UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

Check the appropriate box:

☐     Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☒     Definitive Proxy Statement

☐     Definitive Additional Materials

☐     Soliciting Material Pursuant to Section240.14a-12

NATIONAL BANKSHARES,, INC.

-----------------------------------------------------------------------

(Name of Registrant as Specified In Its Charter)

-----------------------------------------------------------------------

(Name of Person(s) Filing Proxy Statement, if other than the

Registrant)

Payment of Filing Fee (Check the appropriate box):

----------------------------------------------------------

----------------------------------------------------------

----------------------------------------------------------

----------------------------------------------------------

----------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

----------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined)

(2)

Form, Schedule or Registration Statement No.:

----------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

(3)

Filing Party:

----------------------------------------------------------

----------------------------------------------------------

March 29, 2019

30, 2020

Dear Fellow Stockholder:

We invite you to join us for the Annual Meeting of Stockholders of National Bankshares, Inc. on Tuesday, May 14, 2019,12, 2020, at 3:00 p.m. The, Eastern Time. Due to the current coronavirus (COVID-19) pandemic and in support of the health of our stockholders, directors and employees, the Board of Directors has determined that the Annual Meeting will be held atconducted exclusively as a “virtual meeting” of stockholders via online live webcast. There will be no physical location for the Custom Catering Center at 902 Patrick Henry Drive, atmeeting. You will be able to attend and listen to the intersectionmeeting live, submit questions and vote online during the meeting by visiting www.meetingcenter.io/221471900. For information on how to participate in the virtual Annual Meeting, please see the “General Information” section on page 1 of North Main Street, in Blacksburg, Virginia. A map and directions to Custom Catering are on the reverse side of this letter.accompanying proxy statement.

The attached Notice of Annual Meeting and Proxy Statement describe the formal business to be transacted at the meeting. We will be electing yourvoting to elect four directors, approve on an advisory basis our named executive officer compensation and weratify the appointment of Yount, Hyde & Barbour, P.C. as our independent auditors for 2020. We also will report on the operations of National Bankshares.

YOUR VOTE IS IMPORTANT,, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. On behalf of the Board of Directors, I urge you to please sign, date and return the Proxyproxy in the enclosed postage-paid envelope. Please return the Proxyproxy as soon as possible, even if you now plan to attend and participate in the Annual Meeting.Meeting online. This will not prevent you from voting in person,your shares electronically during the meeting, but it will ensure that your vote is counted if you are unable to attend the meeting. Alternatively, you may vote your proxy by telephone or over the Internet by following the instructions on your proxy card or voting instruction form. If your broker, bank or other nominee holds your shares, you also should contact your nominee for additional information.

Thank you for your interest and investment in National Bankshares, Inc.

DIRECTIONS TO CUSTOM CATERING CENTER

FROM THE NORTH:

Exit left from US Route 460 at first Blacksburg exit to Business Route 460 (North Main Street). Proceed south on North Main Street to traffic light just past Food Lion Plaza. Turn right at traffic light onto Patrick Henry Drive, and turn at first right into Custom Catering Center.

FROM THE SOUTH:

Exit right from US Route 460 Bypass at first Prices Fork Road exit (Downtown). Follow Prices Fork Road to its end at the intersection with North Main Street. Proceed ¾ around the traffic circle and turn right onto North Main Street. Proceed north to second traffic light, at the intersection of Patrick Henry Drive. Turn left at Patrick Henry Drive, and turn at first right into Custom Catering Center.

NOTICE OF 20192020 ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 14, 201912, 2020

To the Stockholders of National Bankshares, Inc.:

Notice is hereby given that the 20192020 Annual Meeting of Stockholders of National Bankshares, Inc. will be held as follows:

The meeting is for the purpose of considering and acting upon the following items of business:

Only stockholders of record at the close of business on March 13, 201911, 2020 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 of the matters proposed to be acted upon at the meeting.

To assure that your shares are represented at the meeting, please complete, date,you may vote your proxy by telephone or over the Internet or you may sign and mailreturn the form of proxy promptly, the enclosed proxy, for which a return envelope is provided. The proxy will not be usedas applicable, so that if you are unable to attend and vote in person atonline during the meeting.meeting your shares can nevertheless be voted. You may revoke your proxy prior to the actual voting of the proxy.

		BY ORDER OF THE BOARD OF DIRECTORS
		Lara E. Ramsey Corporate Secretary
Blacksburg, Virginia March 29, 201930, 2020

IMPORTANT NOTICE

Please (1) vote your proxy by telephone (2) vote your proxy over the Internet or (3) mark, date, sign and promptly mail the form of proxy, as applicable, so that your shares will be represented at the meeting.

If you hold your shares in street name, it is critical that you instruct your broker, bank or other nominee how to vote if you want your vote to count in the election of directors and the advisory resolution to approve executive compensation (vote proposals 1 and 2 of this proxy statement). Under current regulations, if you hold your shares in street name and you do not instruct your broker, bank or other nominee how to vote in these matters, no votes will be cast on your behalf with respect to these matters.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

2020 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 12, 2020

This proxy statement and our annual report to shareholders and annual report on Form 10-K for the year ended December 31, 2019 are available at http://nationalbankshares.com.

PROXY STATEMENT

OF

NATIONAL BANKSHARES, INC.

101 HUBBARD STREET

BLACKSBURG, VA 24060

P.O. BOX 90002

BLACKSBURG, VA 24062-9002

540-951-6300540-951-6300

www.nationalbankshares.com

www.nationalbanksharesproxy.com

--------------

ANNUAL MEETING OF STOCKHOLDERS

TUESDAY, MAY 12, 2020

GENERAL INFORMATIONMAY14, 2019

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. (“NBI,” “Bankshares” or the “Company”) to be used at the 20192020 Annual Meeting of Stockholders (the “Annual Meeting”) to be held at the Custom Catering Center at 902 Patrick Henry Drive, at the intersection of North Main Street, Blacksburg, Virginia, at 3:00 p.m., Eastern Time, on Tuesday, May 14, 2019,12, 2020, and at any adjournments of the meeting. The approximate mailing date of the proxy statement, the notice of annual meeting and the accompanying proxy is March 29, 2019.30, 2020. In this proxy statement, references to “NBI,” “Bankshares,” the “Company,” “we,” “us,” or “our” refer to National Bankshares, Inc. and references to “NBB,” “National Bank” or the “Bank” refer to The National Bank of Blacksburg, the Company’s wholly-owned community bank subsidiary.

Due to the current coronavirus (COVID-19) pandemic and in support of the health of stockholders, directors and employees, the Board has determined that the Annual Meeting will be conducted exclusively as a “virtual meeting” of stockholders via online live webcast. There will be no physical location for the meeting. Stockholders will be able to attend and listen to the meeting live, submit questions and vote online during the meeting by visiting www.meetingcenter.io/221471900.

A stockholder holding shares of Bankshares common stock directly in his or her name through Bankshares’ transfer agent, Computershare Trust Company, N.A. (“Computershare”), is considered the “stockholder of record” with respect to those shares. To attend the Annual Meeting virtually on the Internet, such stockholders of record should follow the instructions on the proxy card provided by Computershare.

A stockholder holding shares of Bankshares common stock through a broker, bank or other nominee or otherwise in “street name” (“broker shares”), is considered the “beneficial owner” of such shares held in street name. To attend the Annual Meeting virtually on the Internet, such beneficial owners must register in advance of the meeting. To register to attend the Annual Meeting, beneficial owners must submit proof of their proxy power (legal proxy) reflecting their holdings along with their name and email address to Computershare. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m., Eastern Time, on or before May 8, 2020. Computershare will deliver a confirmation of registration by email after it receives the registration materials from beneficial owners. Requests for registration should be directed to Computershare as follows:

REVOCATION OF PROXIES

Stockholders who sign and send invote their proxies prior to the meeting retain the right to revoke them at any time prior to the actual voting of the proxies at the Annual Meeting. Proxies may be revoked by written notice received prior to the meeting, by attending the meeting and voting in persononline at the meeting or by submitting a signed proxy with 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: F. Brad Denardo. Unless revoked, the shares represented by properly executed proxies will be voted at the meeting according to the instructions contained in the proxy.

