================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
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Commission file number 0-15204
National Bankshares, Inc.
(Exact name of registrant as specified in its charter)
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State or other jurisdiction of incorporation or organization - Virginia
Internal Revenue Service - Employer Identification No. 54-1375874
101 Hubbard Street, P.O. Box 90002, Blacksburg, VA 24062-9002
(540) 552-2011
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 1, 2000
------------------------------- -------------------------------
Common Stock, $2.50 Par Value 3,512,977
(This report contains 34 pages)
================================================================================
<PAGE>
National Bankshares, Inc. and Subsidiaries
Form 10-Q
Index
Page
----
Part I Financial Information
-----------------------------------------------
Item 1 - Financial Statements
Consolidated Balance Sheets, September 30, 2000
and December 31, 1999 3-4
Consolidated Statements of Income and
Comprehensive Income, Three Months Ended
September 30, 2000 and 1999 5-6
Consolidated Statements of income and
Comprehensive Income, Nine Months Ended
September 30, 2000 and 1999 7-8
Consolidated Statements of Changes in
Stockholders' Equity, Nine Months Ended
September 30, 2000 and 1999 9
Consolidated Statements of Cash Flows,
Nine Months Ended September, 2000 and 1999 10-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 18-29
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 30-32
Part II Other Information
-----------------------------------------
Items 1 - 3 - Legal Proceedings; Changes in
Securities and Use of Proceeds;
Defaults Upon Senior Securities 33
Item 4 - Submission of Matters to a Vote of
Security Holders 33
Item 5 - Other Information 33
Item 6 - Exhibits and Reports on Form 8-K
Signatures 34
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2
<PAGE>
National Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(Unaudited) (Audited)
September 30, December 31,
($000's except share and per share data) 2000 1999
=============== ===============
Assets
Cash and due from banks $ 9,301 13,311
Interest-bearing deposits 18,003 9,219
Federal funds sold 100 2,800
Securities available for sale 120,190 113,845
Securities held to maturity (fair value
$21,010 in 2000 and $23,496 in 1999) 21,138 23,647
Mortgage loans held for sale 122 229
Loans:
Real estate construction loans 18,307 14,669
Real estate mortgage loans 64,869 58,829
Commercial and industrial loans 156,193 149,386
Loans to individuals 79,306 73,825
------------ -------------
Total loans 318,675 296,709
Less unearned income and deferred fees (2,409) (1,916)
----------- ------------
Loans, net of unearned income
and deferred fees 316,266 294,793
Less: allowance for loan losses (3,732) (3,231)
----------- ------------
Loans, net 312,534 291,562
----------- ------------
Bank premises and equipment, net 8,388 8,506
Accrued interest receivable 4,316 4,014
Other real estate owned, net 467 447
Other assets 4,338 4,554
----------- ------------
Total assets $498,897 $472,134
============ ============
Liabilities and stockholders' equity
Noninterest-bearing demand deposits $58,731 54,748
Interest-bearing demand deposits 79,872 88,385
Savings deposits 42,129 44,834
Time deposits 248,540 219,220
------------ ------------
Total deposits 429,272 407,187
------------ ------------
Other borrowed funds 10,198 10,460
Accrued interest payable 761 651
Other liabilities 1,097 1,113
------------ ------------
Total liabilities 441,328 419,411
------------ ------------
3
<PAGE>
Stockholders' equity Preferred stock of no par value.
Authorized 5,000,000 shares; none
issued and outstanding --- ---
Common stock of $2.50 par value.
Authorized 5,000,000 shares; issued and
outstanding 3,512,377 shares in 2000 and
3,516,977 in 1999 8,780 8,792
Retained earnings 51,309 47,384
Accumulated other comprehensive (loss) (2,520) (3,453)
---------- ------------
Total stockholders' equity 57,569 52,723
Commitments and contingent liabilities
----------- ------------
Total liabilities and
Stockholders' equity $498,897 $472,134
=========== ============
4
<PAGE>
National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
Three Months Ended September 30, 2000 and 1999
(Unaudited)
September 30, September 30,
($000's except share and per share data) 2000 1999
=============== ===============
Interest income
Interest and fees on loans $7,160 6,237
Interest on interest-bearing deposits 194 ---
Interest on federal funds sold 2 ---
Interest on securities - taxable 1,666 1,597
Interest on securities - nontaxable 564 582
------------- -------------
Total interest income 9,586 8,416
------------- -------------
Interest expense
Interest on time deposits $100,000 or more 899 600
Interest on other deposits 3,471 2,830
Interest on borrowed funds 180 76
------------- -------------
Total interest expense 4,550 3,506
------------- -------------
Net interest income 5,036 4,910
Provision for loan losses 331 371
------------- -------------
Net interest income after
provision for loan losses 4,705 4,539
------------- -------------
Noninterest income
Service charges on deposit accounts 423 391
Other service charges and fees 64 72
Credit card fees 256 216
Trust income 206 277
Other income 22 ---
Realized securities gains (losses), net 5 ---
------------- -------------
Total noninterest income 976 956
------------- -------------
Noninterest expense
Salaries and employee benefits 1,548 1,486
Occupancy and furniture and fixtures 317 313
Data processing and ATM 241 242
FDIC assessment 32 12
Credit card processing 369 196
Goodwill amortization 9 9
Net costs of other real estate owned 33 18
Other operating expenses 742 749
------------- -------------
Total noninterest expense 3,291 3,025
------------- -------------
Income before income tax expense 2,390 2,470
Income tax expense (639) (666)
-------------- -------------
Net income 1,751 1,804
5
<PAGE>
Other comprehensive income (loss),net of taxes:
Unrealized gains (losses) on securities
available for sale 856 (542)
------------- --------------
Comprehensive income $2,607 1,262
============= =============
Net income per share $0.50 0.51
============= =============
Weighted average number of common
shares outstanding 3,512,615 3,516,977
============= =============
6
<PAGE>
National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
September 30, September 30,
($000's except share and per share data) 2000 1999
=============== ==============
Interest income
Interest and fees on loans $20,545 17,612
Interest on interest-bearing deposits 369 77
