 | 112,187 | |||||
| Total liabilities and stockholders' equity | 1,591,902 | $ | 1,625,541 | $ | 1,698,946 |
All values are in US Dollars.
4
National Bankshares, Inc.
Consolidated Statements of Income
(Unaudited)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| ($ in thousands, except per share data) | September 30,<br><br> <br>2023 | June 30,<br><br> <br>2023 | September 30,<br><br> <br>2022 | |||||
| Interest Income | **** | **** | **** | **** | **** | **** | **** | **** |
| Interest and fees on loans | $ | 9,816 | $ | 9,644 | $ | 8,816 | ||
| Interest on interest-bearing deposits | **** | 439 | 540 | 506 | ||||
| Interest on securities - taxable | **** | 4,084 | 4,066 | 3,425 | ||||
| Interest on securities - nontaxable | **** | 340 | 347 | 408 | ||||
| Total interest income | **** | 14,679 | 14,597 | 13,155 | ||||
| Interest Expense | **** | **** | **** | **** | **** | **** | **** | **** |
| Interest on time deposits | **** | 1,452 | 1,054 | 31 | ||||
| Interest on other deposits | **** | 4,584 | 4,314 | 722 | ||||
| Interest on borrowings | **** | 3 | 12 | - | ||||
| Total interest expense | **** | 6,039 | 5,380 | 753 | ||||
| Net interest income | **** | 8,640 | 9,217 | 12,402 | ||||
| (Recovery) provision for credit losses | **** | (401 | ) | 10 | 252 | |||
| Net interest income after (recovery) provision for credit losses | **** | 9,041 | 9,207 | 12,150 | ||||
| Noninterest Income | **** | **** | **** | **** | **** | **** | **** | **** |
| Service charges on deposit accounts | **** | 642 | 637 | 661 | ||||
| Other service charges and fees | **** | 151 | 49 | 51 | ||||
| Credit and debit card fees, net | **** | 395 | 414 | 448 | ||||
| Trust income | **** | 505 | 481 | 492 | ||||
| BOLI income | **** | 253 | 1,279 | 239 | ||||
| Gain on sale of mortgage loans | **** | 22 | 55 | 40 | ||||
| Gain on sale of investment | **** | - | 2,971 | - | ||||
| Other income | **** | 147 | 249 | 209 | ||||
| Realized securities loss, net | **** | - | (3,344 | ) | - | |||
| Total noninterest income | **** | 2,115 | 2,791 | 2,140 | ||||
| Noninterest Expense | **** | **** | **** | **** | **** | **** | **** | **** |
| Salaries and employee benefits | **** | 4,462 | 4,465 | 4,144 | ||||
| Occupancy, furniture and fixtures | **** | 547 | 411 | 476 | ||||
| Data processing and ATM | **** | 978 | 879 | 774 | ||||
| FDIC assessment | **** | 190 | 254 | 114 | ||||
| Net costs of other real estate owned | **** | 14 | 4 | 68 | ||||
| Franchise taxes | **** | 339 | 358 | 375 | ||||
| Professional services | **** | 251 | 551 | 254 | ||||
| Other operating expenses | **** | 684 | 635 | 531 | ||||
| Total noninterest expense | **** | 7,465 | 7,557 | 6,736 | ||||
| Income before income tax expense | **** | 3,691 | 4,441 | 7,554 | ||||
| Income tax expense | **** | 617 | 540 | 1,392 | ||||
| Net Income | $ | 3,074 | $ | 3,901 | $ | 6,162 | ||
| Basic net income per common share | $ | 0.52 | $ | 0.66 | $ | 1.03 | ||
| Fully diluted net income per common share | $ | 0.52 | $ | 0.66 | $ | 1.03 | ||
| Weighted average number of common shares outstanding, basic | **** | 5,889,687 | 5,889,687 | 5,974,961 | ||||
| Weighted average number of common shares outstanding, diluted | **** | 5,889,939 | 5,890,048 | 5,974,961 | ||||
| Dividends declared per common share | $ | - | $ | 0.73 | $ | - | ||
| Book value per share | $ | 19.71 | $ | 21.81 | $ | 18.83 |
5
National Bankshares, Inc.