Where no instructions are given, proxies will be voted for the nominees for directors set forth in Proposal 1; for the non-binding resolution to approve the compensation of the named executive officers described in Proposal 2; and for the ratification of the appointment of Yount, Hyde & Barbour, P.C. as the independent registered public accounting firm for the year ending December 31, 20192020 described in Proposal 3.

An Annual Report to Stockholders, including the financial statements for the Company’s fiscal year ended December 31, 2018,2019, is being mailed to youstockholders at the same time as this Proxy Statement, but should not be considered proxy solicitation material.

VOTING SECURITIES AND STOCK OWNERSHIP

As of March 13, 2019,11, 2020, Bankshares had 6,505,5746,489,574 shares of common stock ($1.25 par value) issued and outstanding. Each of the shares is entitled to one vote at the Annual Meeting. Only those stockholders of record at the close of business on March 13, 201911, 2020 will be entitled to vote at the meeting or at any adjournments.

A quorum of stockholders is necessary to transact business at the Annual Meeting. A quorum exists if the holders of a majority of votes entitled to be cast on matters to be considered at the Annual Meeting constitutes a quorum.are present online at the Annual Meeting or represented by proxy. If a share is represented for any purpose at the Annual Meeting, it will be considered to be present for purposes of establishing a quorum. Abstentions and shares held of record by a broker or its nominee or in “street name” (“broker shares”)shares which are voted on any matter are included in determining the number of votes present online or represented by proxy at the Annual Meeting. Broker shares that are not returned and 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 plurality of votes cast by shares entitled to vote at the Annual Meeting. On all other matters, the vote of a majority of shares present in persononline or represented by proxy and entitled to vote is required. Broker shares may not be voted in an uncontested Board election such as this one unless the beneficial owner has provided voting instructions. Votes that are withheld and broker shares that are not voted on any matter will not be included in determining the number of votes cast.

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

Shown below is information with respect to persons or groups that beneficially own more than 5% of National Bankshares, Inc. common stock as of December 31, 2018.2019. This share information is derived from Schedule 13G filed by such persons or groups.groups with the Securities and Exchange Commission (the “SEC”).

⁽¹⁾ Sole dispositive power for 479,979 shares and sole voting power for 467,583 have been reported.

⁽²⁾ Sole dispositive and sole voting power for 530,199 shares have been reported.

⁽³⁾ Sole dispositive and sole voting power for 408,807

(1)	Sole dispositive power for 470,411 shares and sole voting power for 458,031 have been reported.

(2)	Sole dispositive and sole voting power for 467,789 shares have been reported.

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following table presents the beneficial ownership of National Bankshares, Inc. common stock as of March 13, 2019,11, 2020, by each director, nominee and executive officer named in the Summary Compensation Table, and all directors and executive officers as a group. Except as otherwise noted, the named individual has sole voting and investment power with respect to the stock.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) requires our directors and officers to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and to furnish us with copies of all forms filed.

To our knowledge and based on the written representations of our directors and executive officers, during the past fiscal year our officers and directors complied with all applicable Section 16(a) filing requirements.

Stock Ownership Guidelines

While many of the Company’s directors and executive officers hold Bankshares stock, the Company does not have specific policy regarding stock ownership and retention for its directors and executive officers at this time. The Compensation Committee, however, will continue to periodically review best practices and re-evaluate whether stock ownership guidelines are consistent with the compensation philosophy of Bankshares and with the stockholders’ interests.

Anti-Hedging and Pledging Policy

In 2016, theThe Company has adopted an Anti-Hedging and Pledging Policy. Under the policy, Company directors and named executive officers are prohibited from engaging in short sales of Bankshares stock and from engaging in transactions in publicly-traded options, such as puts, calls and other derivative securities based on Bankshares stock including any hedging, monetization or similar transactions designed to decrease the risks associated with holding Bankshares stock such as zero-cost collarsdollars and forward sales contracts. In addition, Company directors and named executive officers are prohibited from pledging Bankshares stock as collateral for any loan or holding Bankshares stock in a margin account.

ELECTION OF DIRECTORS

OurThe Company’s articles of incorporation provide that the directors will 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 by-lawsbylaws but shall not be less than nine or more than twenty-six.26. On March 13, 2019, the Board of Directors amended the by-lawsbylaws to set the number of directors from fourteen14 to twelve.12. For the purpose of the election of directors at the Annual Meeting, the number of directors set forth in the by-lawsbylaws remains twelve.12. The current term of office of the Class 23 directors expires at this 20192020 Annual Meeting of Stockholders. The terms of Class 31 and Class 12 directors will expire in 20202021 and 2021,2022, respectively. In the future, the Board may consider adjustment of the size of each class of directors. All directors of the Company also serve as directors of NBB.

The Board of Directors has nominated threefour serving Class 23 directors, F. Brad Denardo, JohnCharles E. DooleyGreen, III, Mildred R. Johnson, William A. Peery and Norman V. Fitzwater, IIIJames C. Thompson, to serve a three-year term to expire at the Annual Meeting of Stockholders in 2022.2023.

It is the intention of the persons named as proxies, unless instructed otherwise, to vote for the election of the threefour nominees for Class 23 director. Each nominee has agreed to serve if elected. If any of the nominees is unexpectedly unable to serve, the shares represented by all valid proxies will be voted for the remaining nominees and any other person or persons who may be designated by the Board. At this time, the Board knows of no reason why any nominee might be unable to serve.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” ALL

OFTHE NOMINEES SET FORTH BELOW.BELOW.

PROPOSAL 1

ELECTION OF THREEFOUR CLASS 23 DIRECTORS

Class 23 Nominees for Directors (Nominated to serve until the 20222023 Annual Meeting):

F. Brad Denardo (Age 66): Mr. Denardo joined National Bank as a Vice President in 1983 and was promoted to Executive Vice President of Loans in 1989. In 2002, he was named Executive Vice President and Chief Operating Officer of National Bank and was also elected to the National Bank Board of Directors. Mr. Denardo was named President and Chief Executive Officer of the Company on September 1, 2017, President and Chief Executive Officer of NBB in May 2014 and Chairman, President and CEO of NBB in September 2017. He served as Executive Vice President of the Company from 2008 until 2017 and as Treasurer of National Bankshares Financial Services, Inc. ("NBFS") from 2001 until 2017. He currently serves as Chairman, President and CEO of National Bankshares Financial Services, Inc. and has served as a Director since 2001. In addition to Mr. Denardo’s considerable banking experience, his community and professional involvement bring a valuable perspective to the Company’s board. Mr. Denardo is a Board Member of the Virginia Tech Corporate Research Center, the Community Foundation of the New River Valley, the Blacksburg Partnership, Bankers Insurance, LLC, and Virginia Bankers Association Management Services, Inc. He is Assistant Treasurer of Blacksburg United Methodist Church.

