NATIONAL BANKSHARES, INC.
- -------------------------------------------------------------------------------
P.O. Box 90002
Blacksburg, VA 24062-9002 540/552-2011
March 14, 1997
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, 1997, 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 1997 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of National Bankshares, Inc.:
NOTICE is hereby given that the 1997 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, 1997, 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.
The election of two Class 2 directors for a term of one year each.
The election of two Class 3 directors for a term of two 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 12, 1997,
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 14, 1997<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 8, 1997
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 1997 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, 1997, and at any adjournments thereof. The
approximate mailing date of the Proxy Statement, the Notice of Annual Meeting
and the accompanying Proxy is March 14, 1997.
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, 1996, is being mailed to you concurrently with this
Proxy Statement, but should not be considered proxy solicitation material.
VOTING SECURITIES AND STOCK OWNERSHIP
-------------------------------------
As of March 14, 1997, Bankshares had 3,792,833 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 12, 1997, 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
1<PAGE>
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.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
--------------------------------------------
As of March 14, 1997, 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 14, 1997, 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 StockPercentage
Name of Beneficially Owned as of
Beneficial Owner of March 14, 1997 Class
-------------------------------------------------------------
Charles L. Boatwright 12,792 (1.) *
T. C. Bowen, Jr. 44,393 (2.) 1.17
Robert E. Christopher, Jr. 13,793 (3.) *
Alonzo A. Crouse 50,953 (4.) 1.34
R. E. Dodson 59,454 (5.) 1.56
Paul A. Duncan 11,862 (6.) *
William T. Peery 49,953 (7.) 1.32
James G. Rakes 17,893 (8.) *
Jeffrey R. Stewart 21,606 *
All current Directors and
Executive Officers as a
Group (12 persons) 293,718 7.74
-------------------------------------------------------------
* Represents less than 1% of the Company's outstanding Common Stock.
(1.) Includes 3,387 shares owned jointly with spouse and 586 shares owned
by spouse jointly with children.
(2.) Includes 26,479 shares owned as trustee of a trust for spouse.
(3.) Includes 1,200 shares owned by spouse.
(4.) Includes 25,500 shares owned by spouse, 1,745 shares owned by spouse
jointly with children, 700 shares owned jointly with spouse and
grandchildren and 1,008 held by a partnership in which Mr. Crouse is
a general partner.
(5.) Includes 29,270 shares owned by spouse.
(6.) Includes 1,253 shares owned by spouse and 88 shares owned by spouse
as custodian.
(7.) Includes 399 shares owned by spouse, 10,950 shares owned as fiduciary
and 3,630 shares owned in corporate name.
(8.) Includes 5,600 shares owned jointly by spouse, 444 shares owned by a
child, 444 shares owned as custodian and 5,271 shares owned through
National Bankshares, Inc. Employee Stock Ownership Plan.
2<PAGE>
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 also provide that the number of directors
shall be set by the Corporation's 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.
Pursuant to the Agreement and Plan of Merger ("the Plan"), whereby
Bankshares merged with Bank of Tazewell County, former Bankshares' Directors L.
A. Bowman, James M. Shuler, J. Lewis Webb, Jr. and Paul P. Wisman resigned from
the Board of Directors on May 31, 1996. Effective on that same date, T. C.
Bowen, Jr., Alonzo A. Crouse, R. E. Dodson and William T. Peery were elected to
the Board of Directors to serve until the 1997 Annual Meeting, and these
directors were not assigned to a specific class. The Plan provides that these
four directors should be spread as equally as possible among the three classes.
There are currently three Class 1 Directors, Robert E. Christopher, Jr.,
Paul A. Duncan and James G. Rakes. In order to balance the classes as provided
in the Plan, Dr. Christopher and Mr. Duncan have been nominated for re-election
as Class 1 Directors and Mr. Bowen has been nominated to serve as a Class 1
Director. Mr. Rakes has submitted his resignation as a Class 1 director,
effective upon his election as a Class 2 director by the stockholders at the
Annual Meeting, and Mr. Rakes has been nominated as a Class 2 director. Mr.
Crouse has been nominated to serve as a Class 2 director, and Mr. Dodson and
Mr. Peery have been nominated as Class 3 directors.
The Class 1 directors will serve for a term of three years which expires
at the Annual Meeting in the year 2000, or until their successors are elected
and qualified. The newly-elected Class 2 directors will serve for a one year
term until the 1998 Annual Meeting, and the Class 3 directors will serve for
two years until the 1999 Annual Meeting, both until their successors are
elected and qualified.
