March 13, 2003
Dear Fellow Stockholder:
We cordially invite you to attend the Annual Meeting of Stockholders of
National Bankshares, Inc. The meeting will be held at the Best Western Red Lion
Inn, at the intersection of Route 460 Bypass and Prices Fork Road, Blacksburg,
Virginia, on Tuesday, April 8, 2003, at 3:00 p.m.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. We will be electing your
directors, and we will be asking you to approve an amendment to the articles of
incorporation to increase the number of authorized shares. During the meeting,
we will also report on the operations of Bankshares.
This year, more than ever, YOUR VOTE IS IMPORTANT REGARDLESS OF THE
NUMBER OF SHARES YOU OWN. We must have the approval of 80% of the outstanding
shares to be able to amend the articles of incorporation. If you do not vote, or
if you abstain from voting on that proposal, it will be as if you voted against
the amendment. So, on behalf of the Board of Directors, we urge you to please
sign, date and return the Proxy in the enclosed postage-paid envelope as soon as
possible, even if you currently plan to attend the meeting. This will not
prevent you from voting in person, but will assure that your vote is counted if
you are unable to attend the meeting.
Thank you for your interest and investment in National Bankshares, Inc.
Sincerely,
/s/ James G. Rakes
James G. Rakes
Chairman
President and
Chief Executive Officer
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of National Bankshares, Inc.:
This is your notice that the 2003 Annual Meeting of Stockholders of
National Bankshares, Inc. ("Bankshares") will be held at the Best Western Red
Lion Inn at the intersection of Route 460 Bypass and Prices Fork Road,
Blacksburg, Virginia, on Tuesday, April 8, 2003, at 3:00 p.m. The Meeting is for
the purpose of considering and acting upon:
1. The election of three Class 1 directors for a term of three years each.
2. The approval of a proposed amendment to the articles of incorporation of
National Bankshares, Inc. increasing the number of shares of authorized
common stock of the corporation from 5,000,000 to 10,000,000 shares.
3. The transaction of such other business as may properly come before the
Meeting or any adjournments thereof.
NOTE: The Board of Directors is not aware of any other business to
come before the Meeting.
Only stockholders of record at the close of business on March 6, 2003
are entitled to receive notice of and to vote at the Meeting, or at any
adjournments of the Meeting.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete statement of the matters proposed to be acted upon at
the Meeting.
To assure that your shares are represented at the meeting, please
complete, date, sign and mail promptly the enclosed proxy, for which a return
envelope is provided. The proxy will not be used if you attend and vote in
person at the meeting. You may revoke your proxy prior to actual voting of the
proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Marilyn B. Buhyoff
Marilyn B. Buhyoff
Secretary and Counsel
Blacksburg, Virginia
March 13, 2003
PROXY STATEMENT
OF
NATIONAL BANKSHARES, INC.
101 HUBBARD STREET
BLACKSBURG, VA 24060
P.O. BOX 90002
BLACKSBURG, VA 24062-9002
540/951-6300
--------------
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, APRIL 8, 2003
This Proxy Statement is furnished in connection with the
solicitation of proxies by and on behalf of the Board of Directors (the "Board")
of National Bankshares, Inc. ("Bankshares" or the "Company") to be used at the
2003 Annual Meeting of Stockholders to be held at the Best Western Red Lion Inn,
at the intersection of Route 460 Bypass and Prices Fork Road, Blacksburg,
Virginia, at 3:00 p.m., on Tuesday, April 8, 2003, and at any adjournments of
the Meeting. The approximate mailing date of the Proxy Statement, the Notice of
Annual Meeting and the accompanying Proxy is March 13, 2003.
REVOCATION OF PROXIES
---------------------
Stockholders who execute proxies retain the right to revoke them at
any time prior to the actual voting of the proxies. Proxies may be revoked by
written notice received prior to the Meeting, by attending the Meeting and
voting in person or by submitting a signed proxy with a later date. A written
notice revoking a previously executed proxy should be sent to National
Bankshares, Inc., P.O. Box 90002, Blacksburg, Virginia 24062-9002, Attention:
James G. Rakes. Unless revoked, the shares represented by properly executed
proxies will be voted at the Meeting according to the instructions contained in
the proxy. Where no instructions are given, proxies will be voted for the
nominees for directors set forth in Proposal No. 1 and for the proposed
amendment of the articles of incorporation described in Proposal No. 2.
An Annual Report to Stockholders, including the financial statements
for the year ended December 31, 2002, is being mailed to you at the same time as
this Proxy Statement, but should not be considered proxy solicitation material.
VOTING SECURITIES AND STOCK OWNERSHIP
-------------------------------------
As of March 13, 2003, Bankshares had 3,511,377 shares of Common
Stock ($2.50 par value) issued and outstanding. Each of the shares is entitled
to one vote at the Annual Meeting. Only those stockholders of record at the
close of business on March 6, 2003 will be entitled to vote at the Meeting or at
any adjournments.
A majority of votes entitled to be cast on matters to be considered
at the Annual Meeting constitutes a quorum. If a share is represented for any
purpose at the Annual Meeting, it is deemed to be present for purposes of
establishing a quorum. Abstentions and shares held of record by a broker or its
nominee ("Broker Shares") which are voted on any matter are included in
determining the number of votes present or represented at the Annual Meeting.
Broker Shares that are not voted on any matter will not be included in
determining whether a quorum is present. If a quorum is established, directors
will be elected by a plurality of votes cast by shares entitled to vote at the
Annual Meeting and the proposed amendment of the articles of incorporation will
be approved if eighty percent (80%) or more of the shares entitled to vote are
cast in favor. Votes that are withheld and Broker Shares that are not voted on
any matter will not be included in determining the number of votes cast.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
--------------------------------------------
As of March 6, 2003, no single person or group was known to
Bankshares to be the beneficial owner of more than 5% of the outstanding Common
Stock of the Company.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
---------------------------------------------------
The following table sets forth, as of March 6, 2003, certain
information regarding the beneficial ownership of Bankshares' Common Stock by
each director and nominee and each named executive officer and by all directors
and executive officers as a group. Unless otherwise noted in the footnotes to
the table, the individuals have sole voting and investment power with respect to
all outstanding shares of Common Stock shown as beneficially owned by them.