John E. Dooley (Age 64): Dr. Dooley is CEO and Secretary-Treasurer of the Virginia Tech Foundation, Inc., where he oversees the leadership and management of Virginia Tech’s private assets in support of university programs and initiatives which total assets exceed $1.8 billion. Prior to becoming CEO of the Foundation in July 2012, Dr. Dooley served as Virginia Tech’s Vice President for Outreach and International Affairs for ten years. Dr. Dooley is an active member of the Virginia Tech community through several committees and special projects. He also serves on the boards of several community and state organizations, including Go Virginia Region 2 Council, The Virginia Chamber of Commerce and Lead Virginia. He brings extensive financial knowledge and management capabilities to the Board as well as a significant network of contacts in the regional business and academic communities. Dr. Dooley was elected by the Board of Directors in November 2012 to fill an unexpired term. He was elected to a full three year term at the 2013 Annual Meeting.

Norman V. Fitzwater, III (Age 68): Mr. Fitzwater was elected to the Company's Board of Directors in May 2017 when the Company Board was consolidated with the NBB Board. Mr. Fitzwater is President of A Cleaner World dry cleaning in Blacksburg, Virginia. Prior to opening the Blacksburg dry cleaning business in 1992, he was involved in the management and operation of several furniture manufacturing companies in Virginia and North Carolina. Mr. Fitzwater joined NBB’s Board in 2013 and contributes extensive small business and manufacturing experience to the group. He is President of the Blacksburg Hokie Club and is a member of the Blacksburg Partnership, the Montgomery County Chamber of Commerce and the Blacksburg United Methodist Church.

DIRECTORS CONTINUING IN OFFICE

Class 3 Directors(Serving until 2020 Annual Meeting)

Charles E. Green, III (Age 68)69): Mr. Green has served on the National Bankshares, Inc. Board of Directors since 2011. Previously, Mr. Green served as a member of the Board of Directors of NBB. He has nearlyover 30 years of experience as a community bank director having been elected to the NBB Board in 2006 and to the board of a predecessor bank in 1986. Mr. Green has experience in small business management, as well as insurance and investment matters, all of which benefit the Company. He resides in, and was formerly the mayor of, Tazewell, Virginia, and possesses in-depth knowledge of that portion of the Company’s market area and community.

Mildred R. Johnson (Age: 64)65): Mrs.Ms. Johnson was elected tohas served on the Company'sNational Bankshares, Inc. Board of Directors in May 2017 when the Company Board was consolidated with the NBB Board.since 2017. As of JanuarySeptember 1, 2018, Mrs.2019, Ms. Johnson is servingretired as the Dean of Admissions at Radford University. For 22 years prior to her current roleretirement at Radford University, she served in various roles at Virginia Tech, most recently as the Associate Vice Provost for Enrollment Management and Director of Undergraduate Admissions. She is a recognized leader in higher education with a career which spans over 4044 years, primarily in college admissions. Mrs.Ms. Johnson has served in leadership positions and on academic boards in both Virginia and nationally. She joined the NBB Board in 2012 and brings valuable experience in higher education and management to the Company.  She also serves on the Lewis Gale Hospital Montgomery Board of Trustees.

William A. Peery (Age 67)68): Mr. Peery has served on the National Bankshares, Inc. Board of Directors since 2005. As President of Cargo Oil Co., Inc. in Tazewell, Virginia, Mr. Peery has business management experience, including experience in financial management. Cargo Oil Co., Inc. operates convenience stores and sells petroleum products. The firm is headquartered in Tazewell, Virginia where Mr. Peery resides. Mr. Peery brings small business management experience to the Board. The Company considers small businesses to be a key component of its customer market. He was elected to the Company’s Board of Directors in 2005.

James C. Thompson (Age 62)63): Mr. Thompson was elected tohas served on the Company'sNational Bankshares, Inc. Board of Directors in May 2017 when the Company Board was consolidated with the NBB Board.since 2017. Mr. Thompson joined the NBB Board of Directors in 2006 with the merger of NBB and the Bank of Tazewell County. Prior to the merger he had served on the Bank of Tazewell County Board of Directors since 2005. He served as the Chairman of the Board of Directors of Thompson & Litton, Inc. for 13 years and he is currently the Director of Strategic Initiatives for the firm andfirm. He has served on its Board of Directors for 32 years. Additionally, he33 years and has been employed by the firm full-time since 1981. Thompson & Litton, Inc. is engaged in the business of Engineering, Architecture,engineering, architecture, and Constructionconstruction in seven Mid-Atlantic States.states. Mr. Thompson brings extensive experience in executive management, finance and strategic planning. He serves as Chairman of the Board of Carilion Tazewell Community Hospital, and on the Carilion Clinic Board of Directors in Roanoke, Virginia, and the Tazewell Community Foundation Board of Directors.

DIRECTORS CONTINUING IN OFFICE

Class 1 Directors(Serving (Serving until 20212021 Annual Meeting)

Lawrence J. Ball (Age 64)65): Mr. Ball was elected tohas served on the Company’sNational Bankshares, Inc. Board of Directors insince 2006. He is retired President of Moog Components Group, a part of Moog, Inc., which is an international corporation. Prior to being named President, Mr. Ball was the Vice President and General Manager of Moog Components Group. Moog Components Group is headquartered in Blacksburg, Virginia, and the company designs and manufactures products in motion, electronics and fiber optics. Mr. Ball has extensive experience in management and financial reporting. Mr. Ball’s experience as a senior manager with a large corporation is considered valuable in adding to the Board of Directors’ understanding of larger business operations.

Michael E. Dye (Age 64)65): Mr. Dye was elected tohas served on the Company'sNational Bankshares, Inc. Board of Directors in May 2017 when the Company Board was consolidated with the NBB Board.since 2017. He became a member of the NBB Board in 2006 with the merger of NBB and the Bank of Tazewell County. Prior to the merger, he had served on the Bank of Tazewell County Board of Directors since 2005. Mr. Dye is a Pharmacist and owner of New Graham Pharmacy (since 1979), Cornerstone Gifts, The Last Fountain and New Graham Knives, all located in Bluefield, Virginia. He possesses an extensive knowledge of the business activity and community life in the Company’s important Bluefield market area. Mr. Dye is past president of the Bluefield, Virginia Downtown Development Corporation and is a member of the Bluefield, Virginia Business and Professional Association and the Bluefield Chamber of Commerce.

Mary G. Miller (Age 68)69): Dr. Miller was first elected tohas served on the Company’sNational Bankshares, Inc. Board of Directors insince 2003. For 2730 years, she owned and operated Interactive Design & Development, Inc. ("IDD"(“IDD”), a custom software development company. After selling IDD's assetsIDD in 2016, sheDr. Miller accepted the position of Director of the Regional Acceleration and Mentoring Program (RAMP)(“RAMP”), which provides programs for technology businesses in the Roanoke-Blacksburg-Lynchburg, Virginia region. In her role at RAMP, she is building a mentor network in the region, conducting business development clinics and directing a residential program for promising technology companies. SheDr. Miller brings in-depth knowledge of the region’s developing technology sector and technology issues to her service on the Board of Directors. She also serves on the Board of Directors of the Roanoke-Blacksburg Technology Council.

Glenn P. Reynolds (Age 66)67): Mr. Reynolds has been a member ofserved on the Company’sNational Bankshares, Inc. Board of Directors since 2006. He is the founder and President of Reynolds Architects Incorporated, an architecture firm located in Blacksburg, Virginia. Mr. Reynolds’ familiarity with the area’s construction and development projects and his experience with local building firms are useful to the Company’s Board. In addition, Mr. Reynolds has small business management experience and a network of contacts in the local business and academic communities. He also serves on several area boards and Virginia Tech organizations.

