National Bankshares, Inc. Reports Second Quarter Earnings

BLACKSBURG, VA--(Marketwire - July 15, 2009) - National Bankshares, Inc. (NASDAQ: NKSH) reported today that it posted second quarter net income of nearly $3.36 million, or basic net income of $0.48 per share. For the second quarter of 2008, the Company had net income of nearly $3.47 million. Year-to-date net income is over $6.74 million, or $0.97 per share, 1.41% above the $6.65 million total on June 30, 2008. National Bankshares, Inc., a financial holding company headquartered in Blacksburg, Virginia, had net loans of $569.85 million at June 30, 2009, an increase of 7.63% over net loans at the end of the second quarter last year. Total assets on June 30 were $984.76 million, up by 10.04% over the same period in 2008.

Commenting on the Company's quarterly results, Chairman, President & CEO James G. Rakes said, "Second quarter earnings were impacted by a special Federal Deposit Insurance Corporation assessment, as well as an increase in quarterly fees. It is not commonly understood that insured depository institutions themselves, not the taxpayers, fund FDIC deposit insurance. The financial crisis has put an additional burden on the Deposit Insurance Fund, and all insured banks are contributing so that the Fund's reserve ratio remains healthy. Although the special assessment hurt second quarter earnings, FDIC insurance is a cornerstone of the American banking industry, and banks are doing what must be done to be certain that the public's confidence in FDIC remains high."

Mr. Rakes went on to say, "We are pleased with the level of loan growth through the first half of the year, and the quality of the loan portfolio is good. Although the total of nonperforming assets is somewhat higher, the ratio of nonperforming loans to total loans, at 0.47%, is reasonable and compares very well with our peers. We have increased the provision for loan losses throughout 2009, both in recognition of the difficult economy and to keep pace with loan growth. As we work to meet the challenges that remain this year, we are mindful of the conservative traditions that are a part of our bank's 118-year heritage and of its important role in the communities we serve."

National Bankshares, Inc. is the parent of the National Bank of Blacksburg, which does business as National Bank from 25 offices in Southwest Virginia. The Company has a financial services subsidiary that serves the same markets as National Bankshares Investment Services and National Bankshares Insurance Services. Company stock is traded on the NASDAQ Capital Market under the symbol "NKSH." Additional information can be found 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
Three months ending            June 30, 2009  June 30, 2008      Change
                               -------------  -------------  -------------

Selected consolidated data :
Interest income                $      12,711  $      12,472           1.92%
Interest expense                       4,274          4,815         -11.24%
Net interest income                    8,437          7,657          10.19%
Provision for loan losses                278            135         105.93%
Trust income                             261            319         -18.18%
Other noninterest income               1,911          1,908           0.16%
Salary and benefits                    2,794          2,746           1.75%
Occupancy expense                        425            435          -2.30%
Amortization of intangibles              273            279          -2.15%
Other noninterest expense              2,688          1,846          45.61%
Income taxes                            -794           -974         -18.48%
Net income                     $       3,357  $       3,469          -3.23%
Basic net income per share     $        0.48  $        0.50  $        0.02

Daily averages:
Gross loans                    $     578,239  $     529,653           9.17%
Loans, net                           570,964        523,336           9.10%
Total securities                     303,753        290,593           4.53%
Total deposits                       858,977        786,698           9.19%
Other borrowings                          50             61         -18.03%
Stockholders' equity                 114,981        108,891           5.59%
Cash and due from                     12,135         13,008          -6.71%
Interest-earning assets              922,876        844,591           9.27%
Interest-bearing liabilities         745,704        670,099          11.28%
Intangible assets                     13,324         14,435          -7.70%
Total assets                   $     981,514  $     902,368           8.77%

Financial ratios: Note (1)
Return on average assets                1.37%          1.55%         -0.18%
Return on average equity               11.71%         12.81%         -1.10%
Net interest margin                     4.10%          4.05%          0.05%
Efficiency ratio                       53.21%         49.26%          3.95%
Average equity to average
 assets                                11.71%         12.07%         -0.35%
 Note (1)  Ratio change measured in bp