Interest on federal funds sold 128 11
Interest on securities - taxable 5,004 5,203
Interest on securities - nontaxable 1,670 1,698
--------------- -------------
Total interest income 27,716 24,601
--------------- -------------
Interest expense
Interest on time deposits $100,000 or more 2,351 1,846
Interest on other deposits 9,834 8,408
Interest on borrowed funds 525 6
--------------- -------------
Total interest expense 12,710 10,260
--------------- -------------
Net interest income 15,006 14,341
Provision for loan losses 997 840
--------------- -------------
Net interest income after
provision for loan losses 14,009 13,501
--------------- -------------
Noninterest income
Service charges on deposit accounts 1,184 999
Other service charges and fees 201 186
Credit card fees 760 594
Trust income 611 718
Other income 102 57
Realized securities gains (losses), net 5 24
--------------- -------------
Total noninterest income 2,863 2,578
--------------- -------------
Noninterest expense
Salaries and employee benefits 4,662 4,552
Occupancy and furniture and fixtures 938 840
Data processing and ATM 705 657
FDIC assessment 74 36
Credit card processing 805 538
Goodwill amortization 28 28
Net costs of other real estate owned 59 24
Other operating expenses 2,105 2,222
--------------- -------------
Total noninterest expense 9,376 8,897
--------------- -------------
Income before income tax expense 7,496 7,182
Income tax expense (2,024) (1,899)
--------------- -------------
Net income 5,472 5,283
7
<PAGE>
Other comprehensive income (loss),net of taxes:
Unrealized gains (losses) on securities
available for sale 933 (3,509)
--------------- --------------
Comprehensive income $6,405 1,774
=============== =============
Net income per share $1.56 1.45
=============== =============
Weighted average number of common
shares outstanding 3,515,337 3,638,232
=============== =============
8
<PAGE>
<TABLE>
National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<CAPTION>
Common
Stock
Accumulated Subject
Other To ESOP
($000's, except for per Common Retained Comprehensive Put
share data) Stock Earnings Income Option Total
===============================================================
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1998 $9,482 50,182 1,019 (2,180) 58,503
Net income --- 5,283 --- --- 5,283
Unrealized gains
(losses) on securities
available for sale,
net of tax (1) --- --- (3,509) --- (3,509)
Dividend ($0.39 per share) --- (1,372) --- --- (1,372)
Stock tender offer (2) (690) (7,071) --- --- (7,761)
Change in common stock
subject to ESOP put
option --- --- --- (2) (2)
-----------------------------------------------------------------
Balances, September 30, 1999 $8,792 47,022 (2,490) (2,182) 51,142
================================================================
Balances, December 31, 1999 $8,792 47,384 (3,453) --- 52,723
Net income --- 5,472 --- --- 5,472
Unrealized gains
(losses) on securities
Available for sale,
net of tax (1) --- --- 933 --- 933
Dividend ($0.42 per share) --- (1,477) --- --- (1,477)
Stock repurchase (3) (12) (70) --- --- (82)
Change in common stock
Subject to ESOP put
option --- --- --- --- ---
-----------------------------------------------------------------
Balances, September 30,2000 $8,780 51,309 (2,520) --- 57,569
================================================================
(1) Tax expense of $481 in 2000 and tax benefit of $1,808 for 1999.
(2) Represents the repurchase of 275,856 shares at $28.00 per share and related
expenses.
(3) Represents the repurchase of 2,000 shares at $18.50 per share, 2,000
shares at $17.50 per share, 300 shares at $16.38 per share and 300 shares
at $16.50 per share.
</TABLE>
9
<PAGE>
National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
September 30, September 30,
($000's) 2000 1999
============= =============
Cash flows from operating activities
Net income $5,472 5,283
Adjustments to reconcile net income to net cash Provided by operating
activities:
Provision for loan losses 997 840
Depreciation of bank premises and equipment 750 655
Amortization of intangibles 114 114
Amortization of premiums and accretion of
discount, net 107 361
Gains on sales of bank premises and equipment (6) ---
(Gains)losses on sales and calls of securities
available for sale, net 4 (24)
Gains on sales and calls of securities
held to maturity, net (9) ---
Losses on other real estate owned 22 14
(Increase) decrease in:
Mortgage loans held for sale 107 1,610
Accrued interest receivable (289) (186)
Other assets (379) (143)
Increase(decrease)in:
Accrued interest payable 110 45
Other liabilities (16) 187
----------- -----------
Net cash provided by operating
activities 6,984 8,756
---------- -----------
Cash flows from investing activities
Net decrease in federal funds sold 2,700 4,940
Net (increase)in interest-bearing
deposits (8,784) (293)
Proceeds from calls and maturities of securities
available for sale 5,970 23,903
Proceeds from sales of securities available for
Sale 751 1,218
Proceeds from calls and maturities of securities
held to maturity 2,498 5,464
Purchases of securities available for sale (11,754) (11,944)
Purchases of loan participations (1,528) (6,763)
Collections of loan participations 620 11,045
Net increase in loans to customers (21,276) (52,362)
Proceeds from disposal of other real estate owned 252 336
Recoveries on loans charged off (79) 45
Purchase of bank premises and equipment (638) (2,368)
Proceeds from disposal of bank premises and equipment 10 ---
---------- -----------
Net cash used in investing
activities (31,258) (26,779)
--------- -----------
10
<PAGE>
Cash flows from financing activities
Net increase in time deposits 29,320 22,974
Net increase(decrease)deposits (7,235) 1,315
Net (decrease)in other borrowed funds (262) 345
Dividend paid (1,477) (1,372)
Repurchase of common stock (82) (7,761)
---------- -----------
Net cash provided by financing
activities 20,264 15,501
---------- -----------
Net decrease in cash and due from banks (4,010) (2,522)
Cash and due from banks at beginning of period 13,311 14,421
---------- -----------
Cash and due from banks at end of period $9,301 11,899
========== ===========
Supplemental disclosure of cash flow information
Cash paid for interest $12,600 $10,215
========== ===========
Cash paid for income taxes $2,395 $2,154
========== ===========
Loans charged to the allowance for loan losses $575 $646
========== ===========
Loans transferred to other real estate owned $294 $62
========== ===========
11
<PAGE>
National Bankshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2000
(Unaudited)
Note (1)
The consolidated financial statements of National Bankshares, Inc.