1
Name of Shares of Common Percentage
Beneficial Owner Stock Beneficially Of
Owned as of March 6, 2003 Class
- --------------------------------------------------------------------------
L. Allen Bowman 13,999 *
Alonzo A. Crouse 52,483 (1) 1.49
James A. Deskins, Sr. 6,600 (2) *
F. Brad Denardo 11,867 (3) *
Paul A. Duncan 11,713 (4) *
Cameron L. Forrester 995 (5) *
Mary G. Miller 200 *
William T. Peery 37,004 (6) 1.05
James G. Rakes 30,219 (7) *
James M. Shuler 12,191 (8) *
Jeffrey R. Stewart 24,000 *
All current Directors and Executive
Officers as a Group (12 persons) 211,820 6.03
- --------------------------------------------------------------------------
* Represents less than 1% of the Company's outstanding Common Stock.
(1) Includes 26,750 shares owned by spouse, 350 shares owned jointly with spouse
and grandchild, 495 shares owned jointly by spouse and child and 670 shares
owned by spouse as custodian for grandchildren.
(2) Includes 996 shares owned by
spouse.
(3) Includes 2,267 shares owned jointly with spouse, 6,311 shares owned through
National Bankshares, Inc. Employee Stock Ownership Plan and 2,250 shares in
vested options which may be exercised as of March 13, 2003.
(4) Includes 919 shares owned by spouse and 1,422 shares owned by spouse as
custodian for grandchildren.
(5) Includes 250 shares in vested options that may be exercised as
of March 13, 2003.
(6) Includes 3,630 shares owned in corporate name.
(7) Includes 5,600 shares owned jointly with spouse, 10,888 shares owned through
National Bankshares, Inc. Employee Stock Ownership Plan and 7,000 shares in
vested options which may be exercised as of March 13, 2003. 8. Includes 1,719
shares owned by spouse and 213 shares owned jointly with spouse.
Based upon the written representations of our directors and
executive officers that no other reports were required, we believe that all of
our directors and executive officers complied with the reporting requirements of
Section 16(a) of the Securities Act of 1934,
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
--------------------------------------
Bankshares' articles of incorporation provide that the directors
shall be divided into three classes (1, 2 and 3) with each class as nearly equal
in number as possible and the term of office of each class ending in successive
years. The articles of incorporation currently also provide that the number of
directors shall be set by the bylaws, but shall not be less than nine, nor more
than twenty-six. For the purpose of the election of directors at the Annual
Meeting, the number of directors set forth in the bylaws is nine. The current
term of office of the Class 1 directors expires at this 2003 Annual Meeting of
Stockholders. The terms of Class 2 and Class 3 directors will expire in 2004 and
2005, respectively.
The Board of Directors has nominated both serving Class 1 directors,
L. Allen Bowman and Paul A Duncan, to serve a three-year term to expire at the
Annual Meeting of Stockholders in 2006. As part of a long-range plan to reduce
the number of inside directors serving on the Company's Board of Directors,
Cameron L. Forrester voluntarily declined to stand for re-election to the Board
as a Class 1 director. Mr. Forrester's term will expire when his successor is
elected and qualified. The Board of Directors has nominated Mary G. Miller, Ph.
D. as a Class 1 director to fill the vacancy.
It is the intention of the persons named as proxies, unless
instructed otherwise, to vote for the election of the three nominees for Class 1
director. Each nominee has agreed to serve if elected. If any of the nominees
shall unexpectedly be unable to serve, the shares represented by all valid
proxies will be voted for the remaining nominees and such other person or
persons as may be designated by the Board. At this time, the Board knows of no
reason why any nominee might be unable to serve.
The following information is provided with respect to the three
nominees to serve as Class 1 director and the six incumbent directors who will
be continuing in office following the Annual Meeting. All information is
provided as of March 6, 2003. Incumbent director James A. Deskins, Sr. retired
and resigned as President of Deskins Supermarket, Inc. on September 12, 1999. On
2
October 13, 1999 Deskins Supermarket, Inc. filed for protection under Federal
bankruptcy laws. No director or nominee is related by blood, marriage or
adoption to any other director, nominee or executive officer.
No director or nominee serves as a director of any company which has
a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, 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. Each director or nominee, except for Mary G.
Miller, currently serves as a director of one or all of the wholly owned
subsidiaries of Bankshares, The National Bank of Blacksburg ("NBB") and Bank of
Tazewell County ("BTC") and National Bankshares Financial Services, Inc.
("NBFS").
Name and Age; Principal Occupation and Business Experience
Director of Bankshares Since (for the past five years unless otherwise noted
- --------------------------------------------------------------------------------
NOMINEES
CLASS 1 DIRECTORS
-----------------
(Serving until 2006 Annual Meeting)
L. Allen Bowman (70) Retired; prior thereto President,
1999 Poly-Scientific Division of Litton Industries
(High-tech Manufacturing)
Vice Chairman of the Board of Bankshares and NBB
Blacksburg, VA
Paul A. Duncan (72) President, Holiday Motor Corp. (Automobile
1986 Dealer)
NBB Board Member
Blacksburg, VA
Mary G. Miller (52) President, Interactive Design & Development,
Nominee Inc. (Training Software Development and
Application)
Blacksburg, VA
DIRECTORS CONTINUING IN OFFICE
CLASS 2 DIRECTORS
-----------------
(Serving until 2004 Annual Meeting)
Alonzo A. Crouse (63) Executive Vice President, BTC
1996 BTC Board Member and Secretary
Tazewell, VA
James G. Rakes (58) President and CEO of Bankshares and NBB
1986 President and Treasurer of National Bankshares
Financial Services, Inc.