Dr. J. Lewis Webb, Jr. (Age 70)71): Dr. Webb was elected tohas served on the Company'sNational Bankshares, Inc. Board of Directors in May 2017 when the Company Board was consolidated with the NBB Board.since 2017. He was elected to the NBB Board of Directors in 1994 after serving on NBB’s Giles County Advisory Board since 1988. He is a retired dentist after 35 years of practice in Narrows, Virginia. Dr. Webb is a past member of the Giles County School Board, where he served as Chairman for two years and helped manage a $26 million annual budget. He is also a past member of the New River Community College (“NRCC”) Board and is a current member of the NRCC Educational Foundation Board. Dr. Webb has been a Managing Partner for Buchanan Coal Group since 1980, and is currently Lead Manager for the group. Dr. Webb has considerable professional, personal and civic experience and longstanding ties in the Company’s Giles County market.

Class 2 Directors (Serving until 2022 Annual Meeting)

F. Brad Denardo (Age 67): Mr. Denardo has served on the National Bankshares, Inc. Board of Directors since 2017. He joined National Bank as a Vice President in 1983 and was promoted to Executive Vice President of Loans in 1989. In 2002, he was named Executive Vice President and Chief Operating Officer of National Bank and was also elected to the National Bank Board of Directors. He was named President and Chief Executive Officer of NBB in May 2014 and named Chairman, President and Chief Executive Officer (“CEO”) of NBB in September 2017. He was Treasurer of National Bankshares Financial Services, Inc. (“NBFS”) from 2001 until 2017. He currently serves as Chairman, President and CEO of NBFS and has served as a director since 2001. He served as Executive Vice President of the Company from 2008 until August 31, 2017. Mr. Denardo was named President and CEO of the Company on September 1, 2017 and named Chairman, President and CEO of the Company on May 15, 2019. In addition to Mr. Denardo’s considerable banking experience, his community and professional involvement bring a valuable perspective to the Board. Mr. Denardo is a Board Member of the Virginia Tech Corporate Research Center, the Community Foundation of the New River Valley, the Blacksburg Partnership, Bankers Insurance, LLC, and Virginia Bankers Association Management Services, Inc. He is Assistant Treasurer of Blacksburg United Methodist Church.

John E. Dooley (Age 65): Dr. Dooley has served on the National Bankshares, Inc. Board of Directors since 2012. He is CEO and Secretary-Treasurer of the Virginia Tech Foundation, Inc., where he oversees the leadership and management of Virginia Tech’s private assets in support of university programs and initiatives which total assets exceed $2.1 billion. Prior to becoming CEO of the Foundation in July 2012, Dr. Dooley served as Virginia Tech’s Vice President for Outreach and International Affairs for ten years. Dr. Dooley is an active member of the Virginia Tech community through several committees and special projects. He also serves on the boards of several community and state organizations, including Go Virginia Region 2 Council and The Virginia Chamber of Commerce. He brings extensive financial knowledge and management capabilities to the Board as well as a significant network of contacts in the regional business and academic communities.

Norman V. Fitzwater, III (Age 69): Mr. Fitzwater has served on the National Bankshares, Inc. Board of Directors since 2017. He retired as President of A Cleaner World dry cleaning in Blacksburg, Virginia. Prior to opening the Blacksburg dry cleaning business in 1992, he was involved in the management and operation of several furniture manufacturing companies in Virginia and North Carolina. Mr. Fitzwater joined NBB’s Board in 2013 and contributes extensive small business and manufacturing experience to the Board. He is President of the Blacksburg Hokie Club and is a member of the Blacksburg Partnership, the Montgomery County Chamber of Commerce and the Blacksburg United Methodist Church.

All information is provided as of March 13, 2019,11, 2020, and employment information is provided for the past five years. No director or nominee is related by blood, marriage or adoption to any other director, nominee or executive officer. No director or nominee currently serves or has served within the past five years, as a director of any company which has a class of securities registered pursuant to Section 12 of the Exchange Act, 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. Mr. Denardo currently serves as a director on both of the wholly ownedwholly-owned subsidiaries of the Company, National Bank and National Bankshares Financial Services, Inc. (“NBFS”).NBFS. Except for Mr. Denardo, and Mr. Rakes, no other director has been employed by a subsidiary affiliate of the Company during the last five years. Each director and nominee, except for Mr. Denardo, and Mr. Rakes, havehas been determined to be independent by the Board of Directors using the definition for independence of directors“independent director” that is used for determining compliance with the applicable listing standards for the NASDAQThe Nasdaq Stock Market (“NASDAQ”Nasdaq”), the national securities exchange on which the Company’s common stock is listed. (See also “Director Independence”Independence and “CertainCertain Transactions with Officers and Directors.”)

PROPOSAL 2

ADVISORY (NON-BINDING) VOTE TO APPROVE EXECUTIVE COMPENSATION

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and rules adopted by the U.S. Securities and Exchange Commission (“SEC”)SEC under the Dodd-Frank Act, at least once every three years, our stockholders have the opportunity to vote, on a non-binding, advisory basis, to approve the compensation of the Company’s named executive officers, as described in the disclosures and discussion regarding executive compensation in this proxy statement. Accordingly, we are providing this votestatement (often referred to as required pursuant to Section 14A of the Securities Exchange Act.a “say-on-pay” vote). Our performance-related compensation philosophy is the basis for all of our compensation decisions. Please refer to the “Executive Compensation” section for an overview of the compensation of the Company’s named executive officers, as required by SEC rules. At the 2017 Annual Meeting, stockholders voted in favor to hold this non-binding, advisory (“Say on Pay”) vote annually.

We are Accordingly, the Company is asking for stockholder approval ofstockholders to approve our named executive officers’officers compensation through the following resolution:

“RESOLVED, that the stockholders approve the compensation of executive officers as describeddisclosed in this proxy. the proxy statement for the 2020 Annual Meeting of Stockholders of National Bankshares, Inc. pursuant to the rules of the Securities and Exchange Commission.”

The vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the compensation policies and practices discussed in this proxy.proxy statement. Because the vote is advisory, it will not be binding on the Company or its Board of Directors. However, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL

OF THE COMPANY’S EXECUTIVE COMPENSATION.

PROPOSAL 3

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

For the year ending December 31, 2019,2020, the Audit Committee of the Board of Directors has appointed Yount, Hyde & Barbour, P.C., (YHB)(“YHB”) as the independent registered public accounting firm to audit the Company’s financial statements and its internal controls over financial reporting, subject to ratification by the Company’s stockholders. Yount, Hyde & BarbourYHB has acted as the Company’s independent registered public accounting firm for many years.

The selection of Yount, Hyde & BarbourYHB as the Company’s independent auditors is not required to be submitted to a vote of the stockholders for ratification. The Company is doing so because it believes that it is a matter of good corporate practice. If the stockholders fail to vote on an advisory basis in favor of the selection of Yount, Hyde & Barbour,YHB, the Audit Committee will reconsider whether to retain Yount, Hyde & Barbour,YHB, and may retain that firm or another firm without re-submitting the matter to the stockholders. Even if the stockholders ratify the appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that a change would be in the Company’s best interests.

Representatives of Yount, Hyde & BarbourYHB are expected to be at the Annual Meeting of Stockholders. Those representatives will have the opportunity to make a statement at the meeting and to respond to appropriate questions from stockholders.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR”

RATIFICATION OF THE APPOINTMENT OF YOUNT, HYDE & BARBOUR, P.C. AS THE

COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

FOR THE YEAR ENDING DECEMBER 31, 2019.2020.

OTHER BUSINESS

Management knows of no other matters to be presented for consideration at the Annual Meeting or any adjournments thereof. If any other matters shall properly come before the Annual Meeting, it is intended that the proxy holders named in the enclosed form of proxy will vote the shares represented thereby in accordance with their judgment, pursuant to the discretionary authority granted therein.

