National Bankshares, Inc. Announces Higher Earnings in 2006

| Source: National Bankshares, Inc. National Bankshares, Inc.

BLACKSBURG, VA -- (MARKET WIRE) -- February 2, 2007 --National Bankshares, Inc. (NASDAQ: NKSH) today reported that it earned net income of more than $12.63 million in 2006. This was an increase of 1.67% over the $12.42 million in record earnings posted by the company in 2005. Basic net income per share increased from $1.77 in 2005 to $1.80 in 2006, reflecting both increased earnings and the effects of the company's previously-announced stock repurchase plan. For the full year, National Bankshares had a return on average assets of 1.50% and a return on average equity of 13.41%. The company ended 2006 with total assets of just over $868.20 million, up by 3.17% over the nearly $841.50 in total assets at the end of 2005.

Net income attributable to the fourth quarter of 2006 of $3.20 million was nearly even with the $3.23 million earned in the same period of 2005. This translates to basic net income per share of $0.46 in the fourth quarters of both 2005 and 2006.

National Bankshares, Inc.'s Chairman, President & CEO, James G. Rakes, stated, "I am always pleased to report record earnings, although the year-over-year increase in net income was not large. The continuation well into 2006 of the pattern of interest-rate increases begun by the Federal Reserve during 2005 compressed our net interest margin and had a negative effect on earnings. However, in addition to posting higher earnings, there were some other bright spots in this year's financials. Because loan quality was excellent, there was no need to fund the provision for loan losses above a minimal level. Other noninterest income in 2006, at over $7.27 million, showed a nice 17.04% increase above 2005. We worked hard to contain controllable expenses, such as salary and benefits and occupancy expense, and these two categories experienced very modest increases in 2006. Even though there were some costs associated with the merger of our two community bank subsidiaries in May of 2006, other noninterest expense this year declined by 6.26% from 2005." Rakes continued, "Last year we completed both the merger of our two banks and certain upgrades in our technology infrastructure. These steps will allow us to continue to do what we do best. That is, to offer a full range of financial services in settings which emphasize the importance of personal relationships with our customers."

National Bankshares, Inc. is a financial holding company with two subsidiaries. The National Bank of Blacksburg, which does business as National Bank, is headquartered in Blacksburg, Virginia, and the bank has 26 offices throughout Southwest Virginia. The company also has a non-bank financial services subsidiary, National Bankshares Financial Services, Inc., which does business in the same market as National Bankshares Investment Services and National Bankshares Insurance Services. National Bankshares, Inc. stock is traded on the Nasdaq Capital Market under the symbol "NKSH." Additional information about the company is available on its web site at www.nationalbankshares.com. 

                National Bankshares, Inc. And Subsidiaries
                              (Unaudited)

(000's), except ratios and percent
 data

Three months ending                   December 31,  December 31,
Selected Consolidated Data :               2006         2005       Change
                                       -----------  -----------  ---------
Interest income                        $    12,427  $    11,594       7.18%
                                       -----------  -----------  ---------
Interest expense                             5,261        4,095      28.47%
                                       -----------  -----------  ---------
Net interest income                          7,166        7,499      -4.44%
                                       -----------  -----------  ---------
Provision for loan losses                        9           10     -10.00%
                                       -----------  -----------  ---------
Trust income                                   469          336      39.58%
                                       -----------  -----------  ---------
Other noninterest income                     1,830        1,690       8.28%
                                       -----------  -----------  ---------
Salary and benefits                          2,760        2,731       1.06%
                                       -----------  -----------  ---------
Occupancy expense                              478          481      -0.62%
                                       -----------  -----------  ---------
Amortization of intangibles                    284          285      -0.35%
                                       -----------  -----------  ---------
Other noninterest expense                    1,852        1,742       6.31%
                                       -----------  -----------  ---------
Income taxes                                  -881       -1,051     -16.18%
                                       -----------  -----------  ---------
Net income                             $     3,201  $     3,225      -0.74%
                                       -----------  -----------  ---------
Basic net income per share             $      0.46  $      0.46  $    0.00
                                       -----------  -----------  ---------