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,
the two nominees for Class 2 director and the two nominees for Class 3
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 directors, the two nominees for Class 2 director, the two
nominees for Class 3 directors and the two incumbent directors who will be
continuing in office following the Annual Meeting. All information is provided
as of March 14, 1997. 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 currently serves as a director of either or
both of the wholly owned subsidiaries of Bankshares, the National Bank of
3<PAGE>
Blacksburg ("NBB") and Bank of Tazewell County ("BTC").
Principal
Name and Age: Occupation
Director of Bankshares (for the past five years unless
Since otherwise noted)
---------------------- -------------------------------
NOMINEES
CLASS 1 DIRECTORS
-----------------
(Serving Until 2000 Annual Meeting)
T. C. Bowen, Jr. (76) Attorney, Partner, Bowen, Bowen &
1996 Bowen, P.C.
Chairman of the Board of BTC
Tazewell, VA
Robert E. Christopher, Jr. Retired; prior thereto Pharmacist,
(68) President, Corner Drug, Inc.
1986 Chairman of the Board of Bankshares
and of NBB
Blacksburg, VA
Paul A. Duncan (66) Automobile Dealer, President,
1986 Holiday Motor Corp.
NBB Board Member
Blacksburg, VA
NOMINEES
CLASS 2 DIRECTORS
-----------------
(Serving Until 1998 Annual Meeting)
Alonzo A. Crouse (57) Executive Vice President and
1996 Cashier, BTC
BTC Board Member and Secretary
Tazewell, VA
James G. Rakes (52) President and CEO of Bankshares and
1986 of NBB
NBB and BTC Board Member
Blacksburg, VA
NOMINEES
CLASS 3 DIRECTORS
-----------------
(Serving Until 1999 Annual Meeting)
R. E. Dodson (73) President and CEO of BTC
1996 BTC Board Member
Tazewell, VA
William T. Peery (73) President, Cargo Oil, Inc.
1996 BTC Board Member
Tazewell, VA
4<PAGE>
DIRECTORS CONTINUING IN OFFICE
CLASS 2 DIRECTOR
----------------
Jeffrey R. Stewart (64) Senior V. P., Instructional
1986 Performance Systems, Inc.;
prior thereto Professor of
Business Education, Virginia
Polytechnic Institute and State
University
NBB Board Member
Blacksburg, VA
CLASS 3 DIRECTOR
----------------
Charles L. Boatwright (71) Physician, Carilion Family Medicine
1986 C. L. Boatwright Clinic
Vice Chairman of the Board of
Bankshares and NBB
Blacksburg, VA
BOARD OF DIRECTORS MEETINGS,
----------------------------
COMMITTEES, COMPENSATION AND ATTENDANCE
---------------------------------------
Board of Directors Meetings
---------------------------
In fiscal year 1996 the Board of Directors of Bankshares held four regular
meetings and two special meetings. The Board meets quarterly on the second
Wednesday in February, May, August and November.
Board Committees
----------------
The Bankshares Board has standing audit and compensation committees,
comprised of directors Christopher (Chairman), Boatwright, Bowen, Duncan, Peery
and Stewart. These committees did not meet in 1996. There is no standing
nominating committee.
Prior to the merger with BTC which became effective on May 31, 1996,
Bankshares conducted substantially all of its business through NBB, its wholly
owned subsidiary. Prior to the reorganization of the Bankshares Board which
was associated with the BTC merger, all directors of Bankshares were also
directors of NBB. The NBB Board has standing audit and compensation
committees, but no standing nominating committee.
The NBB Audit Committee, comprised of Bankshares and NBB directors
Christopher and Stewart and NBB directors James M. Shuler and J. Lewis Webb,
Jr., met on five occasions prior to the BTC merger effective date. The Audit
Committee met with external auditors, reviewed their reports and presented them
to the full Board of Directors. The Committee reviews all internal bank audit
reports and meets regularly with the internal auditor.
5<PAGE>
The NBB Salary and Personnel Committee makes recommendations concerning
compensation, fringe benefits and other personnel matters. The Personnel
Committee is made up of Bankshares and NBB directors Boatwright and Duncan and
NBB directors L. A. Bowman and Paul P. Wisman, and it met three times prior to
the reorganization of the Bankshares Board on May 31, 1996. This Committee
makes a written report to the Bankshares Board concerning recommended
compensation and benefits for Mr. Rakes, whose salary and benefits were paid
entirely by NBB in 1996.
