THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” ALL

OFTHE NOMINEES SET FORTH BELOW.BELOW.

PROPOSAL 1

ELECTION OF THREE CLASS 2 DIRECTORS

Class 2 Nominees for Directors (Nominated to serve until the 20222025 Annual Meeting):

F. Brad Denardo (Age 66)69): Mr. Denardo has served on the National Bankshares, Inc. Board of Directors since 2017. He joined National Bank as a Vice President in 1983 and was promoted to Executive Vice President of Loans in 1989. In 2002, he was named Executive Vice President and Chief Operating Officer of National Bank and was also elected to the National Bank Board of Directors. Mr. DenardoHe was named President and Chief Executive Officer of the Company on September 1, 2017, President and Chief Executive Officer of NBB in May 2014 and named Chairman, President and CEOChief Executive Officer (“CEO”) of NBB in September 2017. He served as Executive Vice President of the Company from 2008 until 2017 and aswas Treasurer of National Bankshares Financial Services, Inc. ("NBFS"(“NBFS”) from 2001 until 2017. He currently serves as Chairman, President and CEO of National Bankshares Financial Services, Inc.NBFS and has served as a Directordirector since 2001. He served as Executive Vice President of the Company from 2008 until August 31, 2017. Mr. Denardo was named President and CEO of the Company on September 1, 2017 and named Chairman, President and CEO of the Company on May 15, 2019. In addition to Mr. Denardo’s considerable banking experience, his community and professional involvement bring a valuable perspective to the Company’s board.Board. Mr. Denardo is a Board Member of the Virginia Tech Corporate Research Center, the Community Foundation of the New River Valley, the Blacksburg Partnership and Bankers Insurance, LLC, and Virginia Bankers Association Management Services, Inc. He is Assistant Treasurer of Blacksburg United Methodist Church.LLC.

John E. Dooley (Age 64)67): Dr. Dooley ishas served on the National Bankshares, Inc. Board of Directors since 2012. He retired as CEO and Secretary-Treasurer of the Virginia Tech Foundation, Inc., where he overseesoversaw the leadership and management of Virginia Tech’s private assets in support of university programs and initiatives which total assets exceed $1.8$2.3 billion. Prior to becoming CEO of the Foundation in July 2012, Dr. Dooley served as Virginia Tech’s Vice President for Outreach and International Affairs for ten10 years. Dr. Dooley ishas been an active member of the Virginia Tech community through several committees and special projects.for 40 years. He also serves on the boards of several community and state organizations, including Go Virginia Region 2 Council, The Virginia Chamber of Commerce and Lead Virginia.Council. He brings extensive financial knowledge and management capabilities to the Board as well as a significant network of contacts in the regional business and academic communities. Dr. Dooley was elected by the Board of Directors in November 2012 to fill an unexpired term. He was elected to a full three year term at the 2013 Annual Meeting.

Norman V. Fitzwater,, III (Age 68)71): Mr. Fitzwater was elected tohas served on the Company'sNational Bankshares, Inc. Board of Directors in May 2017 when the Company Board was consolidated with the NBB Board. Mr. Fitzwater issince 2017. He retired as President of A Cleaner World dry cleaning in Blacksburg, Virginia. Prior to opening the Blacksburg dry cleaning business in 1992, he was involved in the management and operation of several furniture manufacturing companies in Virginia and North Carolina. Mr. Fitzwater joined NBB’s Board in 2013 and contributes extensive small business and manufacturing experience to the group.Board. He is President of the Blacksburg Hokie Club and is a member of the Blacksburg Partnership, the Montgomery County Chamber of Commerce and the Blacksburg United Methodist Church.

DIRECTORS CONTINUING IN OFFICE

Class 3 Directors(Serving (Serving until 20202023 Annual Meeting)

Charles E. Green, III (Age 68)71): Mr. Green has served on the National Bankshares, Inc. Board of Directors since 2011. Previously, Mr. Green served as a member of the Board of Directors of NBB. He has nearlyover 30 years of experience as a community bank director having been elected to the NBB Board in 2006 and to the board of a predecessor bankBank of Tazewell County in 1986. Mr. Green has experience in small business management, as well as insurance and investment matters, all of which benefit the Company. He resides in, and was formerly the mayor of, Tazewell, Virginia, and possesses in-depth knowledge of that portion of the Company’s market area and community.

Mildred R. Johnson (Age: 64)67): Mrs.Ms. Johnson was elected tohas served on the Company'sNational Bankshares, Inc. Board of Directors in May 2017 when the Company Board was consolidated with the NBB Board.since 2017. As of JanuarySeptember 1, 2018, Mrs.2019, Ms. Johnson is servingretired as the Dean of Admissions at Radford University. For 22 years prior to her current roleretirement at Radford University, she served in various roles at Virginia Tech, most recently as the Associate Vice Provost for Enrollment Management and Director of Undergraduate Admissions. She is a recognized leader in higher education with a career which spans over 4044 years, primarily in college admissions. Mrs.Ms. Johnson has served in leadership positions and on academic boards in both Virginia and nationally. She joined the NBB Board in 2012 and brings valuable experience in higher education and management to the Company.  She also serves on the Lewis Gale Hospital Montgomery Board of Trustees.

William A. Peery (Age 67)70): Mr. Peery has served on the National Bankshares, Inc. Board of Directors since 2005. As President of Cargo Oil Co., Inc. in Tazewell, Virginia, Mr. Peery has business management experience, including experience in financial management. Cargo Oil Co., Inc. operates convenience stores and sells petroleum products. The firm is headquartered in Tazewell, Virginia where Mr. Peery resides. Mr. Peery brings small business management experience to the Board. The Company considers small businesses to be a key component of its customer market. He was elected to the Company’s Board of Directors in 2005.

James C. Thompson (Age 62)65): Mr. Thompson was elected tohas served on the Company'sNational Bankshares, Inc. Board of Directors in May 2017 when the Company Board was consolidated with the NBB Board.since 2017. Mr. Thompson joined the NBB Board of Directors in 2006 with the merger of NBB and the Bank of Tazewell County. Prior to the merger he had served on the Bank of Tazewell County Board of Directors since 2005. He served as the Chairman of the Board of Directors of Thompson & Litton, Inc. for 13 years and he is currently the Director of Strategic Initiatives for the firm andfirm. He has served on its Board of Directors for 32 years. Additionally, he35 years and has been employed by the firm full-time since 1981. Thompson & Litton, Inc. is engaged in the business of Engineering, Architecture,engineering, architecture, and Constructionconstruction in seven Mid-Atlantic States.states. Mr. Thompson brings extensive experience in executive management, finance and strategic planning. He serves as Chairman of the Board of Carilion Tazewell Community Hospital, and on the Carilion Clinic Board of Directors in Roanoke, Virginia, and the Tazewell Community Foundation Board of Directors.

Class 1 Directors(Serving (Serving until 20212024 Annual Meeting)

Lawrence J. Ball (Age 64)67): Mr. Ball was elected tohas served on the Company’sNational Bankshares, Inc. Board of Directors insince 2006. He is retired President of Moog Components Group, a part of Moog, Inc., which is an international corporation. Prior to being named President, Mr. Ball was the Vice President and General Manager of Moog Components Group. Moog Components Group is headquartered in Blacksburg, Virginia, and the company designs and manufactures products in motion control, electronics and fiber optics. Mr. Ball has extensive experience in management and financial reporting. Mr. Ball’s experience as a senior manager with a large corporation is considered valuable in adding to the Board of Directors’ understanding of larger business operations.

Michael E. Dye (Age 64)67): Mr. Dye was elected tohas served on the Company'sNational Bankshares, Inc. Board of Directors in May 2017 when the Company Board was consolidated with the NBB Board.since 2017. He became a member of the NBB Board in 2006 with the merger of NBB and the Bank of Tazewell County. Prior to the merger, he had served on the Bank of Tazewell County Board of Directors since 2005. Mr. Dye is a Pharmacist and owner of New Graham Pharmacy (since 1979), Cornerstone Gifts The Last Fountain and New Graham Knives, all located in Bluefield, Virginia. He possesses an extensive knowledge of the business activity and community life in the Company’s important Bluefield market area. Mr. Dye is past president of the Bluefield, Virginia Downtown Development Corporation and is a member of the Bluefield, Virginia Business and Professional Association and the Bluefield Chamber of Commerce.

