National Bankshares, Inc. Announces Higher Second Quarter Earnings

BLACKSBURG, VA--(Marketwire - July 18, 2008) - At June 30, 2008, National Bankshares, Inc. (NASDAQ: NKSH) posted year-to-date net income of $6.65 million, or basic net income of $0.96 per share. This is a 6.3% increase over the $6.26 million in net income at June 30, 2007. For the three months ending June 30, 2008, the Company had net income of nearly $3.47 million, up by 10.48% over net income earned in the second quarter of 2007. Net loans were nearly $529.47 million at June 30, 2008, up by 5.24% over the total at the same time last year. The Company ended the second quarter with total assets of just over $894.91 million, 2.03% higher than at the end of the second quarter in 2007.

National Bankshares, Inc. is a financial holding company headquartered in Blacksburg, Virginia. It is the parent of National Bank, a community bank with 26 offices throughout Southwest Virginia that was founded in 1891. The Company has a non-bank brokerage and insurance subsidiary, National Bankshares Financial Services, Inc., trading in the same market.

The Company's Chairman, President & CEO James G. Rakes commented, "In these challenging times, I am pleased to report solidly higher earnings, which were achieved using a traditional approach. We experienced good growth in the loan portfolio without compromising loan underwriting standards. At the same time, the net interest margin held steady at a respectable 4.00%. Finally, controllable costs have been kept in check, producing an efficiency ratio of 50.81% at June 30. Compared with last year's historically good numbers, we are seeing an increase in nonperforming assets. Despite these changes, the 0.41% ratio of nonperforming loans to total loans at June 30, 2008, remains reasonable and good when compared with our peers. We are paying attention to local economic conditions and are prudently adding to the allowance for loan losses as warranted. National Bankshares, Inc. has operated with a consistently conservative business philosophy. This philosophy and our high capital levels help to prepare us for any economic weakness to come."

National Bankshares, Inc. stock is traded on the NASDAQ Stock Market under the symbol "NKSH." More information is available at www.nationalbankshares.com.

                  National Bankshares, Inc. And Subsidiaries

(000's), except ratios and percent data


                                           June 30,   June 30,
Three months ending                          2008       2007       Change
                                           ---------  ---------  ---------

Selected Consolidated Data :
Interest income                            $  12,472  $  12,695      -1.76%
Interest expense                               4,815      5,370     -10.34%
Net interest income                            7,657      7,325       4.53%
Provision for loan losses                        135         13     938.46%
Trust income                                     319        360     -11.39%
Other noninterest income                       1,908      1,899       0.47%
Salary and benefits                            2,746      2,778      -1.15%
Occupancy expense                                435        412       5.58%
Amortization of intangibles                      279        285      -2.11%
Other noninterest expense                      1,846      2,029      -9.02%
Income taxes                                    -974       -927       5.07%
Net income                                 $   3,469  $   3,140      10.48%
Basic net income per share                 $    0.50  $    0.45  $    0.05

Daily averages:
Gross loans                                $ 529,653  $ 509,826       3.89%
Loans, net                                   523,336    503,706       3.90%
Total securities                             290,593    288,215       0.83%
Total deposits                               786,698    756,952       3.93%
Other borrowings                                  61      2,235     -97.27%
Stockholders' equity                         108,891    101,105       7.70%
Cash and due from                             13,008     14,213      -8.48%
Interest-earning assets                      844,591    806,828       4.68%
Interest-bearing liabilities                 670,099    648,844       3.28%
Intangible assets                             14,435     15,569      -7.28%
Total assets                               $ 902,368  $ 866,915       4.09%

Financial ratios: Note (1)
Return on average assets                        1.55%      1.45%      0.10
Return on average equity                       12.81%     12.46%      0.35
Net interest margin                             4.05%      4.03%      0.02
Average equity to average assets               12.07%     11.66%      0.40
  Note (1)  Ratio change measured in bp