(Bankshares) and its wholly-owned subsidiaries, The National Bank of Blacksburg
(NBB) and Bank of Tazewell County (BTC), (the Company), conform to generally
accepted accounting principles and to general practices within the banking
industry. The accompanying interim period consolidated financial statements are
unaudited; however, in the opinion of management, all adjustments consisting of
normal recurring adjustments which are necessary for a fair presentation of the
consolidated financial statements have been included. The results of operations
for the nine months ended September 30, 2000 are not necessarily indicative of
results of operations for the full year or any other interim period. The interim
period consolidated financial statements and financial information included
herein should be read in conjunction with the notes to consolidated financial
statements included in the Company's 1999 Annual Report to Stockholders and
additional information supplied in the 1999 Form 10-K.
12
<PAGE>
Note (2) Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
For the periods ended
September 30, December 31,
2000 1999 1999 1998
=========================================
($000's, except for % data)
Balance at beginning of period $ 3,231 2,679 2,679 2,438
Provision for loan losses 997 840 1,400 624
Loans charged off (575) (646) (978) (638)
Recoveries 79 45 130 255
-----------------------------------------
Balance at the end of period $3,732 2,918 3,231 2,679
=========================================
Ratio of allowance for loan losses to
the end of period loans net of unearned
income and deferred fees
1.18% 1.02% 1.10% 1.12%
=========================================
Ratio of net charge-offs (recoveries)
to average loans, net of unearned
income and deferred fees(1)
.22% .31% .31% .17%
=========================================
Ratio of allowance for loan losses to
nonperforming loans(2)
1,719.82% 4,421.21% 1,691.62% 9,567.86%
=========================================
(1) Net charge-offs are on an annualized basis.
(2) The Company defines nonperforming loans as total nonaccrual and
restructured loans. Loans 90 days past due and still accruing are excluded.
September 30, December 31,
2000 1999 1999 1998
======================================
($000's, except for % data)
Nonperforming Assets
Nonaccrual loans $217 67 151 28
Restructured loans --- --- 40 ---
-------------------------------------
Total nonperforming loans 217 67 191 28
Foreclosed property 467 340 447 628
-------------------------------------
Total nonperforming assets $684 407 638 656
=====================================
Ratio of nonperforming assets to loans,
net of unearned income and deferred fees,
plus other real estate owned .22% .14% .22% .27%
=====================================
13
<PAGE>
Accruing Loans Past Due 90 Days or More
Past due 90 days or more and
still accruing $465 2,755 1,077 550
=====================================
Ratio of loans past due 90 days or
more to loans, net of unearned
income and deferred fees .15% .96% .37% .23%
=====================================
Impaired Loans
Total impaired loans $603 67 317 373
=====================================
Impaired loans with a
valuation allowance $267 --- 222 145
Valuation allowance (230) --- (154) (145)
-------------------------------------
Impaired loans net of allowance $37 --- 68 ---
=====================================
Impaired loans with no
valuation allowance $336 67 95 228
=====================================
Average recorded investment
in impaired loans $543 107 292 387
=====================================
Income recognized on impaired
Loans $31 --- 13 32
=====================================
Amount of income recognized
on a cash basis --- --- --- ---
=====================================
14
<PAGE>
Note (3) Securities
The amortized costs, gross unrealized gains, gross unrealized losses and
fair values for securities available for the sale by major security type as of
September 30, 2000 are as follows:
September 30, 2000
Gross Gross
Amortized Unrealized Unrealized Fair
($ in thousands) Costs Gains Losses Values
-------------------------------------------------------
Available for sale:
U.S. Treasury $ 6,246 11 38 6,219
U.S. Government
agencies and
corporations 53,312 22 2,464 50,870
State and political
subdivisions 35,958 212 692 35,478
Mortgage-backed
securities 12,158 1 221 11,938
Corporate debt
securities 14,342 5 655 13,692
Federal Home Loan
Bank stock 1,328 --- --- 1,328
Other securities 665 --- --- 665
-------------------------------------------------------
Total securities
available for sale $124,009 251 4,070 120,190
=======================================================
The amortized costs, gross unrealized gains, gross unrealized losses and
fair values for securities held to maturity by major security type as of
September 30, 2000 are as follows:
September 30, 2000
Gross Gross
Amortized Unrealized Unrealized Fair
($ in thousands) Costs Gains Losses Values
-------------------------------------------------------
Held to Maturity:
U.S. Government
agencies and
corporations $ 5,501 --- 243 5,258
State and political
subdivisions 15,331 120 9 15,442
Mortgage-backed
securities 306 4 --- 310
-------------------------------------------------------
Total securities
held to maturity $21,138 124 252 21,010
=======================================================
15
<PAGE>
Note (4) Restrictions on Dividend Payments and Capital Requirements
Bankshares' and its subsidiaries' actual regulatory capital amounts and
ratios are also presented in the following tables:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Adequacy Purposes Action Provisions
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------
September 30, 2000:
Total capital(1)
Bankshares
Consolidated $62,962 17.3% 27,406 8.0% N/A N/A
NBB 32,145 14.7% 17,550 8.0% 21,937 10.0%
BTC 28,394 23.3% 9,768 8.0% 12,210 10.0%
Tier I capital(1)
Bankshares
Consolidated $59,230 18.4% 13,703 4.0% N/A N/A
NBB 29,815 13.6% 8,775 4.0% 13,162 6.0%
BTC 26,992 22.1% 4,884 4.0% 7,326 6.0%
Tier I capital(2)
Bankshares
Consolidated $59,230 12.0% 19,825 4.0% N/A N/A
NBB 29,815 10.2% 11,710 4.0% 14,638 5.0%
BTC 26,992 13.5% 8,018 4.0% 10,022 5.0%
(1) To Risk Weighted Assets
(2) To Average Assets
16
<PAGE>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Adequacy Purposes Action Provisions
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------
December 31, 1999:
Total capital(1)
Bankshares
Consolidated $58,433 18.3% 25,552 8.0% N/A N/A
NBB 29,320 14.1% 16,682 8.0% 20,853 10.0%
BTC 26,630 23.7% 8,998 8.0% 11,247 10.0%
Tier I capital(1)
Bankshares
Consolidated $55,202 17.3% 12,776 4.0% N/A N/A
NBB 27,222 13.1% 8,341 4.0% 12,512 6.0%
BTC 25,497 22.7% 4,499 4.0% 6,748 6.0%
Tier I capital(2)
Bankshares
Consolidated $55,202 11.7% 18,957 4.0% N/A N/A
NBB 27,222 9.8% 11,135 4.0% 13,919 5.0%
BTC 25,497 12.7% 8,019 4.0% 10,023 5.0%
(1) Risk Weighted Assets
(2) To Average Assets
Substantially all of Bankshares' retained earnings are undistributed
earnings of its banking subsidiaries, which are restricted by various
regulations administered by federal and state bank regulatory agencies. Bank
regulatory agencies restrict, without prior approval, the total dividend
payments of a bank in any calendar year to the bank's retained net income of
that year to date, as defined, combined with its retained net income of the
preceding two years, less any required transfers to surplus. At September 30,
2000, retained net income from the Company's NBB affiliate which was free of
such restriction amounted to approximately $2,656.