Board Compensation
------------------
Members of the Board of Directors of Bankshares are paid a $200 fee for
each regular or special Board meeting they attend.
Dr. Boatwright, Dr. Christopher, Mr. Duncan, Mr. Rakes and Dr. Stewart,
Bankshares directors who are also directors of NBB, receive a semi-annual
retainer fee of $2,000 for their service on the NBB Board and an NBB Board
meeting attendance fee of $300 (increase from $250 on July 1, 1996). In
addition, they are paid $150 (increased from $125 on July 1, 1996) for each
committee meeting they attend.
In 1996 three of these directors, Dr. Boatwright, Dr. Christopher and Mr.
Duncan received payments from an NBB Board of Directors deferred compensation
plan in which they participated from 1985 to 1989. Dr. Boatwright received
$3,324, Dr. Christopher was paid $4,311 and Mr. Duncan received $5,231 during
fiscal year 1996.
Mr. Bowen, Mr. Crouse, Mr. Dodson, Mr. Rakes and Mr. Peery, directors of
Bankshares who are also members of the Board of Directors of BTC, are paid fees
of $300 per meeting for their services as BTC directors, including attendance
at regular and special BTC Board meetings and committee meetings.
Board Attendance
----------------
Every incumbent member of the Bankshares Board attended more than 75% of
the total number of meetings of the Board of Directors held during the period
in 1996 in which he was a director.
EXECUTIVE COMPENSATION
----------------------
Bankshares, NBB and BTC are organized in a holding company/subsidiary bank
structure. Bankshares has no employees, except for officers, and it conducts
substantially all of its operations through the subsidiary banks. All
compensation paid to Bankshares' 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. All compensation paid to BTC President
and CEO R. E. Dodson is paid by BTC, except for his Bankshares directors' fees.
Executive Compensation Summary Table
------------------------------------
The following table sets forth information concerning total compensation
earned or paid to James G. Rakes, President and Chief Executive Officer of
Bankshares and of NBB, for all services rendered to Bankshares, NBB and BTC
during each of the last three fiscal years. The same information is provided
6<PAGE>
for R. E. Dodson, President and Chief Executive Officer of BTC, for all
services rendered to Bankshares and BTC. Mr. Rakes and Mr. Dodson are the only
individuals whose total salary and bonus were in excess of $100,000 during any
of these three years.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
All Other
Name and Principal Salary($) Bonus($) Compensation
Position Year (1.) (2.) ($)(3.)
-------------------------------------------------------------
James G. Rakes 1996 164,925 99,000 9,500
President and CEO 1995 155,900 90,000 21,000
of Bankshares and 1994 147,375 82,500 18,775
NBB
R. E. Dodson 1996 93,850 10,200 57,750
President and CEO 1995 91,090 11,050 57,750
of BTC 1994 90,910 12,325 43,310
(1.) Includes amounts received by Mr. Rakes as directors' fees from
Bankshares, NBB and BTC, as well as amounts deposited by Mr. Rakes
into The National Bank of Blacksburg Retirement Accumulation Plan, a
401(k) plan.
Includes amounts received by Mr. Dodson as directors' fees from
Bankshares and BTC.
(2.) Discretionary bonuses were paid to Mr. Rakes for performance in 1994,
1995 and 1996. 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.
Mr. Dodson received a bonus based upon a percentage of salary in the
years 1994, 1995 and 1996. All employees of BTC were awarded bonuses
equal to the same percentage of salary.
(3.) For 1994 and 1995, includes amounts contributed by NBB on Mr. Rakes'
behalf as a matching contribution under The National Bank of
Blacksburg Retirement Accumulation Plan and amounts contributed on
his behalf to The National Bankshares, Inc. Employee Stock Ownership
Plan. For fiscal 1996, includes only $9,500 as a matching
contribution under the Retirement Accumulation Plan, since the 1996
Company contribution to The National Bankshares, Inc. Employee Stock
Ownership Plan has not yet been allocated among the plan
participants.
This amount reflects twelve months of pension benefits paid to Mr.
Dodson pursuant to BTC's Employee Pension Plan.