Chairman of the Board of Bankshares NBB, and BTC
and NBFS Board Member
Blacksburg, VA
Jeffrey R. Stewart (70) Educational Consultant;
1986 Chairman of the Board of NBB
Blacksburg, VA
CLASS 3 DIRECTORS
-----------------
(Serving until 2005 Annual Meeting)
James A. Deskins, Sr. (71) Retired; prior thereto President, Deskins
1999 Supermarket, Inc. and President, Deskins Dry
Goods Company (Supermarkets)
BTC Board Member
Tazewell, VA
William T. Peery (79) Retired; prior thereto President, Cargo Oil,
1996 Inc. (Petroleum Distribution)
Chairman of the Board of BTC
Tazewell, VA
James M. Shuler (59) Member, Virginia House of Delegates
2002 Retired; prior thereto President, Companion
Animal Clinic, Inc. (Veterinarian)
NBB Board Member
Blacksburg, VA
3
The Board of Directors recommends that the stockholders vote
"For" all of the nominees for Class 1 director.
PROPOSAL NO. 2 - AMEND ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED NUMBER OF SHARES
------------------------------------------------
The Board of Directors is recommending that stockholders
approve a proposed amendment to the articles of incorporation increasing the
number of authorized shares of common stock from 5 million to 10 million. If the
proposal is approved, Paragraph 2. (a.) of the articles of incorporation will
read in pertinent part as follows:
2.(a.) The aggregate number of shares which the Corporation is authorized to
issue is as follows:
Class Number of Shares Par Value
----- ---------------- ---------
Common 10,000,000 $2.50
As of the record date, 3,511,377 shares of common stock are
outstanding and 51,500 shares are subject to outstanding stock options. This
leaves only 1,437,123 authorized but unissued shares of common stock.
Purpose and Effect of Amendment
-------------------------------
The Board of Directors believes that by increasing the number
of shares of common stock the Company is authorized to issue, Bankshares will
have the flexibility to raise equity through the sale of additional shares if
the need should arise. In addition Bankshares will have the flexibility to issue
additional shares in connection with possible dividend reinvestment plans,
stock-based compensation plans, future acquisitions or other corporate purposes.
Bankshares will also be able to pay stock dividends or declare a stock split if
and when the Board of Directors determined that it was advisable to do so.
If Proposal No. 2 is approved, the Board of Directors will be
able to issue the authorized but unissued shares of common stock from time to
time without further approval of the stockholders, unless stockholders approval
is required by law or by the rules of the Nasdaq market quotation system.
At present, neither Bankshares nor the Board of Directors has
any plans, agreements, contracts, arrangements or understandings with respect to
the issuance of any additional shares of common stock, specifically including
future issuances to raise equity or issuances in connection with dividend
reinvestment plans, additional stock-based compensation plans, future
acquisitions, stock dividends or stock splits. The Company may issue additional
authorized common stock if the issuance is permitted or required under the
existing stock based employee benefit plan.
The authorization of additional shares of common stock will
have no immediate effect on the rights of existing stockholders. However,
because stockholders do not have preemptive or other subscription rights with
respect to common stock, the future issuance of common stock, other than on a
pro rata basis to all stockholders, would reduce each stockholder's
proportionate interest in Bankshares.
The additional shares of common stock provided for in the
proposed amendment of the articles of incorporation could have an anti-takeover
effect. For example, if additional shares are issued in the future, it could
make it more difficult or expensive for someone seeking control of Bankshares by
diluting that party's voting power. The Board of Directors is not presenting
this proposal as an anti-takeover provision, and the Board is not aware of any
effort or planned effort to obtain control of Bankshares.
Vote Required to Approve Proposal No. 2
---------------------------------------
Votes may be cast in favor of the proposal, against the
proposal or votes may be withheld by abstaining. The affirmative vote of the
holders of eighty percent (80%) of the outstanding shares of common stock is
necessary to approve Proposal No. 2. Therefore abstentions and broker non-votes
count as votes against the proposal.
The Board of Directors recommends that the stockholders vote
"FOR" the proposed amendment of Bankshares Articles of Incorporation.
4
BOARD OF DIRECTORS MEETINGS,
COMMITTEES, COMPENSATION AND ATTENDANCE
---------------------------------------
Board of Directors Meetings
---------------------------
In fiscal year 2002, the Board of Directors of Bankshares held six
regular meetings and three special meetings. The Board meets bi-monthly, on the
second Wednesday in January, March, May, July, September and November.
Board Committees
----------------
The Bankshares Board has standing audit and compensation committees,
comprised of directors Bowman, Deskins, Duncan, Peery, Shuler, and Stewart. The
audit committee met four times and the compensation committee met on three
occasions in 2002. There is no standing nominating committee.
Board Compensation
------------------
Members of the Board of Directors of Bankshares are paid a $300 fee
for each regular or special Board meeting they attend.
Mr. Bowman, Mr. Duncan, Mr. Rakes, Dr. Shuler and Dr. Stewart,
Bankshares directors who are also directors of NBB, receive a semi-annual
retainer fee of $2,750 for their service on the NBB Board. They receive an NBB
Board meeting attendance fee of $500 and they are paid $250 for each committee
meeting they attend.
In 2002 two NBB directors, Mr. Bowman and Mr. Duncan, received
payments from an NBB Board of Directors deferred compensation plan in which they
participated from 1985 to 1989. Mr. Bowman was paid $5,822 and Mr. Duncan
received $5,231 during fiscal year 2002.
Mr. Crouse, Mr. Deskins, Mr. Forrester, Mr. Peery and Mr. Rakes,
directors of Bankshares who were also members of the Board of Directors of BTC
in 2002, are paid a semi-annual retainer of $1,000 and they receive a fee of
$300 per meeting for their attendance at regular and special BTC Board meetings
and committee meetings. They also received a special holiday payment of $300 in
2002.
Board Attendance
----------------
During fiscal year 2002, each incumbent director attended 75% or
more of the total number of meetings of the Board of Directors of Bankshares and
of the Board committees on which he served.
BUSINESS EXPERIENCE OF EXECUTIVES
---------------------------------
The executive officers of Bankshares are James G. Rakes, Chairman,
President and Chief Executive Officer, J. Robert Buchanan, Treasurer, Marilyn B.
Buhyoff, Secretary and Counsel, F. Brad Denardo, Corporate Officer, and Cameron
L. Forrester, Corporate Officer. Mr. Rakes' business experience is detailed in
"Proposal No. 1--Election of Directors" above. The experience of the remaining
Directors follows.
