----

| [x]QUARTERLY REPORT PURSUANT TO      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE      ACT   OF 1934 |
|-----------------------------------------------------------------------------------------------------------------------|
| For      the quarterly period ended September 30, 2009                                                                |
| [  ]TRANSITION REPORT PURSUANT TO      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT      OF 1934      |

| Virginia(State      or other jurisdiction of incorporation or organization) | 54-1375874(I.R.S.      Employer Identification No.) |
|-----------------------------------------------------------------------------|-----------------------------------------------------|

| 101      Hubbard StreetP.      O. Box 90002Blacksburg,      VA |   24062-9002 |
|----------------------------------------------------------------|------------------------|
| (Address      of principal executive offices)                  | (Zip      Code)        |

| ClassCommon      Stock, $1.25 Par Value | Outstanding at October 31,20096,933,474 |
|-----------------------------------------|-----------------------------------------|

----

| Part I - Financial      Information |                                                                                                                                                         | Page   |
|-------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                |                                                                                                                                                         |   |
| Item      1                         | Financial      Statements                                                                                                                                    | 3      |
|                                |                                                                                                                                                         |   |
|                                | Consolidated Balance      Sheets, September 30, 2009 (Unaudited) and December 31,      2008                                                                  | 3      |
|                                |                                                                                                                                                         |   |
|                                | Consolidated Statements      of Income for the Three Months Ended September 30, 2009 and 2008      (Unaudited)                                               | 4      |
|                                |                                                                                                                                                         |   |
|                                | Consolidated Statements      of Income for the Nine Months Ended September 30, 2009 and 2008      (Unaudited)                                                | 5      |
|                                |                                                                                                                                                         |   |
|                                | Consolidated      Statements of Changes in Stockholders’ Equity for the Nine Months      Ended  September 30, 2009 and 2008      (Unaudited) | 6      |
|                                |                                                                                                                                                         |   |
|                                | Consolidated Statements      of Cash Flows for the Nine Months Ended September 30, 2009 and 2008      (Unaudited)                                       | 7-8    |
|                                |                                                                                                                                                         |   |
|                                | Notes to      Consolidated Financial Statements    (Unaudited)                                                                                               | 9-17   |
|                                |                                                                                                                                                         |   |
| Item      2                         | Management’s Discussion and      Analysis of Financial Condition and Results of      Operations                                                        | 17-25  |
|                                |                                                                                                                                                         |   |
| Item      3                         | Quantitative and      Qualitative Disclosures About Market      Risk                                                                               | 25     |
|                                |                                                                                                                                                         |   |
| Item      4                         | Controls and      Procedures                                                                                                                                 | 25     |
|                                |                                                                                                                                                         |   |
| Part II - Other      Information    |                                                                                                                                                         |   |
|                                |                                                                                                                                                         |   |
| Item      1                         | Legal      Proceedings                                                                                                                                       | 25     |
|                                |                                                                                                                                                         |   |
| Item      1A                        | Risk      Factors                                                                                                                                            | 25     |
|                                |                                                                                                                                                         |   |
| Item      2                         | Unregistered      Sales of Equity Securities and Use of      Proceeds                                                                                        | 25     |
|                                |                                                                                                                                                         |   |
| Item      3                         | Defaults      Upon Senior Securities                                                                                                                         | 25     |
|                                |                                                                                                                                                         |   |
| Item      4                         | Submission of      Matters to a Vote of Security Holders                                                                                                     | 25     |
|                                |                                                                                                                                                         |   |
| Item      5                         | Other      Information                                                                                                                                       | 26     |
|                                |                                                                                                                                                         |   |
| Item      6                         | Exhibits                                                                                                                                                     | 26     |
|                                |                                                                                                                                                         |   |
|                                |                                                                                                                                                         |   |
| Signatures                          |                                                                                                                                                         | 26     |
|                                |                                                                                                                                                         |   |
| Index of      Exhibits              |                                                                                                                                                         | 27     |