Mary G. Miller (Age 68)71): Dr. Miller was first elected tohas served on the Company’sNational Bankshares, Inc. Board of Directors insince 2003. For 2730 years, she owned and operated Interactive Design & Development, Inc. ("IDD"(“IDD”), a custom software development company. After selling IDD's assetsIDD in 2016, sheDr. Miller accepted the position of Director of the Regional Acceleration and Mentoring Program (RAMP)(“RAMP”), which provides programs for technology businesses in the Roanoke-Blacksburg-Lynchburg, Virginia region. In her role at RAMP, she is building a mentor network in the region, conducting business development clinics and directing a residential program for promising technology companies. SheDr. Miller brings in-depth knowledge of the region’s developing technology sector and technology issues to her service on the Board of Directors. She also serves on the Board of Directors of the Roanoke-Blacksburg Technology Council.

Glenn P. Reynolds (Age 66)69): Mr. Reynolds has been a member ofserved on the Company’sNational Bankshares, Inc. Board of Directors since 2006. He is the founder and President of Reynolds Architects Incorporated, an architecture firm located in Blacksburg, Virginia. Mr. Reynolds’ familiarity with the area’s construction and development projects and his experience with local building firms are useful to the Company’s Board. In addition, Mr. Reynolds has small business management experience and a network of contacts in the local business and academic communities. He also serves on several area boards and Virginia Tech organizations.

Dr. J. Lewis Webb, Jr. (Age 70): Dr. Webb was elected to the Company's Board of Directors in May 2017 when the Company Board was consolidated with the NBB Board. He was elected to the NBB Board of Directors in 1994 after serving on NBB’s Giles County Advisory Board since 1988. He is a retired dentist after 35 years of practice in Narrows, Virginia. Dr. Webb is a past member of the Giles County School Board where he served as Chairman for two years and helped manage a $26 million annual budget. He is also a past member of the New River Community College (“NRCC”) Board and a current member of the NRCC Educational Foundation Board. Dr. Webb has been a Managing Partner for Buchanan Coal Group since 1980, and is currently Lead Manager for the group. Dr. Webb has considerable professional, personal and civic experience and longstanding ties in the Company’s Giles County market.

All information is provided as of March 13, 2019,9, 2022, and employment information is provided for at least the past five years. No director or nominee is related by blood, marriage or adoption to any other director, nominee or executive officer. No director or nominee currently serves or has served within the past five years, as a director of any company which has a class of securities registered pursuant to Section 12 of the Exchange Act, or is subject to the requirements of Section 15(d) of the Exchange Act, or of any company registered as an investment company under the Investment Company Act of 1940. Mr. Denardo currently serves as a director on both of the wholly ownedwholly-owned subsidiaries of the Company, National Bank and National Bankshares Financial Services, Inc. (“NBFS”).NBFS. Except for Mr. Denardo, and Mr. Rakes, no other director has been employed by a subsidiary affiliate of the Company during the last five years. Each director and nominee, except for Mr. Denardo, and Mr. Rakes, havehas been determined to be independent by the Board of Directors using the definition for independence of directors“independent director” that is used for determining compliance with the applicable listing standards for the NASDAQThe Nasdaq Stock Market (“NASDAQ”Nasdaq”), the national securities exchange on which the Company’s common stock is listed. (See also “Director Independence”“Corporate Governance Matters-Director Independence and “CertainCertain Transactions with Officers and Directors.”)

PROPOSAL 2

ADVISORY (NON-BINDING) VOTE TO APPROVE EXECUTIVE COMPENSATION

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and rules adopted by the U.S. Securities and Exchange Commission (“SEC”)SEC under the Dodd-Frank Act, it is required that at least once every three years our stockholders have the opportunity to vote, on a non-binding, advisory basis, to approve the compensation of the Company’s named executive officers, as described in the disclosures and discussion regarding executive compensation in this proxy statement. Accordingly, we are providing this votestatement (often referred to as required pursuant to Section 14A of the Securities Exchange Act.a “say-on-pay” vote). Our performance-related compensation philosophy is the basis for all of our compensation decisions. Please refer to the “Executive Compensation” section for an overview of the compensation of the Company’s named executive officers, as required by SEC rules. At the 2017 Annual Meeting, stockholders voted in favor to hold this non-binding, advisory (“Say on Pay”) vote annually.

We are Accordingly, the Company is asking for stockholder approval ofstockholders to approve our named executive officers’officers compensation as described in this proxy. through the following resolution:

The vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the compensation policies and practices discussed in this proxy.proxy statement. Because the vote is advisory, it will not be binding on the Company or its Board of Directors. However, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.

⁽¹⁾         Directors fees paid to Mr. Denardo are disclosed in the Summary Compensation Table in “Executive Compensation.”

⁽²⁾         Dr. Webb’s term of service on the Board of Directors expired at the 2021 Annual Meeting held on May 11, 2021.

Director Independence and Certain Transactions with Officers and Directors

AsThe Board has been mentioned,determined that each director of the Company, except for Mr. Rakes and Mr. Denardo, is independent, as defined by the listing standards for NASDAQ,Nasdaq, the national securities exchange on which the Company’s common stock is listed, and none of them is a present or past employee or officer of the Company or its subsidiaries.

In determining that each director meets the NASDAQNasdaq listing standards for independence, the Board of Directors recognized that NBB extends credit in the ordinary course of business to the Company’s directors and executive officers. Extensions of credit are also made toofficers, and business organizations and persons with whom Company directors and executive officers are associated or related. These extensionsAll loans extended to directors, executive officers and members of credittheir immediate families, and corporations, partnerships and other entities with which such persons are affiliated, are made atin the ordinary course of business upon substantially the same terms, including interest rates and with the same requirements as to collateral, as isthose prevailing at the time for comparable transactions with persons not affiliated with the general public atCompany, and do not involve more than the time credit is extended. In the opinion of bank management, none of the outstanding transactions with directors and executive officers involve a greater than normal risk of collectability or present other unfavorable features. In making the determination that all of the directors are independent, except for Mr. Rakes and Mr. Denardo, the Board of Directors considered that Mr. Green rents a small office space at a National Bank office. He has a lease with the Bank and payspaid market rate rent of $4,560 each year, including in 2018. On April 3, 2018, M2 Holdings, LLC sold to2020 and $4,740 in 2021. In 2020 and 2021, NBB certain real property that NBB acquiredpaid Mr. Reynold’s firm $66,102 and $112,520 respectively, for administrative officesarchitectural services rendered for a purchase price of $800,000. At the time of the sale, the real property had a tax assessed value of $790,500. M2 Holdings, LLC is owned and controlled by Mary G. Miller.our new Roanoke office. Except for Mr. Denardo, the transactions listed in this paragraph and the directors’ fees, no director received direct or indirect compensation from the Company in 20182020 and 2021 that is required to be reported.

Board Tenure

The Company does not have a formal board tenure policy. However, in order to promote director succession planning, the Company’s by-lawsbylaws state that directors reaching the age of 73 shall be ineligible for re-nomination to the Board at the expiration of the term of office during which the director becomes 73 years of age. There are no exemptions or conditions from this bylaw provision.

Risk Oversight Practices

In a financial institution, the role of the board of directors is critical to the organization. To fulfill its responsibility to oversee the Company’s risk management processes, the full Board of Directors receives extensive and regular reports from management outlining the status of financial, operational, credit, risk, interest rate, risk, liquidity, riskinformation technology (including cyber risk), capital, reputation, strategic, legal, compliance and major areas of operational risk.other risks. The Company’s Treasurer and Chief Financial officer,Officer, who serves as the subsidiary bank’s Senior Vice President/Operations & Risk Management, attends most meetings of the Board of Directors, is readily available to report to the directors, and to answer the directors’ questions and is responsible, along with the Risk Committee, for raising any material risk management concerns with the Board.

The Risk Committee of the Board of Directors is responsible for assisting the Board in its oversight of the above-identified risks and for overseeing the Company’s enterprise risk management framework. Although risk management is primarily the responsibility of the Company’s management, the Risk Committee actively engages with management to establish risk management principles and to determine risk appetite and tolerance. In addition to the regularCompany’s Treasurer and Chief Financial Officer being available at Board meetings, the chairperson of the Risk Committee also provides reports received byto the entire Board of Directors on various matters relating to risk. These reports are often the result of the committee meeting with such officers and other members of management regularly to discuss major risk exposures.