At present, no dividends are available from the Company's BTC affiliate
without prior regulatory approval. BTC remains well capitalized and management
does not believe that such approvals will be withheld.
17
<PAGE>
National Bankshares, Inc. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (In thousands, except for per share data)
The purpose of this discussion is to provide information about the
financial condition and results of operations of National Bankshares, Inc. and
its wholly-owned subsidiaries (the Company), which are not otherwise apparent
from the consolidated financial statements and other information included in
this report. Reference should be made to the financial statements and other
information included in this report as well as the 1999 Annual Report and Form
10-K for an understanding of the following discussion and analysis.
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Analysis of Financial Condition and Results of Operations for the Nine Months
Ended September 30, 2000
--------------------------------------------------------------------------------
Net income for the nine months ended September 30, 2000 was $5,472 which
represents an increase of $189 or 3.58% over the first nine months of 1999. The
annualized return on assets for the nine months ended September 30, 2000 was
1.51% and 1.59% for the period ended September 30, 1999. The annualized return
on average equity was 13.33% for the period ended September 30, 2000 and 12.36%
for the period ended September 30, 1999.
Earnings per share for the period ended September 30, 2000 was $1.56 per
share, an increase of $0.11 per share over the same period in 1999.
The following table provides selected consolidated financial data.
September 30, December 31,
($000's, except per share and 2000 1999 1999 1998
percent data) ===============================================
Interest income $27,716 $24,601 33,603 31,828
Interest expense 12,710 10,260 14,203 13,928
Net interest income 15,006 14,341 19,400 17,900
Provision for loan losses 997 840 1,400 624
Noninterest income 2,863 2,578 3,512 3,174
Noninterest expense 9,376 8,897 11,868 11,061
Income taxes 2,024 1,899 2,556 2,591
Net income $5,472 5,283 7,088 6,798
Return on average assets 1.51% 1.59% 1.56% 1.61%
Return on average equity (1) 13.33% 12.36% 12.61% 11.66%
Basic net income per share $1.56 1.45 1.96 1.79
Book value per share $16.39 15.16 14.99 16.00
(1) Includes amount related to common stock subject to ESOP put option
excluded from stockholders' equity on the Consolidated Balance Sheets for
the year ended December 31, 1998 and three month period ended September
30, 1999.
18
<PAGE>
Net Interest Income
-------------------
Net interest income at the end of the first nine months of 2000 was
$15,006, an increase of $665 or 4.64% over the same period in 1999.
The net interest margin is one of the primary ratios used by banks to
measure net interest income. The net interest margin is composed of the yield on
earning assets on a fully tax equivalent basis less the cost to fund earning
assets. The funding cost factors in interest bearing deposits as well as capital
and demand deposits. The following table sets forth the Company's net interest
margin for the period specified.
September 30, December 31,
2000 1999 1999 1998
----------------------------------------------------
Yield on earning assets 8.35% 8.12% 8.18% 8.25%
Cost to fund earning assets 3.70% 3.25% 3.33% 3.50%
----------------------------------------------------
Net interest margin 4.65% 4.87% 4.85% 4.75%
====================================================
As can be seen by the table shown above, the yield on earning assets for
the nine months ended September 30, 2000 has increased by 23 basis points from
the year-ended September 30, 1999. The cost to fund earning assets increased by
45 basis points. These elements combined to produce a 22 basis point decrease in
the net interest margin.
The yield on earning assets increased in part due to earning assets that
repriced upward as a result of the rising interest rate environment. The cost to
fund earning assets also increased due to rising rates.
A second measure of net interest income is the net interest spread. The
ratio consists of the yield on earning assets on a fully tax equivalent basis
less the cost of interest bearing liabilities. It does not reflect the benefit
received from "free funds" provided by demand deposits and capital. The
following table sets forth the Company's net interest spread for the periods
shown.
September 30, December 31,
2000 1999 1999 1998
-----------------------------------------------------
Yield on earning assets 8.35% 8.12% 8.18% 8.25%
Cost of interest-bearing
Liabilities 4.56% 4.15% 4.18% 4.48%
-----------------------------------------------------
Net interest spread 3.79% 3.97% 4.00% 3.77%
=====================================================
As previously mentioned, the yield on earning assets increased due to
upward repricing of earning assets. The cost of interest bearing liabilities
increased by 38 basis points and directly reflects increased funding costs due
to the current rising rate environment.
