FOR IMMEDIATE RELEASE

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

NATIONAL BANKSHARES, INC. ANNOUNCES RECORD EARNINGS FOR 2009

BLACKSBURG, VA, FEBRUARY 4, 2010:  National Bankshares, Inc. (NASDAQ Capital Market:  NKSH) announced today that it posted record net income of nearly $14.32 million for the year ended December 31, 2009.  Net income for the year is 5.34% higher than the $13.59 million earned by the Company in 2008.  Basic net income per share increased from $1.96 last year to $2.07 for 2009.  National Bankshares, Inc. ended 2009 with total assets of nearly $982.37 million, an increase of 5.02% over the $935.37 million at December 31, 2008.  Net loans, which were at $583.02 million at the end of 2009, experienced a 2.34% increase compared to net loans at year-end 2008.  The return on average assets for the twelve months ended December 31, 2009 was 1.47%, and the return on average equity for the period was 12.23%.

For the three months ending December 31, 2009, National Bankshares, Inc. had net income of nearly $3.80 million, or basic net income per share of $0.55.  This compares with nearly $3.33 million, or basic net income per share of $0.48, for the same three month period in 2008.

Chairman, President & CEO, James G. Rakes, commented on the year’s financial performance.  “Last year, National Bankshares benefited from the fact that our subsidiary community bank, National Bank, maintained its traditional, conservative approach to banking.  Record earnings in 2009 came largely from higher net interest income, coupled with limited increases in controllable noninterest expense.  We were able to take advantage of the low and stable interest rate environment, and net interest income grew by almost 10.77%, from $31.29 million for 2008 to $34.66 million for 2009.  A portion of the growth in interest income came from meeting the credit needs of borrowers in our market area.  We experienced $14.33 million of growth in the loan portfolio, as our bankers continued to make good loans despite the difficult economy.  At the same time as net interest income was improving, we were keeping careful watch on controllable costs.  As a result, total noninterest expense for the year was only $1.83 million above 2008 levels, despite FDIC Deposit Insurance Fund assessments climbing by $1.52 million from 2008 to 2009.”

Mr. Rakes continued, “Our region of the country has not totally escaped the effects of the recession and the slow economic recovery.  Fortunately, we have not been as seriously impacted as some other areas.  In the last half of 2008, we began to see a rise in the level of total nonperforming assets. Anticipating that this trend would continue and worsen during 2009, we increased the provision for loan losses as the year progressed.  In 2008, the provision for losses was $1.12 million, and in 2009 we set aside over $1.63 million.  By December 31, 2009, the allowance for loan losses had grown to almost $6.93 million from $5.86 million at the end of 2008, and the ratio of the allowance for loan losses to total loans had gone from 1.02% at year-end 2008 to 1.17% at December 31, 2009.  Because of this preparation and because our earnings and capital levels allow us to approach loan workouts in a deliberate fashion, we feel that we can respond appropriately to the increase in total nonperforming assets that is being reported for year-end 2009.  Although having total nonperforming assets at almost $8.88 million at December 31, 2009 is high for our Company, the total remains quite low when compared with peers.  The ratio of nonperforming loans to net loans was at 1.14% at year-end, a reasonable level in today’s difficult economy.”  Mr. Rakes went on to say, “National Bankshares, Inc. is both people focused and value driven.  We can trace our heritage back to the founding of National Bank in 1891.  Despite the current challenges, we are proud to be traditional bankers, and we are committed to the communities we serve.”

National Bankshares, Inc. is a financial holding company that is the parent of National Bank of Blacksburg, which does business as National Bank from 25 offices in Southwest Virginia.  National Bank offers a full range of banking products and services, including Trust services.  The Company has its headquarters in Blacksburg, Virginia.  It also has a financial services subsidiary that does business in the same markets as National Bankshares Investment Services and National Bankshares Insurance Services.  Its 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.

101 Hubbard Street / Blacksburg, Virginia 24060

P.O. Box 90002 / Blacksburg, Virginia 24062-9002

540 951-6300 / 800 552-4123

www.nationalbankshares.com

National Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheet

(Unaudited)

($ in thousands, except for per share data)
Assets	December 31, 2009			December 31, 2008
Cash and due from banks	$	12,894		$	16,316
Interest-bearing deposits		32,730			29,656
Federal funds sold		---			---
Securities available for sale		168,041			147,227
Securities held to maturity		129,376			117,772
Total securities		297,417			264,999
Mortgage loans held for sale		126			348
Loans:
Real estate construction loans		45,625			60,798
Real estate mortgage loans		165,542			162,757
Commercial and industrial loans		283,998			246,218
Consumer loans		95,844			106,907
Total loans		591,009			576,680
Less: unearned income and deferred fees		(1,062	)		(1,123	)
Loans, net of unearned income and deferred fees		589,947			575,557
Less: allowance for loan losses		(6,926	)		(5,858	)
Loans, net		583,021			569,699
Bank premises and equipment, net		10,628			11,204
Accrued interest receivable		6,250			5,760
Other real estate owned		2,126			1,984
Intangible assets		12,626			13,719
Other assets		24,549			21,689
Total assets	$	982,367		$	935,374
Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	122,549		$	109,630
Interest-bearing demand deposits		310,629			256,416
Savings deposits		51,622			45,329
Time deposits		367,312			406,473
Total deposits		852,112			817,848
Other borrowed funds		---			54
Accrued interest payable		336			655
Other liabilities		7,843			6,709
Total liabilities		860,291			825,266
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 December 31, 2009 and 6,929,474 shares at December 31, 2008		8,667			8,662
Retained earnings		113,901			105,356
Accumulated comprehensive income		(492	)		(3,910	)
Total stockholders' equity		122,076			110,108
Total liabilities and stockholders' equity	$	982,367		$	935,374