In addition to the efforts of the Risk Committee, other committees of the Board consider risk within their areas of responsibility. The Audit Committee receives reports that are delivered in person fromhas responsibility for oversight of risks associated with financial accounting and reporting, including the Corporate Auditor and from the Vice President, Corporate Compliance Officer. They report directly to the Board, supply the Audit Committee with information about internal audits completed at both the parent company and subsidiary levels and about the statussystem of internal control. This oversight includes reviewing and discussing with management the Company’s regulatory compliance activities.major financial risk exposures and the procedures utilized by management to monitor and control such exposure. The Compensation Committee oversees risks relating to the Company’s compensation plans and programs.

Executive Officers

Information on the Company’s executive officers as of December 31, 20182021 who are not directors is disclosed in Part III,I, Item 10,1, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2021, which was mailed with this proxy statement.

Code of Ethics

We expect all of our directors, executive officers and employees to adhere to the highest standards of ethics and business conduct with each other, customers, stockholders and the communities we serve, and to comply with all applicable laws, rules and regulations that govern our business. The Board of Directors has adopted a Directors’ Code of Ethics and an Employees’ Code of Ethics. A portion of the Code of Ethics contains special provisions for the principal executive officer and senior financial officers of the Company or person performing similar functions for the Company. The Code of Ethics for senior financial officers meets the requirements of a “code of ethics” as defined by Item 406 of the SEC’s Regulation S-K. The Code of Ethics is available on the Company’s website, www.nationalbankshares.com.www.nationalbankshares.com.  Select the “Corporate Governance” tab. The respective Codes of Ethics are reviewed on an annual basis by the Board and the executive officers.

Stockholder Communication

Stockholders may communicate with all or any member of the Board of Directors by addressing correspondence to the “Board of Directors” or to the individual director and addressing such correspondence to National Bankshares, Inc., P. O. Box 90002, Blacksburg, Virginia 24062-9002, Attention: Board of Directors (in the case of correspondence addressed to the “Board of Directors”), or to the individual director. All stockholder communications are forwarded to the Board or to the specified directors.

COMPENSATION COMMITTEE REPORT

The Compensation Committee hasof the Board of Directors reviewed thisand discussed with management the following Compensation Discussion and Analysis with management. TheAnalysis. Based on this review and discussion, the Compensation Committee (referred to in this Compensation Committee report as the "Committee") reviewed and fully discussed the Compensation Discussion and Analysis, and the report was recommended to the Board of Directors tothat the Compensation Discussion and Analysis be included in this proxy statement. The Committeestatement and is made up of independent, non-employee directors. The Committee consisted of directors ofincorporated by reference into the Company’s Board, including Mr.Annual Report on Form 10-K for the year ended December 31, 2021. This report was prepared by the following independent directors who compose the Compensation Committee:

Charles E. Green, III (Chair), Mr.

Lawrence J. Ball Dr. Lewis, Mr.

John E. Dooley

Mildred R. Johnson

Glenn P. Reynolds

James C. Thompson Dr. Dooley, and Mrs. Johnson.

COMPENSATION DISCUSSION AND ANALYSIS

What are the objectives of the Company’sCompany’s compensation program for its named executive officers?

National Bankshares, Inc. has four goals for its compensation program for named executive officers. In 2018,2021, these officers were: F. Brad Denardo, Chairman, President & CEO (from September 1, 2017) and Executive Vice President (until August 31, 2017);CEO; David K. Skeens, Senior Vice President, Treasurer and CFO;Chief Financial Officer (“CFO”); Paul M. Mylum, SeniorExecutive Vice President/Chief Lending Officer; and Lara E. Ramsey, Senior Vice President-AdministrationPresident/Administration and Corporate Secretary; and Mark A. Smith,Secretary. Rebecca M. Melton, who resigned from the Bank effective December 7, 2021 holding the position of Senior Vice President/Chief Credit Officer, (until October 15, 2018).is also considered a named executive officer for 2021. The four goals are:

The Compensation Committee considers the results of the stockholder advisory “say-on-pay” vote in its deliberations regarding compensation of the named executive officers.  At the Company’s 20182021 Annual Meeting, the stockholders voted to approve, on an advisory basis, the compensation of the Company’s named executive officers, as described in the Compensation Discussion and Analysis set forth in the Company’s 20182021 Annual Meeting proxy statement. The vote was 4,544,7863,366,319 shares “For” (96.15%(94.15% of the shares voted) and 182,095209,203 shares “Against” (3.85%(5.85% of the shares voted).

What is the program designed to reward?

The compensation program for the President & CEO is designed to reward the profitable operation of the Company compared to its peers, particularly as measured by return on assets and return on equity. In addition, the program rewards the President & CEO when the Company’s short- and long-term strategic goals are met. Inherent in meeting strategic goals is the ability to recognize and manage risks to the Company. Named executive officers, other than the President & CEO, are rewarded for the Company’s success in meeting its performance goals and particularly for success in those areas for which they have individual management responsibility. One measure of the officers’ success is their ability to recognize and manage risk in their areas of responsibility.

Has the Compensation Committee engaged a compensation consultant?

In the second half of 2016, the Compensation Committee retained the services of Pearl Meyer & Partners, LLC (“PM&P”), an independent executive compensation consulting firm, to provide consulting services in connection with developing the Company’s compensation philosophy and providing a competitive compensation review and incentive plan with respect to executive management, a larger group than the named executive officers. With the assistance of PM&P, the Compensation Committee also developed a peer group of similarly-sized financial institutions.

The compensation review encompassed (i) an assessment of the Company’s executive compensation as compared to market (similar executives in the peer group); (ii) a high levelhigh-level assessment of the Company’s performance relative to peers; and (iii) establishing a basis for discussing potential pay or other compensation changes in future periods. More information is contained in “Annual Incentive Plan” discussed below.

During 2018,2020, PM&P was further engaged by the Compensation Committee to review both non-employee director compensation and President & CEO compensation. Such review took place after the establishment of 2020 compensation for such directors and the President & CEO. PM&P was not engaged to provide compensation services in 2021.

What was the Company’s peer group for 2021?

For 2021, the Compensation Committee, without the assistance of PM&P, updated the Company’s peer group of comparable financial institutions that was established in 2016. The 2021 peer group consisted of the following companies with assets ranging from approximately $904 million$1.3 billion to $4.2$3.5 billion:

What is each element of compensation?

The elements of compensation are:

Why does the Company choose to pay each element of compensation?

During 2018,2021, the Company used salary as the cornerstone of its compensation program because it believes that the focus of executive officers, particularly of those below the level of the President & CEO, should be on the Company’s long-term growth and performance. Annual increases are awarded based upon individual performance in meeting stated goals for that review period. Because salary rather than some form of annual incentive has been the major component of their compensation through 2018,2021, executive officers have sufficient personal economic security to make and support management decisions that may trade immediate gain for greater long-term corporate success. In addition, limiting compensation primarily to salary inhibits the incentive to take unreasonable short-term risks at the expense of reaching long-term goals.

Because the President & CEO is the individual whoThe Company has the ultimate responsibility for the success of its operations, it is the Company’s policy to pay an annual incentive plan designed to reward achievements of annual corporate financial goals and individual performance goals that are consistent with the Company’s strategic plan and focused on growing return to stockholders. The plan provides a method for the Company to motivate, attract and retain qualified executives. Incentive compensation under the plan is paid in the form of a cash bonus and is based on his employment agreement thatan incentive target for each participant’s position. Each of the named executive officers participates in the plan. More information is based upon overall performance for the yearcontained in question. The ratio of incentive bonus to salary remains at a level which the Company believes does not increase its potential risk.“Annual Incentive Plan” discussed below.

Each named executive officer, along with all other eligible Company employees, participates in three qualified retirement plans. NBI sponsors a defined benefit pension plan, the National Bankshares, Inc. Retirement Income Plan. The Company also sponsors The National Bankshares, Inc. Retirement Accumulation Plan, which is a 401(k) plan, and the Company also offers the National Bankshares, Inc. Employee Stock Ownership Plan. The Company believes that it is important to assist its long-term employees, including its executive officers, in assuring financial security in retirement for themselves and their families. National Bankshares, Inc. also believes that its Employee Stock Ownership Plan helps to align the interests of all employees, including executive officers, with the interests of its stockholders. More information is contained in “Qualified Retirement Plans.”

The Company has established a nonqualified salary continuation plan that is designed to provide certain key Company officers, including certain named executive officers, with supplemental retirement income. This plan was established to enhance the Company’s ability to retain key decision-makers and to supplement the retirement benefits of those more highly compensated executives who, because of legal limitations, are unable to participate fully in the qualified retirement plans. There is further discussion in “Nonqualified Retirement Plans.”