J. Robert Buchanan joined NBB in 1998. He had previously served as
Senior Vice President and Treasurer, Chief Financial Officer of Premier
Bankshares Corporation, Bluefield, Virginia. Mr. Buchanan is Senior Vice
President/Operations, Chief Financial Officer and Cashier of NBB. He was elected
as Treasurer of Bankshares in 1998.
Marilyn B. Buhyoff has been employed at NBB since 1987 and is Senior
Vice President/Administration. She was elected as Secretary and Counsel of NBB
and of Bankshares in 1989. Mrs. Buhyoff has served as a director and as
Secretary of NBFS since it formation in 2001.
F. Brad Denardo is currently the Executive Vice President/Chief
Operating Officer of NBB. He came to the bank in 1983. In 1988, he was named a
Corporate Officer of Bankshares, and Mr. Denardo was elected to NBB's Board of
Directors in 2002.
Cameron L. Forrester was hired as President and CEO of Bank of
Tazewell County in 1998. He was Vice President and Commercial Loan Manager at
First Virginia Bank prior to joining BTC. Mr. Forrester has served as a director
of BTC since 1998, and he was a director of Bankshares from 1998 until he
declined to stand for reelection to the Board at this year's Annual Meeting. Mr.
Forrester was elected as a Corporate Officer of Bankshares in 2001.
5
EXECUTIVE COMPENSATION
----------------------
Bankshares, NBB, BTC, and NBFS are organized in a holding
company/subsidiary structure. Bankshares conducts a significant portion of its
operations through the two subsidiary banks. All compensation paid to
Bankshares' executive officers is paid by the banks, except for fees paid by
Bankshares to Chairman, President and Chief Executive Officer, James G. Rakes
and to Cameron L. Forrester for their service as directors of the Company.
Executive Compensation Summary Table
------------------------------------
The following table sets forth information concerning total
compensation earned or paid to those executive officers of the Company and its
subsidiaries who received total annual salary and bonus in excess of $100,000.
These executive officers were James G. Rakes, Chairman, President and Chief
Executive Officer of the Company, President and Chief Executive Officer of NBB
and President and Treasurer of National Bankshares Financial Services, Inc.; F.
Brad Denardo, Corporate Officer of the Company and Executive Vice President and
Chief Operating Officer of NBB; and Cameron L. Forrester, Corporate Officer of
the Company and President and Chief Executive Officer of BTC.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Principal Number of Stock Options All Other
Position Year Salary($)(1) Bonus($)(2) (Shares) Granted(3) Compensation($)(4)
---------------------------------------------------------------------------------------------------------
James G. Rakes 2002 251,100 120,500 7,500 9,960
Chairman, President and 2001 231,050 107,650 7,500 18,640
CEO of Bankshares 2000 217,900 80,000 6,500 19,500
President and CEO of NBB
President and Treasurer of
National Bankshares
Financial Services, Inc.
F. Brad Denardo 2002 127,200 --- 3,000 5,290
Corporate Officer of 2001 106,700 --- 2,000 11,300
Bankshares 2000 100,500 --- 2,000 11,640
Executive Vice President
and Chief Operating
Officer of NBB
Cameron L. Forrester 2002 109,250 --- 2,000 3,830
Corporate Officer of 2001 102,050 --- 1,000 3,750
Bankshares 2000 97,530 --- --- 3,530
President and CEO of BTC
- ----------------------------------------------------------------------------------------------------------
(1) Includes amounts received by Mr. Rakes as directors' fees from Bankshares,
NBB and BTC, amounts received by Mr. Denardo as directors' fees from NBB and
amounts received by Mr. Forrester as directors' fees from Bankshares and
BTC.
(2) Discretionary bonuses were paid to Mr. Rakes for performance in 2000, 2001,
and 2002. In addition, a contribution for Mr. Rakes' benefit was made to the
Capital Accumulation Plan as an award for Mr. Rakes' performance in 2001 as
provided in a former employment agreement, and a contribution for 2002 of
$22,500 was made to the current Capital Accumulation Plan described under
"Employment Agreement and Change in Control Arrangements".
(3) Grants of incentive stock options were made to Mr. Rakes, Mr. Denardo and
Mr. Forrester under The National Bankshares, Inc. 1999 Stock Option Plan.
(4) For 2000 and 2001, includes amounts contributed on behalf of Mr. Rakes, Mr.
Denardo and Mr. Forrester as a matching contribution under the National
Bankshares, Inc. Retirement Accumulation Plan and amounts contributed on
behalf of Mr. Rakes and Mr. Denardo to the National Bankshares, Inc.
Employee Stock Ownership Plan. For 2002, includes only matching
contributions to the Retirement Accumulation Plan, as the contribution to
the Employee Stock Ownership Plan have not yet been allocated among the
participants.
Each named executive officer received certain perquisites and other
personal benefits, the amounts of which are not shown, because the aggregate
amount of that compensation during the year did not exceed the lesser of
$50,000 or 10% of total salary and bonus for the executive officer.
6
The following table shows all grants of stock options to Mr. Rakes,
Mr. Denardo and Mr. Forrester in 2002:
Individual Grants
-----------------
% of Total
Options Potential Realizable Value
Granted to Exercise or at Assumed Rate of Stock
Options Employees in Base Price Expiration Price Appreciation for
Name Granted(#)(1) Fiscal Year ($/SH) Date Option Term($)
- -------------------- ------------- ------------- ------------ ------------ ----------------------------
5% 10%
James G. Rakes 7,500 42.86% 29.65 11/12/12 139,725 288,825
F. Brad Denardo 3,000 17.14% 29.65 11/12/12 55,890 115,530
Cameron L. Forrester 2,000 11.43% 29.65 11/12/12 37,260 77,020
(1) Vesting is as follows: 25% by November 13, 2003; 50% by November 13, 2004;
75% by November 13, 2005; and 100% by November 13, 2006.
The following table shows certain information with respect to the
value and number of unexercised options at December 31, 2002 for Mr. Rakes,
Mr. Denardo and Mr. Forrester.
