NATIONAL BANKSHARES, INC.
P.O. Box 90002
Blacksburg, VA 24062-9002 540/552-2011
March 20, 1996
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 9, 1996, at 3:00 p.m.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. During the meeting, we
will also report on the operations of Bankshares.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
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.
Very truly yours,
James G. Rakes
President and
Chief Executive Officer<PAGE>
NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of National Bankshares, Inc.:
NOTICE is hereby given that the 1996 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 9, 1996, at 3:00 p.m. The Meeting
is for the purpose of considering and acting upon:
1. The election of two Class 3 Directors of Bankshares for a term of
three years each.
2. 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 18,
1996, 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 regarding 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. IT IS REVOCABLE AT ANY TIME PRIOR TO ITS
EXERCISE.
BY ORDER OF THE BOARD OF DIRECTORS
Marilyn B. Buhyoff
Secretary
Blacksburg, Virginia
March 20, 1996
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, NATIONAL BANKSHARES, INC., P.O. BOX 90002, BLACKSBURG,
VIRGINIA 24062-9002.<PAGE>
PROXY STATEMENT
OF
NATIONAL BANKSHARES, INC.
100 SOUTH MAIN STREET
BLACKSBURG, VA 24060
P.O. BOX 90002
BLACKSBURG, VA 24062-9002
540 / 552-2011
--------------
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, APRIL 9, 1996
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
1996 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 9, 1996, and at any
adjournments thereof. The approximate mailing date of the Proxy Statement,
the Notice of Annual Meeting and the accompanying Proxy is March 20, 1996.
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 bearing 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 in accordance with
the instructions thereon. Where no instructions are indicated, proxies
will be voted for the nominees for directors set forth in Proposal No. 1 as
more fully disclosed below in this Proxy Statement.
An Annual Report to Stockholders, including the financial statements
for the year ended December 31, 1995, is being mailed to you concurrently
with this Proxy Statement, but should not be considered proxy solicitation
material.
VOTING SECURITIES AND PRINCIPAL HOLDERS OF SECURITIES
-----------------------------------------------------
As of March 20, 1996, Bankshares had 1,714,152 shares of Common Stock
($2.50 par value) issued and outstanding. Each of the above shares is
entitled to one vote at the Annual Meeting. Only those stockholders of
record at the close of business on March 18, 1996, will be entitled to vote
at the Meeting or at any adjournments.
The following table sets forth, as of March 20, 1996, the shares of
Common Stock beneficially owned by the only person reporting ownership of
more than 5% of Bankshares' Common Stock. Other than as set forth below,
to the best of Bankshares' knowledge, no person owns more than 5% of the
outstanding Common Stock.
1<PAGE>
Name and Address Amount of Percentage
of Beneficial Owner Beneficial Ownership of Class
------------------------ -------------------- ----------
J.D. Nicewonder 110,376 Shares 6.44
148-B Bristol East Road
Bristol, VA 24201
USA
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. Votes that are withheld and
Broker Shares that are not voted in the election of directors will not be
included in determining the number of votes cast.
SECURITY OWNERSHIP OF MANAGEMENT
--------------------------------
The following table sets forth, as of March 20, 1996, 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 named persons have sole voting and investment
power with respect to all outstanding shares of Common Stock shown as
beneficially owned by them.
Shares of Common
Stock Beneficially Percentage
Name of Owned as of of
Beneficial Owner March 20, 1996 Class
---------------- ----------------------- ----------
Charles L. Boatwright 11,512 (1) 0.67
Paul P. Wisman 400 0.02
L. Allen Bowman 10,000 0.58
Robert E. Christopher, Jr. 12,232 (2) 0.71
Paul A. Duncan 8,656 (3) 0.50
James G. Rakes 16,271 (4) 0.95
James M. Shuler 8,576 (5) 0.50
Jeffrey R. Stewart 20,800 (6) 1.21
J. Lewis Webb, Jr. 2,580 0.15
Directors and Executive
Officers as a Group
(12 persons) 101,403 5.92
2<PAGE>
(1) Includes 3,048 shares owned jointly with spouse and 528 shares
owned by spouse jointly with children.
(2) Includes 900 shares owned by spouse.
(3) Includes 1,128 shares owned by spouse and 80 shares owned by
spouse as custodian.