In 2018,2021, Mr. Denardo served as a paid director of the Company and/or of one of its subsidiaries.and NBB. He received the same compensation as outside directors. The Company believes that this is an appropriate practice because this executive officer devotes additional time to his Board of Directors’ responsibilities, and all directors, both internal and external, share the same fiduciary obligations and liability risk.

The perquisites and personal benefits that are provided to Mr. Denardo are defined in his employment agreement. These items were agreed to for two reasons. First, they are typical benefits for individuals holding the respective positions in peer banks and financial holding companies. As such, they are part of a total compensation package that is competitive in the Company’s operating environment. Second, certain perquisites that offer a degree of personal benefit are also directly related to job performance. The perquisites that are available to any of the other named executive officers are limited in nature and offer benefitavailable to bothall employees of the executive and the Company.See “Executive Compensation” and “Employment Agreements and Change in Control Agreements.Arrangements.”

How does the Company determine the amount for each element?

Salary: The salaries of National Bankshares’ named executive officers, except for that of the President & CEO, are within the Company’s established salary ranges for each officer position. The ranges are developed after considering an annual salary survey published by the Virginia Bankers Association as well as publicly available salary information about comparable jobspositions at institutions in the Company’s peer group and in the locations in which Bankshares and its subsidiaries do business. The annual increase in base salary for these individuals is determined by the President & CEO in consultation with the Board.CEO. In making the determination, Mr. Denardo considers the nature and responsibility of the position; the competitiveness of the market for the executive’s services; the expertise of the individual executive; and to what degree the executive has achieved annual performance goals. Individual annual performance goals support the Company’s business strategy, but are not tied to objective performance measures. The President & CEO reports changes to the executive officer salaries to the Compensation Committee at least annually.

Mr. Denardo'sDenardo’s base salary of at least $360,000 was set in the amended and restated employment agreement dated March 11, 2015, effective January 1, 2015. The base salary was increased to its current level primarily as a result of Mr. Denardo being named President & CEO of the Company and assuming these roles and responsibilities, and based onas well as his continued rolecontinuing in those positions.

The base salary for Mr. Denardo was determined after considering compensation for this position reported in the Virginia Bankers Association’s annual salary survey and from the public documents of peer group institutions that disclose salaries paid to other individuals holding similar positions. The Board of Directors Compensation Committee determines annual salary increases for Mr. Denardo after assessing the CEO’shis contributions to the success of the Company. In measuring the Company’s success, the Committee compares NBI’s financial results to the peer group listed above. Specifically, the Compensation Committee compares Bankshares’ return on assets (ROA)(“ROA”) and return on equity (ROE)(“ROE”) with the average ROA and ROE of the peer bank holding companies. Based on the Company’s performance relative to its peers in 2017,2020, on March 1, 2021 the Compensation Committee set Mr. Denardo'sDenardo’s 2021 salary at $460,375$520,000, which was an increase over his salary in 2016.2020. The Committee also considered Mr. Denardo'sDenardo’s extensive tenure and long track record of success in profitably leading the Company and NBB and in managing risks to the Company and NBB encountered in a challenging economic environment. Although the Committee weighs the peer comparison heavily in determining Mr. Denardo'sDenardo’s salary increase, it does not utilize an objective formula. The Committee considers the Company’s progress in meeting budget goals for the year, but it does not utilize a quantitative assessment of budget goals in determining the amount of annual salary increase. Likewise, although there are no objective measures utilized, the Committee considers stock performance and the level of stockholder dividends, among other criteria, in establishing salary. In assessing Bankshares’ stock performance, the Compensation Committee looks at its price, the price to earnings ratio and dividend yield as compared with the stock of the Company’s identified peers. The Committee validates salary increases by referring to the Virginia Bankers Association salary survey and to public documents from peer institutions. As mentioned above, the annual increase in base salary for all other executive officers is determined by the President & CEO, in consultation withwho reports such increases to the Board.

CashAnnual Incentive Plan Bonus: TheAn annual incentive cash bonus paid to Mr. Denardo is determined witheach of the same criteria that are used in establishing his annual salary increase. In 2018, the Committee did not award any cash bonus to Mr. Denardo. An annual incentive bonus paid to Mr. Denardo in 2018named executive officers for 2021 was determined bypursuant to the Company'sCompany’s Annual Incentive Plan.Plan, other than Ms. Melton. This plan is discussed in greater detail under "Annual“Annual Incentive Plan."”

Qualified Retirement Plans: The named executive officers participate with other eligible employees in the Company’s three qualified retirement plans. Every participant’s benefits are determined under the specific provisions of each of the plans. These plans are discussed in greater detail under “Qualified Retirement Plans.”

Nonqualified Salary Continuation Plan: In early 2006, the Company’s subsidiaries entered into salary continuation plan agreements, which may behave been amended from time to time, with a group of selected senior officers. Assuming retirement at normal retirement age (as defined in the Plan)(age 65), contributions to the Salary Continuation Plan are sufficient to provide a minimumthe greater of fifteenlifetime or 15 years of annual supplemental retirement income payments ofequal to 25.0% of projected final average salary (based on 2008 annual compensation (adjustedsalary, adjusted by a pre-retirement inflation factor of 4%) for Mr. Denardo, 25.0%27.3% of 2013final average salary (based on 2021 annual compensation (adjustedsalary, adjusted by a pre-retirement inflation factor of 4%) for Mr. Skeens, 20.0%25.0% of 2012final average salary (based on 2021 annual compensation, (adjustedadjusted by a pre-retirement inflation factor of 4%) for Mr. Mylum, and 23.1%22.2% of 2016final average salary (based on 2021 annual compensation (adjustedsalary, adjusted by a pre-retirement inflation factor of 4%) for Ms. Ramsey. Final average salary is equal to the projected average salary for the five years prior to the Normal Retirement Age.

In 2016, the Company’s subsidiaries entered into a separate additional salary continuation agreement with Mr. Denardo. Assuming retirement at the normal age (age 70 for this agreement), the agreement provides an additional $17,512 annual benefit payable for the greater of 15 years or lifetime.

Board of Directors Fees: Mr. Denardo received the same compensation as outside directors for serving as a director of the Company. See also “Board of Director Meetings, Committees, Compensation, Attendance and Communications with Directors.“Corporate Governance Matters.”

Perquisites and Other Personal Benefits: The Board Compensation Committee negotiated withhas determined that Mr. Denardo, as President & CEO, to developshould receive a comprehensive and competitive total compensation package, including perquisites. This package was included in Mr. Denardo's amended and restated employment agreement dated March 11, 2015 and effective January 1, 2015. During 2018,2021, these perquisites were limited to a Company-owned automobile, for Mr. Denardo, which facilitatefacilitates business travel, as well as sports tickets and club memberships which assist Mr. Denardo with marketing and business development efforts. The President & CEO,Mr. Denardo, with approval of the Compensation Committee, determines perquisites available to the other named executive officers. The President & CEOofficers, if any, and reports annually to the Compensation Committee on these items.

How doesHow does each element and the Company’sCompany’s decisions regarding that element fit into the Company’sCompany’s overall compensation objectives and affect the decisions regarding other elements?

As noted above, each compensation element supports retention, the achievement of annualshort- and longer termlong-term corporate goals, and provides reasonable financial security to the employee. EveryEach year, the Compensation Committee assesses the total compensation package for each named executive officer to determine that it is appropriate. The Compensation Committee also reviews each element of the compensation package and determines that each is satisfactory in relation to the other.

During 2018, the Committee reviewed Mr. Denardo's decisions regarding the compensation packages of the other executive officers. These packages remain focused heavily on salary. The executive officers participate in the qualified retirement plans available to all employees, as well as participating executive officers in the Officers Salary Continuation Plan and Annual Incentive Plan.

Annual Incentive Plan for 20182021

The allocation of all executive officers’ compensation among the various elements of compensation has not changed substantially in a number of years. However, with the consultation of Pearl Meyer & Partners, LLC (“PM&P”) inAs described above, during 2016, the Compensation Committee adoptedretained the services of PM&P, an independent executive compensation consulting firm, to assist the Compensation Committee in its review of executive compensation and to develop an Annual Incentive Plan (the “Plan”“Incentive Plan”) for certain executive officers.officers, which the Compensation Committee approved and adopted in 2016. The Compensation Committee believes that the Incentive Plan is important to demonstratedemonstrates that the Board and management recognize current trends and best practices with respect to executive compensation, and of creatingprovides a focus for management to create value for stockholders.