CORPORATE GOVERNANCE MATTERS

The Board and Board of Directors Meetings

Each director is expected to devote sufficient time, energy and attention to ensure diligent performance of the director’s duties and to attend all regularly scheduled Board, committee, and stockholder’s meetings. The Company’s Board of Directors meets monthly. In 2018,2019, there were 12 regular Board meetings. During 2018,2019, each incumbent director attended 75% or more of the total number of meetings of the Board of Directors of Bankshares and of the Board committees on which he or she served. All Directorsdirectors except for Dr. Dooley and Mr. Thompson attended the Company'sCompany’s 2019 Annual Meeting. The Board does not have a formal policy regarding directors’ attendance at the Annual Meeting of Stockholders.

Board Leadership Structure

In past years, the Company chose to combine the position of chairman of the board and principal executive officer. Mr. Rakes,Denardo, who was servinghas served as the Company’s President and Chief Executive Officer until August 31,since September 1, 2017, first was elected as the Chairman of the Board of Directors in April of 1999.May 2019. He has been re-elected annually. Mr. Rakes has the longest tenure of any current director of the Company, having served since its incorporation in 1986. Until his retirement in 2017, Mr. Rakes served as the Company’s Executive ChairmanVice President from 2008 until August 31, 2017 and has served as President and Chief Executive Officer of the Company’s primary subsidiary, The National Bank of Blacksburg, where nearly all of the Company’s business operations occur.occur, since May 2014. He was named Chairman, President and CEO September 2017. Prior thereto, Mr. RakesDenardo served as Executive Vice President of NBB. Mr. Denardo has spent his long career in banking and has held leadership positions in both state and national banking trade organizations. The Board of Directors determined that Mr. Rakes’Denardo’s knowledge of NBB and the banking industry, andcombined with his Board experience, make him the logical and natural choice to serve as Chairman of the Board of the Company. We believe the Board also benefitted from the continuity that Mr. RakesDenardo provided in chairing the Board. Because of the age restrictions in the Company's Bylaws, Mr. Rakes was ineligible for re-nomination to the Board for another three year term (see "Board Tenure"). Mr. Rakes will retire from the Board when his current term expires as of the date of the Annual Meeting.

The Board does not have a lead director designated as such. However, the Board of Directors believes that at times it is important for the independent directors to deliberate and act without having Company management present. To ensure that it has experienced leadership in these situations, the Board annually elects a Vice Chairman, who has the responsibility of chairing meetings when the Chairman is absent or when the Board wishes to meet without any representative of management being present. Dr. LewisMr. Green has served as Vice Chairman since May 2017.2019. We believe this structure provides the Board with independent leadership in situations where the Chairman is excused from acting as such due to his prior management position. Because of the age restrictions in the Company's Bylaws mentioned above, Dr. Lewis was ineligible for re-nomination to the Board for another three year term (see "Board Tenure"). Dr. Lewis will retire from the Board when his current term expires as of the date of the Annual Meeting.

Following the Annual Meeting date, it is anticipated that the Board will elect a new Chairman and Vice Chairman.

Board Committees

The Company’s Board has standing Executive, Audit, Compensation, Nominating and Risk Committees. The purpose of these committees is outlined below.

The Executive Committee did not meet in 2018.2019. From January 1, 2019 through May 14, 2019, James G. Rakes, retired Chairman, President and Chief Executive Officer of the Company, Dr. Jack M. Lewis, retired director, and Charles E. Green, III served on the committee. Since May 15, 2019, Mr. Rakes,Denardo, Mr. Ball, Dr. LewisDooley and Mr. Green have served on the Committee.committee. The Committee,committee, which is subject to the supervision and control of the Board of Directors, has been delegated substantially all of the powers of the Board of Directors to act between meetings of the Board, except for certain matters reserved to the Board by law. Mr. RakesDenardo serves as Chairman of the Executive Committee because of his past roles with the Company. Given his past experience with the Company'sCompany’s management responsibilities, he is able to identify issues that require either the involvement of the Executive Committee or the full Board during interim periods between regularly scheduled Board meetings. Mr. RakesDenardo is well suited to convene such meetings with proper notices in an expeditious and efficient manner.

The Audit Committee met fourfive times in 2018.2019. From January 1, 2019 through March 2019, Dr. Lewis, (Chair), Mr. Ball, Dr. Dooley, Mr. Reynolds and Dr. Webb served on thisthe committee. In March 2019, Mr. Reynolds left the Audit Committee. Since May 15, 2019, Mr. Ball (Chair), Dr. Dooley, Mr. Fitzwater, Mr. Green and Dr. Webb have served on the committee. The Committeecommittee reviews significant audit, accounting and financial reporting principles, policies and practices; is directly responsible for engaging and monitoring the independent auditors of the Company; and provides oversight of the financial reporting and internal auditing functions. A more detailed description of the functions of this Committeecommittee is contained under the heading “Audit Committee Report. Jack M. Lewis, Chairman of the Committee,Report”. Mr. Ball is qualified as anour audit committee financial expert within the meaning of SEC regulations and the Board has determined that he has the accounting and related financial management expertise within the meaning of the listing standards of NASDAQ.Nasdaq. 

The Compensation Committee met two times in 2018.2019. From January 1, 2019 through May 14, 2019, Mr. Green (Chair), Mr. Ball, Dr. Dooley, Ms. Johnson, Dr. Lewis and Mr. Thompson Dr. Dooley and Mrs. Johnson served on the Committee.committee. Since May 15, 2019, Mr. Green (Chair), Mr. Ball, Dr. Dooley, Ms. Johnson, Mr. Reynolds and Mr. Thompson have served on the committee. This Committeecommittee is responsible for establishing and approving the compensation of executive officers of the Company.  Reference is made to the “Compensation Discussion and Analysis” section of this proxy statement for further information on the duties and responsibilities of this Committee.committee.  All members of this Committeecommittee are considered independent within the meaning of SEC regulations and the listing standards of NASDAQ.Nasdaq.

The Nominating Committee met one time in 2018.2019. From January 1, 2019 through May 14, 2019, Dr. Miller (Chair), Mr. Dye, Mr. Peery and Dr. Webb served on the Committee.committee. Since May 15, 2019, Dr. Miller (Chair), Mr. Dye, Ms. Johnson, Mr. Peery, and Dr. Webb have served on the committee. The Committeecommittee is responsible for developing and reviewing background information on candidates for the Board and makes recommendations to the Board regarding such candidates. All the members of this Committee are considered independent within the meaning of SEC regulations and the listing standards of NASDAQ.Nasdaq.

The Risk Committee met threetwo times in 2018.2019. From January 1, 2019 through May 14, 2019, Dr. Miller (Chair), Mr. Denardo, Mr. Fitzwater, Mrs.Ms. Johnson, Mr. Peery and Mr. Reynolds served on the Committee.committee. Since May 15, 2019, Dr. Miller (Chair), Mr. Denardo, Mr. Fitzwater, Mr. Peery and Mr. Reynolds have served on the committee. The Committeecommittee is responsible for overseeing the Company’s overall risk framework and risk appetite, and to oversee and approve the Company’s practices for risk identification, measurement, monitoring and control.

The charters of the Audit, Compensation, Nominating, and Risk Board Committees are available on the Company’s website, www.nationalbankshares.com. For access to the charters, select the “Corporate Governance” tab.

Board Compensation

In 2018,2019, the members of the NBI Board of Directors received $1,250 for each regular or special Board meeting they attended. They were paid $800 for each committee meeting unless the committee meeting was held concurrently with the regular board meeting. Directors were also paid an annual retainer fee of $20,000.$22,000. The Company’s Directorsdirectors receive no other forms of compensation, except as described in the table and paragraph below.

Director Independence and Certain Transactions with Officers and Directors

As has been mentioned, each director of the Company, except for Mr. Rakes and Mr. Denardo, is independent, as defined by the listing standards for NASDAQ,Nasdaq, the national securities exchange on which the Company’s common stock is listed, and none of them is a present or past employee or officer of the Company or its subsidiaries.

