National Bankshares Has Increase in Net Income of 11.76% for the First Three Quarters of 2010

BLACKSBURG, VA--(Marketwire - October 14, 2010) - National Bankshares, Inc. (NASDAQ: NKSH) today announced that it had net income of nearly $4.0 million in the third quarter of 2010, an increase of 5.74% over the $3.78 million reported for the same period of 2009. The financial holding company headquartered in Blacksburg, Virginia, posted net income of over $11.76 million for the nine months ended September 30, 2010, up by $1.24 million, or 11.76%, when compared with net income for the first nine months in 2009. Basic net income per share for the third quarter of 2010 was $0.58, and it was $0.55 for the third quarter last year. For the first nine months of 2010, basic net income per share was $1.70, up from $1.52 per share for 2009. Total loans at September 30, 2010 were at $583.61 million, slightly higher than the $582.76 million in total loans at the end of the third quarter in 2009. National Bankshares had total assets of nearly $982.45 million at September 30, 2010, and total assets of $965.89 million at September 30, 2009. The Company reported that the return on average assets was 1.60% and the return on average equity was 12.32% for the nine months ended September 30, 2010.

National Bankshares' Chairman, President & CEO James G. Rakes said, "With interest rates remaining stable through the third quarter, we have been able to keep the net interest margin in a healthy range. This in turn has led to an increase in net interest income. We also maintain a focus on containing controllable costs. The end result is higher earnings through three quarters of the year." Mr. Rakes continued, "Our lenders are still working closely with some loan customers who are struggling in this difficult economy. We continue to fund the provision for loan losses at a prudent level as we look forward to a sustained recovery in our markets."

National Bankshares, Inc. is the parent company of the National Bank of Blacksburg, which does business as National Bank from 25 offices throughout Southwest Virginia. It also has an insurance and investments subsidiary, National Bankshares Financial Services, Inc., which operates in the same trade area. The Company's stock is traded on the NASDAQ Capital Market under the symbol "NKSH". Additional 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
                      Consolidated Balance Sheet

                                     (Unaudited)  (Unaudited)
($ in thousands, except for per    September 30, September 30, December 31,
 share data)                            2010         2009          2009
                                     -----------  -----------  -----------
Assets
Cash and due from banks              $    12,540  $    11,891  $    12,894
Interest-bearing deposits                 55,367       22,935       32,730
Federal funds sold                           ---          ---          ---
Securities available for sale            154,980      169,457      168,041
Securities held to maturity              127,480      132,786      129,376
                                     -----------  -----------  -----------
  Total securities                       282,460      302,243      297,417
                                     -----------  -----------  -----------
Mortgage loans held for sale               1,732          628          126
Loans:
  Real estate construction loans          48,908       47,671       45,625
  Real estate mortgage loans             173,753      167,589      165,542
  Commercial and industrial loans        269,619      268,868      283,998
  Consumer loans                          91,329       98,632       95,844
                                     -----------  -----------  -----------
    Total loans                          583,609      582,760      591,009
  Less: unearned income and deferred
   fees                                     (975)      (1,119)      (1,062)
                                     -----------  -----------  -----------
    Loans, net of unearned income
     and deferred fees                   582,634      581,641      589,947
  Less: allowance for loan losses         (7,794)      (6,453)      (6,926)
                                     -----------  -----------  -----------
    Loans, net                           574,840      575,188      583,021
                                     -----------  -----------  -----------
Bank premises and equipment, net          10,608       10,734       10,628
Accrued interest receivable                6,000        6,322        6,250
Other real estate owned                    3,026        1,944        2,126
Intangible assets                         11,814       12,897       12,626
Other assets                              24,060       21,106       24,549
                                     -----------  -----------  -----------
  Total assets                       $   982,447  $   965,888  $   982,367
                                     ===========  ===========  ===========