Daily averages:
                                       -----------  -----------  ---------
Gross loans                            $   498,366  $   495,920       0.49%
                                       -----------  -----------  ---------
Loans,net                                  492,104      489,479       0.54%
                                       -----------  -----------  ---------
Total securities                           272,644      263,887       3.32%
                                       -----------  -----------  ---------
Total deposits                             751,639      736,500       2.06%
                                       -----------  -----------  ---------
Other borrowings                                 0          177    -100.00%
                                       -----------  -----------  ---------
Stockholders' equity                        97,741       92,426       5.75%
                                       -----------  -----------  ---------
Cash and due from                           15,795       17,430      -9.38%
                                       -----------  -----------  ---------
Interest-earning assets                    792,919      780,753       1.56%
                                       -----------  -----------  ---------
Interest-bearing liabilities               646,673      622,233       3.93%
                                       -----------  -----------  ---------
Intangible assets                           16,138       17,444      -7.49%
                                       -----------  -----------  ---------
Total assets                               854,040      832,999       2.53%
                                       -----------  -----------  ---------

Financial ratios: Note (1)
                                       -----------  -----------  ---------
Return on average assets                      1.49%        1.54%     -0.05
                                       -----------  -----------  ---------
Return on average equity                     12.99%       13.84%     -0.85
                                       -----------  -----------  ---------
Net interest margin                           4.06%        4.17%     -0.11
                                       -----------  -----------  ---------
Average equity to average assets             11.44%       11.10%      0.35
                                       -----------  -----------  ---------
 Note (1)  Ratio change measured in bp

Allowance for loan losses:
                                       -----------  -----------  ---------
Beginning balance                      $     5,252  $     5,620      -6.55%
                                       -----------  -----------  ---------
Provision for losses                             9           10     -10.00%
                                       -----------  -----------  ---------
Charge-offs                                   -114         -289     -60.55%
                                       -----------  -----------  ---------
Recoveries                                      10          108     -90.74%
                                       -----------  -----------  ---------
Ending balance                         $     5,157  $     5,449      -5.36%
                                       -----------  -----------  ---------


Year to Date                          December 31,  December 31,
Selected Consolidated Data :              2006          2005      Change
                                       -----------  -----------  ---------
Interest income                        $    47,901  $    45,380       5.56%
                                       -----------  -----------  ---------
Interest expense                            18,564       14,180      30.92%
                                       -----------  -----------  ---------
Net interest income                         29,337       31,200      -5.97%
                                       -----------  -----------  ---------
Provision for loan losses                       49          567     -91.36%
                                       -----------  -----------  ---------
Trust income                                 1,528        1,398       9.30%
                                       -----------  -----------  ---------
Other noninterest income                     7,274        6,215      17.04%
                                       -----------  -----------  ---------
Salary and benefits                         11,466       11,265       1.78%
                                       -----------  -----------  ---------
Occupancy expense                            1,957        1,931       1.35%
                                       -----------  -----------  ---------
Amortization of intangibles                  1,137        1,117       1.79%
                                       -----------  -----------  ---------
Other noninterest expense                    7,110        7,585      -6.26%
                                       -----------  -----------  ---------
Income taxes                                -3,788       -3,924      -3.47%
                                       -----------  -----------  ---------
Net income                             $    12,632  $    12,424       1.67%
                                       -----------  -----------  ---------
Basic net income per share             $      1.80  $      1.77  $    0.03
                                       -----------  -----------  ---------
Fully diluted net income per share     $      1.80  $      1.76  $    0.04
                                       -----------  -----------  ---------
Dividends per share                            .73          .71  $    0.02
                                       -----------  -----------  ---------
Dividend payout ratio                        40.44        40.17  $    0.27
                                       -----------  -----------  ---------
Book value per share                   $     13.86        13.10  $    0.76
                                       -----------  -----------  ---------