In determining that each director meets the NASDAQNasdaq listing standards for independence, the Board of Directors recognized that NBB extends credit in the ordinary course of business to the Company’s directors and executive officers. Extensions of credit are also made toofficers, and business organizations and persons with whom Company directors and executive officers are associated or related. These extensionsAll loans extended to directors, executive officers and members of credittheir immediate families, and corporations, partnerships and other entities with which such persons are affiliated, are made atin the ordinary course of business upon substantially the same terms, including interest rates and with the same requirements as to collateral, as isthose prevailing at the time for comparable transactions with persons not affiliated with the general public atCompany, and do not involve more than the time credit is extended. In the opinion of bank management, none of the outstanding transactions with directors and executive officers involve a greater than normal risk of collectability or present other unfavorable features. In making the determination that all of the directors are independent, except for Mr. Rakes and Mr. Denardo, the Board of Directors considered that Mr. Green rents a small office space at a National Bank office. He has a lease with the Bank and pays market rate rent of $4,560 each year, including in 2018.2018 and 2019. In 2019, NBB paid Mr. Reynolds’s firm $27,512 for architectural services. On April 3, 2018, M2 Holdings, LLC sold to NBB certain real property that NBB acquired for administrative offices for a purchase price of $800,000. At the time of the sale, the real property had a tax assessed value of $790,500. M2 Holdings, LLC is owned and controlled by Mary G.Ms. Miller. Except for Mr. Denardo, the transactions listed in this paragraph and the directors’ fees, no director received direct or indirect compensation from the Company in 2018 and 2019 that is required to be reported.

Board Tenure

The Company does not have a formal board tenure policy. However, in order to promote director succession planning, the Company’s by-laws state that directors reaching the age of 73 shall be ineligible for re-nomination to the Board at the expiration of the term of office during which the director becomes 73 years of age.

Risk Oversight Practices

In a financial institution, the role of the board of directors is critical to the organization. To fulfill its responsibility to oversee the Company’s risk management processes, the full Board of Directors receives extensive and regular reports from management outlining the status of financial, operational, credit, risk, interest rate, risk, liquidity, riskinformation technology (including cyber risk), capital, reputation, strategic, legal, compliance and major areas of operational risk.other risks. The Company’s Treasurer and Chief Financial officer,Officer, who serves as the subsidiary bank’s Senior Vice President/Operations & Risk Management, attends most meetings of the Board of Directors, is readily available to report to the directors, and to answer the directors’ questions and is responsible, along with the Risk Committee, for raising any material risk management concerns with the Board.

The Risk Committee of the Board of Directors is responsible for assisting the Board in its oversight of the above-identified risks and for overseeing the Company’s enterprise risk management framework. Although risk management is primarily the responsibility of the Company’s management, the Risk Committee actively engages with management to establish risk management principles and to determine risk appetite and tolerance. In addition to the regularCompany’s Treasurer and Chief Financial Officer being available at Board meetings, the chairperson of the Risk Committee also provides reports received byto the entire Board of Directors on various matters relating to risk. These reports are often the result of the committee meeting with such officers and other members of management regularly to discuss major risk exposures.

In addition to the efforts of the Risk Committee, other committees of the Board consider risk within their areas of responsibility. The Audit Committee receives reports that are delivered in person fromhas responsibility for oversight of risks associated with financial accounting and reporting, including the Corporate Auditor and from the Vice President, Corporate Compliance Officer. They report directly to the Board, supply the Audit Committee with information about internal audits completed at both the parent company and subsidiary levels and about the statussystem of internal control. This oversight includes reviewing and discussing with management the Company’s regulatory compliance activities.major financial risk exposures and the procedures utilized by management to monitor and control such exposure. The Compensation Committee oversees risks relating to the Company’s compensation plans and programs.

Executive Officers

Information on the Company’s executive officers as of December 31, 20182019 who are not directors is disclosed in Part III,I, Item 10,1, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, which was mailed with this proxy statement.

Code of Ethics

We expect all of our directors, executive officers and employees to adhere to the highest standards of ethics and business conduct with each other, customers, stockholders and the communities we serve, and to comply with all applicable laws, rules and regulations that govern our business. The Board of Directors has adopted a Directors’ Code of Ethics and an Employees’ Code of Ethics. A portion of the Code of Ethics contains special provisions for the principal executive officer and senior financial officers of the Company or person performing similar functions for the Company. The Code of Ethics for senior financial officers meets the requirements of a “code of ethics” as defined by Item 406 of the SEC’s Regulation S-K. The Code of Ethics is available on the Company’s website, www.nationalbankshares.com.www.nationalbankshares.com.  Select the “Corporate Governance” tab. The respective Codes of Ethics are reviewed on an annual basis by the Board and the executive officers.

Stockholder Communication

Stockholders may communicate with all or any member of the Board of Directors by addressing correspondence to the “Board of Directors” or to the individual director and addressing such correspondence to National Bankshares, Inc., P. O. Box 90002, Blacksburg, Virginia 24062-9002, Attention: Board of Directors (in the case of correspondence addressed to the “Board of Directors”), or to the individual director. All stockholder communications are forwarded to the Board or to the specified directors.

COMPENSATION COMMITTEE REPORT

The Compensation Committee hasof the Board of Directors reviewed thisand discussed with management the following Compensation Discussion and Analysis with management. TheAnalysis. Based on this review and discussion, the Compensation Committee (referred to in this Compensation Committee report as the "Committee") reviewed and fully discussed the Compensation Discussion and Analysis, and the report was recommended to the Board of Directors tothat the Compensation Discussion and Analysis be included in this proxy statement. The Committee is made up of independent, non-employee directors. The Committee consisted of directors ofstatement and incorporated by reference into the Company’s Board, including Mr.Annual Report on Form 10-K for the year ended December 31, 2019. This report was prepared by the following independent directors who compose the Compensation Committee:

Charles E. Green, III (Chair), Mr.

Lawrence J. Ball Dr. Lewis, Mr.

John E. Dooley

Mildred R. Johnson

Glenn P. Reynolds

James C. Thompson Dr. Dooley, and Mrs. Johnson.

COMPENSATION DISCUSSION AND ANALYSIS

What are the objectives of the Company’s compensation program for its named executive officers?

National Bankshares, Inc. has four goals for its compensation program for named executive officers. In 2018,2019, these officers were: F. Brad Denardo, Chairman, President & CEO (from September 1, 2017) and Executive Vice President (until August 31, 2017);CEO; David K. Skeens, Senior Vice President, Treasurer and CFO;Chief Financial Officer (“CFO”); Paul M. Mylum, SeniorExecutive Vice President/Chief Lending Officer; Lara E. Ramsey, Senior Vice President-AdministrationPresident/Administration and Corporate Secretary; and Mark A. Smith,Rebecca M. Melton, Senior Vice President/Chief Credit Officer (until October 15, 2018).Officer. The four goals are:

The Compensation Committee considers the results of the stockholder advisory “say-on-pay” vote in its deliberations regarding compensation of the named executive officers.  At the Company’s 20182019 Annual Meeting, the stockholders voted to approve, on an advisory basis, the compensation of the Company’s named executive officers, as described in the Compensation Discussion and Analysis set forth in the Company’s 20182019 Annual Meeting proxy statement. The vote was 4,544,7863,720,961 shares “For” (96.15%(90.27% of the shares voted) and 182,095401,087 shares “Against” (3.85%(9.73% of the shares voted).

What is the program designed to reward?