Liabilities and Stockholders' Equity
Noninterest-bearing deposits         $   125,877  $   122,519  $   122,549
Interest-bearing demand deposits         316,820      277,884      310,629
Savings deposits                          55,695       50,241       51,622
Time deposits                            343,464      385,229      367,312
                                     -----------  -----------  -----------
    Total deposits                       841,856      835,873      852,112
                                     -----------  -----------  -----------
Other borrowed funds                         ---           46          ---
Accrued interest payable                     304          473          336
Other liabilities                          7,673        8,025        7,843
                                     -----------  -----------  -----------
  Total liabilities                      849,833      844,417      860,291
                                     -----------  -----------  -----------

Stockholders' Equity
Preferred stock of no par value.
 Authorized 5,000,000 shares; none
 issued and outstanding                      ---          ---          ---
Common stock of $1.25 par value.
 Authorized 10,000,000 shares; issued
 and outstanding  6,933,474 shares at
 September 30, 2010, September 30,
 2009, and  December 31, 2009              8,667        8,667        8,667
Retained earnings                        122,612      113,087      113,901
Accumulated comprehensive income
 gain (loss)                               1,335         (283)        (492)
                                     -----------  -----------  -----------
  Total stockholders' equity             132,614      121,471      122,076
                                     -----------  -----------  -----------
    Total liabilities and
     stockholders' equity            $   982,447  $   965,888  $   982,367
                                     ===========  ===========  ===========




                     Consolidated Statements of Income
                               (Unaudited)

                                 Three Months Ended     Nine Months Ended
                                September  September  September  September
                                 30, 2010   30, 2009   30, 2010   30, 2009
                                ---------- ---------  ---------  ----------
($ in thousands, except for per
 share data)
Interest Income
Interest and fees on loans      $    9,284 $   9,316  $  27,720  $   28,170
Interest on federal funds              ---       ---        ---         ---
Interest on interest-bearing
 deposits                               36        23         85          73
Interest on securities
 - taxable                           1,325     1,600      4,234       4,766
Interest on securities
 - nontaxable                        1,642     1,677      4,835       4,896
                                ---------- ---------  ---------  ----------
    Total interest income           12,287    12,616     36,874      37,905
                                ---------- ---------  ---------  ----------

Interest Expense
Interest on time deposits              855     1,379      2,695       4,363
Interest on other deposits           1,871     2,496      5,860       8,197
Interest on borrowed funds             ---         1        ---           2
                                ---------- ---------  ---------  ----------
    Total interest expense           2,726     3,876      8,555      12,562
                                ---------- ---------  ---------  ----------
    Net interest income              9,561     8,740     28,319      25,343
Provision for loan losses              710       305      2,209         953
                                ---------- ---------  ---------  ----------
    Net interest income after
     provision for loan losses       8,851     8,435     26,110      24,390
                                ---------- ---------  ---------  ----------

Noninterest Income
Service charges on deposit
 accounts                              706       865      2,192       2,506
Other service charges and fees          63       107        214         263
Credit card fees                       745       723      2,171       2,060
Trust income                           316       255        846         792
Bank owned life insurance              197       201        558         554
Other income                            72        76        215         261
Realized securities
 gains/(losses), net                     2       (15)        (1)         55
                                ---------- ---------  ---------  ----------
    Total noninterest income         2,101     2,212      6,195       6,491
                                ---------- ---------  ---------  ----------

Noninterest Expense
Salaries and employee benefits       2,695     2,784      8,205       8,409
Occupancy and furniture and
 fixtures                              451       450      1,419       1,344
Data processing and ATM                414       380      1,120       1,016
FDIC assessment                        273       423        805       1,429
Credit card processing                 588       550      1,680       1,551
Intangibles and goodwill
 amortization                          270       271        812         822
Net costs of other real estate
 owned                                 120        29        180         100
Franchise taxes                        241       221        722         666
Other operating expenses               774       783      2,364       2,364
                                ---------- ---------  ---------  ----------
    Total noninterest expense        5,826     5,891     17,307      17,701
                                ---------- ---------  ---------  ----------
Income before income tax expense     5,126     4,756     14,998      13,180
Income tax expense                   1,129       976      3,236       2,656
                                ---------- ---------  ---------  ----------
    Net income                  $    3,997 $   3,780  $  11,762  $   10,524
                                ========== =========  =========  ==========