Number of Shares Value of Unexercised In the
Underlying Unexercised Money Options at December
Number of Options at December 31, 2002 31, 2002 ($)
Shares
Name Acquired on Value
Exercise Realized Exercisable Unexercisable Exercisable(1) Unexercisable(1)
- -------------------- ----------- ----------- ----------- ------------- -------------- ----------------
James G. Rakes --- --- 7,000 17,000 70,147 96,823
F. Brad Denardo --- --- 2,250 5,750 22,505 29,285
Cameron L. Forrester --- --- 250 2,750 2,215 8,095
(1) Calculated by subtracting the exercise price from the fair market value of
the stock at December 31, 2002.
EMPLOYEE BENEFIT PLANS
----------------------
National Bankshares maintains several qualified and non-qualified
employee benefit plans for employees of participating employers in the plans.
These benefit plans are described below.
Retirement Plans
----------------
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 Tazwell County Employee Pension 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
who have reached age twenty-one 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-five
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-five years. After
December 31, 2001, retirement benefits at the normal retirement age are
calculated at 1.75% of average monthly compensation multiplied by the number of
years of service, up to thirty-five years. Added to this is .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 the Social Security
taxable wage bases) multiplied by the number of years of service, up to
thirty-five years. Average monthly compensation is determined by averaging
compensation over the five highest paid consecutive years in the employee's
final ten years of employment. Retirement benefits under the NBB Plan (amended
to the NBI Plan) are normally payable in the form of a straight life annuity,
with ten years guaranteed; but other payment options may be elected under
certain circumstances. 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
7
accrued by participants after January 1, 2002, will be calculated under the NBI
Plan formulas. The compensation covered by the NBB Plan (amended as 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 2002, covered
compensation for Mr. Rakes is $200,000. The NBB Plan contains a special
transition rule in order to protect the retirement benefit of any participant
who is affected by the 1994 indexed compensation limit. This transition rule
provides that the retirement benefit of any such participant will be the greater
of (1) the participant's retirement benefit calculated under the formula at the
applicable time after 1993 or (2) the sum of the participant's benefit
calculated as of December 31, 1993, plus the participant's retirement benefit
calculated under the benefit formula based on post-1993 service.
The following table shows the estimated annual benefits payable from
the NBB Plan upon retirement based on specific compensation and years of
credited service classifications, assuming retirement on January 1, 2002, at age
sixty-five.
NBB PENSION PLAN TABLE
Years of Service
----------------
Remuneration 15 20 25 30 35
- ----------------------------------------------------------------------------------------
$100,000 40,000 53,333 66,667 66,667 66,667
125,000 50,000 66,667 83,333 83,333 83,333
150,000 60,000 80,000 100,000 100,000 100,000
175,000 64,000 85,333 106,667 106,667 106,667
200,000 64,000 85,333 106,667 106,667 106,667
The benefit amounts listed in the table are computed as a straight life annuity.
The following table shows the estimated annual benefits
payable from the NBI Plan upon retirement based upon specific compensation and
years of credited services classifications, assuming continuation of the plan
and retirement on January 1, 2003, at age sixty-five.
NBI PENSION PLAN TABLE
Years of Service
----------------
Remuneration 15 20 25 30 35
- ----------------------------------------------------------------------------------------
$100,000 32,373 43,164 53,955 64,746 75,537
125,000 41,373 55,164 68,955 82,746 96,537
150,000 50,373 67,164 83,955 100,746 117,537
175,000 57,573 76,764 95,955 115,146 134,337
200,000 57,573 76,764 95,955 115,146 134,337
Until December 31, 2001, BTC maintained a tax-qualified
non-contributory defined benefit retirement plan for qualified employees under
the Bank of Tazewell County Employee Pension Plan (the "BTC Plan"). The BTC Plan
was initially effective on October 20, 1965, but was amended in its entirety
effective October 20, 1989 and was merged with the NBB Plan to become the NBI
Plan on December 31, 2001. The BTC Plan covered all officers and employees who,
as of April 20 or October 20 of any year, had reached the age of twenty-one and
who had one year of service. Employee benefits were fully vested after five
years, with no partial vesting. Benefits generally commenced on the later of a
participant reaching age 65 or the date on which the participant completed five
years of participation in the BTC Plan. The normal form of benefit was a monthly
pension payable during the participant's lifetime with a minimum of 120 monthly
payments, but other payment options could be elected under certain
circumstances. In general, the standard monthly pension benefit was equal to the
sum of (1) 1.5% of "plan compensation" multiplied by the years of credited
service (but not in excess of 35 years) at normal retirement date, plus (2) .59%
of "plan compensation" in excess of $800 multiplied by the years of credited
service (but not in excess of 35 years). "Plan compensation" is equal to the
highest monthly average obtained from the sum of any of a participant's five
annual compensation amounts divided by the number of months such participant was
compensated during that period. For purposes of this calculation, annual
8
compensation may not exceed $200,000. In 1994, the earnings limit was decreased
to $150,000, which is indexed for the cost of living after 1994.
The following table shows the estimated annual benefits
payable from the BTC Plan upon retirement for specific compensation and years of
service classifications, assuming continuation of the plan and retirement on
January 1, 2002, at age sixty-five. Benefit amounts in the table are computed as
a straight life annuity.
BTC PENSION PLAN TABLE
Years of Service
----------------
Remuneration 15 20 25 30 35
- ----------------------------------------------------------------------------------------
$ 25,000 6,988 9,317 11,647 13,976 16,305
50,000 14,825 19,767 24,709 29,651 34,593
75,000 22,663 30,217 37,772 45,326 52,880
100,000 30,500 40,667 50,834 61,001 71,168
On January 1, 2003, Chairman, President and Chief Executive
Officer, James G. Rakes, had twenty-one years of credited service in the NBB and
NBI Retirement Income Plan, and at normal retirement he will have twenty-eight
years of credited service. On January 1, 2003, Corporate Officer, Brad Denardo,
had twenty years of credited service in the NBB and NBI Retirement Income Plans,
and at normal retirement he will have thirty-four years of credited service.
Cameron L. Forrester, Corporate Officer, had five years of credited service in
the BTC and NBI plans on January 1, 2003, and he will have sixteen years of
service at normal retirement.
Other Plans
-----------
National Bankshares, Inc. Employee Stock Ownership Plan. National
Bankshares, Inc. sponsors a non-contributory Employee Stock Ownership Plan (the
"ESOP"), in which NBB, BTC, and NBFS were participating employers for 2002. 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 employer 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 five years.