----

Part I

Item 1. Financial Statements

National Bankshares, Inc. and Subsidiaries

|                                                                                                                                        |   | (Unaudited)        |    |   |              |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                                                                                                                                        |   | September      30, |    |   | December      31, |   |
| $      in thousands, except share data                                                                                                      |   | 2009               |    |   | 2008              |   |
| Assets                                                                                                                                      |   |               |    |   |              |   |   |   |
| Cash      and due from banks                                                                                                                |   | $                  | 11,891  |   |              | $      | 16,316 |   |
| Interest-bearing      deposits                                                                                                              |   |               | 22,935  |   |              |   | 29,656 |   |
| Securities      available for sale, at fair value                                                                                           |   |               | 169,457 |   |              |   | 147,227 |   |
| Securities      held to maturity (fair value  approximates $134,285 at September      30, 2009 and $117,277 at December 31, 2008) |   |               | 132,786 |   |              |   | 117,772 |   |
| Mortgage      loans held for sale                                                                                                           |   |               | 628     |   |              |   | 348 |   |
| Loans:                                                                                                                                      |   |               |    |   |              |   |   |   |
| Real estate construction      loans                                                                                                         |   |               | 47,671  |   |              |   | 60,798 |   |
| Real estate mortgage      loans                                                                                                             |   |               | 167,589 |   |              |   | 162,757 |   |
| Commercial and industrial      loans                                                                                                        |   |               | 268,868 |   |              |   | 246,218 |   |
| Loans to      individuals                                                                                                                   |   |               | 98,632  |   |              |   | 106,907 |   |
| Total loans                                                                                                                                 |   |               | 582,760 |   |              |   |  576,680 |   |
| Less unearned income and      deferred fees                                                                                                 |   |               | (1,119  | )      |              |   |  (1,123 | ) |
| Loans, net of unearned income and      deferred fees                                                                                        |   |               | 581,641 |   |              |   |  575,557 |   |
| Less: allowance for loan      losses                                                                                                        |   |               | (6,453  | )      |              |   | (5,858 | ) |
| Loans, net                                                                                                                                  |   |               | 575,188 |   |              |   | 569,699 |   |
| Bank      premises and equipment, net                                                                                                       |   |               | 10,734  |   |              |   |  11,204 |   |
| Accrued      interest receivable                                                                                                            |   |               | 6,322   |   |              |   | 5,760 |   |
| Other      real estate owned, net                                                                                                           |   |               | 1,944   |   |              |   | 1,984 |   |
| Intangible      assets and goodwill, net                                                                                                    |   |               | 12,897  |   |              |   | 13,719 |   |
| Other      assets                                                                                                                           |   |               | 21,106  |   |              |   | 21,689 |   |
| Total    assets                                                                                                                             |   | $                  | 965,888 |   |              | $      | 935,374 |   |
|                                                                                                                                        |   |               |    |   |              |   |   |   |
| Liabilities      and Stockholders' Equity                                                                                                   |   |               |    |   |              |   |   |   |
| Noninterest-bearing      demand deposits                                                                                                    |   | $                  | 122,519 |   |              | $      | 109,630 |   |
| Interest-bearing      demand deposits                                                                                                       |   |               | 277,884 |   |              |   |  256,416 |   |
| Savings      deposits                                                                                                                       |   |               | 50,241  |   |              |   |  45,329 |   |
| Time      deposits                                                                                                                          |   |               | 385,229 |   |              |   |  406,473 |   |
| Total    deposits                                                                                                                           |   |               | 835,873 |   |              |   | 817,848 |   |
| Other      borrowed funds                                                                                                                   |   |               | 46      |   |              |   | 54 |   |
| Accrued      interest payable                                                                                                               |   |               | 473     |   |              |   | 655 |   |
| Other      liabilities                                                                                                                      |   |               | 8,025   |   |              |   |  6,709 |   |
| Total      liabilities                                                                                                                      |   |               | 844,417 |   |              |   | 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 outstanding6,933,474      shares in 2009 and 6,929,474 in 2008                     |   |               | 8,667   |   |              |   | 8,662 |   |
| Retained      earnings                                                                                                                      |   |               | 113,087 |   |              |   | 105,356 |   |
| Accumulated      other comprehensive (loss), net                                                                                            |   |               | (283    | )      |              |   | (3,910 | ) |
| Total stockholders'      equity                                                                                                             |   |               | 121,471 |   |              |   | 110,108 |   |
| Total      liabilities and stockholders' equity                                                                                             |   | $                  | 965,888 |   |              | $      | 935,374 |   |