Consolidated Statements of Income
(Unaudited)
| Nine Months Ended | |||||
|---|---|---|---|---|---|
| ($ in thousands, except per share data) | September 30,<br><br> <br>2023 | September 30,<br><br> <br>2022 | |||
| Interest Income | **** | **** | **** | **** | **** |
| Interest and fees on loans | $ | 28,793 | $ | 25,240 | |
| Interest on interest-bearing deposits | **** | 1,207 | 757 | ||
| Interest on securities - taxable | **** | 12,268 | 8,847 | ||
| Interest on securities - nontaxable | **** | 1,052 | 1,283 | ||
| Total interest income | **** | 43,320 | 36,127 | ||
| Interest Expense | **** | **** | **** | **** | **** |
| Interest on time deposits | **** | 2,865 | 105 | ||
| Interest on other deposits | **** | 11,352 | 1,950 | ||
| Interest on borrowings | **** | 300 | - | ||
| Total interest expense | **** | 14,517 | 2,055 | ||
| Net interest income | **** | 28,803 | 34,072 | ||
| (Recovery) provision for credit losses | **** | (389 | ) | 696 | |
| Net interest income after (recovery) provision for credit losses | **** | 29,192 | 33,376 | ||
| Noninterest Income | **** | **** | **** | **** | **** |
| Service charges on deposit accounts | **** | 1,871 | 1,826 | ||
| Other service charges and fees | **** | 253 | 157 | ||
| Credit and debit card fees, net | **** | 1,276 | 1,423 | ||
| Trust income | **** | 1,431 | 1,374 | ||
| BOLI income | **** | 1,771 | 718 | ||
| Gain on sale of mortgage loans | **** | 93 | 136 | ||
| Gain on sale of investment | **** | 2,971 | - | ||
| Other income | **** | 771 | 909 | ||
| Realized securities loss, net | **** | (3,332 | ) | - | |
| Total noninterest income | **** | 7,105 | 6,543 | ||
| Noninterest Expense | **** | **** | **** | **** | **** |
| Salaries and employee benefits | **** | 13,361 | 12,133 | ||
| Occupancy, furniture and fixtures | **** | 1,500 | 1,432 | ||
| Data processing and ATM | **** | 2,730 | 2,354 | ||
| FDIC assessment | **** | 561 | 336 | ||
| Net costs of other real estate owned | **** | 29 | 78 | ||
| Franchise taxes | **** | 1,072 | 1,108 | ||
| Professional services | **** | 1,555 | 693 | ||
| Other operating expenses | **** | 1,878 | 1,526 | ||
| Total noninterest expense | **** | 22,686 | 19,660 | ||
| Income before income tax expense | **** | 13,611 | 20,259 | ||
| Income tax expense | **** | 2,105 | 3,637 | ||
| Net Income | $ | 11,506 | $ | 16,622 | |
| Basic net income per common share | $ | 1.95 | $ | 2.77 | |
| Fully diluted net income per common share | $ | 1.95 | $ | 2.77 | |
| Weighted average number of common shares outstanding, basic | **** | 5,889,687 | 6,008,607 | ||
| Weighted average number of common shares outstanding, diluted | **** | 5,889,778 | 6,008,607 | ||
| Dividends declared per common share | $ | 1.73 | $ | 0.72 | |
| Book value per share | $ | 19.71 | $ | 18.83 |
6
National Bankshares, Inc.
