BLACKSBURG, VA., April 25, 2024 -- National Bankshares, Inc. (“the Company”) (Nasdaq: NKSH), parent company of The National Bank of Blacksburg (“the Bank”) and National Bankshares Financial Services, today announced its results of operations for the first quarter of 2024. The Company reported net income of $2.17 million, or basic and diluted earnings per common share of $0.37. This compares with net income of $4.19 million, or basic and diluted earnings per common share of $0.71, for the fourth quarter of 2023 and $4.53 million, or basic and diluted earnings per common share of $0.77, for the quarter ended March 31, 2023. National Bankshares, Inc. ended March 31, 2024 with total assets of $1.69 billion.
President and CEO F. Brad Denardo commented, “High interest rates and the elevated cost of deposits negatively impacted earnings once again in the first quarter. We were pleased with the improvement in interest income compared to December 31, 2023, and we anticipate further progress as assets continue to reprice at higher rates. Our expansion plans are moving forward with the construction of our new Roanoke, Virginia branch office and the planned acquisition of Frontier Community Bank in the second quarter. We are enthusiastic about the growth opportunities in these new markets, and we look forward to serving new customers and creating added value for our shareholders in the year ahead.”
Highlights
Credit Quality
Loan quality continues to reflect low credit risk, with low charge-off and past due levels. An improved economic forecast and positive trends in credit risk indicators resulted in a lower ratio of the allowance for credit losses on loans (“ACLL”) to loans, net of unearned income and deferred fees as of March 31, 2024, compared with December 31, 2023 and March 31, 2023.
Net Income
Net income for the first quarter of 2024 decreased when compared with net income for the fourth quarter of 2023. During the fourth quarter of 2023, the Company, based upon its established methodology, recorded a large recovery of previously recognized provision for the ACLL. Expenses for unusual items impacted each of the quarters ended March 31, 2024 and March 31, 2023. When the first quarter of 2024 is compared with the first quarter of 2023, net income decreased primarily due to higher interest expense. The following discussion highlights key items that affected results.
Net Interest Income
Interest income and the yield on earning assets continues to grow in response to the Federal Reserve’s interest rate increases between March 2022 and July 2023. Many of the Company’s loans are adjustable with repricing dates in the future. If rates remain at the current level or do not decrease substantially, repricing will continue to contribute to improved interest income.
Increase in average deposit volume increased interest expense when the first quarter of 2024 is compared with the fourth quarter of 2023. The competitive pressure for deposits that first began impacting the Company in the first quarter of 2023 has moderated, but continues to contribute to higher cost of funds and compressed net interest margin when results for the first quarter of 2024 are compared with the fourth and first quarters of 2023. The Company continuously monitors its deposit base and funding costs.
Noninterest Income
Noninterest income decreased when the first quarter of 2024 is compared with the fourth quarter of 2023. During the fourth quarter of 2023, the Company recognized income of $232 thousand upon receipt of a contract contingency payment associated with the 2022 sale of a private equity investment. Noninterest income for the first quarter of 2024 was similar to the first quarter of 2023.
Noninterest Expense
Noninterest expense for the first quarter of 2024 increased when compared with the fourth quarter of 2023. During the fourth quarter of 2023, the Company reversed discretionary expense accruals recorded over the course of 2023. The first quarter of 2024 contains expense associated with preparation for the acquisition of Frontier Community Bank. During the first quarter of 2023, the Company recorded expenses of $441 thousand, included in professional services expense, associated with a threatened proxy contest.
Securities
Market interest rate expectations at March 31, 2024 when compared with those at December 31, 2023 were slightly less optimistic for the probability of a Federal Reserve interest rate cut in the near term, contributing to a slightly lower valuation of the Company’s bond portfolio when March 31, 2024 is compared with December 31, 2023. The Company’s bond portfolio as of March 31, 2024 is lower than at March 31, 2023 due to strategic sales during 2023.