Plan Purpose

The purpose of the Incentive Plan is to reward the achievements of annual corporate financial goals and individual performance goals that are consistent with the Company’s strategic plan and focused on growing return to stockholders. The Incentive Plan is further intended to assist the Company in its ability to motivate, attract and retain qualified executives. The Incentive Plan was in effect January 1, 20182021 through December 31, 2018,2021, and will continue to renew for successive one-year periods (each year called a "Plan Year"“Plan Year”). as determined by the Compensation Committee.

Plan Participation

Incentive Plan participation is limited to the President & CEO and those executive officers, including the named executive officers, that the President & CEO recommends and that the Committee approves during the first 90 days of each Plan Year. Any incentive compensation is paid in the form of a cash bonus and is based on an incentive target for each participant's position that is approved at the beginning of each Plan Year by the Committee, in its discretion.Compensation Committee. The Compensation Committee determines the amount of any incentive compensation award to be paid, following a review of the recommendations offrom the President & CEO.

How are Incentive Plan awards calculated?calculated?

Awards under the Incentive Plan are paid out of a pool calculated on both the individual incentive targets of each participant in the Incentive Plan and of the Company'sCompany’s level of performance achieved in one or more financial objectives that the Compensation Committee approves at the beginning of each Plan Year. Target annual incentive awards for each named executive officer is expressed as a percentage of base salary, as follows:

Seventy percent (70%) of the President & CEO’s target annual incentive award is based on the achievement of pre-determined corporate financial goals. The remaining thirty (30%) is based on individual performance. One-half (50%) of anthe other executive officer'sofficers’ target annual incentive award is based on the achievement of pre-determined corporate financial goals. The remaining one-half (50%) is based on individual performance. The corporate financial goals are established by the Compensation Committee. For Mr. Denardo, the individual performance based on an assessment is made by the Compensation Committee, and for the Company's CEO usingother named executive officers the individual performance assessment is made by the Compensation Committee and Mr. Denardo. The assessments take into account both quantitative and qualitative factors. Actual payouts may range from 50% to 150% of an executive officer's target award opportunity, depending on performance, and are paid in cash.

Award FundingComponents

Corporate Financial Component:Financial Component:Cash awards under the Incentive Plan are paid out of the plan’s incentive pool after a Plan Year. At the beginning of the year,Plan Year, the Compensation Committee establishes threshold, target and superior levels of corporate financial performance. The ultimate value of the incentive pool can increase based on actual performance and is funded based on year-end results as follows:

The Compensation Committee also retains the discretion to consider other factors (including, for example, our performance relative to our peers, market conditions, the interest rate environment or any unusual expenses) in determining the overall corporate financial component payout. For the awards in 2018,2021 Plan Year, the incentive pool was funded based on the achievement of pre-determined company-wide Net Income goals for 20172021 established by the Compensation Committee, as follows:

Based on actual results,the Net Income achieved by the Company in 2021, the incentive pool was funded at 100% of target due to the year-end deduction for the Deferred Tax Assets Re-evaluation and other significant one-time expenses.target.

Individual Performance Component: At the beginning of the Plan Year, individual performance criteria for each of the named executive officers is presented to the Compensation Committee by the President & CEO. The Company considers the individual goals confidential strategic information and does not publicly disclose such information for competitive reasons.

In February 2018,2022, the Compensation Committee reviewed and considered each named executive officer’s performance during the 2021 Plan Year, including recommendations and performance summaries from the President & CEO for each of the other named executive officers. The Compensation Committee reviewsreviewed the President & CEO’s 2021 Plan Year performance independently.

20182021 Award Payouts

Based on the corporate financial component and individual performance component determinations described above, the actual cash incentive awards received by each of our named executive officers for 20182021 were as follows:

For fiscal year 2018, the incentive compensationThe Incentive Plan awards paid to the named executive officers in early 2022 for fiscal 2021 performance are listedalso provided in the Summary Compensation table.Table.

How are the Corporate Financial and Individual Performance components of the Incentive Plan determined?determined?

The President & CEO will recommendrecommends corporate financial goals for a Plan Year to the Compensation Committee within the first 90 days of a Plan Year, which the Compensation Committee will approvereviews and, if in agreement, approves in writing. Individual goals for a Plan Year may be established for each participant in conjunction with his or her direct supervisor or determined on a discretionary basis. The Committee will review and approve any individual goals for participants.

How are Plan awards paid?

Subject to the terms of the Plan, the CEO will recommend an incentive award for each participant which the Committee will review and approve. For participants with assigned goals and objectives for a Plan Year, the recommendations will address each participant's performance in relation to the assigned goals and objectives.

Within 60 days following the end of a Plan Year, the Committee will review performance against the corporate and any individual goals established for a participant, certify in writing that the applicable performance goals were satisfied, and determine the amount of the incentive compensation award, if any, to be paid to the participant under the Plan. Notwithstanding any provision of the Plan to the contrary, the Committee may, in its discretion, in light of such considerations as it may deem relevant, increase or decrease any payments to which a participant would otherwise be entitled by such amount or percentage as the Committee deems appropriate.

How is the Incentive Plan administered?

The Compensation Committee is responsible for the oversight, supervision and existence of the Incentive Plan and for any modification or termination of the Incentive Plan. As mentioned above, the Compensation Committee also retains the discretion to consider other factors (including, for example, our performance relative to our peers, market conditions, the interest rate environment or any unusual expenses) in determining the overall Corporate Financialcorporate financial component payout. The President & CEO monitors for accuracy the individual performance reporting ofcomponent for each participant and makes recommendations to the Compensation Committee concerning award opportunities and the amount of a participant'sparticipant’s awards under the Incentive Plan. The President & CEO has been delegated discretion to interpret the terms of the Incentive Plan, to determine eligibility for benefits, and to calculate the incentive compensation awards under the Incentive Plan, with the exception of matters concerning his own eligibility or awards under the Incentive Plan. The Compensation Committee will make decisions concerning all matters concerning the CEO'sPresident & CEO’s award, approve all opportunities, goals and award payments made to the named executive officers and approve the aggregate value of opportunities and award payout under the Incentive Plan. The Compensation Committee, in its discretion, makes all final determinations including those not herein specifically authorized which may be necessary or desirable for the effective administration of the Incentive Plan.

Unless the Compensation Committee deems otherwise, awards will not be earned or paid, regardless of Corporate Financialcorporate financial or Individual Performance,individual performance, if (1) any regulatory agency issues a formal, written enforcement action, memorandum of understanding or other negative directive action where the Compensation Committee considers it imprudent to provide awards under the Incentive Plan, or (2) after a review of the Company'sCompany’s credit quality measures, the Compensation Committee considers it imprudent to provide awards under the Incentive Plan.

The Compensation Committee may withhold or adjust any incentive compensation award in its sole discretion as it deems appropriate and will have the President & CEO notify each participant of its decision to withhold or adjust an incentive compensation award.

The Incentive Plan has provisions for prorated payments to a participant in the event of the participant'sparticipant’s death, permanent disability or retirement. If a participant'sparticipant’s employment ceases for any other reason, including, without limitation, a voluntary termination of employment by a participant as defined by the Company'sCompany’s personnel policies, or an involuntary termination with or without cause, the participant will not be eligible for any incentive compensation award under the Incentive Plan.

Payments under the Incentive Plan are subject to the Company'sCompany’s Clawback Policy described below.

Compensation Clawback

The CommitteeCompany has adopted a clawback policy in 2014 applicable to our named executive officers. Under the clawback policy, the Compensation Committee may, in its reasonable discretion, require an executive officer to reimburse the Company for the amount of any payment previously received by such officer under thea cash bonus plan as well as an equity compensation plan. This type of reimbursement is often called a “clawback.” The clawback would apply if the Company is required to restate financial statements duringfor any year in the three yearthree-year period preceding the date on which the Company would be required to prepare a restatement, regardless of whether such restatement was a result of an officer’s intentional misconduct or gross negligence. Once the SEC and NASDAQNasdaq adopt and implement a final rule for clawback policies as mandated by the Dodd-Frank Act, the Company will modify its existing policy as necessary.

Pay Ratio

In August 2015 pursuant to a mandate of the Dodd-Frank Act, the SEC adopted a rule requiring annual disclosure of the ratio of the median employee’s annual total compensation to the total annual compensation of the principal executive officer (‟PEO”). The Company’s PEO is Mr. Denardo. The Company is required to comply with the pay ratio rule for the first fiscal year beginning on or after January 1, 2017. The purpose of the new required disclosure is to provide a measure of the equitability of pay within the organization.