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended						Twelve Months Ended
	December 31, 2009			December 31, 2008			December 31, 2009		December 31, 2008
($ in thousands, except for per share data)
Interest Income
Interest and fees on loans	$	9,408		$	9,426		$	37,578	$	37,108
Interest on federal funds		---			---			---		---
Interest on interest-bearing deposits		17			23			90		449
Interest on securities - taxable		1,507			1,641			6,273		6,816
Interest on securities - nontaxable		1,650			1,429			6,546		5,738
Total interest income		12,582			12,519			50,487		50,111
Interest Expense
Interest on time deposits		1,054			1,502			5,417		6,004
Interest on other deposits		2,208			2,898			10,405		12,802
Interest on borrowed funds		1			1			3		12
Total interest expense		3,263			4,401			15,825		18,818
Net interest income		9,319			8,118			34,662		31,293
Provision for loan losses		681			604			1,634		1,119
Net interest income after provision for loan losses		8,638			7,514			33,028		30,174
Noninterest Income
Service charges on deposit accounts		808			923			3,314		3,425
Other service charges and fees		80			76			343		326
Credit card fees		743			707			2,803		2,808
Trust income		261			302			1,053		1,231
Bank owned life insurance		202			238			756		684
Other income		230			124			491		438
Realized securities gains (losses), net		(11	)		(14	)		44		175
Total noninterest income		2,313			2,356			8,804		9,087
Noninterest Expense
Salaries and employee benefits		2,927			2,773			11,336		11,168
Occupancy and furniture and fixtures		448			423			1,792		1,751
Data processing and ATM		355			348			1,371		1,381
FDIC  assessment		298			119			1,727		209
Credit card processing		570			535			2,121		2,105
Intangibles and goodwill amortization		271			278			1,093		1,119
Net costs of other real estate owned		293			36			393		100
Franchise taxes		219			204			885		823
Other operating expenses		771			1,013			3,135		3,367
Total noninterest expense		6,152			5,729			23,853		22,023
Income before income tax expense		4,799			4,141			17,979		17,238
Income tax expense		1,004			813			3,660		3,645
Net income	$	3,795		$	3,328		$	14,319	$	13,593
Basic net income per share	$	0.55		$	0.48		$	2.07	$	1.96
Fully diluted net income per share	$	0.55		$	0.48		$	2.06	$	1.96
Weighted average outstanding number of common shares
Basic		6,933,474			6,928,632			6,932,126		6,929,755
Diluted		6,953,970			6,932,755			6,945,530		6,935,950
Dividends declared per share		---			---		$	0.84	$	0.80
Dividend payout ratio		---			---			40.67		40.78
Book value per share		---			---		$	17.61	$	15.89

Key Ratios and Other Data

(Unaudited)

	Three Months Ending						Twelve Months Ended
Average Balances	December 31, 2009			December 31, 2008			December 31, 2009			December 31, 2008
Cash and due from banks	$	11,858		$	12,194		$	11,879		$	12,467
Interest-bearing deposits		27,338			18,879			35,841			21,440
Securities available for sale		167,023			148,292			166,592			157,291
Securities held to maturity		130,924			125,525			131,645			124,076
Mortgage loans held for sale		940			371			911			386
Gross loans		587,198			562,464			579,766			539,593
Loans, net		579,633			555,864			572,438			533,190
Intangible assets		12,781			13,878			13,187			14,296
Total assets		969,092			914,111			971,538			899,462
Total deposits		838,866			797,757			846,637			783,774
Other borrowings		44			55			49			297
Stockholders' equity		122,276			109,445			117,086			108,585
Interest-earning assets		909,411			854,414			913,091			841,675
Interest-bearing liabilities		718,632			687,184			731,446			671,463
Financial Ratios
Return on average assets		1.55	%		1.45	%		1.47	%		1.51	%
Return on average equity		12.31	%		12.10	%		12.23	%		12.52	%
Net interest margin		4.51	%		4.20	%		4.23	%		4.12	%
Net interest income - fully taxable equivalent	$	10,331		$	8,971		$	38,595		$	34,715
Efficiency ratio		48.61	%		50.58	%		50.32	%		50.28	%
Average equity to average assets		12.62	%		11.97	%		12.05	%		12.07	%
Allowance for Loan Losses
Beginning balance	$	6,453		$	5,435		$	5,858		$	5,219
Provision for losses		681			604			1,634			1,119
Charge-offs		(225	)		(202	)		(647	)		(611	)
Recoveries		17			21			81			131
Ending balance	$	6,926		$	5,858		$	6,926		$	5,858

Asset Quality Data

(Unaudited)

Nonperforming assets	December 31, 2009			December 31, 2008
Nonaccrual loans	$	4,098		$	1,333
Restructured loans		2,652			---
Total nonperforming loans		6,750			1,333
Other real estate owned		2,126			1,984
Total nonperforming assets	$	8,876		$	3,317
Loans 90 days or more past due	$	1,697		$	1,127
Asset Quality Ratios
Nonperforming loans to loans net of unearned income and deferred fees, plus other real estate owned		1.14	%		0.23	%
Allowance for loan losses to total loans		1.17	%		1.02	%
Allowance for loan losses to nonperforming loans		169.01	%		439.46	%
Loans past due 90 days or more to loans net of unearned income and deferred fees		0.29	%		0.20	%