(4) Includes 5,040 shares owned jointly with spouse, 400 shares owned
by a child, 400 shares owned as custodian and 5,271 shares owned
through National Bankshares, Inc. Employee Stock Ownership Plan.
(5) Includes 192 shares owned jointly with spouse, 200 shares owned
by spouse and 1,200 shares owned by a child.
(6) Includes 6,729 shares owned jointly with spouse and 471 shares
owned as custodian.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
--------------------------------------
Bankshares' Articles 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 current term of office of the Class 3 directors expires at this 1996
Annual Meeting of Stockholders. The terms of the Class 1 and Class 2
directors will expire in 1997 and 1998, respectively. All current
directors of Bankshares also serve as directors of NBB.
On September 21, 1995, former Class 3 director John M. Barringer
submitted his resignation and retired from the Bankshares Board of
Directors. On that same date he also resigned from the NBB Board after
more than forty years of service. Mr. Barringer's resignation leaves one
vacancy on both Boards.
There are currently two Class 3 directors, Charles L. Boatwright and
Paul P. Wisman, each of whom has been nominated for reelection by the Board
of Directors.
It is the intention of the persons named as proxies, unless instructed
otherwise, to vote for the election of each of the two nominees for Class 3
directors set forth below. Each nominee has agreed to serve if elected.
If either nominee shall unexpectedly be unable to serve, the shares
represented by all valid proxies will be voted for the remaining nominee
and such other person or persons as may be designated by the Board. At
this time, the Board knows of no reason why either nominee might be unable
to serve. If elected, the nominees will serve for a three-year term until
the 1999 Annual Meeting and until their successors are elected and
qualified.
The following information is provided with respect to Bankshares'
directors as of March 20, 1996. Except for Dr. Shuler, who was elected a
director of Bankshares in 1988, Mr. Wisman, who was elected a director of
the Company in 1993 and Dr. Webb, who was elected a director of Bankshares
in 1994, each of the following individuals has been a director of
Bankshares since its formation in 1986.
3<PAGE>
Name and Age: Principal
Director of NBB Occupation
(and after 1986 of Bankshares) (for the past five years unless
Since otherwise noted)
------------------ -------------------------------
NOMINEES
CLASS 3 DIRECTORS
-----------------
(Serving Until 1999 Annual Meeting)
Charles L. Boatwright (70) Vice Chairman of Bankshares and Vice
1964 Chairman of the Board of NBB;
Physician, Blacksburg, VA
Paul P. Wisman (70) Vice President of Investments,
1993 Grundy National Bank, Grundy, VA
Manager of Assets,
Nicewonder Investments, Lynchburg, VA
DIRECTORS CONTINUING IN OFFICE
CLASS I DIRECTORS
-----------------
(Serving Until 1997 Annual Meeting)
L. Allen Bowman (63) President, Poly-Scientific,
1982 a Division of Litton Industries,
Inc., Blacksburg, VA
Robert E. Christopher, Jr. (67) Chairman of Bankshares and Chairman
1968 of the Board of NBB;
Retired; prior thereto Pharmacist,
President, Corner Drug, Inc.,
Blacksburg, VA
Paul A. Duncan (65) Automobile Dealer, President
1978 Holiday Motor Corp., Blacksburg, VA
James G. Rakes (51) President and Chief Executive Officer
1982 of Bankshares since 1986;
President and Chief Executive Officer
of NBB, Blacksburg, VA
CLASS 2 DIRECTORS
-----------------
(Serving Until 1998 Annual Meeting)
James M. Shuler (52) Veterinarian, President
1987 Companion Animal Clinic, Inc.,
Blacksburg, VA
Delegate, Virginia House of Delegates
Richmond, VA
Jeffrey R. Stewart (63) Educational Consultant; prior thereto
1968 Professor of Business Education,
Virginia Polytechnic Institute and
State University, Blacksburg, VA
J. Lewis Webb, Jr. (47) Dentist,
1994 Narrows, VA
4<PAGE>
No director or nominee is related by blood, marriage or adoption to
any other director, nominee or executive officer. No director or nominee
is the director of any other company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
-------------------------------------------------
The Board of Directors of Bankshares held regular meetings quarterly
on the second Wednesday of February, May, August and November in 1995. In
addition, five special meetings were held in 1995. The Board of Directors
of Bankshares does not have standing audit, nominating or compensation
committees. Bankshares conducts substantially all of its business through
NBB, its wholly-owned subsidiary.