The Company believes that its executive compensation program must be consistent and internally equitable to motivate employees to perform in ways that enhance shareholder value. It is committed to internal pay equity, and the Committee monitors the relationship between the pay of executive officers and the pay of non-executive employees.

In determining the median employee ("Median Employee"), the Company examined the 2018 total compensation for all individuals, excluding our PEO, who the Company employed on December 31, 2018, the last day of the Company's fiscal year. All employees, whether employed on a full-time, part-time or seasonal basis were included. Wages and salaries were annualized for those employees that were not employed for the full year of 2018. For simplicity, only the annual salaries of the Company's employees and the annual salary and Annual Incentive Plan award of the PEO were used for this disclosure and calculation of the pay ratio. The value of the Company’s retirement income plan, the employee stock ownership plan, the retirement accumulation plan (401(k) Plan), and medical benefits provided were excluded as all employees including the PEO are offered these benefits and the Company utilizes the Internal Revenue Service safe harbor provision for 401(k) discrimination testing. As of December 31, 2018, the Company employed 239 persons.

The Committee reviewed a comparison of the PEO's annual compensation in fiscal year 2018 to that of all other Company employees for the same period. The annualized compensation for fiscal year 2018 for Mr. Denardo was $597,175, and for the Median Employee was $27,619. The resulting ratio of the PEO's pay to the pay of the Median Employee for fiscal year 2018 was 22 to 1. The Company considers this figure to be a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K and SEC guidance.

COMPENSATION COMMITTEE PROCEDURES

ThePursuant to its charter, the Compensation Committee adopted a formal charter on January 8, 2014 which appears on the Company’s website at www.nationalbankshares.com under the “Corporate Governance” tab. It is charged with annually evaluating the job performance of the Company's Chief Executive OfficerCompany’s President & CEO and determining the appropriate compensation and benefits package for him. TheAs authorized by its charter, the Compensation Committee has delegated to Mr. Denardo the responsibility for evaluating the performance and setting the compensation of the other named executive officers, and he reports to the Compensation Committee at least annually about those matters.

In carrying out its responsibilities, the Compensation Committee meets at least once each year. There are no officers or employees present at the Compensation Committee’s annual meeting to evaluate the performance of the President & CEO and to determine his compensation. The Compensation Committee considers a package of data provided by the Executive Committee. The package includes the Company’s financial performance data; information about the financial performance of peer institutions; and salary data from salary surveys and publicly available sources. The Compensation Committee also monitors the results of the annual advisory “say-on-pay” proposalvote and incorporates such results as one of many factors considered in connection with the discharge of its responsibilities, although no such factor is assigned a quantitative weighting. Because a substantial majority of our stockholders approved the compensation program described in the Company’s proxy statement in 2018,2021, the Compensation Committee did not implement changes to the Company’s executive compensation program as a result of the stockholder advisory vote. At the conclusion of the Compensation Committee’s meeting or at a separate meeting, the President & CEO will provideprovides the Compensation Committee with a report on the performance and compensation of the remainingother named executive officers.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the directorsNo director who serveserves on the Compensation Committee is now an officer or employee of Bankshares or ofany Bankshares’ subsidiaries, including Chairman Green and Committee members: Mr. Ball, Dr. Lewis, Mr. Thompson, Dr. Dooley, and Mrs. Johnson.subsidiary. No executive officer of Bankshares, NBB or NBFS servedserves as a director of another entity which hadhas an executive officer serving on the Bankshares Compensation Committee. No executive officer of Bankshares, NBB or NBFS servedserves as a member of the compensation committee of another entity which has an executive officer who servedserves as a director or member of Bankshares’our Compensation Committee. None of the members of the Bankshares Compensation Committee, or any business organizations or persons with whom they may be associated, has had any transactions with Bankshares or its subsidiaries, except as explained in “Director“Corporate Governance Matters-Director Independence and Certain Transactions with Officers and Directors.”

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information concerning total compensation earned or paid to the individuals who served as Bankshares’ named executive officers during 2018.2021.

⁽¹⁾         Ms. Melton resigned from the Bank effective December 7, 2021.

See “All Other Compensation” in the Summary Compensation Table above.

Employment Agreements and Change in Control Arrangements

Several of the Company's executive officers haveThe Company’s Chairman, President & CEO has been employed by the Company and its subsidiaries for many years. These officers haveHe has provided guidance in the growth and long termlong-term development of the Company’s business. TheirHis experience and knowledge of the operations and customs of Bankshares is a benefit to the future success of the Company. As an inducement to these executive officers’his continued employment, the Board of Directors determined that Bankshares should enter into an employment and change in control agreementsagreement with Mr. Denardo. The Board implementedalso approved the change in control provisions contained in Mr. Denardo’s employment agreement in part to insureensure that Bankshares would be more likely to retain thehis services of key executives during periods of uncertainty resulting from significant ownership changes, should they occur. As stated previously, on August 31, 2017, Mr. Denardo was appointed to and Mr. Rakes resigned from the positions of President & CEO of the Company.

Employment Agreement with Mr. Denardo

The Company and Mr. Denardo hasentered into an executive employment agreement with the Company that is datedon December 17, 2008, and which became effective on December 31, 2008. Itagreement was amended and restated again on March 11, 2015, with an effective date of January 1, 2015 (the “employment agreement”). Mr. Denardo’s2015. Pursuant to the terms of the employment agreement, provides for his employment asMr. Denardo was named the Company’s Executive Vice President andat an initial annual base salary of $360,000. The agreement also provides for his service in any other executive or management position with the Company and its affiliates, at an annual base salaryand for cash bonuses and stock-based awards in such amounts as may be determined by the Company’s Board of $360,000. Mr. Denardo’sDirectors or a committee thereof. The employment agreement had aan initial two-year term and continues for successive one-year terms unless either party provides anotice of non-renewal at least one year noticeprior to the end of termination.the then-current term.         

If the Company terminates Mr. Denardo’s employment agreement states that compensation will be paid and benefits provided for 24 months if the Company terminates his employment “without cause”without “Cause” or if he resigns “for good reason,” asfor “Good Reason” (as those terms are defined in the employment agreement. “Cause”agreement), he will be entitled to receive for 24 months following his termination (i) monthly salary continuation payments based on his highest annual base salary in effect at any time during the term of his agreement and (ii) on a monthly basis, all welfare and executive benefits he was receiving at the time of termination, subject to the terms of the Company’s plans and programs. Mr. Denardo will also be entitled to receive, in a lump sum payment, an amount equal to (i) his base salary through the date of termination, (ii) any incentive or bonus compensation earned but not paid, (iii) the product of his last annual bonus paid or payable and a fraction, the numerator of which is definedthe number of days in the employment agreement as i) continualthen-current year through the date of termination and the denominator of which is 365, and (iv) any other benefits or deliberate neglect in the performance of job dutiesawards that have been earned or deliberate failurebecome payable, but which have not yet been paid to follow reasonable instructions or Company policies, ii) conviction of or pleading no contest to a felony, a crime of moral turpitude, fraud or embezzlement or any crime for which imprisonment is a possible punishment, iii) a material breach of the agreement, iv) material dishonesty or breach of fiduciary duty with respect to the Company, or v) willful conduct likely to result in material injury to the Company. The employment agreement defines “for good reason” as i) material assignment of duties inconsistent with the position, ii) Company action that results in a material reduction in status, authority or duties, iii) relocation, without consent, more than 50 miles from initial place of employment, and iv) failure by the Company or any successor to comply with the agreement.

The employment agreement does not contain the “for good reason” definition that would allow Mr. Denardo to voluntary terminate during the 30-day period immediately following the first anniversary of a change in control.(the “Accrued Obligations”).

The employment agreement also contains provisions which can have the effect of prolonging, enhancing and accelerating Mr. Denardo'sDenardo’s compensation and benefits and compensation under certain circumstances involving a change“Change in controlControl” of the Company. A change in control generally involves circumstances where an individual or group acquires 20% or more ofCompany (as the Company’s stock or a merger occurs which results in a changeterm is defined in the majority of the Company’s Board of Directors and the Company’s stockholders do not constitute a majority of the stockholders in the surviving company. The sale or disposition of all or substantially all of the Company’s assets is also defined as a change in control.

agreement). The term of the employment agreement is automatically extended for three years from the date of a changeChange in controlControl and Mr. Denardo is entitled to continue to receive all of his compensation and benefits during that period as set forth in the employment agreement, except that he becomes entitled to minimum annual stock-based awards equal to 30% of his base salary. In addition, ifIf within two years after a changeChange in control,Control, Mr. Denardo'sDenardo’s employment is terminated by the Company “without cause”without Cause or by Mr. Denardo “for good reason,”him for Good Reason, he becomes entitled to receive a lump sum salary continuation benefitpayment equal to 2.99 times his average annual compensation includable in his annual gross income for the period of five years preceding the changeChange in control. HeControl (the “Salary Continuation Benefit”). If such a termination occurs at or after the two-year anniversary of the Change in Control (or if the Change in Control is not considered a “change in control event” for purposes of Internal Revenue Code Section 409A), the Salary Continuation Benefit will instead be paid in equal monthly installments over a 24-month period. If Mr. Denardo’s employment is terminated by the Company without Cause or by him for Good Reason after a Change in Control at any time the agreement is in effect, he also would beis entitled to a continuation of certainreceive any Accrued Obligations, welfare and executive benefits for 36 months, and certain enhancements to his retirement benefits.benefits as set forth in the employment agreement. The agreement provides that if amounts payable to Mr. Denardo in connection with a Change in Control would result in certain adverse tax consequences under the Internal Revenue Code, payments under the agreement will be reduced to the extent necessary to avoid imposition of such tax consequences.

The employment agreement for Mr. Denardo includes provisions statingprovides that all payments under the employment agreement are intended either to be outside the scope of Internal Revenue Code Section 409409A or to comply with its provisions.

The employment agreement for Mr. Denardo contains provisions requiring the executive officerMr. Denardo to maintain the confidentiality of Company information. The agreement also provides that Mr. Denardo will not compete with the Company for 24 months after ceasing employment, with the Company, unless the termination is by the Company “without cause”without Cause or by the executive officer “for good reason”him for Good Reason following a changeChange in control.Control.

Potential Payments Upon Termination Before or After a Change in Control

The following table provides additional information concerningon the potential payments to the named executive officers under anupon termination of employment agreement uponbefore or after a change in control of the Company, assuming the termination or change in control assuming this occurred on December 31, 2018.2021.

The table above does not provide information on the present value of accumulated benefits for each officer under the National Bankshares, Inc. Retirement Income Plan. Such benefits are vested and are not effected upon termination of employment or a change in control of the Company. See “Pension Benefits Table” for more information.

Retirement Plans

Bankshares maintains several qualified and nonqualified employee benefit plans for employees of participating employers in the plans. These benefit plans are described below.

Qualified Retirement Plans

National Bankshares, Inc. Retirement Income Plan. Until December 31, 2001, NBB maintained a tax-qualified, noncontributory defined benefit retirement plan for qualified employees called the National Bank of Blacksburg Retirement Income Plan (the “NBB Plan”). Effective on December 31, 2001, the NBB Plan was amended; its name was changed to the National Bankshares, Inc. Retirement Income Plan (the “NBI Plan”); and the Bank of Tazewell County Employee Pension Plan (the “BTC Plan”) was merged into the NBI Plan. The NBB (now NBI) Plan became effective on February 1, 1984, when NBB amended and restated its previous pension plan. This plan covers all officers and employees of NBI and its subsidiaries who have reached age twenty-one21 and have had one year of eligible service on the January 1 or July 1 enrollment dates. Employee benefits are fully vested after five years of service, with no partial vesting. Prior to the December 31, 2001 plan amendment, retirement benefits at the normal retirement age of sixty-five65 were calculated at 66% of the employee’s average monthly compensation multiplied by the number of years of service, up to a maximum of twenty-five25 years. After December 31, 2001, retirement benefits at the normal retirement age wereare calculated at 1.75% of average monthly compensation multiplied by the number of years of service, up to thirty-five35 years. Added to this is .65%0.65% of “excess monthly average compensation” (defined in the NBI Plan as the amount of the average monthly compensation that is in excess of a participant’s monthly Social Security covered compensation, generally the rounded average of the Social Security taxable wage bases) multiplied by the number of years of service, up to thirty-five35 years. The benefit formula was amended again in 2008 to reduce the benefit formula for future accruals to 1.00% of monthly compensation, multiplied by the number of years of service up to thirty five35 years. Average monthly compensation is determined by averaging compensation over the five highest paid consecutive years in the employee’s final ten10 years of employment. Retirement benefits under the NBI Plan are normally payable in the form of a straight life annuity, with ten10 years guaranteed; but other payment options may be elected. Benefits accrued by participants in the NBB Plan and in the BTC Plan prior to December 31, 2001, will be calculated based upon compensation and service under the old NBB and BTC Plan formulas. Benefits accrued by participants after January 1, 2002, are calculated under the NBI Plan formulas. The compensation covered by the NBI Plan includes the total of all amounts paid to a participant for personal services reported on the participant’s federal income tax withholding statement (Form W-2), except that earnings were limited to $200,000, indexed for the cost of living, until 1994. In 1994, the earnings limit was decreased to $150,000, which is indexed for the cost of living after 1994. For 2018,2021, the limit on compensation was $275,000.$290,000.

National Bankshares, Inc. Employee Stock Ownership Plan. Bankshares sponsors a non-contributory Employee Stock Ownership Plan (the “ESOP”), in which NBB and NBFS were participating employers for 2018.2021. All full-time employees who are over the age of 21 and who have been employed for one year are eligible to participate. Contributions under the ESOP are discretionary for each participating employeremployee and participants are not permitted to make contributions to the plan. Contributions are allocated to a participant’s account based upon a participant’s covered compensation, which is W-2 compensation. The contributions are fully vested after three years.

National Bankshares, Inc. Retirement Accumulation Plan. Bankshares sponsors the NBI Retirement Accumulation Plan which qualifies under IRSInternal Revenue Code Section 401(k) (the “401(k) plan”). For 2018,2021, NBB and NBFS were participating employers. All full-time employees who have six months of service and who are over the age of 21 are eligible to participate. Participants may contribute up to 100% of their total annual compensation to the plan, subject to IRSInternal Revenue Code deferral annual dollar limits. Employee contributions are matched by the employer at 100% for the first 4% of salary contributed and at 50% of the next 2% of salary contributed. Employees are fully vested at all times in contributions and employer match sums.

Nonqualified Retirement Plans

Bank Directors Deferred Compensation Plan. From 1985 to 1989 NBB maintained a voluntary deferred compensation plan for its directors, which permitted a director to defer receipt of a portion of director’s fees for a period of five years. NBB purchased life insurance on all of the participants in amounts that, in the aggregate, actuarially funded its future liabilities under the program. While the insurance policies were purchased to fund the directors’ deferred compensation plan, there is no obligation to use any insurance proceeds from policy loans or death benefits to curtail the deferral compensation liability. Under the terms of the plan, at age 65, a participant or beneficiary receives 120 monthly benefit payments. The plan also provides for 120 monthly payments to the participant’s beneficiary in the event of the participant’s death prior to age 65. Mr. Rakes became entitled to receive 120 months of payments of $1,610.50 beginning at age 65 and began receiving monthly payments on September 1, 2009. In 2018, there were no contributions to the Bank Directors’ Deferred Compensation Plan. The plan had no earnings. These payments are included in “All Other Compensation” in the Summary Compensation Table above for Mr. Denardo and in the Directors’ Compensation Table above for Mr. Rakes.

Officers Salary Continuation Plan. In early 2006, Bankshares and its subsidiariesNBB entered into salary continuation agreements with a select group of Company and subsidiary bank officers, including Mr. Denardo, Mr. Skeens and Ms. Ramsey. Effective May 24,In 2013, Bankshares’ subsidiaryNBB entered into a salary continuation agreement with Mr. Mylum. The Salary Continuation Plan benefits are funded by investments in bank subsidiary-owned life insurance policies on the lives of the participating officers. The officers and their beneficiaries are unsecured creditors of NBI and of NBB with respect to the benefits under the Salary Continuation Plan.