----

National Bankshares, Inc. and Subsidiaries

|                                                                                                                                |   | September      30, |   |   | September      30, |      |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|--------------------|-----------|
| $      in thousands, except share and per share data                                                                                |   | 2009               |   |   | 2008               |      |
| Interest      Income                                                                                                                |   |               |   |   |               |      |   |
| Interest      and fees on loans                                                                                                     | $      | 9,316              |   |   | $                  | 9,196     |   |
| Interest      on interest-bearing deposits                                                                                          |   | 23                 |   |   |               | 36        |   |
| Interest      on securities – taxable                                                                                         |   | 1,600              |   |   |               | 1,726     |   |
| Interest      on securities – nontaxable                                                                                      |   | 1,677              |   |   |               | 1,451     |   |
| Total interest      income                                                                                                          |   | 12,616             |   |   |               | 12,409    |   |
|                                                                                                                                |   |               |   |   |               |      |   |
| Interest      Expense                                                                                                               |   |               |   |   |               |      |   |
| Interest      on time deposits $100,000 or more                                                                                     |   | 1,379              |   |   |               | 1,323     |   |
| Interest      on other deposits                                                                                                     |   | 2,496              |   |   |               | 2,865     |   |
| Interest      on borrowed funds                                                                                                     |   | 1                  |   |   |               | 7         |   |
| Total interest      expense                                                                                                         |   | 3,876              |   |   |               | 4,195     |   |
| Net interest      income                                                                                                            |   | 8,740              |   |   |               | 8,214     |   |
| Provision      for loan losses                                                                                                      |   | 305                |   |   |               | 280       |   |
| Net interest income after      provision for loan losses                                                                            |   | 8,435              |   |   |               | 7,934     |   |
|                                                                                                                                |   |               |   |   |               |      |   |
| Noninterest      Income                                                                                                             |   |               |   |   |               |      |   |
| Service      charges on deposit accounts                                                                                            |   | 865                |   |   |               | 930       |   |
| Other      service charges and fees                                                                                                 |   | 107                |   |   |               | 88        |   |
| Credit      card fees                                                                                                               |   | 723                |   |   |               | 728       |   |
| Trust      income                                                                                                                   |   | 255                |   |   |               | 307       |   |
| Bank      owned life insurance income                                                                                               |   | 201                |   |   |               | 144       |   |
| Other      income                                                                                                                   |   | 76                 |   |   |               | 87        |   |
| Realized      securities (losses), net                                                                                              |   | (15                | )      |   |               | (76       | ) |
| Total noninterest      income                                                                                                       |   | 2,212              |   |   |               | 2,208     |   |
|                                                                                                                                |   |               |   |   |               |      |   |
| Noninterest      Expense                                                                                                            |   |               |   |   |               |      |   |
| Salaries      and employee benefits                                                                                                 |   | 2,784              |   |   |               | 2,792     |   |
| Occupancy,      furniture and fixtures                                                                                              |   | 450                |   |   |               | 437       |   |
| Data      processing and ATM                                                                                                        |   | 380                |   |   |               | 355       |   |
| FDIC      insurance                                                                                                                 |   | 423                |   |   |               | 47        |   |
| Credit      card processing                                                                                                         |   | 550                |   |   |               | 546       |   |
| Intangibles      amortization                                                                                                       |   | 271                |   |   |               | 279       |   |
| Net      costs of other real estate owned                                                                                           |   | 29                 |   |   |               | 52        |   |
| Franchise      taxes                                                                                                                |   | 221                |   |   |               | 208       |   |
| Other      operating expenses                                                                                                       |   | 783                |   |   |               | 815       |   |
| Total noninterest      expense                                                                                                      |   | 5,891              |   |   |               | 5,531     |   |
| Income      before income tax expense                                                                                               |   | 4,756              |   |   |               | 4,611     |   |
| Income      tax expense                                                                                                             |   | 976                |   |   |               | 996       |   |
| Net Income                                                                                                                          | $      | 3,780              |   |   | $                  | 3,615     |   |
|                                                                                                                                |   |               |   |   |               |      |   |
| Net income per share -      basic                                                                                                   | $      | 0.55               |   |   | $                  | 0.52      |   |
| Net income per share -      diluted                                                                                            | $      | 0.54               |   |   | $                  | 0.52      |   |
|                                                                                                                                |   |               |   |   |               |      |   |
|            Weighted      average number of common shares outstanding - basic |   | 6,933,474          |   |   |               | 6,926,974 |   |
| Weighted average number of common      shares outstanding - diluted                                                                 |   | 6,948,083          |   |   |               | 6,932,438 |   |
| Dividends declared per      share                                                                                                   | $      | ---                |   |   | $                  | ---       |   |