The Board of Directors of NBB held thirteen regular meetings and no
special meetings during 1995. There is no standing nominating committee.
The NBB Executive Committee, made up in 1995 of Directors Boatwright,
Christopher, Rakes, Stewart and Director John M. Barringer (until his
retirement from Board service in September 1995), meets to consider loan
requests and items of business which require attention prior to regularly
scheduled NBB Board meetings. The NBB Executive Committee met once in
1995.
The NBB Audit Committee works closely with external auditors,
reviewing their reports and reporting on them to the full Board. Internal
audits are reviewed regularly, and the Committee reports to the entire
Board, or, in the alternative, the Committee may elect to have the internal
auditor report directly to the full Board. The NBB Audit Committee met
twelve times during 1995. Directors Christopher, Stewart, Shuler and Webb
serve on the Audit Committee.
The NBB Salary and Personnel Committee makes recommendations to the
Board concerning compensation, fringe benefits and other personnel matters.
Directors Boatwright, Bowman, Duncan and Wisman served on the Committee
during 1995. Director Barringer also served on the Committee until
September, 1995. In 1995, the Salary and Personnel Committee met five
times.
BOARD COMPENSATION AND ATTENDANCE
---------------------------------
Members of the Board of Directors of Bankshares received fees of $200
for each regular Board meeting and for three of the special Board meetings
at which they were in attendance. NBB directors received a semi-annual
retainer fee of $2,000. In addition, an NBB Board meeting attendance fee
of $125 (increased to $200 on February 8, 1995) is paid and directors
receive $125 for each Committee meeting they attend.
Three directors received payments in 1995 from a Board of Directors
deferred compensation plan in which they participated from 1985 to 1989.
During 1995, Dr. Boatwright was paid $3,324; Dr. Christopher was paid
$4,311 and Mr. Duncan received $3,051 pursuant to the terms of the deferred
compensation agreement.
5<PAGE>
During fiscal 1995, each incumbent director attended 75% or more of
the total number of meetings of the Board of Bankshares, and 75% or more of
the aggregate of the total number of meetings of the Board of NBB and the
total number of meetings held by all NBB Board Committees on which he
served.
EXECUTIVE COMPENSATION
----------------------
Bankshares and NBB are organized in a holding company/subsidiary bank
structure. Bankshares has no employees, except for executive officers, and
conducts substantially all of its operations through NBB. All compensation
paid to officers and employees is paid by NBB, except for fees paid by
Bankshares to President and Chief Executive Officer James G. Rakes for his
service as a director of the Company.
Executive Compensation Summary Table
------------------------------------
The following table sets forth information concerning total
compensation earned or paid to the President and Chief Executive Officer,
James G. Rakes, for all services rendered to Bankshares and NBB during each
of the last three fiscal years. Mr. Rakes is the only executive officer
whose total salary and bonus was in excess of $100,000 during any of these
years.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name and Principal All Other
Position Year Salary($)(1) Bonus($)(2) Compensation($)(3)
----------------- ---- ------------ ----------- ------------------
James G. Rakes 1995 155,900 90,000 7,500
President and 1994 147,375 82,500 18,775
Chief Executive 1993 142,800 74,500 18,672
Officer
(1) Includes amounts received as directors' fees from Bankshares and
NBB and amounts deposited by Mr. Rakes in The National Bank of
Blacksburg Retirement Accumulation Plan, a 401(K) plan.
(2) Discretionary bonuses were paid in 1993, 1994 and 1995. In
addition, contributions for Mr. Rakes' benefit were made to the
Capital Accumulation Plan (described under "EMPLOYMENT AGREEMENT
AND CHANGE IN CONTROL AGREEMENT" below) as awards for Mr. Rakes'
performance in those years. Mr. Rakes is not yet vested in sums
held in the Capital Accumulation Plan.
(3) For 1993 and 1994, includes amounts contributed as a matching
contribution under The National Bank of Blacksburg Retirement
Accumulation Plan and amounts contributed on Mr. Rakes' behalf to
The National Bankshares, Inc. Employee Stock Ownership Plan. For
fiscal 1995, includes only $7,500 as a matching contribution
under the National Bank of Blacksburg Retirement Accumulation
Plan, since the 1995 Company contribution to the National
Bankshares, Inc. Employee Stock Ownership Plan has not yet been
allocated among the participants in that plan.
6<PAGE>
Retirement Plan
---------------
NBB maintains a tax-qualified, noncontributory retirement plan for
qualified employees call The National Bank of Blacksburg Retirement Income
Plan (the Retirement Plan). The Retirement Plan, a defined benefit 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 and one-half and have had six months of employment
on the January 1 start of the plan year. An amendment of the plan adopted
on November 23, 1994, changed eligibility for the plan to 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
completion of five years of service. Retirement benefits at the normal
retirement age of sixty-five are calculated at 2 2/3% of the employee's
average monthly compensation multiplied by the number of years of service,
up to a maximum of twenty-five years. The 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 plan are normally payable in the form of a straight life annuity,
with ten years guaranteed; however, lump-sum payments are possible in some
instances. Amounts payable are not offset by Social Security payments.
The compensation covered by the Retirement Plan includes the total of all
amounts paid to a participant by NBB 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
will be indexed for cost of living after 1994. For 1995, covered
compensation for Mr. Rakes is $150,000. The Retirement Plan continues a
special transition rule in order to protect the retirement benefit of any
participant who is affected by the $150,000 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 Retirement Income Plan upon retirement based on specific
compensation and years of credited service classifications, assuming
continuation of the present plan and retirement on January 1, 1996, at age
sixty-five.
PENSION PLAN TABLE
Years of Service
-------------------------------------------------
Remuneration 15 20 25 30 35
------------ -------- -------- -------- -------- --------
$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 60,000 80,000 100,000 100,000 100,000
200,000 60,000 80,000 100,000 100,000 100,000
7<PAGE>
The benefit amounts listed in the table are computed as straight life
annuity.
On January 1, 1996, President and Chief Executive Officer, James G.
Rakes, had fourteen years of credited service in the NBB Retirement Income
Plan, and at normal retirement he will have twenty-eight years of credited
service.
Employment Agreement and Change in Control Arrangement
------------------------------------------------------
On May 7, 1992, Bankshares and Mr. Rakes entered into an employment
agreement providing for the continued employment of Mr. Rakes as President
and Chief Executive Officer of Bankshares and of NBB at an annual base
salary of at least $120,000, plus incentive compensation and other employee
and executive benefits. Pursuant to a lease arrangement between Bankshares
and NBB, NBB leases Mr. Rakes' services from Bankshares and has agreed to
pay his base salary and discretionary bonus, fund the Capital Accumulation
Plan (described below) and furnish employee and executive benefits under
the employment agreement.
The employment agreement provides that if Mr. Rakes' employment is
terminated by Bankshares for reasons other than death, disability or cause
(all as defined in the agreement), or by Mr. Rakes for good reason (as
defined in the agreement), Bankshares will pay Mr. Rakes, for a twenty-four
month period following the date of termination, an amount equal to the
highest monthly rate of base salary paid to Mr. Rakes at any time under the
employment agreement. If the parties agree, this amount may also be paid
in a lump-sum payment. During the period that the above payments are being
made, Mr. Rakes also will be entitled to participate in Bankshares' and
NBB's employee benefit plans or to receive substantially similar benefits.
The employment agreement also establishes a Capital Accumulation Plan
("CAP") for the benefit of Mr. Rakes. The CAP is funded through annual
contributions made by NBB under an agreement with Bankshares. The amount
that NBB contributes to the CAP each year is based on (i) return on assets
as a percentage of the target established in the three-year performance
goals adopted by the Board of Directors of NBB and (ii) net income before
tax expense as a percentage of that target. A minimum of 85% must be
achieved in each of (i) and (ii) above in order for a contribution to be
made. Contributions are made in multiples of units, with 250 units to be
funded each year. The unit value will vary between $50 and $200 depending
on what percentages of the targets are actually achieved. Contributions
for achievements for any given calendar year must be made prior to February
28th of the next following year.
Vested benefits under the CAP are payable beginning on the later of
January 1, 2002, or January 1 of the year following any year in which Mr.
Rakes leaves Bankshares' employment, or in the case of hardship as
determined by the Board upon written request. Benefits in the CAP vest as
follows: 20% of all contributions and accrued interest thereon will vest
after six years of service in the CAP, and an additional 20% will vest each
year thereafter until 100% vesting after ten years of service is achieved.
However, if Mr. Rakes' employment is terminated within thirty-six months
following a change in control (as defined in the agreement), for any reason
other than for cause (as defined in the agreement), Mr. Rakes' interest in
the CAP at such time will be automatically vested. In the event of
termination, except where termination occurs within the thirty-six months
following a change in control, and including termination for disability (as
8<PAGE>
defined in the agreement), Mr. Rakes shall be deemed to be vested in the
CAP at least 20%. The value of NBB's contribution to the CAP with respect
to 1995 performance is included in the "Bonus" column of the "Summary
Compensation Table" above.
COMPENSATION COMMITTEE REPORT ON COMPENSATION
---------------------------------------------
OF EXECUTIVE OFFICERS OF THE COMPANY
------------------------------------
The Salary and Personnel Committee of NBB (the "Committee") is
responsible for administering the policies governing the annual
compensation paid to executive officers, including the Chief Executive
Officer, of Bankshares. The Committee is made up of four members of the
Board of Directors of NBB who are not employees or officers of NBB or
Bankshares.
Executive Officer Compensation
------------------------------
Except in the case of the Chief Executive Officer, the sole component
of compensation of executive officers of Bankshares is salary paid by NBB.
NBB's program for executive officers (other than the Chief Executive
Officer) currently does not include any bonus or other incentive program
directly linking executive compensation to the performance of NBB or
Bankshares.
The Committee establishes 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 NBB does business. In establishing salary
ranges, the Committee balances the need to offer salaries which are
competitive with peers with the need to maintain careful control of salary
and benefits expense. Individual salaries, within the salary ranges
established by the Committee, are determined by the 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 Chief Executive Officer reports to
the Committee on compensation of executive officers at least annually.
Compensation of Chief Executive Officer
---------------------------------------
As President and Chief Executive Officer, Mr. Rakes is compensated
pursuant to an employment agreement (the "Agreement"), which is described
under "EMPLOYMENT AGREEMENT AND CHANGE IN CONTROL ARRANGEMENT" above. An
independent consultant retained by the Board of Directors of Bankshares
provided significant guidance in the design of the compensation package
contained in the agreement and also reviewed the base level of compensation
contemplated, prior to the Board's approval of the Agreement in 1992.
The principal components of Mr. Rakes' compensation under the
Agreement are salary, incentive bonus and company contributions to a
Capital Accumulation Plan for his benefit. This compensation package is
intended to promote the continued success and growth of NBB and Bankshares
by creating incentives based on the overall performance of the companies
9<PAGE>
and to help assure Mr. Rakes' continued service at NBB and Bankshares by
offering him an opportunity to earn competitive levels of total cash
compensation.
Mr. Rakes' compensation through the Capital Accumulation Plan is
substantially related to NBB's performance. The amount of NBB's
contributions to the CAP for Mr. Rakes' benefit is determined using a
specific formula that is based upon the bank achieving previously defined
levels of return on assets and net income before taxes. The Plan
encourages advance budget planning by establishing rolling three-year
performance goals. The 1995 budget performance goal targets established by
the Board of Directors in 1993 were to achieve net income before taxes of
$3.3 million and return on assets of 1.33. 1995 record net earnings before
taxes of nearly $4.3 million and return on assets of 1.62 both exceeded the
targets by more than 120%.
The other primary elements of Mr. Rakes' annual compensation, salary
and incentive bonus are determined by the Committee based on its subjective
assessment of Mr. Rakes' contribution to NBB, the Committee's finding of
satisfactory performance and a review of salaries paid to other individuals
holding similar positions. In researching comparable salaries, the
Committee consulted the Virginia Bankers Association Annual Salary Survey,
a nationwide survey of top executive compensation in financial institutions
and other available public documents. Mr. Rakes continues to lead NBB and
Bankshares through a period of solid growth and increased earnings, with
1995 earnings again reaching record levels. NBB has grown without
sacrificing quality and service, and capital levels have steadily
increased. These factors, as well as a comparison of the performance of
NBB and Bankshares to local and national peers, were specifically
considered by the Committee in establishing the amounts of Mr. Rakes' 1995
salary and/or incentive bonus.