Net Interest Margin
(Unaudited)
| ($ in thousands) | Three Months Ended September 30, 2023 | Three Months Ended June 30, 2023 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average Balance | Interest | Average Yield/ Rate | Average Balance | Interest | Average Yield/ Rate | |||||||||
| Interest-earning assets: | ||||||||||||||
| Loans ^(1)(2)(3)^ | $ | 843,546 | $ | 9,924 | **** | 4.67 | % | $ | 853,119 | $ | 9,730 | 4.57 | % | |
| Taxable securities ^(4)(5)^ | **** | 640,578 | **** | 4,084 | **** | 2.53 | % | 654,021 | 4,066 | 2.49 | % | |||
| Nontaxable securities ^(1)(4)^ | **** | 64,415 | **** | 461 | **** | 2.84 | % | 65,231 | 470 | 2.89 | % | |||
| Interest-bearing deposits | **** | 32,503 | **** | 439 | **** | 5.36 | % | 41,947 | 540 | 5.16 | % | |||
| Total interest-earning assets | $ | 1,581,042 | $ | 14,908 | **** | 3.74 | % | $ | 1,614,318 | $ | 14,806 | 3.68 | % | |
| Interest-bearing liabilities: | ||||||||||||||
| Interest-bearing demand deposits | $ | 799,772 | $ | 4,358 | **** | 2.16 | % | $ | 847,986 | $ | 4,115 | 1.95 | % | |
| Savings deposits | **** | 192,702 | **** | 226 | **** | 0.47 | % | 199,606 | 199 | 0.40 | % | |||
| Time deposits | **** | 163,476 | **** | 1,452 | **** | 3.52 | % | 138,261 | 1,054 | 3.06 | % | |||
| Borrowings | **** | 207 | **** | 3 | **** | 5.75 | % | 954 | 12 | 5.05 | % | |||
| Total interest-bearing liabilities | $ | 1,156,157 | $ | 6,039 | **** | 2.07 | % | $ | 1,186,807 | $ | 5,380 | 1.82 | % | |
| Net interest income and interest rate spread | **** | **** | $ | 8,869 | **** | 1.67 | % | $ | 9,426 | 1.86 | % | |||
| Net yield on average interest‑earning assets | **** | **** | **** | **** | **** | 2.23 | % | 2.34 | % | |||||
| ($ in thousands) | Three Months Ended September 30, 2022 | |||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | |||||||
| Average Balance | Interest | Average Yield/ Rate | ||||||||||||
| Interest-earning assets: | ||||||||||||||
| Loans ^(1)(3)(6)^ | $ | 849,929 | $ | 8,900 | 4.15 | % | ||||||||
| Taxable securities ^(4)(5)^ | 683,490 | 3,425 | 1.99 | % | ||||||||||
| Nontaxable securities ^(1)(4)^ | 74,670 | 556 | 2.95 | % | ||||||||||
| Interest-bearing deposits | 89,165 | 506 | 2.25 | % | ||||||||||
| Total interest-earning assets | $ | 1,697,254 | $ | 13,387 | 3.13 | % | ||||||||
| Interest-bearing liabilities: | ||||||||||||||
| Interest-bearing demand deposits | $ | 936,368 | $ | 686 | 0.29 | % | ||||||||
| Savings deposits | 217,637 | 36 | 0.07 | % | ||||||||||
| Time deposits | 78,198 | 31 | 0.16 | % | ||||||||||
| Total interest-bearing liabilities | $ | 1,232,203 | $ | 753 | 0.24 | % | ||||||||
| Net interest income and interest rate spread | $ | 12,634 | 2.89 | % | ||||||||||
| Net yield on average interest‑earning assets | 2.95 | % | ||||||||||||
| ^(1)^ | 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. | |||||||||||||
| --- | --- | |||||||||||||
| ^(2)^ | Interest income includes loan fees of $56 and $66 for the three months ended September 30, 2023 and June 30, 2023, respectively. | |||||||||||||
| --- | --- | |||||||||||||
| ^(3)^ | Includes loans held for sale and nonaccrual loans. | |||||||||||||
| --- | --- | |||||||||||||
| ^(4)^ | Daily averages are shown at amortized cost. | |||||||||||||
| --- | --- | |||||||||||||
| ^(5)^ | Includes restricted stock. | |||||||||||||
| --- | --- | |||||||||||||
| ^(6)^ | Interest income includes loan fees of $82 for the three months ended September 30, 2022. | |||||||||||||
| --- | --- |
7
National Bankshares, Inc.