Balance sheet at period-end:
                                       -----------  -----------  ---------
Gross loans                            $   501,702  $   493,524       1.66%
                                       -----------  -----------  ---------
Loans, net                             $   495,486  $   487,162       1.71%
                                       -----------  -----------  ---------
Total securities                           285,489      272,541       4.75%
                                       -----------  -----------  ---------
Cash and due from                           15,283       20,115     -24.02%
                                       -----------  -----------  ---------
Total deposits                             764,692      745,649       2.55%
                                       -----------  -----------  ---------
Other borrowings                                73          357     -79.55%
                                       -----------  -----------  ---------
Stockholders' equity                        96,755       91,939       5.24%
                                       -----------  -----------  ---------
Intangible assets                           15,976       17,113      -6.64%
                                       -----------  -----------  ---------
Total assets                               868,203      841,498       3.17%
                                       -----------  -----------  ---------

Daily averages:
                                       -----------  -----------  ---------
Gross loans                            $   494,945  $   493,668       0.26%
                                       -----------  -----------  ---------
Loans,net                                  488,624      487,130       0.31%
                                       -----------  -----------  ---------
Total securities                           271,066      261,743       3.56%
                                       -----------  -----------  ---------
Total deposits                             741,071      724,015       2.36%
                                       -----------  -----------  ---------
Other borrowings                                53          420     -87.38%
                                       -----------  -----------  ---------
Stockholders' equity                        94,194       90,470       4.12%
                                       -----------  -----------  ---------
Cash and due from                           15,968       15,976      -0.05%
                                       -----------  -----------  ---------
Interest-earning assets                    779,018      769,931       1.18%
                                       -----------  -----------  ---------
Interest-bearing liabilities               632,514      610,534       3.60%
                                       -----------  -----------  ---------
Intangible assets                           16,025       17,500      -8.43%
                                       -----------  -----------  ---------
Total assets                               840,080      819,341       2.53%
                                       -----------  -----------  ---------

Financial ratios: Note (1)
                                       -----------  -----------  ---------
Return on average assets                      1.50%        1.52%     -0.02
                                       -----------  -----------  ---------
Return on average equity                     13.41%       13.73%     -0.32
                                       -----------  -----------  ---------
Net interest margin                           4.14%        4.44%     -0.30
                                       -----------  -----------  ---------
Efficiency ratio                             52.74%       52.39%      0.35
                                       -----------  -----------  ---------
Average equity to average assets             11.21%       11.04%      0.17
                                       -----------  -----------  ---------
 Note (1)  Ratio change measured in bp

Allowance for loan losses:
                                       -----------  -----------  ---------
Beginning balance                      $     5,449  $     5,729      -4.89%
                                       -----------  -----------  ---------
Provision for losses                            49          567     -91.36%
                                       -----------  -----------  ---------
Charge-offs                                   -459       -1,101     -58.31%
                                       -----------  -----------  ---------
Recoveries                                     118          254     -53.54%
                                       -----------  -----------  ---------
Ending balance                         $     5,157  $     5,449      -5.36%
                                       -----------  -----------  ---------

Nonperforming assets:
                                       -----------  -----------  ---------
Nonaccrual loans                                 0  $       178    -100.00%
                                       -----------  -----------  ---------
Restructured loans                             ---          ---        ---
                                       -----------  -----------  ---------
Total nonperforming loans Note (2)               0          178    -100.00%
                                       -----------  -----------  ---------
Other real estate owned                        390          376       3.72%
                                       -----------  -----------  ---------
Total nonperforming assets             $       390  $       554     -29.60%
                                       -----------  -----------  ---------

Asset quality ratios: Note (3)
                                       -----------  -----------  ---------
Nonperforming loans to total loans           0.000%        0.04%   -100.00%
                                       -----------  -----------  ---------
Allowance for loan losses to total
 loans                                        1.03%        1.11%     -7.99%
                                       -----------  -----------  ---------
Allowance for loan losses to
 nonperforming loans                           ---      3061.24%   -100.00%
                                       -----------  -----------  ---------
 Note (2)  Loans 90 days past due or more not included
 Note (3)  Ratio change measured in bp

Contact Information: CONTACTS: James G. Rakes Chairman, President & CEO (540) 951-6236 J. Robert Buchanan Treasurer (276) 979-0341