Members of the Salary and Personnel Committee
L.A. Bowman (Chairman)
C.L. Boatwright
P.A. Duncan
P.P. Wisman
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-----------------------------------------------------------
Directors Bowman, Boatwright, Duncan and Wisman comprise the Salary
and Personnel Committee of NBB, and Mr. Barringer served on the Committee
until his resignation from the Board on September 21, 1995. None of these
individuals is now or has in the past been an officer or employee of
Bankshares or NBB. No member of the Committee served as a member of the
compensation committee of another entity. No executive officer of
Bankshares or NBB served as a director of another entity which had an
executive officer serving on the Committee. No executive officer of
Bankshares or NBB served as a member of the compensation committee of
another entity which had an executive officer who served as a director of
Bankshares or NBB. None of the members of the Committee, or any business
organizations or persons with whom they may be associated, has had any
transactions with Bankshares or NBB, except as a customer of NBB, as
explained in "CERTAIN TRANSACTIONS WITH OFFICERS AND DIRECTORS" below.
10<PAGE>
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 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, 1990, and ending on December 31, 1995. These comparisons assume the
investment of $100 in Bankshares' Common Stock and each of the indices on
December 31, 1990, and the reinvestment of dividends.
FIVE YEAR PERFORMANCE GRAPH
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
National Bankshares, Inc. 100 100 120 184 332 347
Independent Bank Index 100 111 152 188 225 299
S & P 500 Index 100 131 141 155 157 215
The following companies comprise the peer group: Citi-Bankshares,
Inc., Southwest Banks, Inc., Seacoast Banking Corp., Capital City Bank
Group, Inc., Fidelity National Corp., First Charter Corp., Bank of Granite
Corp., Carolina First BancShares, Inc., Triangle Bancorp, Inc., FNB
Financial Services Corp., First Bancorp, Pioneer Bankshares, Inc., First
Pulaski National Corporation, First National Bank of Christiansburg,
American National Bankshares, Inc., George Mason Bankshares, Inc., Planters
Bank & Trust Company, and National Bankshares, Inc.
CERTAIN TRANSACTIONS WITH OFFICERS AND DIRECTORS
------------------------------------------------
NBB extends 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 management involve a greater than normal risk of collectibility or
present other unfavorable features.
SELECTION OF AUDITORS
---------------------
KPMG Peat Marwick LLP, Certified Public Accounts, have performed
independent year-end audits of NBB since 1985 and of Bankshares since its
formation in 1986. Each year, generally late in the calendar year, the
Board of Directors selects an audit firm to perform an independent audit.
That selection has not yet been made for 1996.
A representative of KPMG Peat Marwick is expected to be present at the
Annual Meeting. That representative will have the opportunity to make a
statement at the Meeting and will be available to respond to appropriate
questions.
11<PAGE>
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 NBB may solicit proxies personally or by
telephone or telegraph 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.
1997 STOCKHOLDER PROPOSALS
--------------------------
In order to be considered for inclusion in the proxy materials of
Bankshares for the 1997 Annual Meeting of Stockholders, a stockholder
proposal intended to be presented at the Meeting must be delivered to
Bankshares' headquarters at 100 South Main Street, Blacksburg, Virginia,
24060, or received by mail at P.O. Box 90002, Blacksburg, Virginia 24062-
9002, no later than December 10, 1996. 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 in accordance with the specifications contained therein.
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 confers discretionary authority, however, with respect to the
transaction of any other matters that may properly come before the Meeting,
and it is the intention of the persons named in the proxy to vote in
accordance with their judgement on any such matter.
BY ORDER OF THE BOARD OF DIRECTORS
Marilyn B. Buhyoff
Secretary
Blacksburg, Virginia
March 20, 1996
12<PAGE>
NATIONAL BANKSHARES, INC. THIS PROXY IS SOLICITED ON BEHALF
100 South Main Street OF THE BOARD OF DIRECTORS
Blacksburg, VA 24060
P.O. Box 90002 The undersigned hereby appoints
Blacksburg, VA 24062-9002 Evelyn P. Farrier and Lindsay
PROXY Coleman, or each of them, as
----------------------------------- Proxies, each with the power to
appoint his or her 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
18, 1996, at the Annual Meeting of
Stockholders to be held on April 9,
1996, 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 nominees
contrary below) listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Charles L. Boatwright
Paul P. Wisman
2. 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 set forth
above.
The undersigned acknowledges receipt of the Proxy Statement dated March 20,
1996.
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.<PAGE>