Competitive factors in the Company's market area, the need for funds and
the higher rate environment will continue to produce higher funding costs. The
effects of increased funding costs will be offset to a degree by the upward
repricing of earning assets.
19
<PAGE>
Provision and Allowance for Loan Losses
---------------------------------------
The adequacy of the allowance for loan losses is based on management's
judgement and analysis of current and historical loss experience, risk
characteristics of the loan portfolio, concentrations of credit and asset
quality, as well as other internal and external factors such as general economic
conditions.
An internal credit review department performs pre-credit analyses of large
credits and also conducts credit review activities that provide management with
an early warning of asset quality deterioration. Changing trends in the loan mix
are also evaluated in determining the adequacy of the allowance for loan losses.
The ratio of the allowance for loan losses to loans net of unearned income
was 1.18% at September 30, 2000. This compares to 1.02% at September 30, 1999.
The provision for the first nine months of 2000 was $997 up $157 over the same
period the prior year. It is anticipated that the provision for 2000 will exceed
that of 1999. The increase over 1999 is due to loan growth.
Noninterest Income
------------------
Noninterest income is an important source of the Company's income. This
category is comprised of service charges on deposit accounts, other service
charges and fees, credit card fees, trust income and other income. Net
securities gains and losses are also included in this category.
Noninterest income for the period ended September 30, 2000 was $2,863, an
increase of $285 or 11.06% over the same period in 1999.
Service charges on deposit accounts were $1,184 at September 30, 2000, an
increase of $185 or 18.52% from the same period in 1999. The change was due to
an increased level of volume, more aggressive collections and certain changes in
service charge structure.
Other service charges increased by $15 when September 30, 2000 and 1999
are compared. This increase was due to volume.
Credit card fees increased by $166 or 27.95% when the first nine months of
2000 and 1999 are compared. Continued growth in volume was the primary cause of
this increase.
Trust income decreased by 14.90% when compared to the first nine months of
1999. Trust income is dependent on market conditions as well as the types of
accounts being handled at any given point in time. The level of estate business,
for example, cannot be predicted with any degree of preciseness.
20
<PAGE>
Other income, which is comprised of various miscellaneous types of income,
increased by $45 for the first nine months of 2000.
Net securities gains and losses decreased $19 when 2000 and 1999 are
compared. The income in this category primarily reflects gains and losses on
securities called prior to maturity.
Noninterest Expense
-------------------
Noninterest expenses for the first nine months of 2000 were $9,376, an
increase of $479 or 5.38% over the first nine months of 1999. This nominal
increase was due in part to management's efforts to contain controllable
expenses.
Salaries and fringe benefits were $4,662 at the end of the first nine
months of 2000. This represents an increase of $110 or 2.42% over the first nine
months of 1999.
Occupancy expenses increased by $98 or 11.67% when the first nine months
of 2000 and 1999 are compared. This increase was in part due to expenses related
to the new corporate office and banking facility opened in the third quarter of
1999.
Data processing expense increased by $48 or 7.31%. This increase is due to
rising maintenance contracts. Increased expenses related to internet banking
services at the Company's NBB affiliate were also a factor.
Credit card expense increased by $267 or 49.63% in the first nine months
of 2000. Increases in overall volume contributed to this increase. Included in
credit card expenses is approximately $156 in losses incurred by the Company's
NBB affiliate in the third quarter. The loss was the result of charged-back
items from a single merchant. While the full extent of loss to be incurred is
not known at this time, management estimates the loss to ultimately be in a
range of $156 to $195. As previously mentioned, $156 was charged to operating
expense in the third quarter. It is expected that this matter will be concluded
in the fourth quarter.
Other expenses at September 30, 2000 were $2,105, which represents a
decrease of $117 or 5.27% over the same period in 1999. Other expenses include
various types of costs. Examples of expense accounts included are telephone,
franchise taxes, stationary and supplies, marketing expense, correspondent
charges and numerous others.
The decrease experienced so far in 2000 was due to a reduction in
controllable expenses such as marketing and business development. Franchise
taxes, normally considered to be a noncontrollable expense also decreased
significantly. In mid 1999 capital was dividended to NBI for the purpose of
repurchasing its own common stock. Accordingly, franchise taxes, which are based
on bank capital, decreased.
21
<PAGE>
Balance Sheet
-------------
The following table sets forth selected consolidated balance sheet data.
September 30, December 31,
2000 1999 1999 1998
==============================================
($000's)
Selected Period-End Data
--------------------------------
Loans, net $312,534 283,711 291,562 236,578
Total securities 141,328 142,459 137,492 166,754
Total assets 498,897 462,673 472,134 445,166
Total deposits 429,272 406,985 407,187 382,696
Stockholders' equity (1) 57,569 51,142 52,723 58,503
Selected Daily Averages Data
------------------------------
Loans, net $301,836 259,934 266,431 225,613
Total securities 140,575 155,252 151,424 152,432
Interest-bearing assets 457,852 421,457 426,753 398,340
Total assets 482,966 445,384 454,189 420,988
Total deposits 416,040 385,959 391,583 359,970
Interest-bearing liabilities 371,148 330,576 340,111 310,634
Stockholders' equity 54,679 54,944 56,196 58,282
Total average assets at September 30, 2000 were $482,966, an increase of
$28,777 or 6.34% from December 31, 1999.
In the third quarter of 1999, the Office of the Controller Currency
announced the closure of a national banking institution in Keystone, West
Virginia. As a result of the closure, depositors in that area were forced to
seek banking relationships with other institutions in the general area. The
Company's BTC affiliate was a benefactor of this event.
Deposits have also increased when compared to December 31, 1999. This is
the direct result of intensified deposit procurement activities. Deposit
gathering activities will continue to receive special attention in the coming
months, in order to satisfy various needs for liquidity.
(1) September 30, 1999 and December 31, 1998 figures are shown net of the ESOP
put option, ($2,180) and ($2,182), respectively.