Net Interest Margin
(Unaudited)
| ($ in thousands) | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average Balance | Interest | Average Yield/ Rate | Average Balance | Interest | Average Yield/ Rate | |||||||||
| Interest-earning assets: | ||||||||||||||
| Loans ^(1)(2)(3)^ | $ | 850,543 | $ | 29,068 | **** | 4.57 | % | $ | 829,133 | $ | 25,484 | 4.11 | % | |
| Taxable securities ^(4)(5)^ | **** | 657,575 | **** | 12,268 | **** | 2.49 | % | 662,824 | 8,847 | 1.78 | % | |||
| Nontaxable securities ^(1)(4)^ | **** | 65,649 | **** | 1,425 | **** | 2.90 | % | 75,806 | 1,728 | 3.05 | % | |||
| Interest-bearing deposits | **** | 31,435 | **** | 1,207 | **** | 5.13 | % | 97,917 | 757 | 1.03 | % | |||
| Total interest-earning assets | $ | 1,605,202 | $ | 43,968 | **** | 3.66 | % | $ | 1,665,680 | $ | 36,816 | 2.96 | % | |
| Interest-bearing liabilities: | ||||||||||||||
| Interest-bearing demand deposits | $ | 834,575 | $ | 10,846 | **** | 1.74 | % | $ | 911,926 | $ | 1,839 | 0.27 | % | |
| Savings deposits | **** | 200,170 | **** | 506 | **** | 0.34 | % | 216,691 | 111 | 0.07 | % | |||
| Time deposits | **** | 131,398 | **** | 2,865 | **** | 2.92 | % | 79,981 | 105 | 0.18 | % | |||
| Borrowings | **** | 8,287 | **** | 300 | **** | 4.84 | % | - | - | - | ||||
| Total interest-bearing liabilities | $ | 1,174,430 | $ | 14,517 | **** | 1.65 | % | $ | 1,208,598 | $ | 2,055 | 0.23 | % | |
| Net interest income and interest rate spread | **** | **** | $ | 29,451 | **** | 2.01 | % | $ | 34,761 | 2.73 | % | |||
| Net yield on average interest‑earning assets | **** | **** | **** | **** | **** | 2.45 | % | 2.79 | % | |||||
| ^(1)^ | 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. | |||||||||||||
| --- | --- | |||||||||||||
| ^(2)^ | Interest income includes loan fees of $162 and $195 for the nine months ended September 30, 2023 and September 30, 2022, respectively. | |||||||||||||
| --- | --- | |||||||||||||
| ^(3)^ | Includes loans held for sale and nonaccrual loans. | |||||||||||||
| --- | --- | |||||||||||||
| ^(4)^ | Daily averages are shown at amortized cost. | |||||||||||||
| --- | --- | |||||||||||||
| ^(5)^ | Includes restricted stock. | |||||||||||||
| --- | --- |
8
National Bankshares, Inc.
Key Ratios and Other Data
(Unaudited)
| As of and for the Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | September 30,<br><br> <br>2023 | June 30,<br><br> <br>2023 | September 30,<br><br> <br>2022 | ||||||
| Average Balances | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Cash and due from banks | $ | 11,929 | $ | 12,140 | $ | 11,275 | |||
| Interest-bearing deposits | **** | 32,503 | 41,947 | 89,165 | |||||
| Securities available for sale, at fair value | **** | 609,404 | 629,616 | 686,303 | |||||
| Mortgage loans held for sale | **** | 88 | 338 | 194 | |||||
| Loans, gross | **** | 843,892 | 853,196 | 850,175 | |||||
| Loans, net of unearned income and deferred fees and costs | **** | 843,458 | 852,781 | 849,735 | |||||
| Loans, net of allowance for credit losses | **** | 832,861 | 842,147 | 841,619 | |||||
| Goodwill | **** | 5,848 | 5,848 | 5,848 | |||||
| Total assets | **** | 1,591,801 | 1,627,794 | 1,728,040 | |||||
| Noninterest bearing deposits | **** | 298,431 | 300,480 | 341,030 | |||||
| Interest-bearing and savings deposits | **** | 992,474 | 1,047,592 | 1,154,005 | |||||
| Time deposits | **** | 163,476 | 138,261 | 78,198 | |||||
