FOR IMMEDIATE RELEASE CONTACTS: James G. Rakes, Chairman, President & CEO (540) 951-6236 J. Robert Buchanan, Treasurer (276) 979-0341 NATIONAL BANKSHARES, INC. POSTS RECORD EARNINGS FOR 2004 BLACKSBURG, VA, JANUARY 21, 2005: National Bankshares, Inc. (Nasdaq SmallCap Market: NKSH) today announced net income for 2004 of $12.23 million, or basic net income per share of $3.48. This represents an increase 6.89% over the company's 2003 net income of $11.44 million, or $3.26 per share. For the year, National Bankshares showed a return on average assets of 1.62% and a return on average equity of 14.48%. National Bankshares Chairman, President & CEO, James G. Rakes, commented, "Although it is always nice to be able to report another year of record earnings, it is especially gratifying to do this in the same year in which our company completed the acquisition of the loans and deposits of a branch office and the purchase of another bank. Largely because of these transactions, National Bankshares, Inc. ended the year with total assets of $796.15 million, an increase of 12.36% over last year. Net loans increased by 17.63% to $472.20 million from $401.43 million at the end of 2003. Measures of loan quality remain good. We have a firm belief that there is a bright future for community banking, and we are focused on fostering long-term relationships with our customers. With our banks and our financial services subsidiary, we think that we are well-positioned to offer customers a full range of products and services in a convenient and welcoming setting." National Bankshares, Inc. is a financial holding company with two community bank subsidiaries, The National Bank, headquartered in Blacksburg, Virginia, and Bank of Tazewell County, with headquarters in Tazewell, Virginia. The two banks have 25 offices throughout Southwest Virginia. The company also operates a non-bank financial services subsidiary, National Bankshares Financial Services, Inc., which does business in the same market as National Bankshares Investment Services and National Bankshares Insurance Services. National Bankshares, Inc. stock is traded on the Nasdaq Stock Market under the symbol "NKSH". Additional information about the company is available on its web site at www.nationalbankshares.com. (tables follow) National Bankshares, Inc. And Subsidiaries Three months Three months (000's), except ratios ending ending Year-to-date Year-to-date and percent data December 31, December 31, December 31, December 31, Selected Consolidated Data: 2004 2003 Change 2004 2003 Change - ----------------------------------------------------------------------------------------------------------------------------------- Interest income $10,837 $9,947 8.95% $41,492 $41,081 1.00% - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense 2,963 2,678 10.64% 11,125 12,252 -9.20% - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income 7,874 7,269 8.32% 30,367 28,829 5.33% - ----------------------------------------------------------------------------------------------------------------------------------- Provision for loan losses 304 414 -26.57% 1,189 1,691 -29.69% - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest income 1,857 1,791 3.69% 7,142 6,186 15.45% - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest expense 5,326 4,806 10.82% 20,336 18,646 9.06% - ----------------------------------------------------------------------------------------------------------------------------------- Income taxes -982 (742) 32.35% -3,754 -3,236 16.01% - ----------------------------------------------------------------------------------------------------------------------------------- Net income $3,119 $3,098 0.68% $12,230 $11,442 6.89% - ----------------------------------------------------------------------------------------------------------------------------------- Basic net income per share $0.89 $0.88 $0.01 $3.48 $3.26 $0.22 - ----------------------------------------------------------------------------------------------------------------------------------- Fully diluted net income per share --- --- --- --- --- --- - ----------------------------------------------------------------------------------------------------------------------------------- Dividends per share --- --- --- --- --- --- - ----------------------------------------------------------------------------------------------------------------------------------- Dividend payout ratio --- --- --- --- --- --- - ----------------------------------------------------------------------------------------------------------------------------------- Book value per share --- --- --- $24.75 22.94 $1.81 - ----------------------------------------------------------------------------------------------------------------------------------- Balance sheet at period-end: - ----------------------------------------------------------------------------------------------------------------------------------- Loans, net --- --- --- $472,199 $401,428 17.63% - ----------------------------------------------------------------------------------------------------------------------------------- Total securities --- --- --- 250,708 230,154 8.93% - ----------------------------------------------------------------------------------------------------------------------------------- Total deposits --- --- --- 705,932 625,378 12.88% - ----------------------------------------------------------------------------------------------------------------------------------- Other borrowings --- --- --- 297 135 120.00% - ----------------------------------------------------------------------------------------------------------------------------------- Stockholders' equity --- --- --- 87,088 80,641 7.99% - ----------------------------------------------------------------------------------------------------------------------------------- Total Assets --- --- --- 796,154 708,560 12.36% - ----------------------------------------------------------------------------------------------------------------------------------- Daily averages: - ----------------------------------------------------------------------------------------------------------------------------------- Loans,net 469,159 $405,082 15.82% $438,761 $405,696 8.15% - ----------------------------------------------------------------------------------------------------------------------------------- Total securities 254,778 235,914 8.00% 250,305 229,004 9.30% - ----------------------------------------------------------------------------------------------------------------------------------- Total deposits 698,177 619,365 12.72% 665,627 616,823 7.91% - ----------------------------------------------------------------------------------------------------------------------------------- Other borrowings 712 187 280.75% 531 194 173.71% - ----------------------------------------------------------------------------------------------------------------------------------- Stockholders' equity 87,990 80,052 9.92% 84,479 77,486 9.02% - ----------------------------------------------------------------------------------------------------------------------------------- Interest-earning assets 742,079 669,654 10.82% 711,789 664,543 7.11% - ----------------------------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities 594,542 536,140 10.89% 572,838 537,257 6.62% - ----------------------------------------------------------------------------------------------------------------------------------- Total Assets 789,921 702,183 12.50% 753,730 697,012 8.14% - ----------------------------------------------------------------------------------------------------------------------------------- Financial ratios: Note (1) - ----------------------------------------------------------------------------------------------------------------------------------- Return on average assets 1.57% 1.75% -0.18 1.62% 1.64% -0.02 - ----------------------------------------------------------------------------------------------------------------------------------- Return on average equity 14.10% 15.35% -1.25 14.48% 14.77% -0.29 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest margin 4.62% 4.73% --- 4.70% 4.82% -0.12 - ----------------------------------------------------------------------------------------------------------------------------------- Efficiency ratio --- --- --- 50.21% 49.03% 1.18 - ----------------------------------------------------------------------------------------------------------------------------------- Average equity to average assets 11.14% 11.40% -0.26 11.21% 11.12% 0.09 - ----------------------------------------------------------------------------------------------------------------------------------- Note (1) Ratio change measured in bp Allowance for loan losses: - ----------------------------------------------------------------------------------------------------------------------------------- Beginning balance $5,835 $5,502 6.05% $5,369 $5,092 5.44% - ----------------------------------------------------------------------------------------------------------------------------------- Provision for losses 304 414 -26.57% 1,189 1,691 -29.69% - ----------------------------------------------------------------------------------------------------------------------------------- Charge-offs -459 -601 -23.63% -1,550 -1,660 -6.63% - ----------------------------------------------------------------------------------------------------------------------------------- Recoveries 49 54 -9.26% 223 246 -9.35% - ----------------------------------------------------------------------------------------------------------------------------------- Acquisition of C.N.B. 0 --- 100.00% 498 --- 100.00% - ----------------------------------------------------------------------------------------------------------------------------------- Ending balance $5,729 $5,369 6.71% $5,729 $5,369 6.71% - ----------------------------------------------------------------------------------------------------------------------------------- Nonperforming assets: - ----------------------------------------------------------------------------------------------------------------------------------- Nonaccrual loans --- --- --- $394 $354 11.30% - ----------------------------------------------------------------------------------------------------------------------------------- Restructured loans --- --- --- --- --- --- - ----------------------------------------------------------------------------------------------------------------------------------- Total nonperforming loans --- --- --- 394 354 11.30% - ----------------------------------------------------------------------------------------------------------------------------------- Other real estate owned --- --- --- 895 1,663 -46.18% - ----------------------------------------------------------------------------------------------------------------------------------- Total nonperforming assets --- --- --- $1,289 $2,017 -36.09% - ----------------------------------------------------------------------------------------------------------------------------------- Asset quality ratios: Note (2) - ----------------------------------------------------------------------------------------------------------------------------------- Nonperforming loans to total loans --- --- --- 0.08% 0.09% 0.00 - ----------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses to total loans --- --- --- 1.20% 1.32% -0.12 - ----------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses to nonperforming loans --- --- --- 1454.06% 1516.67% -62.61 - ----------------------------------------------------------------------------------------------------------------------------------- Note (2) Ratio change measured in bp