22
<PAGE>
Liquidity
---------
Liquidity is the ability to provide sufficient cash levels to meet
financial commitments and to fund loan demand and deposit withdrawals. Cash from
operating activities was $6,984 primarily due to earnings. Cash used in
investing activities totaled $31,258. Primary uses were purchases of securities
available for sale and net loans to customers. Offsetting funds used were
reduction in federal funds sold and maturities and calls of securities.
Cash from financing activities was $20,264. This balance was comprised of
the previously mentioned efforts to obtain deposits.
While efforts to secure additional deposits have been successful,
liquidity continues to be negatively affected by the securities available for
sale portfolio. At present the portfolio contains a substantial amount of
callable securities. Originally anticipated calls have not occurred due to
interest rate levels. It remains unknown as to when interest rate levels may be
such that call features would activate.
In the meantime, the Company has utilized several credit facilities such
as the Federal Home Loan Bank, Federal Reserve discount window and federal funds
lines available to meet liquidity needs.
Capital Resources
-----------------
Total stockholders' equity increased $4,846 or 9.19% from December 31,
1999. The principal reason for the increase was net income. Accumulated
comprehensive loss decreased $933 during the first nine months of 2000 to
$(2,520). Offsetting decreases were the payment of a dividend $1,477 and the
repurchase of 4,600 shares of common stock for $82.
Stock Repurchase
----------------
On May 17, 2000 it was announced that the Board of Directors authorized
management to buy up to 50,000 shares of the corporation's stock before December
31, 2000. The stock is to be purchased in open market transactions as management
determines to be prudent. Management will consider a variety of factors,
including current market conditions, company capital levels, and future
opportunities.
As of September 30, 2000, 4,600 shares have been purchased for a total of
$82. Two thousand shares were purchased at $18.50 per share, two thousand at
$17.50 per share, three hundred at $16.38 per share and three hundred at $16.50
per share.
Acquisitions
------------
On August 17, 2000 The Company entered into an agreement to purchase six
branches from AmSouth of Birmingham Alabama. The acquisitions involves
approximately $93,282 in deposits and $41,310 in loans. Three of the branches
Radford, Dublin and Pulaski Virginia will be merged into The Company's NBB
affiliate, with the remaining offices located in Wytheville, Abingdon and Marion
Virginia merged with The Company's BTC affiliate. It is anticipated that the
acquisition will be closed in the fourth quarter of 2000.
In another move to improve the Company's competitive position BTC
announced on September 15, 2000 that it would acquire a branch in Bluefield
Virginia from First Union Bank. The acquisition will involve the purchase of
approximately $39,431 in deposits and $11,033 in loans. Plans call for the
acquisition to be completed in the first quarter of 2001.
Selected Affiliate Bank Data
----------------------------
The following table sets forth selected data for NBB and BTC:
September 30, 2000
-------------------------------
($000's, except for % data) NBB BTC
---- ----
Assets $295,237 201,313
Deposits 254,434 174,915
Net Income 3,347 2,103
Return on Average Assets 1.57% 1.42%
Return on Average Equity 16.01% 11.48%
Year 2000
---------
The Company was cognizant of the risks posed by the Year 2000 issue for
Bank operations and borrowers. Subsequent to December 31, 1999, the Company was
not aware of any information that indicates a significant vendor or service
provider may be unable to sell goods or provide services to the Company because
of Year 2000 issues. Further, the Company has not received any notifications
from borrowers or regulatory agencies to which it is subject, nor is it aware of
any such information which indicates that (1) a borrower has experienced
significant issues which may impact its ability to service its loan or which may
impact its borrowing agreement terms or covenants or (2) significant regulatory
action is being or may be taken against the Company, as a result of Year 2000
issues.
The Company has not experienced any significant disruptions to financial
or operating activities caused by failure in computerized systems resulting from
Year 2000 issues. Management does not expect Year 2000 issues to have a material
adverse effect on the Company's operations or financial results in 2000.
The Company was prepared for the millennium change and continues to
successfully operate and handle the transactions of customers subsequent to
December 31, 1999.
23
<PAGE>
<TABLE>
The following table sets forth selected quarterly consolidated financial data.
<CAPTION>
For the Quarter-Ended
($000's, except per share September 30, June 30, March 31, December 31, September 30,
and percent data) 2000 2000 2000 1999 1999
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Interest income $9,586 9,286 8,844 8,928 8,416
Interest expense 4,550 4,274 3,886 3,869 3,506
Net interest income 5,036 5,012 4,958 5,059 4,910
Provision for loan loss 331 313 353 560 371
Noninterest income 976 962 925 934 956
Noninterest expense 3,291 3,094 2,991 2,971 3,025
Income taxes 639 698 687 657 666
Net income $1,751 1,869 1,852 1,805 1,804
Return on average assets 1.42% 1.54% 1.58% 1.53% 1.60%
Return on average equity 12.42% 13.97% 13.98% 13.50% 13.64%
Basic net income per share $0.50 0.53 0.53 0.51 0.51
<CAPTION>
Daily Averages for the Quarter Ended
($000's, except per share September 30, June 30, March 31, December 31, September 30,
and percent data) 2000 2000 2000 1999 1999
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Loans, net $309,586 302,561 293,287 288,045 277,588
Total securities 141,534 139,993 139,350 140,066 145,064
Total assets 492,073 485,516 470,378 445,384 452,176
Total deposits 423,784 419,506 404,746 408,803 392,710
Stockholders' equity 56,390 53,649 53,142 53,468 52,908
</TABLE>
24
<PAGE>
Results of Operations for the Three Months Ended September 30, 2000
-------------------------------------------------------------------
Net income for the quarter ended September 30,2000 was $1,751, a decrease
of $53 from the same quarter in 1999.
The return on average assets for the third quarter of 2000 was 1.42%
compared to 1.60% for the quarter ended September 30, 1999. This decline was
primarily the result of growth in average assets coupled with a decrease in net
income.
The return on average equity for the three months ended September 30, 2000
was 12.42% compared to 13.64% for the quarter ended September 30, 1999. This
increase was due to the decline in average equity caused by the previously
mentioned tender offer that occurred in the second quarter of 1999.