The compensation program for the President & CEO is designed to reward the profitable operation of the Company compared to its peers, particularly as measured by return on assets and return on equity. In addition, the program rewards the President & CEO when the Company’s short- and long-term strategic goals are met. Inherent in meeting strategic goals is the ability to recognize and manage risks to the Company. Named executive officers other than the President & CEO are rewarded for the Company’s success in meeting its performance goals and particularly for success in those areas for which they have individual management responsibility. One measure of the officers’ success is their ability to recognize and manage risk in their areas of responsibility.

Has the Compensation Committee engaged a compensation consultant?

In the second half of 2016, the Compensation Committee retained the services of Pearl Meyer & Partners, LLC (“PM&P”), an independent executive compensation consulting firm, to provide consulting services in connection with developing the Company’s compensation philosophy and providing a competitive compensation review and incentive plan with respect to executive management, a larger group than the named executive officers. With the assistance of PM&P, the Compensation Committee also developed a peer group of similarly-sized financial institutions.

The compensation review encompassed (i) an assessment of the Company’s executive compensation as compared to market (similar executives in the peer group); (ii) a high levelhigh-level assessment of the Company’s performance relative to peers; and (iii) establishing a basis for discussing potential pay or other compensation changes in future periods. More information is contained in “Annual Incentive Plan” discussed below.

During 2018,PM&P was not engaged by the Compensation Committee during 2019.

What was the Company’s peer group for 2019?

For 2019, the Compensation Committee, without the assistance of PM&P, updated the Company’s peer group of comparable financial institutions that was established in 2016. The 2019 peer group consisted of the following companies with assets ranging from approximately $904 million$2.5 billion to $4.2$1.1 billion:

What is each element of compensation?

The elements of compensation are:

Why does the Company choose to pay each element of compensation?

During 2018,2019, the Company used salary as the cornerstone of its compensation program because it believes that the focus of executive officers, particularly of those below the level of the President & CEO, should be on the Company’s long-term growth and performance. Annual increases are awarded based upon individual performance in meeting stated goals for that review period. Because salary rather than some form of annual incentive has been the major component of their compensation through 2018,2019, executive officers have sufficient personal economic security to make and support management decisions that may trade immediate gain for greater long-term corporate success. In addition, limiting compensation primarily to salary inhibits the incentive to take unreasonable short-term risks at the expense of reaching long-term goals.

Because the President & CEO is the individual whoThe Company has the ultimate responsibility for the success of its operations, it is the Company’s policy to pay an annual incentive plan designed to reward achievements of annual corporate financial goals and individual performance goals that are consistent with the Company’s strategic plan and focused on growing return to stockholders. The plan provides a method for the Company to motivate, attract and retain qualified executives. Incentive compensation under the plan is paid in the form of a cash bonus and is based on his employment agreement thatan incentive target for each participant’s position. Each of the named executive officers participates in the plan. More information is based upon overall performance for the yearcontained in question. The ratio of incentive bonus to salary remains at a level which the Company believes does not increase its potential risk.“Annual Incentive Plan” discussed below.

Each named executive officer, along with all other eligible Company employees, participates in three qualified retirement plans. NBI sponsors a defined benefit pension plan, the National Bankshares, Inc. Retirement Income Plan. The Company also sponsors The National Bankshares, Inc. Retirement Accumulation Plan, which is a 401(k) plan, and the Company also offers the National Bankshares, Inc. Employee Stock Ownership Plan. The Company believes that it is important to assist its long-term employees, including its executive officers, in assuring financial security in retirement for themselves and their families. National Bankshares, Inc. also believes that its Employee Stock Ownership Plan helps to align the interests of all employees, including executive officers, with the interests of its stockholders. More information is contained in “Qualified Retirement Plans.”

The Company established a nonqualified salary continuation plan that is designed to provide certain key Company officers, including certain named executive officers, with supplemental retirement income. This plan was established to enhance the Company’s ability to retain key decision-makers and to supplement the retirement benefits of those more highly compensated executives who, because of legal limitations, are unable to participate fully in the qualified retirement plans. There is further discussion in “Nonqualified Retirement Plans.”

In 2018,2019, Mr. Denardo served as a paid director of the Company and/or of one of its subsidiaries. He received the same compensation as outside directors. The Company believes that this is an appropriate practice because this executive officer devotes additional time to his Board of Directors’ responsibilities, and all directors, both internal and external, share the same fiduciary obligations and liability risk.

The perquisites and personal benefits that are provided to Mr. Denardo are defined in his employment agreement. These items were agreed to for two reasons. First, they are typical benefits for individuals holding the respective positions in peer banks and financial holding companies. As such, they are part of a total compensation package that is competitive in the Company’s operating environment. Second, certain perquisites that offer a degree of personal benefit are also directly related to job performance. The perquisites that are available to any of the other named executive officers are limited in nature and offer benefitavailable to bothall employees of the executive and the Company.See “Executive Compensation” and “Employment Agreements and Change in Control Agreements.Arrangements.”

How does the Company determine the amount for each element?

Salary: The salaries of National Bankshares’ named executive officers, except for that of the President & CEO, are within the Company’s established salary ranges for each officer position. The ranges are developed after considering an annual salary survey published by the Virginia Bankers Association as well as publicly available salary information about comparable jobspositions at institutions in the Company’s peer group and in the locations in which Bankshares and its subsidiaries do business. The annual increase in base salary for these individuals is determined by the President & CEO in consultation with the Board.CEO. In making the determination, Mr. Denardo considers the nature and responsibility of the position; the competitiveness of the market for the executive’s services; the expertise of the individual executive; and to what degree the executive has achieved annual performance goals. Individual annual performance goals support the Company’s business strategy, but are not tied to objective performance measures. The President & CEO reports changes to the executive officer salaries to the Compensation Committee at least annually.

Mr. Denardo'sDenardo’s base salary of at least $360,000 was set in the amended and restated employment agreement dated March 11, 2015, effective January 1, 2015. The base salary was increased to its current level primarily as a result of Mr. Denardo being named President & CEO of the Company and assuming these roles and responsibilities, and based onas well as his continued rolecontinuing in those positions.

The base salary for Mr. Denardo was determined after considering compensation for this position reported in the Virginia Bankers Association’s annual salary survey and from the public documents of peer group institutions that disclose salaries paid to other individuals holding similar positions. The Board of Directors Compensation Committee determines annual salary increases for Mr. Denardo after assessing the CEO’shis contributions to the success of the Company. In measuring the Company’s success, the Committee compares NBI’s financial results to the peer group listed above. Specifically, the Compensation Committee compares Bankshares’ return on assets (ROA)(“ROA”) and return on equity (ROE)(“ROE”) with the average ROA and ROE of the peer bank holding companies. Based on the Company’s performance relative to its peers in 2017,2018, the Compensation Committee set Mr. Denardo'sDenardo’s 2019 salary at $460,375$476,833, which was an increase over his salary in 2016.2018. The Committee also considered Mr. Denardo'sDenardo’s extensive tenure and long track record of success in profitably leading the Company and NBB and in managing risks to the Company and NBB encountered in a challenging economic environment. Although the Committee weighs the peer comparison heavily in determining Mr. Denardo'sDenardo’s salary increase, it does not utilize an objective formula. The Committee considers the Company’s progress in meeting budget goals for the year, but it does not utilize a quantitative assessment of budget goals in determining the amount of annual salary increase. Likewise, although there are no objective measures utilized, the Committee considers stock performance and the level of stockholder dividends, among other criteria, in establishing salary. In assessing Bankshares’ stock performance, the Compensation Committee looks at its price, the price to earnings ratio and dividend yield as compared with the stock of the Company’s identified peers. The Committee validates salary increases by referring to the Virginia Bankers Association salary survey and to public documents from peer institutions. As mentioned above, the annual increase in base salary for all other executive officers is determined by the President & CEO, in consultation withwho reports such increases to the Board.

