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

BLACKSBURG, VA, OCTOBER 15, 2008: At September 30, 2008, National Bankshares, Inc. (NASDAQ Capital Market: 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".

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.

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