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”. More information is available at www.nationalbankshares.com.

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.

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


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

Selected Consolidated Data :
Interest income	$	37,592		$	37,918			-0.86	%

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

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	%