National Bankshares, Inc. Retirement Accumulation Plan. National
Bankshares, Inc. sponsors the NBI Retirement Accumulation Plan which qualifies
under IRS Code Section 401(k) (the "401(k) plan"). For 2002, NBB, BTC, and NBFS
were participating employers. All full-time employees who have one year 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.
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.
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 his directors fees for a period of
five years. NBB purchased life insurance on all of the participants in amounts
that, in the aggregate, actuarially fund its future liabilities under the
program. While the insurance policies were purchased under the directors'
deferred compensation plan, there is no obligation to use any insurance funds
from policy loans or death benefits to curtail the deferred compensation
liability. Under the terms of the plan, at age 65, a participant or his
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 is entitled to receive 120 months
of payments of $1,610.50 at age 65.
Employment Agreements and Change in Control Arrangements
--------------------------------------------------------
Bankshares and Mr. Rakes have entered into an employment agreement
(the "Agreement") effective January 1, 2002. The Agreement provides for the
continued employment of Mr. Rakes as President and Chief Executive Officer of
Bankshares and NBB, at an annual base salary of at least $225,500. In addition,
the Agreement provides that Mr. Rakes may be awarded an annual bonus and certain
stock-based incentives in the discretion of the Board, as well as employee and
executive fringe benefits. The Agreement has a rolling three year term.
9
The Agreement also includes a Capital Accumulation Plan ("CAP") for
the benefit of Mr. Rakes. Under the Agreement, the total amount allocated to the
CAP for the calendar year is established by the Board of Directors with a
minimum of $60,000 per year to be allocated. This total amount is then divided
equally between two target areas: (1) return on equity, and (2) return on
assets. The amount actually contributed to the CAP for a year is based on
Bankshares' performance relative to the average performance of a peer group of
banks in the two target areas during that year. A minimum of 85% of the peer
group average must be achieved in a target area for any contribution to be made
for that target area. The amount of the contribution for each target area
increases beyond the minimum contribution to the extent Bankshares' performance
exceeds 85% of the peer group average with a maximum contribution for
performance which equals 150% or more of the peer group average. Contributions
to the CAP for achievements in any calendar year must be made prior to June 1 of
the next following year. Accrued CAP benefits become payable on January 1, 2009,
or earlier, should Mr. Rakes retire or his employment terminate under certain
circumstances. Once the CAP benefits become payable, they are paid over five
years unless Mr. Rakes chooses, with the Board's consent, to receive them in a
lump sum or over three years. For 2002, Mr. Rakes received a CAP contribution of
$22,500.
The Agreement has provisions which have the effect of continuing Mr.
Rakes' benefits and compensation under the Agreement beyond his employment with
Bankshares if Bankshares terminates his employment "without cause" (as defined
in the Agreement) or Mr. Rakes resigns "for good reason" (as defined in the
Agreement). Under these circumstances, Mr. Rakes will continue to receive his
base salary and certain executive benefits for 24 months after his employment
terminates.
The Agreement also contains provisions which can have the effect of
prolonging, enhancing and accelerating Mr. Rakes' benefits and compensation
under certain circumstances involving a Change in Control of Bankshares. A
Change in Control involves circumstances generally where an individual or group
acquires 20% or more of Bankshares' stock or a merger occurs which results in a
change in the majority of Bankshares' Board of Directors and Bankshares'
shareholders do not constitute a majority of the shareholders in the surviving
company.
The term of the Agreement is automatically extended for three years
from the date of a Change in Control and Mr. Rakes is entitled to continue to
receive all of his compensation and benefits during that period, except that he
becomes entitled to minimum annual stock-based awards equal to one-third of his
Base Salary. In addition, if after a Change in Control, Mr. Rakes' employment is
terminated by Bankshares without cause (as defined in the Agreement) or by Mr.
Rakes for good reason (as defined in the Agreement), he becomes entitled to
receive a salary continuance benefit equal to 2.99 times the Executive's average
annual compensation includable in the Executive's annual gross income for the
period of five years preceding the Change in Control, a continuation of certain
executive benefits for 36 months, and certain enhancements to his retirement
benefits.
Mr. Denardo and Mr. Forrester both have entered into change in
control agreements with Bankshares or its subsidiary banks. These agreements
also define a Change in Control as an individual or a group acquiring 20% or
more of Bankshares' stock, or when a merger occurs in which there is a change in
the majority of Bankshares' Board of Directors and Bankshares' shareholders are
not a majority of the shareholders in the surviving company. The agreements
provide that Mr. Denardo and Mr. Forrester will be entitled to receive an amount
equal to two times their average annual compensation included in annual gross
income for the period of five years preceding the Change in Control if the
employer terminates them other than "for cause" (as defined in the agreements)
or if they voluntarily terminate their own employment "for good reason" (as
defined in the agreements). Mr. Denardo's agreement is effective until his
employment is terminated, and Mr. Forrester's agreement has a rolling three-year
term.
COMPENSATION COMMITTEE REPORT ON COMPENSATION
OF EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------------------
The Compensation Committee of the Bankshares Board (the "Bankshares
Committee") is responsible for administering the policies governing the annual
compensation paid to executive officers of Bankshares, including the Chief
Executive Officer. The Bankshares Committee is made up of those members of the
Board of Directors who are not officers or employees of the Company or of its
subsidiaries. Because substantially all compensation paid to Mr. Rakes, Mr.
Denardo and Mr. Forrester and the other executive officers of Bankshares is paid
by NBB or BTC, the Bankshares Committee relies heavily on reports submitted by
the Salary and Personnel Committees of the NBB and BTC Boards. The NBB and BTC
Salary and Personnel Committees are made up of directors who are not officers or
employees of Bankshares or of any subsidiary.
10
Executive Officer Compensation
------------------------------
The Company's compensation program for its executive officers
consists of a base salary and periodic grants of stock options. Mr. Rakes also
receives an annual performance bonus and is considered for contributions to the
Capital Accumulation Plan under his employment agreement. The stock option
grants, annual performance bonus and Capital Accumulation Plan contributions are
all linked to the performance of Bankshares. In addition, contributions by NBB
and BTC, as participating employers, to the National Bankshares, Inc. Employee
Stock Ownership Plan on behalf of employees, including executive officers, have
been historically based upon a percentage of net profits.