7<PAGE>
Retirement Plans
----------------
NBB maintains a tax-qualified, noncontributory retirement plan for
qualified employees called The National Bank of Blacksburg Retirement Income
Plan (the "NBB Plan"). The NBB 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-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 the cost of living after 1994. For 1996, 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 Plan upon retirement based on specific compensation and years of credited
service classifications, assuming continuation of the present plan and
retirement on January 1, 1997, at age sixty-five.
NBB 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
The benefit amounts listed in the table are computed as straight life
annuity.
On January 1, 1997, President and Chief Executive Officer, James G. Rakes,
had fifteen years of credited service in the NBB Retirement Income Plan, and at
normal retirement he will have twenty-eight years of credited service.
8<PAGE>
BTC maintains a tax-qualified non-contributory 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. The BTC Plan
covers all officers and employees who, as of April 20 or October 20 of any
year, have reached the age of twenty-one and who have had one year of service.
BTC is required under the BTC Plan to make contributions to a related trust in
such amounts as are estimated to be sufficient to provide the required benefits
under such Plan determined on an actuarially sound basis. Benefits generally
commence on the later of a participant reaching age 65 or the date on which the
participant completes five years of participation in the BTC Plan. The normal
form of benefit is a monthly pension payable during the participant's lifetime
with a minimum of 120 monthly payments, but other payment options may be
elected under certain circumstances. In general, the standard monthly pension
benefit is 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 such period. For
purposes of such calculation, annual compensation may not exceed $200,000. In
1994, the earnings limit was decreased to $150,000, which will be indexed for
inflation 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 BTC Plan in its present form and
retirement on January 1, 1997.
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
Mr. Dodson's benefits under the BTC Plan are fully vested and funded. Mr.
Dodson began receiving a monthly benefit of $4,812 on April 1, 1994, which is
in addition to his salary at BTC.
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.
9<PAGE>
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 (1) 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 (2) net income before tax expense
as a percentage of that target. A minimum of 85% must be achieved in each of
(1) and (2) 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 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 1996 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 Compensation Committee of the Bankshares Board ("the Bankshares
Committee") is ultimately responsible for administering the policies governing
the annual compensation paid to executive officers, including the Chief
Executive Officer, of Bankshares. The Bankshares Committee is made up of the
six members of the Board of Directors who are not officers or employees of the
Company or of its subsidiaries, NBB and BTC. Because substantially all
compensation paid to Mr. Rakes and the other executive officers of Bankshares
is paid by NBB and substantially all compensation paid to Mr. Dodson is paid by
BTC, the Bankshares Committee relies heavily on reports submitted by the Salary
and Personnel Committee of the NBB Board and by the BTC Board of Directors.
The NBB Salary and Personnel Committee is made up of four directors who are not
10<PAGE>
officers or employees of NBB or Bankshares. The BTC Board of Directors
excludes directors who are officers or employees of BTC or Bankshares from
deliberations concerning executive compensation.
Executive Officer Compensation
------------------------------
Except in the case of Mr. Rakes and Mr. Dodson, the sole component of
compensation of executive officers 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, except that annual
contributions to the National Bankshares, Inc. Employee Stock Ownership Plan
made on behalf of participating employees, including executive officers, have
been based upon a percentage of NBB's net profits.
The NBB Salary and Personnel Committee ("the NBB 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 NBB 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 NBB 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 NBB
Committee on compensation of executive officers at least annually.
The BTC Board of Directors, sitting as a compensation committee without
directors who are employees of BTC or Bankshares, considers bank performance
and profitability and salaries paid to individuals holding similar positions in
determining Mr. Dodson's salary. All BTC employees are paid an annual year end
performance bonus equal to a fixed percentage of base salary and Mr. Dodson
participates in this bonus.
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 Bankshares by creating incentives based on the
overall performance of the Company 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.
11<PAGE>
Since the inception of the Capital Accumulation Plan, Mr. Rakes'
compensation through the CAP has been substantially related to Bankshares'
performance, because until May 31, 1996, NBB was the sole subsidiary of
Bankshares. Because the BTC merger was completed in mid 1996, the NBB
Committee recommended to the Bankshares Board Compensation Committee, which
agreed, that the 1996 CAP contributions would be determined using only NBB's
operating results. The CAP contribution for Mr. Rakes' benefit is calculated
using a specific formula that is based upon NBB 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.