| Total deposits | **** | 1,454,381 | 1,486,333 | 1,573,233 | |||||
| Stockholders' equity | **** | 126,612 | 129,738 | 138,787 | |||||
| Financial Ratios | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Return on average assets^(1)^ | **** | 0.71 | % | 0.87 | % | 1.41 | % | ||
| Return on average equity^(1)^ | **** | 8.89 | % | 10.94 | % | 17.61 | % | ||
| Efficiency ratio^(2)^ | **** | 67.96 | % | 62.58 | % | 45.59 | % | ||
| Average equity to average assets | **** | 7.95 | % | 7.97 | % | 8.03 | % | ||
| Tangible common equity to tangible assets^(3)^ | **** | 6.95 | % | 7.57 | % | 6.28 | % | ||
| Allowance for Credit Losses | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Beginning balance | $ | 10,626 | $ | 10,650 | $ | 8,069 | |||
| (Recovery) provision for credit losses | **** | (401 | ) | 10 | 252 | ||||
| Charge-offs | **** | (72 | ) | (68 | ) | (181 | ) | ||
| Recoveries | **** | 28 | 34 | 67 | |||||
| Ending balance | $ | 10,181 | $ | 10,626 | $ | 8,207 | |||
| (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. | ||||||||
| --- | --- | ||||||||
| (2) | 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. | ||||||||
| --- | --- | ||||||||
| (3) | Tangible common equity and tangible assets exclude goodwill of $5,848. See “Reconciliation of Non-GAAP Financial Measures” at the end of this release. | ||||||||
| --- | --- |
9
National Bankshares, Inc.
Key Ratios and Other Data
(Unaudited)
| As and for the Nine Months Ended | |||||
|---|---|---|---|---|---|
| ( in thousands) | September 30,<br><br> <br>2023 | September 30,<br><br> <br>2022 | |||
| Average Balances | |||||
| Cash and due from banks | 11,829 | $ | 11,676 | ||
| Interest-bearing deposits | 31,435 | 97,917 | |||
| Securities available for sale | 627,908 | 693,303 | |||
| Mortgage loans held for sale | 161 | 184 | |||
| Loans, gross | 850,814 | 829,400 | |||
| Loans, net of unearned income and deferred fees and costs | 850,382 | 828,949 | |||
| Loans, net of allowance for credit losses | 839,764 | 821,082 | |||
| Goodwill | 5,848 | 5,848 | |||
| Total assets | 1,614,757 | 1,716,907 | |||
| Noninterest bearing deposits | 302,568 | 334,727 | |||
| Interest-bearing and savings deposits | 1,034,745 | 1,128,617 | |||
| Time deposits | 131,398 | 79,981 | |||
| Total deposits | 1,468,711 | 1,543,325 | |||
| Stockholders' equity | 126,792 | 157,540 | |||
| Financial Ratios | **** | **** | **** | **** | **** |
| Return on average assets(1) | 0.94 | % | 1.29 | % | |
| Return on average equity(1) | 11.97 | % | 14.04 | % | |
| Efficiency ratio(2) | 61.09 | % | 48.03 | % | |
| Average equity to average assets | 7.85 | % | 9.18 | % | |
| Tangible common equity to tangible assets(3) | 6.95 | % | 6.28 | % | |
| Allowance for Credit Losses | **** | **** | **** | **** | **** |
| Beginning balance | 8,225 | $ | 7,674 | ||
| (Recovery) provision for credit losses | (389 | ) | 696 | ||
| Charge-offs | (232 | ) | (316 | ) | |
| Recoveries | 235 | 153 | |||
| Adoption of ASU 2016-13 | 2,342 | - | |||
| Ending balance | 10,181 | $ | 8,207 |
All values are in US Dollars.
| (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. |
|---|---|
| (2) | 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. |
| --- | --- |
| (3) | Tangible common equity and tangible assets exclude goodwill of $5,848. See “Reconciliation of Non-GAAP Financial Measures” at the end of this release. |
| --- | --- |
10
National Bankshares, Inc.