Basic net income per share      $     0.58 $    0.55  $    1.70  $     1.52
                                ========== =========  =========  ==========
Fully diluted net income per
 share                          $     0.58 $    0.54  $    1.69  $     1.52
                                ========== =========  =========  ==========
Weighted average outstanding
 number of common shares
    Basic                        6,933,474 6,933,474  6,933,474   6,931,672
                                ========== =========  =========  ==========
    Diluted                      6,946,650 6,948,083  6,949,731   6,942,712
                                ========== =========  =========  ==========
Dividends declared per share    $      --- $     ---  $    0.44  $     0.41
                                ========== =========  =========  ==========
Dividend payout ratio                  ---       ---      25.94       27.01
                                ========== =========  =========  ==========
Book value per share                   ---       ---  $   19.13  $    17.52
                                ========== =========  =========  ==========




                        Key Ratios and Other Data
                                (Unaudited)

                              Three Months Ended      Nine Months Ended
                            September   September   September   September
Average Balances             30, 2010    30, 2009    30, 2010    30, 2009
                            ----------  ----------  ----------  ----------
Cash and due from banks     $   11,732  $   11,368  $   11,404  $   11,886
Interest-bearing deposits       61,389      34,418      49,658      38,706
Securities available for
 sale                          155,602     169,149     160,326     166,446
Securities held to maturity    129,416     135,419     127,659     131,888
Mortgage loans held for
 sale                            1,918         636       1,181         901
Gross loans                    584,510     579,248     587,312     577,262
Loans, net                     575,921     571,837     578,978     570,014
Intangible assets               11,969      13,053      12,238      13,324
Total assets                   990,306     974,574     983,981     972,363
Total deposits                 852,021     848,836     848,223     849,255
Other borrowings                   ---          48         ---          50
Stockholders' equity           130,535     117,868     127,613     115,337
Interest-earning assets        928,140     916,773     921,431     914,332
Interest-bearing
 liabilities                   727,328     730,628     726,559     735,764

Financial ratios
Return on average assets          1.60%       1.56%       1.60%       1.45%
Return on average equity         12.15%      12.86%      12.32%      12.20%
Net interest margin               4.50%       4.27%       4.54%       4.13%
Net interest income - fully
 taxable equivalent         $   10,530  $    9,756  $   31,260  $   28,265
Efficiency ratio                 46.13%      49.77%      46.21%      50.93%
Average equity to average
 assets                          13.18%      12.09%      12.97%      11.86%

Allowance for loan losses
Beginning balance           $    7,553  $    6,284  $    6,926  $    5,858
Provision for losses               710         305       2,209         953
Charge-offs                       (488)       (168)     (1,459)       (422)
Recoveries                          19          32         118          64
                            ----------  ----------  ----------  ----------
Ending balance              $    7,794  $    6,453  $    7,794  $    6,453
                            ==========  ==========  ==========  ==========




                            Asset Quality Data
                               (Unaudited)

                                                September 30, September 30,
Nonperforming assets                                  2010         2009
                                                  -----------  -----------
Nonaccrual loans                                  $     7,639  $     3,888
Restructured loans                                        ---          ---
                                                  -----------  -----------
Total nonperforming loans                               7,639        3,888
Other real estate owned                                 3,026        1,944
                                                  -----------  -----------
Total nonperforming assets                        $    10,665  $     5,832
                                                  ===========  ===========
Loans 90 days or more past due                    $       533  $     2,153
                                                  ===========  ===========

Asset quality ratios
Nonperforming loans to loans net of unearned income
 and deferred fees, plus other real estate owned         1.30%        0.67%
Allowance for loan losses to total loans                 1.34%        1.11%
Allowance for loan losses to nonperforming loans       102.03%      165.97%
Loans past due 90 days or more to loans net of
 unearned income and deferred fees                       0.09%        0.37%

Contact Information: CONTACTS: James G. Rakes Chairman, President & CEO (540) 951-6236 David K. Skeens Treasurer (540) 951-6347