Allowance for loan losses:
Beginning balance                          $   5,228  $   5,045       3.63%
Provision for losses                             135         13     938.46%
Charge-offs                                     -130        -89      46.07%
Recoveries                                        34         31       9.68%
Ending balance                             $   5,267  $   5,000       5.34%

                                           June 30,   June 30,
Year to Date                                 2008       2007       Change
                                           ---------  ---------  ---------

Selected Consolidated Data :
Interest income                            $  25,183  $  25,225      -0.17%
Interest expense                              10,222     10,786      -5.23%
Net interest income                           14,961     14,439       3.62%
Provision for loan losses                        235         10    2250.00%
Trust income                                     622        733     -15.14%
Other noninterest income                       3,901      3,705       5.29%
Salary and benefits                            5,603      5,619      -0.28%
Occupancy expense                                891        897      -0.67%
Amortization of intangibles                      563        569      -1.05%
Other noninterest expense                      3,706      3,676       0.82%
Income taxes                                  -1,836     -1,850      -0.76%
Net income                                 $   6,650  $   6,256       6.30%
Basic net income per share                 $    0.96  $    0.90  $    0.06
Fully diluted net income per share         $    0.96  $    0.89  $    0.07
Dividends per share                              ---        ---        ---
Dividend payout ratio                          40.63      41.30       0.67
Book value per share                       $   15.50  $   14.14  $    1.36

Balance sheet at period-end:
Gross loans                                $ 535,837  $ 509,232       5.22%
Loans, net                                 $ 529,465  $ 503,118       5.24%
Total securities                             289,315    282,955       2.25%
Cash and due From                             20,404     16,937      20.47%
Total deposits                               781,113    771,319       1.27%
Other borrowings                                  59        141     -58.16%
Stockholders' equity                         107,354     98,674       8.80%
Intangible assets                             14,276     15,407      -7.34%
Total assets                               $ 894,912  $ 877,098       2.03%

Daily averages:
Gross loans                                $ 527,366  $ 506,452       4.13%
Loans, net                                   521,064    500,292       4.15%
Total securities                             283,240    286,073      -0.99%
Total deposits                               780,830    759,874       2.76%
Other borrowings                                  61      1,160     -94.74%
Stockholders' equity                         107,963     99,086       8.96%
Cash and due from                             12,877     14,453     -10.90%
Interest-earning assets                      839,198    806,790       4.02%
Interest-bearing liabilities                 668,344    654,345       2.14%
Intangible assets                             14,576     15,714      -7.24%
Total assets                               $ 895,701  $ 867,003       3.31%

Financial ratios: Note (1)
Return on average assets                        1.49%      1.46%      0.03
Return on average equity                       12.39%     12.73%     -0.34
Net interest margin                             4.00%      4.00%      0.00
Efficiency ratio                               50.81%     52.55%     -1.74
Average equity to average assets               12.05%     11.43%      0.62
  Note (1)  Ratio change measured in bp

Allowance for loan losses:
Beginning balance                          $   5,219  $   5,157       1.20%
Provision for losses                             235         10    2250.00%
Charge-offs                                     -282       -225      25.33%
Recoveries                                        95         58      63.79%
Ending balance                             $   5,267  $   5,000       5.34%

Nonperforming assets:
Nonaccrual loans                           $   2,200  $   1,136    -100.00%
Restructured loans                               ---        ---        ---
Total nonperforming loans Note (2)             2,200      1,136    -100.00%
Other real estate owned                          234        306     -23.53%
Total nonperforming assets                 $   2,434  $   1,442      68.79%

Asset quality ratios: Note (3)
Nonperforming loans to total loans              0.41%      0.23%       ---
Allowance for loan losses to total loans        0.98%      0.98%      0.50%
Allowance for loan losses to nonperforming
 loans                                        239.41%    440.41%       ---
Note (2)  Loans 90 days past due or more
 not included
Note (3)  Ratio change measured in bp

Contact Information: CONTACTS: James G. Rakes Chairman, President & CEO (540) 951-6236 F. Brad Denardo Treasurer (540) 951-6213