Asset Quality Data
(Unaudited)
| ($ in thousands) | September 30,<br><br> <br>2023 | June 30,<br><br> <br>2023 | September 30,<br><br> <br>2022 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Nonperforming Assets | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Nonaccrual loans | $ | 2,981 | $ | 3,075 | $ | 2,888 | |||
| Other real estate owned | **** | 662 | 662 | 907 | |||||
| Total nonperforming assets | $ | 3,643 | $ | 3,737 | $ | 3,795 | |||
| Loans 90 days or more past due and accruing | $ | 31 | $ | 21 | $ | 48 | |||
| Asset Quality Ratios | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Nonperforming assets to loans^(1)^ plus other real estate owned | **** | 0.43 | % | 0.44 | % | 0.44 | % | ||
| Allowance for credit losses on loans to total loans^(1)^ | **** | 1.20 | % | 1.26 | % | 0.96 | % | ||
| Allowance for credit losses on loans to nonperforming loans | **** | 341.53 | % | 345.56 | % | 284.18 | % | ||
| Loans past due 90 days or more to loans^(1)^ | **** | 0.00 | % | 0.00 | % | 0.01 | % | ||
| (1) | Loans are net of unearned income and deferred fees and costs | ||||||||
| --- | --- |
11
National Bankshares, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
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. 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. The non-GAAP financial measures presented in this document include fully taxable equivalent (“FTE”) interest income used in the net interest margin and the efficiency ratio, the efficiency ratio, the annualization of net income for the return on average assets and return on average equity, and the ratio of tangible common equity to tangible assets. The following tables present calculations underlying non-GAAP financial measures.
| ( in thousands) | June 30,<br><br> <br>2023 | September 30,<br><br> <br>2022 | |||||
| Net Interest Income, FTE | **** | **** | **** | **** | **** | **** | **** |
| Interest income (GAAP) | 14,679 | $ | 14,597 | $ | 13,155 | ||
| FTE adjustment | 229 | 209 | 232 | ||||
| Interest income, FTE (non-GAAP) | 14,908 | 14,806 | 13,387 | ||||
| Interest expense (GAAP) | 6,039 | 5,380 | 753 | ||||
| Net interest income, FTE (non-GAAP) | 8,869 | $ | 9,426 | $ | 12,634 | ||
| Noninterest Expense for Efficiency Ratio | **** | **** | **** | **** | **** | **** | **** |
| Noninterest expense (GAAP) | 7,465 | $ | 7,557 | $ | 6,736 | ||
| Less: proxy contest-related expense | - | (327 | ) | - | |||
| Noninterest expense for efficiency ratio (non-GAAP) | 7,465 | $ | 7,230 | $ | 6,736 | ||
| Income for Efficiency Ratio | **** | **** | **** | **** | **** | **** | **** |
| Noninterest income (GAAP) | 2,115 | $ | 2,791 | $ | 2,140 | ||
| Realized securities loss, net | - | 3,344 | - | ||||
| Gain on sale of investment | - | (2,971 | ) | - | |||
| BOLI benefit payout | - | (1,037 | ) | - | |||
| Noninterest income, adjusted (non-GAAP) | 2,115 | 2,127 | 2,140 | ||||
| Net interest income, FTE (non-GAAP) | 8,869 | 9,426 | 12,634 | ||||
| Total income for efficiency ratio (non-GAAP) | 10,984 | $ | 11,553 | $ | 14,774 | ||
| Annualized Net Income | **** | **** | **** | **** | **** | **** | **** |
| Net income (GAAP) | 3,074 | $ | 3,901 | $ | 6,162 | ||
| Less: items deemed by management to be non-recurring: | |||||||
| Realized securities loss, net of tax of 702 | - | 2,642 | - | ||||
| Proxy contest-related expense, net of tax of 69 | - | 258 | - | ||||
| Gain on sale of investment, net of tax of (624) | - | (2,347 | ) | - | |||
| BOLI benefit payout | - | (1,037 | ) | - | |||
| Recovery of ACL on loans, net of tax of (84) | (317 | ) | - | - | |||
| Total non-recurring items | (317 | ) | (484 | ) | - | ||
| Adjusted net income | 2,757 | $ | 3,417 | $ | 6,162 | ||
| Adjusted net income, annualized | 10,938 | $ | 13,706 | $ | 24,447 | ||
| Add: total non-recurring items | 317 | 484 | - | ||||
| Annualized net income for ratio calculation (non-GAAP) | 11,255 | $ | 14,190 | $ | 24,447 |
All values are in US Dollars.