CashAnnual Incentive Plan Bonus: TheAn annual incentive cash bonus paid to Mr. Denardo is determined witheach of the same criteria that are used in establishing his annual salary increase. In 2018, the Committee did not award any cash bonus to Mr. Denardo. An annual incentive bonus paid to Mr. Denardo in 2018named executive officers for 2019 was determined bypursuant to the Company'sCompany’s Annual Incentive Plan. This plan is discussed in greater detail under "Annual“Annual Incentive Plan."”

Qualified Retirement Plans: The named executive officers participate with other eligible employees in the Company’s three qualified retirement plans. Every participant’s benefits are determined under the specific provisions of each of the plans. These plans are discussed in greater detail under “Qualified Retirement Plans.”

Nonqualified Salary Continuation Plan: In early 2006, the Company’s subsidiaries entered into salary continuation plan agreements, which may be amended from time to time, with a group of selected senior officers. Assuming retirement at normal retirement age (as defined in the Plan)plan), contributions to the Salary Continuation Plan are sufficient to provide a minimum of fifteen15 annual supplemental retirement income payments of 25.0% of 2008 annual compensation (adjusted by a pre-retirement inflation factor of 4%) for Mr. Denardo, 25.0% of 2013 annual compensation (adjusted by a pre-retirement inflation factor of 4%) for Mr. Skeens, 20.0% of 2012 annual compensation (adjusted by a pre-retirement inflation factor of 4%) for Mr. Mylum, and 23.1% of 2016 annual compensation (adjusted by a pre-retirement inflation factor of 4%) for Ms. Ramsey. Ms. Melton does not participate in the plan.

Board of Directors Fees: Mr. Denardo received the same compensation as outside directors for serving as a director of the Company. See also “Board of Director Meetings, Committees, Compensation, Attendance and Communications with Directors.“Corporate Governance Matters.”

Perquisites and Other Personal Benefits: The Board Compensation Committee negotiated withhas determined that Mr. Denardo, as President & CEO, to developshould receive a comprehensive and competitive total compensation package, including perquisites. This package was included in Mr. Denardo's amended and restated employment agreement dated March 11, 2015 and effective January 1, 2015. During 2018,2019, these perquisites were limited to a Company-owned automobile, for Mr. Denardo, which facilitatefacilitates business travel, as well as sports tickets and club memberships which assist Mr. Denardo with marketing and business development efforts. The President & CEO,Mr. Denardo, with approval of the Compensation Committee, determines perquisites available to the other named executive officers. The President & CEOofficers, if any, and reports annually to the Compensation Committee on these items.

How doesHow does each element and the Company’s decisions regarding that element fit into the Company’s overall compensation objectives and affect the decisions regarding other elements?

As noted above, each compensation element supports retention, the achievement of annualshort- and longer termlong-term corporate goals, and provides reasonable financial security to the employee. EveryEach year, the Compensation Committee assesses the total compensation package for each named executive officer to determine that it is appropriate. The Compensation Committee also reviews each element of the compensation package and determines that each is satisfactory in relation to the other.

During 2018, the Committee reviewed Mr. Denardo's decisions regarding the compensation packages of the other executive officers. These packages remain focused heavily on salary. The executive officers participate in the qualified retirement plans available to all employees, as well as participating executive officers in the Officers Salary Continuation Plan and Annual Incentive Plan.

Annual Incentive Plan for 20182019

The allocation of all executive officers’ compensation among the various elements of compensation has not changed substantially in a number of years. However, with the consultation of Pearl Meyer & Partners, LLC (“PM&P”) inAs described above, during 2016, the Compensation Committee adoptedretained the services of PM&P, an independent executive compensation consulting firm, to assist the Compensation Committee in its review of executive compensation and to develop an Annual Incentive Plan (the “Plan”“Incentive Plan”) for certain executive officers.officers, which the Compensation Committee approved and adopted in 2016. The Compensation Committee believes that the Incentive Plan is important to demonstratedemonstrates that the Board and management recognize current trends and best practices with respect to executive compensation, and of creatingprovides a focus for management to create value for stockholders.

Plan Purpose

The purpose of the Incentive Plan is to reward the achievements of annual corporate financial goals and individual performance goals that are consistent with the Company’s strategic plan and focused on growing return to stockholders. The Incentive Plan is further intended to assist the Company in its ability to motivate, attract and retain qualified executives. The Incentive Plan was in effect January 1, 20182019 through December 31, 2018,2019, and will continue to renew for successive one-year periods (each year called a "Plan Year"“Plan Year”). as determined by the Compensation Committee.

Plan Participation

Incentive Plan participation is limited to the President & CEO and those executive officers, including the named executive officers, that the President & CEO recommends and that the Committee approves during the first 90 days of each Plan Year. Any incentive compensation is paid in the form of a cash bonus and is based on an incentive target for each participant'sparticipant’s position that is approved at the beginning of each Plan Year by the Committee, in its discretion.Compensation Committee. The Compensation Committee determines the amount of any incentive compensation award to be paid, following a review of the recommendations of the President & CEO.

How are Incentive Plan awards calculated?calculated?

Awards under the Incentive Plan are paid out of a pool calculated on both the individual incentive targets of each participant in the Incentive Plan and of the Company'sCompany’s level of performance achieved in one or more financial objectives that the Compensation Committee approves at the beginning of each Plan Year. Target annual incentive awards for each named executive officer is expressed as a percentage of base salary, as follows:

One-half (50%) of an executive officer'sofficer’s target incentive award is based on the achievement of pre-determined corporate financial goals. The financial goals are established by the Compensation Committee. The remaining one-half (50%) is based on individual performance based on anperformance. For Mr. Denardo, such assessment is performed by the Compensation Committee, and for the Company's CEO usingother named executive officers such assessment is performed by the Compensation Committee and Mr. Denardo. The assessments take into account both quantitative and qualitative factors. Actual payouts may range from 50% to 150% of an executive officer's target award opportunity, depending on performance, and are paid in cash.

Award FundingComponents

Corporate Financial Component:Financial Component:Cash awards under the Incentive Plan are paid out of the plan’s incentive pool after a Plan Year. At the beginning of the year,Plan Year, the Compensation Committee establishes threshold, target and superior levels of corporate financial performance. The ultimate value of the incentive pool can increase based on actual performance and is funded based on year-end results as follows:

The Compensation Committee also retains the discretion to consider other factors (including, for example, our performance relative to our peers, market conditions, the interest rate environment or any unusual expenses) in determining the overall corporate financial component payout. For the awards in 2018,2019 Plan Year, the incentive pool was funded based on the achievement of pre-determined company-wide Net Income goals for 20172019 established by the Compensation Committee, as follows:

Based on actual results,the Net Income achieved by the Company in 2019, the incentive pool was not funded at 100% of target, duebecause of two one-time income occurrences which caused actual Net Income to be above the year-end deductiontarget. The Compensation Committee determined that it was not appropriate to reduce the participants awards for the Deferred Tax Assets Re-evaluation and other significant one-time expenses.such an event.

Individual Performance Component: At the beginning of the Plan Year, individual performance criteria for each of the named executive officers is presented to the Compensation Committee by the President & CEO. The Company considers the individual goals confidential strategic information, and does not publicly disclose such information for competitive reasons.

In February 2018,2020, the Compensation Committee reviewed and considered each named executive officer’s performance during the 2019 Plan Year, including recommendations and performance summaries from the President & CEO for each of the other named executive officers. The Compensation Committee reviewsreviewed the President & CEO’s 2019 Plan Year performance independently.

20182019 Award Payouts

Based on the corporate financial component and individual performance component determinations described above, the actual cash incentive awards received by each of our named executive officers for 20182019 were as follows: