National Bankshares, Inc. Reports Increased Earnings for Third Quarter and Year

BLACKSBURG, VA--(Marketwire - October 15, 2008) - At September 30, 2008, National Bankshares, Inc. (NASDAQ: NKSH) reported year-to-date net income of nearly $10.27 million, which is 8.60% higher than net income the end of the third quarter last year. This translates to basic net income per share of $1.48, $0.12 over the 2007 figure. For the three months ended September 30, 2008, the Company posted net income of almost $3.62 million, a 13.11% increase over the same period in 2007. Net loans, which were at $541.40 million on September 30, were up by 6.32% over September 30 last year. At the end of the third quarter, National Bankshares, Inc. had total assets of more than $902.28 million, up by 4.93% when compared with the end of the third quarter last year. At September 30, 2008, the Company's return on average assets was 1.53% and the return on average equity was 12.66%.

National Bankshares' Chairman, President & CEO, James G. Rakes, said, "With so much negative financial news, it is nice to be able to report solid earnings growth for both the third quarter and the year to date. The improving net interest margin, which was 4.11% on September 30, and good growth in the loan portfolio were important factors in the positive earnings report. For more than 117 years our subsidiary bank has been well served by a traditional and conservative approach to community banking. It proved to be a prudent course to follow during past financial crises, and we do not think we should change direction now." Mr. Rakes went on to say, "Especially when compared with historically good numbers in 2007, we are seeing an increase in nonperforming assets. However, even with the increase, the 0.37% ratio of nonperforming loans to total loans at September 30 is reasonable, and it compares well with peers. During these uncertain times, our lenders are not compromising loan underwriting standards, and we are making prudent additions to the allowance for loan losses."

National Bankshares, Inc. is a financial holding company with headquarters in Blacksburg, Virginia. It has one community bank subsidiary, National Bank, which was founded in 1891. National Bank operates from 26 office locations throughout Southwest Virginia. National Bankshares Financial Services, Inc. is the Company's non-bank brokerage and insurance subsidiary operating in the same market.

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

Forward-Looking Statements

Certain statements in this press release may be "forward-looking statements." Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results that are not statements of historical fact and that involve significant risks and uncertainties. Although the Company believes that its expectations with regard to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual Company results will not differ materially from any future results implied by the forward-looking statements. Actual results may be materially different from past or anticipated results because of many factors, some of which may include changes in economic conditions, the interest rate environment, legislative and regulatory requirements, new products, competition, changes in the stock and bond markets and technology. The Company does not update any forward-looking statements that it may make.

National Bankshares, Inc. And Subsidiaries

(000’s), except ratios and percent data
                                        September 30, September 30,
Three months ending                         2008          2007      Change
                                        ------------  ------------  ------

Selected Consolidated Data:
Interest income                         $     12,409  $     12,693   -2.24%
Interest expense                               4,195         5,442  -22.91%
Net interest income                            8,214         7,251   13.28%
Provision for loan losses                        280           119  135.29%
Trust income                                     307           286    7.34%
Other noninterest income                       1,901         1,839    3.37%
Salary and benefits                            2,792         2,621    6.52%
Occupancy expense                                437           419    4.30%
Amortization of intangibles                      279           284   -1.76%
Other noninterest expense                      2,023         1,776   13.91%
Income taxes                                    -996          -961    3.64%
Net income                              $      3,615  $      3,196   13.11%
Basic net income per share              $       0.52  $       0.46  $ 0.06

Daily averages:
Gross loans                             $    540,911  $    510,811    5.89%
Loans, net                                   534,504       504,725    5.90%
Total securities                             285,224       281,921    1.17%
Total deposits                               775,614       751,896    3.15%
Other borrowings                               1,004           134  649.25%
Stockholders’ equity                         108,974       100,527    8.40%
Cash and due from                             12,789        13,021   -1.78%
Interest-earning assets                      832,990       800,998    3.99%
Interest-bearing liabilities                 661,912       641,988    3.10%
Intangible assets                             14,158        15,286   -7.38%
Total assets                            $    892,260  $    859,736    3.78%

Financial ratios: Note (1)
Return on average assets                        1.61%         1.47%   0.14%
Return on average equity                       13.20%        12.61%   0.59%
Net interest margin                             4.34%         3.98%   0.36%
Efficiency ratio                                 ---           ---     ---
Average equity to average assets               12.21%        11.69%   0.52%
  Note (1)  Ratio change measured in bp

Allowance for loan losses:
Beginning balance                       $      5,267  $      5,000    5.34%
Provision for losses                             280           119  135.29%
Charge-offs                                     -127           -94   35.11%
Recoveries                                        15            18  -16.67%
Ending balance                          $      5,435  $      5,043    7.77%



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

Selected Consolidated Data:
Interest income                         $     37,592  $     37,918   -0.86%
Interest expense                              14,417        16,228  -11.16%
Net interest income                           23,175        21,690    6.85%
Provision for loan losses                        515           129  299.22%
Trust income                                     929         1,019   -8.83%
Other noninterest income                       5,802         5,544    4.65%
Salary and benefits                            8,395         8,240    1.88%
Occupancy expense                              1,328         1,316    0.91%
Amortization of intangibles                      841           853   -1.41%
Other noninterest expense                      5,730         5,452    5.10%
Income taxes                                  -2,832        -2,811    0.75%
Net income                                    10,265         9,452    8.60%
Basic net income per share              $       1.48  $       1.36  $ 0.12
Fully diluted net income per share      $       1.48  $       1.36  $ 0.12
Dividends per share                              ---           ---     ---
Dividend payout ratio                          26.32%        27.34%  -1.02%
Book value per share                    $      15.80  $      14.77  $ 1.03

Balance sheet at period-end:
Gross loans                             $    547,952  $    515,350    6.33%
Loans, net                                   541,404       509,203    6.32%
Total securities                             278,700       280,774   -0.74%
Cash and due From                             16,511        12,058   36.93%
Total deposits                               785,986       749,991    4.80%
Other borrowings                                  56            66  -15.15%
Stockholders’ equity                         109,473       102,769    6.52%
Intangible assets                             13,997        15,123   -7.45%
Total assets                            $    902,283  $    859,915    4.93%

Daily averages:
Gross loans                             $    531,914  $    507,921    4.72%
Loans, net                                   525,577       501,786    4.74%
Total securities                             283,902       284,675   -0.27%
Total deposits                               779,078       757,185    2.89%
Other borrowings                                 379           814  -53.44%
Stockholders’ equity                         108,297        99,588    8.75%
Cash and due from                             12,848        13,971   -8.04%
Interest-earning assets                      837,109       804,839    4.01%
Interest-bearing liabilities                 666,185       650,181    2.46%
Intangible assets                             14,436        15,570   -7.28%
Total assets                            $    894,544  $    864,570    3.47%

Financial ratios: Note (1)
Return on average assets                        1.53%         1.46%   0.07%
Return on average equity                       12.66%        12.69%  -0.03%
Net interest margin                             4.11%         3.99%   0.12%
Efficiency ratio                               50.17%        51.73%  -1.56%
Average equity to average assets               12.11%        11.52%   0.59%
  Note (1)  Ratio change measured in bp

Allowance for loan losses:
Beginning balance                       $      5,219  $      5,157    1.20%
Provision for losses                             515           129  299.22%
Charge-offs                                     -409          -319   28.21%
Recoveries                                       110            76   44.74%
Ending balance                          $      5,435  $      5,043    7.77%

Nonperforming assets:
Nonaccrual loans                        $      2,003  $      1,208   65.81%
Restructured loans                               ---           ---     ---
Total nonperforming loans Note (2)             2,003         1,208   65.81%
Other real estate owned                        1,037           192  440.10%
Total nonperforming assets              $      3,040  $      1,400  117.14%

Asset quality ratios: Note (3)
Nonperforming loans to total loans              0.37%         0.23%    ---
Allowance for loan losses to total
 loans                                          0.99%         0.98%    ---
Allowance for loan losses to
 nonperforming loans                          271.34%       417.47%    ---

  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