National Bankshares Inc. is a bank holding company. Except for a separate investment portfolio Bankshares conducts all of its business operations through its two wholly-owned subsidiaries The National Bank of Blacksburg and Bank of Tazewell County . National Bankshares Inc. has a market cap of $185.3 million; its shares were traded at around $26.73 with a P/E ratio of 13.3 and P/S ratio of 3.1. The dividend yield of National Bankshares Inc. stocks is 3.1%. National Bankshares Inc. had an annual average earning growth of 24% over the past 5 years. Highlight of Business Operations: The return on average assets for the six months ended June 30, 2009 was 1.40%, a decline of 11 basis points from 1.51% for the year ended December 31, 2008, as internally generated asset growth increased at a faster rate than earnings. The return on average equity declined from 12.52% for the year ended December 31, 2008 to 11.92% for the six months ended June 30, 2009. Return on average equity declined because the Company’s equity, mostly from retained earnings, grew at a faster rate than earnings. As discussed below, higher costs for Federal Deposit Insurance Corporation Deposit Insurance Fund premiums had a negative effect on the Company’s earnings for the first six months in 2009. The total of FDIC premiums for the first two quarters of 2009 was $1,006, as compared with $43 for the same period of 2008. In the second quarter of 2009, the total of FDIC premiums was $885, as compared with $22 in the second quarter of 2008. The net interest margin, at 4.09%, was 3 basis points lower than the 4.12% at year-end. Despite the slight decline, the net interest margin remained at a healthy level for the second quarter of 2009.
Nonperforming loans at June 30, 2009, all of which were nonaccrual loans, were $2,729, or 0.47% of loans net of unearned income. Nonperforming loans increased by $1,396 over the $1,333 reported on December 31, 2008. Loans past due 90 days or more at the end of the second quarter of 2009 were $1,746, up $619 from the total at year-end and were 0.30% of loans net of unearned income. Although the totals of nonperforming loans and loans past due 90 days or more have grown when compared with year-end, the ratio of both to total loans remained low when compared with peers and is consistent with the Company’s conservative underwriting policies. If the economic downturn worsens in the Company’s market area, it is realistic to expect further increases in nonperforming and past due loans.
Net interest income for the first six months of 2009 was $16,603, an increase of $1,642, or 10.98%, when compared with the same period in 2008. This net increase is attributable to a decrease of $1,536 in interest expense and an increase in interest income of $106. As compared with the first six months of 2008, the lower interest rate environment in the first half of 2009 caused the Company’s yield on earning assets to decline. However, a higher volume of earning assets resulted in the $106 increase in total interest income for the six months ended June 30, 2009. Despite an increase in total deposits when June 30, 2009 and June 30, 2008 are compared, as noted above, total interest expense dropped by $1,536. This decline is attributable to a combination of lower interest rates and the Company’s conservative deposit pricing.
Service charges on deposit accounts totaled $1,641 for the six months ended June 30, 2009. This is an increase of $69, or 4.39%, from the same period of 2008. This category is affected by the number of deposit accounts, the level of service charge fees and the number of checking account overdrafts. The growth resulted from an increase in the level of service charge fees. Of the $69 increase in service charges on deposit accounts, $57 is attributable to higher account overdraft and ATM fees. These fees were increased in late 2008.
Credit card fees for the first six months of 2009 were $1,337. This was a decrease of $36, or 2.62%, when compared with the $1,373 total reported for the same period last year. Merchant transaction fees declined by $37 and credit card fees were $12 lower when the two periods are compared. This was offset by a $13 increase in fees attributable to debit card usage.
Other income is income that cannot be classified in another category. Some examples include net gains from the sales of fixed assets, rent from foreclosed properties and revenue from investment and insurance sales. Other income for the six months ended June 30, 2009 was $185. This represents a decrease of $41, or 18.14%, when compared with the six months ended June 30, 2008. A substantial portion of the decline in other income comes from a $26 drop in NBFS income, when the first six months of 2008 and 2009 are compared. In addition, there was a $9 gain from the sale of repossessed automobiles in the first six months of 2008 that was not repeated in the same period in 2009.
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