Net Interest Income
-------------------
Net interest income increased $126 when the third quarter of 1999 and 2000
are compared. This modest increase is primarily due to the rising interest rate
environment and a recent slow down in loan production.
Provision for Loan Losses
-------------------------
The loan loss provision for the third quarter of 2000 was $331. Reference
is made to previous comments pertaining to the evaluation of the loan portfolio
and the adequacy of the loan reserve.
Noninterest Income
------------------
Noninterest income for the three months ended September 30, 2000 was $976
an increase of $20 or 2.09%.
Services charges on deposits increased $32. The change was due to
increased volume, more aggressive collection efforts and certain changes in the
service charges structure.
Credit card income continued to show good growth, which was attributed to
volume.
Trust income declined when compared to the third quarter of 1999. Various
factors contributed to the decrease among which were volume and market
conditions.
Noninterest Expense
-------------------
Noninterest expenses were $3,291 for the three months ended September 30,
2000, an increase of $266 or 8.79% over the same period in 1999.
Salaries and fringe benefits increased $62 or 4.17% when the three months
ended September 30, 2000 and 1999 are compared.
Occupancy expenses increased $4 when the two periods are compared.
Data processing expense decreased $1 when the third quarter of 2000 and
1999 are compared.
Other operating expenses declined by $7. Refer to comments regarding
franchise taxes in the year-to-date discussion of noninterest expense.
Balance Sheet
-------------
Total average assets at September 30, 2000 were $492,073 an increase of
$39,897 or 8.82% over the second quarter of 2000. As previously stated the
investment portfolio remains illiquid due to the interest rate environment. Some
improvement, however, occurred as a result of strong deposit growth and a
decrease in loan demand.
25
<PAGE>
Banking Terms
Basis Point - a measurement unit defined as one hundredth of one percent; it
usually refers to an interest rate.
Book Value Per Share - the value of a share of common stock determined by
dividing shareholders' equity at the end of a period, excluding preferred stock,
by the number of common shares outstanding at the end of the same period.
Core Deposits - demand deposits, savings accounts, interest checking accounts,
insured money market accounts and certificates of deposit under $100,000. This
is a more stable source of funds than funds purchased on the basis of rate only.
Cost of Funds - interest on deposits and borrowed funds divided by the average
balance of such funds.
Comprehensive Income - net income plus the change in unrealized gains and
losses, net of tax, plus certain reclassification adjustments on securities
available for sale for the period.
Earning Assets - loans (net of unearned income), investment securities, money
market investments and interest-bearing deposits in other banks.
Earnings Per Share-Basic - net income, reduced by dividends on preferred stock,
divided by the weighted average number of common shares outstanding in the
period.
Equity Capital/Share-holders' Equity - a balance sheet amount that represents
the total investment in the corporation by holders of common and preferred
stock; it includes amounts added through the retention of earnings.
Interest-Bearing Liabilities - deposits and borrowed funds on which the
corporation pays interest; includes interest checking accounts, money market
accounts, certificates of deposit, short-term borrowings and long-term debt.
Leverage Capital Ratio - the total of Tier 1 capital less certain intangible
assets such as goodwill, divided by quarterly average assets. A key regulatory
capital requirement with the minimum amount allowed of 4%.
Net Interest Income - the difference between income from earning assets and
interest paid on deposits and borrowed funds.
Net Interest Margin - net taxable-equivalent interest income divided by average
earning assets.
Nonperforming Assets - the sum of loans on which interest income is not being
accrued, restructured loans on which the interest rates or terms of repayment
have been materially revised and real estate that has been acquired through
foreclosure.
Rate-Sensitive Assets/ Liabilities - earning assets and interest-bearing
liabilities that can be repriced or replaced at a different interest rate,
within a specific period, due to rate changes or maturity.
Return on Average Assets (ROA) - net income as a percentage of average total
assets. It is a key profitability ratio that indicates how effectively a bank
has used its total resources.
Return on Average Equity (ROE) - net income as a percentage of total average
shareholders' equity. Provides a measure of how productively a bank's equity has
been employed.
Risk-Based Assets - a regulatory method of classifying assets based on their
potential risk of loss, used in calculating various capital ratios. Assets are
classified in one of four categories based primarily on credit risk and are
adjusted to reflect the relative riskiness of that category.
Securities Available for Sale - securities that will be held for indefinite
periods of time and that may be sold as part of the bank's asset/liability
strategy. These securities are recorded at their current market value rather
than at their historical amortized cost.
Securities Held to Maturity - securities that the bank has the ability and the
intent to hold to maturity. These securities are recorded at their original
cost, adjusted for amortization of premium or discount accretion.
Spread or Interest-Rate Differential - the difference between the average
interest rates received on earning assets and the average interest rates paid
for interest-bearing liabilities.
Taxable-Equivalent In-come - income that has been adjusted by increasing
tax-exempt interest income to an equivalent pretax amount of taxable income.
This adjustment allows corporations to compare the effective pretax yields on
different mixes of taxable and tax-exempt assets.
Tier 1 Risk-Based Capital Ratio - common shareholders' equity less certain
intangible assets, such as goodwill, divided by risk-based assets. Current
regulatory minimum requires that at least a 4% ratio be maintained.
Total Risk-Based Capital Ratio - total capital divided by risk-based assets.
Total capital consists of common shareholders' equity, the allowance for loan
losses, and certain components of nonpermanent preferred stock and subordinated
debt less certain intangible assets, such as goodwill. Current regulatory
minimum requires that at least an 8% ratio be maintained.
Yield on Earning Assets - total taxable-equivalent interest income dividend by
the average balance of earnings assets.
26
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Derivatives
The Company is not a party to derivative financial instruments with
off-balance sheet risks such as futures, forwards, swaps and options. The
Company is a party to financial instruments with off-balance sheet risks such as
commitments to extend credit, standby letters of credit, and recourse
obligations in the normal course of business to meet the financing needs of its
customers. Management does not plan any future involvement in high risk
derivative products. The Company has investments in mortgage-backed securities,
collateralized mortgage obligations, structured notes and other similar
instruments that are included in securities available for sale and securities
held to maturity. The fair value of these investments at September 30, 2000
approximated $3,900.