Allowance for loan losses:
Beginning balance              $       6,118  $       5,228          17.02%
Provision for losses                     278            135         105.93%
Charge-offs                             -131           -130           0.77%
Recoveries                                19             34         -44.12%
Ending balance                 $       6,284  $       5,267          19.31%

Year to Date                   June 30, 2009  June 30, 2008     Change
                               -------------  -------------  -------------

Selected consolidated data :
Interest income                $      25,289  $      25,183           0.42%
Interest expense                       8,686         10,222         -15.03%
Net interest income                   16,603         14,961          10.98%
Provision for loan losses                648            235         175.74%
Trust income                             537            622         -13.67%
Other noninterest income               3,742          3,901          -4.08%
Salary and benefits                    5,625          5,603           0.39%
Occupancy expense                        894            891           0.34%
Amortization of intangibles              551            562          -1.96%
Other noninterest expense              4,740          3,707          27.87%
Income taxes                          -1,680         -1,836          -8.50%
Net income                     $       6,744  $       6,650           1.41%
Basic net income per share     $        0.97  $        0.96  $        0.01
Fully diluted net income per
 share                         $        0.97  $        0.96  $        0.01
Dividends per share            $        0.41  $        0.39  $        0.02
Dividend payout ratio                  42.16          40.63           1.53
Book value per share           $       16.58  $       15.50  $        1.08

Balance sheet at period-end:
Gross loans                    $     577,226  $     535,837           7.72%
Loans, net                     $     569,852  $     529,465           7.63%
Total securities                     306,283        289,315           5.86%
Cash and due From                     15,039         20,404         -26.29%
Total deposits                       861,862        781,113          10.34%
Other borrowings                          49             59         -16.95%
Stockholders' equity                 114,979        107,354           7.10%
Intangible assets                     13,168         14,276          -7.76%
Total assets                   $     984,762  $     894,912          10.04%

Daily averages:
Gross loans                    $     576,253  $     527,366           9.27%
Loans, net                           569,087        521,064           9.22%
Total securities                     295,163        283,240           4.21%
Total deposits                       849,456        780,830           8.79%
Other borrowings                          52             61         -14.75%
Stockholders' equity                 114,050        107,963           5.64%
Cash and due from                     11,798         12,877          -8.38%
Interest-earning assets              912,589        839,198           8.75%
Interest-bearing liabilities         738,374        668,344          10.48%
Intangible assets                     13,462         14,576          -7.64%
Total assets                   $     971,224  $     895,701           8.43%

Financial ratios: Note (1)
Return on average assets                1.40%          1.49%         -0.09%
Return on average equity               11.92%         12.39%         -0.47%
Net interest margin                     4.09%          4.00%          0.09%
Efficiency ratio                       51.83%         50.81%          1.02%
Average equity to average
 assets                                11.74%         12.05%         -0.31%
 Note (1)  Ratio change measured in bp

Allowance for loan losses:
Beginning balance              $       5,858  $       5,219          12.24%
Provision for losses                     648            235         175.74%
Charge-offs                             -254           -282          -9.93%
Recoveries                                32             95         -66.32%
Ending balance                 $       6,284  $       5,267          19.31%

Nonperforming assets:
Nonaccrual loans               $       2,729  $       2,200          24.05%
Restructured loans                       ---            ---            ---
Total nonperforming loans Note
 (2)                                   2,729          2,200              0
Other real estate owned                1,869            234         698.72%
Total nonperforming assets     $       4,598  $       2,434          88.91%

Asset quality ratios: Note (3)
Nonperforming loans to total
 loans                                  0.47%          0.41%           ---
Allowance for loan losses to
 total loans                            1.09%          0.98%           ---
Allowance for loan losses to
 nonperforming loans                  230.27%        239.41%           ---
 Note (2)  Loans 90 days past due or more not included
 Note (3)  Ratio change measured in bp
 Note (3)  Ratio change measured in bp

Contact Information: CONTACTS: JAMES G. RAKES CHAIRMAN, PRESIDENT & CEO (540) 951-6236 DAVID K. SKEENS TREASURER & CFO (540) 951-6347