Each of the salary continuation agreements provides an annual benefit for the participating officer at normal retirement age (age(defined as age 65) while in the active service of the Company. The salary continuation agreement benefits are equal toapproximate 25.0% offinal average salary based on 2008 annual compensationsalary adjusted for inflation, for Mr. Denardo; 25.0%27.3% of 2012final average salary based on 2021 annual compensation,salary, adjusted for inflation, for Mr. Skeens; 20.0%25.8% of 2012final average salary based on 2021 annual compensation,salary, adjusted for inflation, for Mr. Mylum, and 23.1%22.2% of 2016final average salary based on 2021 annual compensation,salary, adjusted for inflation, for Ms. Ramsey. The benefit is payable for the greater of 15 years or the officer’s lifetime. If the officer dies before receiving the annual benefit for 15 years, the benefit is paid to his or her beneficiary for the remainder of that period. A reduced benefit is available upon the officer’s early termination if he or she is 50 years of age or older, upon disability or upon a change in control of the officer’s employer. “Early termination,” “disability” and “change in control” are defined in the salary continuation agreements. A death benefit that is equal in amount to the annual retirement benefit is paid to the officer’s beneficiary for 15 years in the event of the officer’s death while an active employee. No benefit is payable if the officer is terminated for cause,“cause”, as that term is defined in the agreements.

Under his salary continuation agreement, in 2017, Mr. Denardo will be paidbecame entitled to receive annual payments of $72,488 atas a result of his achieving normal retirement in 2017.age. On August 1, 2017, at age 65, Mr. Denardo began receiving monthly payments of $6,040.67 based on his agreement. Mr. Skeens’ agreement provides that he will be paid $65,940$68,940 annually at his normal retirement age, which will occur in 2031. Mr. Mylum will be paid $48,772$70,000 annually at his normal retirement age, which will occur in 2031. Ms. Ramsey’s agreement provides that she will be paid $42,000$45,000 annually at her normal retirement age, which will occur in 2033.

In 2016, Bankshares’ subsidiaryNBB entered into a new and additional salary continuation agreement with Mr. Denardo (the “2016 Agreement”). The 2016 Agreement provides an additional annual benefit for Mr. Denardo at normal retirement age (defined as age 70) that is payable for the greater of 15 years or the executive’s lifetime and provides for similar provisions related to beneficiaries and reduced or elimination of benefits upon occurrence of certain events.events as his 2006 Agreement. The benefit is based on a percentage (3.8%) of his projected average five year final salary at age 70 and assumes a current salary of $426,000 with 4.0% annual increases. The benefit vests 25% beginning at December 31, 2017 and then 15% for each of the five subsequent years. The 2016 Agreement with Mr. Denardo provides that he will receive an additional annual payment of $17,512.00$17,512 beginning July 2, 2022.

Pension Benefits Table

The following table provides additional information about the pension benefits from the National Bankshares, Inc. Retirement Income Plan and from the Officers Salary Continuation Plan for Mr. Denardo, Mr. Skeens, Mrs.Ms. Melton, Mr. Mylum and Ms. Ramsey and Mr. Smith.Ramsey.

RISK FROM COMPENSATION POLICIES AND PRACTICES

FOR ALL EMPLOYEES

National Bankshares, Inc. has determined that its conservative compensation policies and practices for all employees are unlikely to create risks that are reasonably likely to have a materially adverse effect on the Company. Substantially all of the compensation paid to the Company’s employees in 2018 was in the form of salary. The Company utilizes a formal salary administration structure that limits annual salary increases to predetermined percentages within salary ranges that are established for each position. The Company's Board has determined that the Company'sCompany’s adoption of the Annual Incentive Plan, which may provide bonus compensation to the President & CEO (currently Mr. Denardo) and certain executive officers, does not encourage excessive or inappropriate risk taking and is not reasonably likely to have a material adverse effect on the Company, but rather will have a positive effect on the Company and enhance the Company'sCompany’s success.

NOMINATING COMMITTEE

The Company has a standing Nominating Committee that was chaired by Dr. Miller in 2018. Mr. Dye, Mr. Peery, and Dr. Webb served on the Committee. Each of these directors was independent. The Nominating Committee’s sole function is to review and recommend nominees for the Board of Directors. A current copy of the Committee’scommittee’s Charter is available on the Company’s web site at www.nationalbankshares.com under the “Corporate Governance” tab. The Nominating Committee does not have a specific policy with regard to the consideration of any director candidates recommended by stockholders, because the Committeecommittee will evaluate all candidates for directors using the same criteria, regardless of the source of the referral. Stockholders wishing to refer director candidates to the Nominating Committee should do so in writing mailed by first class mail to the Committee,committee, c/o National Bankshares, Inc., P. O. Box 90002, Blacksburg, VA 24062-9002.

In considering candidates for director, the Nominating Committee seeks individuals who meet the following minimum criteria that are set forth in the Committee’scommittee’s Charter. The candidate must be an individual of the highest character and integrity. He or she must be able to work well with others and must be free of any conflict of interest that would violate law or regulation or interfere with the proper performance of a director’s responsibilities. The candidate should be willing to devote sufficient time to the business of the Board. Finally, he or she should have the capacity to represent the best interests of the stockholders as a whole in a balanced way. The Nominating Committee insures that the Board of Directors will have a sufficient number of independent directors to fill all Board and Committeecommittee positions that require independent directors. In addition, the Nominating Committee seeks directors who have good business experience as well as directors who have experience in academia and public service. The Committeecommittee looks for directors who are knowledgeable about and who reside in the locations in which the Company and its subsidiaries do business and who have the ability and willingness to refer new business to the Company. While there is no formal policy regarding consideration of diversity in identifying director nominees, the Nominating Committee seeks candidates who reflect the Company’s belief that gender and ethnic diversity provide additional perspectives that are helpful to the Board of Directors. As a result, the Nominating Committee considers the additional diversity a candidate may add to the overall membership mix of the Board to be a positive factor in the selection of a nominee. The Board believes that its policy of seeking diverse Directors has been moderately successful.

The Nominating Committee actively solicits the names of potential Board candidates from the directors and officers of Bankshares and, as stated here, will consider candidates suggested by stockholders. Information about potential candidates is sought from diverse sources, and the Nominating Committee compares the experience, expertise and personal qualities of the potential candidates with the experience, expertise and personal qualities that are identified as being desirable for the Board of Directors at any given time.

In August 2021, the SEC approved Nasdaq’s rule proposal to require listed companies to provide statistical information about their boards of directors, in the form of the table below. The Nasdaq rule requires each listed company to have, or explain why it does not have, two diverse directors on its board of directors. The current Board of Directors’ composition is in compliance with the Nasdaq diversity requirement.

AUDIT COMMITTEE REPORT

The Audit Committee has a charter that was last amended on February 11, 2004. The Charter reflects standards set forth in SEC regulations and NASDAQ Listing Rules,Nasdaq listing rules, and it is posted on the Company’s web site at www.nationalbankshares.com.www.nationalbankshares.com.

The Audit Committee monitors the integrity of Bankshares’ financial reporting process and its systems of internal controls concerning finance, accounting and legal compliance. Each of the Audit Committee members satisfies the definition of an independent director under SEC rules and as established in the listing standards for the NASDAQThe Nasdaq Stock Market. Although each member of the Audit Committee has extensive business experience, the Committeecommittee has identified Dr. LewisMr. Ball as the “audit committee financial expert,expert” because he has a background which involvesinvolving significant financial oversight responsibilities. Dr. Lewis oversaw the preparation of financial statements in his past role as President of New River Community College. He previously served as the College’s Chief Financial Officer. The Committee was chaired by Dr. Lewis. Mr. Ball, Dr. Dooley, Mr. Reynolds, and Dr. Webb served on this Committee

The Audit Committee is responsible for overseeing the Company’s overall financial reporting process. In fulfilling its oversight responsibilities for the financial statements for fiscal year 2018,2021, the Audit Committee:

●   Received written disclosures and a letter from YHB as required by applicable requirements of the Public Company Accounting Oversight Board ("PCAOB"), including PCAOB Rule 3526, regarding YHB’s communications with the Audit Committee concerning independence. The Audit Committee discussed with YHB its independence.

●   

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board has approved) that the Company’s audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2021 for filing with the SEC.

This report was prepared by the following directors who compose the Audit Committee:

Lawrence J. Ball (Chair)

John E. Dooley

Norman V. Fitzwater, III

Charles E. Green, III

James C. Thompson

Principal Accounting Fees and Services

The following fees were paid to Yount, Hyde & Barbour, P.C., Certified Public Accountants & Management Consultants,YHB for services provided to Bankshares for the years ended December 31, 20182021 and December 31, 2017.2020. The Audit Committee determined that the provision of non-audit services by Yount, Hyde & BarbourYHB did not compromise the firm’s ability to maintain its independence.

Principal Accounting Fees and Services