The NBB and BTC Salary and Personnel Committees (the "Committees")
establish annual salary ranges for each executive officer position (not
including the position of Chief Executive Officer) after considering a salary
survey published annually by the Virginia Bankers Association of commercial
banks of similar asset size located in central and southwest Virginia, reviewing
salary information about comparable local jobs and evaluating the economic
conditions which may be unique to the locations in which the banks do business.
In establishing salary ranges, the Committees balance the need to offer salaries
which are competitive with peers with the need to maintain careful control of
salary and benefits expense. The BTC Committee determines Mr. Forrester's
salary. Individual salaries of the remaining executive officers, including Mr.
Denardo's salary, are determined by NBB's Chief Executive Officer, based on his
subjective assessment in each case of the nature of the position, as well as the
contribution, performance, experience and tenure of the executive officer. The
salaries of these executive officers are within the salary ranges established by
the NBB Committee. The Chief Executive Officer reports to the NBB Committee on
compensation of executive officers at least annually.
Compensation of Chief Executive Officer
---------------------------------------
As Chairman, President and Chief Executive Officer, Mr. Rakes is and has
been compensated pursuant to the employment agreement which is described under
"Employment Agreements and Change in Control Arrangements" above. The Board of
Directors received independent outside guidance in designing the employment
agreement.
The principal components of Mr. Rakes' compensation under the employment
agreement are salary, incentive bonuses and Company contributions for his
benefit to the Capital Accumulation Plans. In 1999, the Board of Directors added
stock options granted under the National Bankshares, Inc. Employee Stock Option
Plan. The Stock Option Plan promotes the success of the Company by providing an
incentive to key employees (including Mr. Rakes) that promotes the
identification of their personal interest with the long-term financial interests
of Bankshares.
Mr. Rakes' compensation is substantially tied to the performance of
Bankshares. The Committee determined his annual salary increase after
subjectively assessing Mr. Rakes' contributions to the success of the Company.
In measuring Bankshares' success, the Committee, among other things, compared
the Company's results to local, regional and national peers. To determine an
annual salary increase for Mr. Rakes, the Committee also reviewed salaries paid
to other individuals holding similar positions. The Committee consulted an
annual salary survey published by the Virginia Bankers Association, and it
reviewed other available public documents to determine comparable salaries.
Annual incentive bonuses and awards of stock options were also based upon the
Committee's subjective evaluation of Mr. Rakes' contributions to the success of
the Company. Amounts credited to the Capital Accumulation Plan were determined
utilizing objective measures of annual performance.
Members of the Compensation Committee: L. A. Bowman, Chairman, J. A.
Deskins, Sr., P. A. Duncan, W. T. Peery, J.M. Shuler, J. R. Stewart.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-----------------------------------------------------------
Directors Bowman, Deskins, Duncan, Peery, Shuler and Stewart make up
the Compensation Committee of Bankshares. None of these individuals is now, or
has in the past been, an officer or employee of Bankshares or of Bankshares'
subsidiaries. Mr. Bowman, Mr. Duncan, and Dr. Stewart serve on the Salary and
Personnel Committee of NBB. Mr. Deskins and Mr. Peery are members of the Board
of Directors of BTC, which serves as BTC's compensation committee after
excluding inside directors. No executive officer of Bankshares, NBB, BTC or NBFS
served as a director of another entity which had an executive officer serving on
the Bankshares Compensation Committee. No executive officer of Bankshares, NBB,
BTC or NBFS served as a member of the compensation committee of another entity
11
which had an executive officer who served as a director of Bankshares. 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
"Certain Transactions with Officers and Directors" below.
AUDIT COMMITTEE REPORT
----------------------
During 2000 the Audit Committee of the Board of Directors developed
a formal charter for the Committee, which was approved by the full Board on May
10, 2000. The charter reflects standards set forth in Securities and Exchange
Commission regulations and Nasdaq Stock Market Rules.
The Audit Committee monitors the integrity of the 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 as established in the Nasdaq
Stock Market Rules.
In discharging its oversight responsibility with regard to the audit
process, the Audit Committee has reviewed and discussed the audited consolidated
financial statements with management, discussed with the independent auditors
Yount, Hyde & Barbour the matters to be discussed by Statement of Auditing
Standards No. 61 (Communication with Audit Committees), received communications
from the auditors as to their independence required by Independence Standards
Board Standard No. 1 and discussed with them their independence.
Based upon its review and discussions with management and Yount,
Hyde & Barbour, the Audit Committee recommended to the Board of Directors that
the audited consolidated financial statements be included on Bankshares Annual
Report on Form 10-K for the year ended December 31, 2002, to be filed with the
Securities and Exchange Commission.
The following fees were paid to Yount, Hyde & Barbour, P.C.,
Certified Public Accountants & Management Consultants, for services provided to
Bankshares for the year ended December 31, 2002. Audit fees are billed for the
audit of the Company's consolidated financial statements and for the required
quarterly review of those statements. Financial Information Systems Design and
Implementation fees are fees billed for financial information systems design
work and implementation fees for services rendered as a part of that work for
the most recent fiscal year. All other fees include payment for any other type
of services provided, including audits of the National Bankshares, Inc.
qualified retirement plans, a computer network vulnerability assessment, and tax
preparation and assistance. The Audit Committee determined that the provision of
these non-audit services by Yount, Hyde & Barbour did not compromise that firm's
ability to maintain its independence.
Yount, Hyde & Barbour, P.C.
---------------------------
Audit Fees: $ 47,395
Financial Information
Systems Design and
Implementation Fees: $ 0
All Other Fees: $ 33,817
Members of the Compensation Committee: L. A. Bowman, Chairman, J. A. Deskins,
Sr., P. A. Duncan, W. T. Peery, J.M. Shuler, J. R. Stewart.