12
National Bankshares, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
| ( in thousands) | September 30,<br><br> <br>2022 | ||||
| Net Interest Income, FTE | **** | **** | **** | **** | **** |
| Interest income (GAAP) | 43,320 | $ | 36,127 | ||
| FTE adjustment | 648 | 689 | |||
| Interest income, FTE (non-GAAP) | 43,968 | 36,816 | |||
| Interest expense (GAAP) | 14,517 | 2,055 | |||
| Net interest income, FTE (non-GAAP) | 29,451 | $ | 34,761 | ||
| Noninterest Expense for Efficiency Ratio | **** | **** | **** | **** | **** |
| Noninterest expense (GAAP) | 22,686 | $ | 19,660 | ||
| Less: proxy contest-related expense | (768 | ) | - | ||
| Noninterest expense for efficiency ratio (non-GAAP) | 21,918 | $ | 19,660 | ||
| Income for Efficiency Ratio | **** | **** | **** | **** | **** |
| Noninterest income (GAAP) | 7,105 | $ | 6,543 | ||
| Realized securities loss, net | 3,332 | - | |||
| Gain on sale of investment | (2,971 | ) | - | ||
| BOLI benefit payout | (1,037 | ) | - | ||
| Noninterest income, adjusted (non-GAAP) | 6,429 | 6,543 | |||
| Net interest income, FTE (non-GAAP) | 29,451 | 34,761 | |||
| Total income for efficiency ratio (non-GAAP) | 35,880 | $ | 41,304 | ||
| Annualized Net Income | **** | **** | **** | **** | **** |
| Net income (GAAP) | 11,506 | $ | 16,622 | ||
| Less: items deemed by management to be non-recurring: | |||||
| Partnership income net of tax of (44) and (77) for the periods ended September 30, 2023 and 2022, respectively | (164 | ) | (290 | ) | |
| Realized securities loss, net of tax of 700 | 2,632 | - | |||
| Recovery for credit losses, net of tax of (82) | (307 | ) | - | ||
| Proxy contest-related expense, net of tax of 161 | 607 | - | |||
| Gain on sale of investment, net of tax of (624) | (2,347 | ) | - | ||
| BOLI benefit payout | (1,037 | ) | - | ||
| Total non-recurring items | (616 | ) | (290 | ) | |
| Adjusted net income | 10,890 | 16,332 | |||
| Adjusted net income, annualized | 14,560 | 21,836 | |||
| Add: total non-recurring items | 616 | 290 | |||
| Annualized net income for ratio calculation (non-GAAP) | 15,176 | $ | 22,126 |
All values are in US Dollars.
| As of | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands) | September 30, 2023 | June 30, 2023 | September 30, 2022 | ||||||
| Tangible Assets | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Total assets (GAAP) | $ | 1,591,902 | $ | 1,625,541 | $ | 1,698,946 | |||
| Less: Goodwill | **** | (5,848 | ) | (5,848 | ) | (5,848 | ) | ||
| Tangible assets (non-GAAP) | $ | 1,586,054 | $ | 1,619,693 | $ | 1,693,098 | |||
| Tangible Common Equity | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Total stockholders' equity (GAAP) | $ | 116,113 | $ | 128,444 | $ | 112,187 | |||
| Less: Goodwill | **** | (5,848 | ) | (5,848 | ) | (5,848 | ) | ||
| Tangible common equity (non-GAAP) | $ | 110,265 | $ | 122,596 | $ | 106,339 |
13