National Bankshares' Earnings Drop: A Closer Look at the Numbers

National Bankshares (NASDAQ:NKSH) has released its full-year 2024 earnings, with earnings per share (EPS) coming in at US$1.24, a significant decrease from the US$2.66 reported in FY 2023. This article will delve into the key factors contributing to this decline and explore the bank's strategies to improve its financial performance.



Key Factors Contributing to the EPS Decline
1. Higher interest expense: The competitive pressure for deposits that began impacting the Company in the first quarter of 2023 continued throughout 2024, contributing to higher cost of funds and compressed net interest margin. This increase in interest expense led to a decrease in net income, which in turn reduced EPS.
2. Expenses for unusual items: The Company recorded expenses for unusual items in both the first quarter of 2024 and the first quarter of 2023. These expenses impacted net income and, consequently, EPS.

Strategies to Improve Financial Performance
1. Deposit base monitoring and funding costs: The management continuously monitors the deposit base and funding costs to ensure they remain competitive and sustainable. This helps maintain a balance between deposit acquisition and interest expense.
2. Asset repricing: The Company's loans are largely adjustable, with repricing dates in the future. If interest rates remain at the current level or do not decrease substantially, repricing will continue to contribute to improved interest income, thereby enhancing the NIM.
3. Expansion into new markets: The acquisition of Frontier Community Bank (FCB) in June 2024 expanded the bank's market presence and customer base. This strategic move is expected to contribute to the bank's asset base and potentially improve the NIM over time.
4. Enterprise system upgrade: The bank embarked on an enterprise system upgrade in 2024 to improve customer experience and operational efficiency. This upgrade is expected to deliver a powerful and improved customer experience while increasing back-end efficiency, which could indirectly contribute to NIM improvement by reducing costs.



Conclusion
National Bankshares' earnings per share (EPS) decreased significantly from FY 2023 to FY 2024, primarily due to higher interest expense and expenses for unusual items. However, the bank's management has implemented various strategies to improve its financial performance, such as monitoring deposit costs, repricing assets, expanding into new markets, and upgrading its enterprise system. These initiatives, along with the bank's commitment to maintaining a strong community banking ethos, are expected to help improve the NIM and drive the bank's growth in the future.