The Company’s Asset Liability Management Committee closely monitors interest rate risk on all of the Company’s financial assets and liabilities. As of March 31, 2024, the Company has the ability to hold securities until maturity. Analysis as of March 31, 2024 did not indicate credit risk concerns with any of the Company’s securities.
Deposits
Deposit levels at March 31, 2024 improved when compared with levels at December 31, 2023 and March 31, 2023. The Company’s depositors within its market areas are diverse, including individuals, businesses and municipalities. The Company does not have any brokered deposits. Depositors are insured up to the FDIC maximum of $250 thousand. Municipal deposits, which account for approximately 25% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, approximately 21% are uninsured.
Liquidity
The Company’s liquidity position remains solid. The Company maintains borrowing lines with the Federal Home Loan Bank of Atlanta (“FHLB”), the Federal Reserve and another correspondent bank that provide substantial borrowing capacity. During 2023, the Company accessed short-term borrowings with the FHLB and Federal Reserve to reinforce liquidity. The advances were fully repaid due to the success of the Company’s deposit strategy. Combined with a low loan-to-deposit ratio, positive results of the latest liquidity stress testing and success of deposit marketing, the Company believes it is well positioned to meet foreseeable liquidity demands.
Loans
Loans increased slightly from December 31, 2023. The Company is positioned to continue to make every loan that meets its underwriting standards.
Stockholders’ Equity
Stockholders’ equity as of March 31, 2024 decreased slightly when compared with December 31, 2023 due to a decrease in the market value of securities. The unrealized loss on securities impacts stockholders’ equity through accumulated other comprehensive loss. Accumulated other comprehensive loss is excluded from the Bank’s regulatory capital and does not affect regulatory capital ratios. The Bank is considered well capitalized, with capital ratios substantially higher than minimum regulatory requirements, and meets all requirements for borrowing from the FHLB.
About National Bankshares
National Bankshares, Inc., headquartered in Blacksburg, Virginia, is the parent company of The National Bank of Blacksburg, which does business as National Bank, and of National Bankshares Financial Services, Inc. National Bank is a community bank operating from 24 full-service offices, primarily in southwest Virginia, and two loan production offices in Roanoke and Charlottesville, Virginia. National Bankshares Financial Services, Inc. is an investment and insurance subsidiary in the same trade area. The Company’s stock is traded on the Nasdaq Capital Market under the symbol “NKSH.”
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by use of words such as “may,” “will,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,” and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast and are subject to significant uncertainty. Although we believe that our expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of our existing knowledge of our business and operations, there can be no assurance that actual future results, performance, achievements, or trends will not differ materially from any projected future results, performance, achievements or trends expressed or implied by such forward-looking statements. Actual future results, performance, achievements or trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the following: the businesses of the Company and Frontier Community Bank (“FCB”) may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; the expected growth opportunities or cost savings from the merger with FCB may not be fully realized or may take longer to realize than expected; deposit attrition, operating costs, customer losses and business disruption prior to and following the merger with FCB, including adverse effects on relationships with employees and customers, may be greater than expected; the regulatory and shareholder approvals required for the merger with FCB may not be obtained; the level of inflation; interest rates; national and local economic conditions; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation, and the impact of any policies or programs implemented pursuant to financial reform legislation; unanticipated increases in the level of unemployment in the Company’s market; the quality or composition of the loan and/or investment portfolios; the sufficiency of the Company’s allowance for credit losses; demand for loan products; deposit flows, including impact on liquidity; competition; demand for financial services in the Company’s market; the real estate market conditions in the Company’s market; laws, regulations and policies impacting financial institutions; adverse developments in the financial industry generally, such as the recent bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; technological risks and developments, and cyber-threats, attacks or events; the Company’s technology initiatives; geopolitical conditions, including acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts; the occurrence of significant natural disasters, including severe weather conditions, floods, and other catastrophic events; the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment; performance by the Company’s counterparties or vendors; applicable accounting principles, policies and guidelines; the impact of public health events, including the adverse impact on our business and operations and on our customers; and other factors described from time to time in the Company’s reports (such as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
President and CEO F. Brad Denardo commented, “High interest rates and the elevated cost of deposits negatively impacted earnings once again in the first quarter. We were pleased with the improvement in interest income compared to December 31, 2023, and we anticipate further progress as assets continue to reprice at higher rates. Our expansion plans are moving forward with the construction of our new Roanoke, Virginia branch office and the planned acquisition of Frontier Community Bank in the second quarter. We are enthusiastic about the growth opportunities in these new markets, and we look forward to serving new customers and creating added value for our shareholders in the year ahead.”
Highlights
Credit Quality
Loan quality continues to reflect low credit risk, with low charge-off and past due levels. An improved economic forecast and positive trends in credit risk indicators resulted in a lower ratio of the allowance for credit losses on loans (“ACLL”) to loans, net of unearned income and deferred fees as of March 31, 2024, compared with December 31, 2023 and March 31, 2023.
Net Income
Net income for the first quarter of 2024 decreased when compared with net income for the fourth quarter of 2023. During the fourth quarter of 2023, the Company, based upon its established methodology, recorded a large recovery of previously recognized provision for the ACLL. Expenses for unusual items impacted each of the quarters ended March 31, 2024 and March 31, 2023. When the first quarter of 2024 is compared with the first quarter of 2023, net income decreased primarily due to higher interest expense. The following discussion highlights key items that affected results.
Net Interest Income
Interest income and the yield on earning assets continues to grow in response to the Federal Reserve’s interest rate increases between March 2022 and July 2023. Many of the Company’s loans are adjustable with repricing dates in the future. If rates remain at the current level or do not decrease substantially, repricing will continue to contribute to improved interest income.
Increase in average deposit volume increased interest expense when the first quarter of 2024 is compared with the fourth quarter of 2023. The competitive pressure for deposits that first began impacting the Company in the first quarter of 2023 has moderated, but continues to contribute to higher cost of funds and compressed net interest margin when results for the first quarter of 2024 are compared with the fourth and first quarters of 2023. The Company continuously monitors its deposit base and funding costs.
Noninterest Income
Noninterest income decreased when the first quarter of 2024 is compared with the fourth quarter of 2023. During the fourth quarter of 2023, the Company recognized income of $232 thousand upon receipt of a contract contingency payment associated with the 2022 sale of a private equity investment. Noninterest income for the first quarter of 2024 was similar to the first quarter of 2023.
Noninterest Expense
Noninterest expense for the first quarter of 2024 increased when compared with the fourth quarter of 2023. During the fourth quarter of 2023, the Company reversed discretionary expense accruals recorded over the course of 2023. The first quarter of 2024 contains expense associated with preparation for the acquisition of Frontier Community Bank. During the first quarter of 2023, the Company recorded expenses of $441 thousand, included in professional services expense, associated with a threatened proxy contest.
Securities
Market interest rate expectations at March 31, 2024 when compared with those at December 31, 2023 were slightly less optimistic for the probability of a Federal Reserve interest rate cut in the near term, contributing to a slightly lower valuation of the Company’s bond portfolio when March 31, 2024 is compared with December 31, 2023. The Company’s bond portfolio as of March 31, 2024 is lower than at March 31, 2023 due to strategic sales during 2023.
The Company’s Asset Liability Management Committee closely monitors interest rate risk on all of the Company’s financial assets and liabilities. As of March 31, 2024, the Company has the ability to hold securities until maturity. Analysis as of March 31, 2024 did not indicate credit risk concerns with any of the Company’s securities.