Interest Rate Sensitivity
The Company's securities and loans and its deposits are subject to
interest rate risk. The Company's profitability in the near term may temporarily
be affected, either positively by a falling interest rate scenario or negatively
by a period of rising rates. The table below sets forth, as of September 30,
2000, the distribution of repricing opportunities of the Company's
interest-earning assets and interest-bearing liabilities, the interest rate
sensitivity gap (i.e., interest rate sensitive assets less interest rate
sensitive liabilities), and the cumulative interest rate sensitivity gap. The
table sets forth the time periods during which interest-earning assets and
interest-bearing liabilities will mature or may reprice in accordance with their
contracted terms.
The method of analysis presented in the following table has certain
inherent shortcomings. For example, although certain assets and liabilities may
have similar maturities or periods of repricing, they may react in different
degrees and at different times to changes in market interest rates. In addition,
loan prepayments and early withdrawals of certificates of deposit could cause
the interest sensitivities to vary from those which appear on the table. The
classification of securities as held to maturity or available for sale also
effects rate sensitivity. Available for sale securities which may be sold can be
used to adjust the Company's interest rate sensitivity position. Finally, call
features in the investment portfolio can have a considerable effect. Since the
call decision is dependent on interest rate levels at a future point in time,
the ultimate effect on interest rate sensitivity cannot be precisely determined.
A substantial number of bonds in the investment portfolio contain these
features.
27
<PAGE>
<TABLE>
<CAPTION>
========================================================================
Interest Rate September 30, 2000
------------------------------------------------------------------------
Sensitivity Table (1) Interest-sensitive (days)
1-5 >5
-------------------------------------
($ in thousands) 1-90 91-180 181-365 Years Years Total
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned income (2) $50,275 28,865 20,217 143,810 72,882 316,266
Federal funds sold 100 --- --- --- --- 100
Interest bearing deposits 18,003 --- --- --- --- 18,003
Securities available for sale (3) 3,761 1,931 998 33,627 79,873 120,190
Securities held to maturity (3) 1,147 3,847 2,168 13,043 933 21,138
Mortgage loans held for sale 122 --- --- --- --- 122
------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $73,408 34,643 23,383 190,480 153,688 475,819
==============================================================================================================================
==============================================================================================================================
Interest-bearing liabilities:
Interest-bearing demand deposits $79,872 --- --- --- --- 79,872
Savings deposits 42,129 --- --- --- --- 42,129
Time deposits 34,467 57,115 74,865 82,093 --- 248,540
Other borrowed funds 198 --- 10,000 --- --- 10,198
------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $156,666 57,115 84,865 82,093 --- 380,739
------------------------------------------------------========================================================================
Cumulative ratio of interest-
Sensitive assets to interest-
sensitive liabilities .47 .51 .44 .85 1.25 ---
------------------------------------------------------========================================================================
Cumulative interest-sensitivity gap $(83,258) (105,730) (167,212) (58,825) 94,863 ---
==============================================================================================================================
</TABLE>
(1) The Company is sensitive to interest rate changes, as liabilities
generally reprice or mature before interest-earning assets. The above gap
table reflects the Company's rate-sensitive position at September 30,
2000, and is not necessarily reflective of its position throughout the
year. The carrying amounts of interest-rate sensitive assets and
liabilities are presented in the periods in which they reprice to market
rates or mature and are summed to show the interest-rate sensitivity gap.
(2) Excludes nonaccrual loans.
(3) Call features on certain securities, if exercised could have the effect of
materially shortening the average life of the investment portfolio. The
exercise of a call feature is dependent upon the rate environment. The
call decision is at the issuer's discretion and ultimate benefit.
Securities available for sale are shown at amortized cost.
28
<PAGE>
The Company also uses simulation analysis to forecast its balance sheet
and monitor interest rate sensitivity. One test used by the Company is shock
analysis, which measures the effect of a hypothetical, immediate and parallel
shift in interest rates. The following table shows the results of a rate shock
of 100, 200, and 300 basis points and the effects on net income and return on
average assets and return on average equity for the nine months ended September
30, 2000.
($000's, except for percent data)
Return on Return on
Rate Shift Net Income Average Equity Average Assets
================================================================================
300 $5,323 8.98% 1.06%
200 6,063 10.30% 1.23%
100 6,799 11.60% 1.39%
(-)100 8,258 14.11% 1.71%
(-)200 8,891 15.33% 1.87%
(-)300 9,379 16.03% 1.96%
Simulation analysis allows the Company to test asset and liability
management strategies under rising and falling rate conditions. As a part of
simulation process, certain estimates and assumptions must be made dealing with,
but not limited to, asset growth, the mix of assets and liabilities, rate
environment, and local and national economic conditions. Asset growth and the
mix of assets can to a degree be influenced by management. Other areas such as
the rate environment and economic factors cannot be controlled. For this reason
actual results may vary materially from any particular forecast or shock
analysis.
This shortcoming is offset to a degree by the periodic re-forecasting of
the balance sheet to reflect current trends and economic conditions. Shock
analysis must also be updated periodically as a part of the asset and liability
management process.
29
<PAGE>
National Bankshares, Inc. and Subsidiaries
Part II
Other Information
Items 1-3. Legal Proceedings; Changes in Securities and Use of Proceeds;
Defaults Upon Senior Securities
None for the three months ended September 30, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K filed during the three months ended
September 30, 2000:
August 17, 2000 - Purchase of Ams South Virginia Branches
30
<PAGE>
National Bankshares, Inc. and Subsidiaries
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Bankshares, Inc.
(Registrant)
Date: 11/13/2000 /s/James G. Rakes
------------- -------------------------------------
James G. Rakes, Chairman
President and Chief Executive Officer
Date: 11/13/2000 /s/J. Robert Buchanan
------------- -------------------------------------
J. Robert Buchanan, Treasurer
(principal financial officer)
31
<PAGE>