1996 budget performance goal targets established in 1993 were to achieve net
income before taxes of $4.2 million and return on assets of 1.50%. NBB net
earnings before taxes reached a record of $5.7 million, and return on assets
was 2.00%. These results exceeded target goals by more than 120%.
In making its recommendation to the Bankshares Compensation Committee
concerning the other important elements of Mr. Rakes' annual compensation,
salary and incentive bonus, the NBB Committee considered several factors. The
Committee made a subjective assessment of Mr. Rakes' contribution to NBB. It
found satisfactory performance, and it conducted 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. The NBB Salary and
Personnel Committee and the Bankshares Compensation Committee considered Mr.
Rakes' contribution to the successful completion of the Company's merger with
BTC and his increased job responsibilities as a result of the merger. These
factors, as well as a comparison of the performance of Bankshares to local and
national peers, are all reflected in the Compensation Committee's approval of
the amounts of Mr. Rakes' 1996 salary and incentive bonus.
Members of the Compensation Committee
R. E. Christopher, Jr. (Chairman)
C. L. Boatwright
T. C. Bowen, Jr.
P. A. Duncan
W. T. Peery
J. R. Stewart
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-----------------------------------------------------------
Directors Christopher, Boatwright, Bowen, Duncan, Peery 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, NBB and BTC. Dr. Boatwright and Mr. Duncan serve on the Salary
and Personnel Committee of NBB. Mr. Bowen 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 or BTC
served as a director of another entity which had an executive officer serving
on the Bankshares Compensation Committee. No executive officer of Bankshares,
NBB or BTC served as a member of the compensation committee of another entity
which had an executive officer who served as a director of Bankshares, since
Mr. Rakes does not participate in BTC Board of Directors compensation committee
matters. 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.
12<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, 1991, and
ending on December 31, 1996. These comparisons assume the investment of $100
in Bankshares' Common Stock and in each of the indices on December 31, 1991,
and the reinvestment of dividends.
FIVE YEAR PERFORMANCE GRAPH
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
NATIONAL BANKSHARES, INC. 100 120 184 332 347 416
INDEPENDENT BANK INDEX 100 130 163 197 268 313
S&P 500 INDEX 100 108 118 120 165 203
The following companies comprise the peer group: Seacoast Banking Corp.,
Capital City Bank Group, Inc., Fidelity National Corp., PAB Bankshares, Inc.,
First Charter Corp., Bank of Granite Corp., Carolina First Bancshares, Inc.,
Triangle Bancorp, Inc., FNB Financial Services Corp., First Bancorp, CNB
Corporation, First Farmers & Merchants Corp., Pioneer Bancshares, Inc., First
Pulaski National Corporation, FNB Corporation, Second National Financial Corp.,
American National Bankshares, Inc., George Mason Bankshares, Inc., Planters
Bank & Trust Company and National Bankshares, Inc.
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 management involve a greater than normal risk of collectibility or present
other unfavorable features.
During 1996, the law firm of Bowen, Bowen & Bowen, P.C., in which
Bankshares and BTC director T. C. Bowen is a partner, provided legal services
to BTC. It is anticipated that this law firm will continue to provide legal
services to BTC in the future.
SELECTION OF AUDITORS
---------------------
KPMG Peat Marwick LLP, Certified Public Accounts, have performed
independent year-end audits 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 1997.
13<PAGE>
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.
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 and BTC 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.
1998 STOCKHOLDER PROPOSALS
--------------------------
In order to be considered for inclusion in the proxy materials of
Bankshares for the 1998 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 11, 1997. 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 14, 1997
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.
14<PAGE>
NATIONAL BANKSHARES, INC. THIS PROXY IS SOLICITED ON BEHALF
100 South Main Street OF THE BOARD OF DIRECTORS
Blacksburg, VA 24060 The undersigned hereby appoints
P.O. Box 90002 Lindsay Coleman, of Blacksburg,
Blacksburg, VA 24062-9002 Virginia and Howard H. Hale of
Bluefield, West Virginia, or each of
PROXY 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
12, 1997, at the Annual Meeting of
Stockholders to be held on April 8,
1997, 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.)
T. C. BOWEN, JR. - CLASS 1
ROBERT E. CHRISTOPHER, JR. - CLASS 1
PAUL A. DUNCAN - CLASS 1
ALONZO A. CROUSE - CLASS 2
JAMES G. RAKES - CLASS 2
R. E. DODSON - CLASS 3
WILLIAM T. PEERY - CLASS 3
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 14,
1997.
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>