Deposits
Deposit levels at March 31, 2024 improved when compared with levels at December 31, 2023 and March 31, 2023. The Company’s depositors within its market areas are diverse, including individuals, businesses and municipalities. The Company does not have any brokered deposits. Depositors are insured up to the FDIC maximum of $250 thousand. Municipal deposits, which account for approximately 25% of the Company’s deposits, have additional security from bonds pledged as collateral, in accordance with state regulation. Of the Company’s non-municipal deposits, approximately 21% are uninsured.
Liquidity
The Company’s liquidity position remains solid. The Company maintains borrowing lines with the Federal Home Loan Bank of Atlanta (“FHLB”), the Federal Reserve and another correspondent bank that provide substantial borrowing capacity. During 2023, the Company accessed short-term borrowings with the FHLB and Federal Reserve to reinforce liquidity. The advances were fully repaid due to the success of the Company’s deposit strategy. Combined with a low loan-to-deposit ratio, positive results of the latest liquidity stress testing and success of deposit marketing, the Company believes it is well positioned to meet foreseeable liquidity demands.
Loans
Loans increased slightly from December 31, 2023. The Company is positioned to continue to make every loan that meets its underwriting standards.
Stockholders’ Equity
Stockholders’ equity as of March 31, 2024 decreased slightly when compared with December 31, 2023 due to a decrease in the market value of securities. The unrealized loss on securities impacts stockholders’ equity through accumulated other comprehensive loss. Accumulated other comprehensive loss is excluded from the Bank’s regulatory capital and does not affect regulatory capital ratios. The Bank is considered well capitalized, with capital ratios substantially higher than minimum regulatory requirements, and meets all requirements for borrowing from the FHLB.
About National Bankshares
National Bankshares, Inc., headquartered in Blacksburg, Virginia, is the parent company of The National Bank of Blacksburg, which does business as National Bank, and of National Bankshares Financial Services, Inc. National Bank is a community bank operating from 24 full-service offices, primarily in southwest Virginia, and two loan production offices in Roanoke and Charlottesville, Virginia. National Bankshares Financial Services, Inc. is an investment and insurance subsidiary in the same trade area. The Company’s stock is traded on the Nasdaq Capital Market under the symbol “NKSH.”
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by use of words such as “may,” “will,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,” and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast and are subject to significant uncertainty. Although we believe that our expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of our existing knowledge of our business and operations, there can be no assurance that actual future results, performance, achievements, or trends will not differ materially from any projected future results, performance, achievements or trends expressed or implied by such forward-looking statements. Actual future results, performance, achievements or trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the following: the businesses of the Company and Frontier Community Bank (“FCB”) may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; the expected growth opportunities or cost savings from the merger with FCB may not be fully realized or may take longer to realize than expected; deposit attrition, operating costs, customer losses and business disruption prior to and following the merger with FCB, including adverse effects on relationships with employees and customers, may be greater than expected; the regulatory and shareholder approvals required for the merger with FCB may not be obtained; the level of inflation; interest rates; national and local economic conditions; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation, and the impact of any policies or programs implemented pursuant to financial reform legislation; unanticipated increases in the level of unemployment in the Company’s market; the quality or composition of the loan and/or investment portfolios; the sufficiency of the Company’s allowance for credit losses; demand for loan products; deposit flows, including impact on liquidity; competition; demand for financial services in the Company’s market; the real estate market conditions in the Company’s market; laws, regulations and policies impacting financial institutions; adverse developments in the financial industry generally, such as the recent bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; technological risks and developments, and cyber-threats, attacks or events; the Company’s technology initiatives; geopolitical conditions, including acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts; the occurrence of significant natural disasters, including severe weather conditions, floods, and other catastrophic events; the Company's ability to identify, attract, and retain experienced management, relationship managers, and support personnel, particularly in a competitive labor environment; performance by the Company’s counterparties or vendors; applicable accounting principles, policies and guidelines; the impact of public health events, including the adverse impact on our business and operations and on our customers; and other factors described from time to time in the Company’s reports (such as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.