12
PERFORMANCE GRAPH
-----------------
The following graph compares the yearly percentage change in the
cumulative total of shareholder return on Bankshares Common Stock with the
cumulative return on the NASDAQ Index, the Standard & Poor's 500 Stock Index
(the "S&P 500") and a peer group index comprised of southeastern independent
community banks and bank holding companies for the five-year period commencing
on December 31, 1997, and ending on December 31, 2002. These comparisons assume
the investment of $100 in Bankshares Common Stock and in each of the indices on
December 31, 1997, and the reinvestment of dividends.
"Graph of Five Year Performance Index"
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
NATIONAL BANKSHARES, INC. 100 99 83 73 99 147
INDEPENDENT BANK INDEX 100 113 105 97 113 141
NASDAQ INDEX 100 141 252 157 125 86
S&P 500 INDEX 100 129 156 141 125 97
The peer group Independent Bank Index is the compilation of the
total return to stockholders over the past five years of the following group of
twenty-two independent community banks and bank holding companies located in the
southeastern states of Alabama, Florida, Georgia, North Carolina, South
Carolina, Tennessee, Virginia and West Virginia: Auburn National Bankshares,
Inc., United Securities Bancshares, Inc., TIB Financial Corp., Seacoast Banking
Corp., Fidelity National Corp., Southeastern Banking Corporation, Southwest
Georgia Financial Corp., PAB Bankshares, Inc., Four Oaks Fincorp, Inc., Bank of
Granite Corp., FNB Financial Services Corp., First Bancorp, CNB Corporation,
Peoples Bancorporation Inc., First Pulaski National Corporation, National
Bankshares, Inc., FNB Corporation, American National Bankshares, Inc., Central
Virginia Bankshares, Inc., Virginia Financial Corp., C & F Financial Corporation
and First Century Bankshares, Inc.
13
CERTAIN TRANSACTIONS WITH OFFICERS AND DIRECTORS
------------------------------------------------
Both NBB and BTC extend credit in the ordinary course of business to
Bankshares' directors and executive officers and corporations, business
organizations and persons with whom Bankshares' directors and executive officers
are associated at interest rates prevailing for comparable transactions with the
general public at the time credit is extended. These extensions of credit are
made with the same requirements as to collateral as those prevailing at the time
for comparable transactions with other persons. In the opinion of management,
none of such presently outstanding transactions with directors and executive
officers involve a greater than normal risk of collectibility or present other
unfavorable features. During 2002, bank subsidiaries of Bankshares purchased
automobiles with a total value of $71,760 from an automobile dealership of which
director Paul A. Duncan is president and a major stockholder.
SELECTION OF AUDITORS
---------------------
The Board of Directors has selected the firm of Yount, Hyde &
Barbour, P.C. to perform an independent audit of Bankshares and its subsidiaries
for fiscal year 2003.
A representative of Yount, Hyde & Barbour, P.C. is expected to be
present at the Annual Meeting of Stockholders. That representative will have the
opportunity to make a statement at the meeting and will be available to respond
to appropriate questions.
EXPENSES OF SOLICITATION
------------------------
The cost of solicitation of proxies will be borne by Bankshares. In
addition to solicitations by mail, directors, officers and regular employees of
Bankshares and of NBB, BTC and NBFS may solicit proxies personally or by
telephone, telegraph, facsimile or other electronic means without additional
compensation. It is contemplated that brokerage houses and nominees will be
requested to forward proxy solicitation material to the beneficial owners of the
stock held of record by such persons, and Bankshares may reimburse them for
their charges and expenses in this connection.
2004 STOCKHOLDER PROPOSALS
--------------------------
In order to be considered for inclusion in the proxy materials of
Bankshares for the 2004 Annual Meeting of Stockholders, a stockholder proposal
intended to be presented at the Meeting must be delivered to Bankshares'
headquarters at 101 Hubbard Street, Blacksburg, Virginia, 24060, or received by
mail at P.O. Box 90002, Blacksburg, Virginia 24062-9002, no later than November
19, 2003. Bankshares' bylaws include provisions setting forth specific
conditions under which business may be transacted at an annual meeting of
stockholders.
OTHER BUSINESS
--------------
All properly executed proxies received by Bankshares will be voted
at the Annual Meeting following the instructions contained in the proxies.
The Board of Directors does not know of any other matters to be
presented for action at the Annual Meeting other than those listed in the Notice
of Meeting and referred to in this Proxy Statement. The enclosed proxy does
however, give authority to the persons named in the proxy to use their
discretion to vote on any other matters that may properly come before the
meeting, and it is the intention of the persons named in the proxy to use their
judgement if they are called upon to vote on any matter of this type.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Marilyn B. Buhyoff
Marilyn B. Buhyoff
Secretary and Counsel
Blacksburg, Virginia
March 13, 2003
A COPY OF BANKSHARES' ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF
THE RECORD DATE UPON WRITTEN REQUEST TO: MARILYN B. BUHYOFF, SECRETARY AND
COUNSEL, NATIONAL BANKSHARES, INC., P.O. BOX 90002, BLACKSBURG, VIRGINIA
24062-9002.
14
NATIONAL BANKSHARES, INC.
101 Hubbard Street
Blacksburg, VA 24060
P.O. Box 90002
Blacksburg, VA 24062-9002
PROXY
================================================================================
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Lindsay Coleman, of Blacksburg, Virginia
and Howard H. Hale of Bluefield, West Virginia, or each of them, as Proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote as designated below, all the shares of Common Stock of
National Bankshares, Inc. held of record by the undersigned on March 6, 2003, at
the Annual Meeting of Stockholders to be held on April 8, 2003, or at any
adjournments thereof.
================================================================================
1. Election of Directors
___ FOR all nominees listed below ___ WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary below) nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
L. Allen Bowman
Paul A. Duncan
Mary G. Miller
2. Approval of an amendment of the Company's Articles of Incorporation to
increase the number of authorized shares of common stock from 5 million
shares to 10 million shares, as described in the Proxy Statement dated
March 13, 2003.
____ FOR ____ AGAINST ____ ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this
proxy will be voted for Proposal 1 and Proposal 2 set forth above.
The undersigned acknowledges receipt of the Proxy Statement dated March
13, 2003.
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If partnership, please sign in partnership name by
authorized person.
Date: Signature
- --------------------- --------------------------------
Signature if held jointly
--------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED POSTAGE-PAID ENVELOPE.