----

National Bankshares, Inc. and Subsidiaries

|                                                                |   | September      30, |      |   | September      30, |   |
|---------------------------------------------------------------------|--------|--------------------|-----------|--------|--------------------|--------|
| $      in thousands, except share and per share data                |   | 2009               |      |   | 2008               |   |
| Interest      Income                                                |   |               |      |   |               |   |   |   |
| Interest      and fees on loans                                     |   | $                  | 28,170    |   |               | $      | 27,682 |   |
| Interest      on interest-bearing deposits                          |   |               | 73        |   |               |   | 426 |   |
| Interest      on securities – taxable                         |   |               | 4,766     |   |               |   | 5,175 |   |
| Interest      on securities – nontaxable                      |   |               | 4,896     |   |               |   | 4,309 |   |
| Total interest      income                                          |   |               | 37,905    |   |               |   | 37,592 |   |
|                                                                |   |               |      |   |               |   |   |   |
| Interest      Expense                                               |   |               |      |   |               |   |   |   |
| Interest      on time deposits $100,000 or more                     |   |               | 4,363     |   |               |   | 4,502 |   |
| Interest      on other deposits                                     |   |               | 8,197     |   |               |   | 9,904 |   |
| Interest      on borrowed funds                                     |   |               | 2         |   |               |   | 11 |   |
| Total interest      expense                                         |   |               | 12,562    |   |               |   | 14,417 |   |
| Net interest      income                                            |   |               | 25,343    |   |               |   | 23,175 |   |
| Provision      for loan losses                                      |   |               | 953       |   |               |   | 515 |   |
| Net interest income after      provision for loan losses            |   |               | 24,390    |   |               |   | 22,660 |   |
|                                                                |   |               |      |   |               |   |   |   |
| Noninterest      Income                                             |   |               |      |   |               |   |   |   |
| Service      charges on deposit accounts                            |   |               | 2,506     |   |               |   | 2,502 |   |
| Other      service charges and fees                                 |   |               | 263       |   |               |   | 250 |   |
| Credit      card fees                                               |   |               | 2,060     |   |               |   | 2,101 |   |
| Trust      income                                                   |   |               | 792       |   |               |   | 929 |   |
| Bank      owned life insurance income                               |   |               | 554       |   |               |   | 446 |   |
| Other      income                                                   |   |               | 261       |   |               |   | 314 |   |
| Realized      securities gains, net                                 |   |               | 55        |   |               |   | 189 |   |
| Total noninterest      income                                       |   |               | 6,491     |   |               |   | 6,731 |   |
|                                                                |   |               |      |   |               |   |   |   |
| Noninterest      Expense                                            |   |               |      |   |               |   |   |   |
| Salaries      and employee benefits                                 |   |               | 8,409     |   |               |   | 8,395 |   |
| Occupancy,      furniture and fixtures                              |   |               | 1,344     |   |               |   | 1,328 |   |
| Data      processing and ATM                                        |   |               | 1,016     |   |               |   | 1,033 |   |
| FDIC      insurance                                                 |   |               | 1,429     |   |               |   | 90 |   |
| Credit      card processing                                         |   |               | 1,551     |   |               |   | 1,570 |   |
| Intangibles      amortization                                       |   |               | 822       |   |               |   | 841 |   |
| Net      costs of other real estate owned                           |   |               | 100       |   |               |   | 64 |   |
| Franchise      taxes                                                |   |               | 666       |   |               |   | 619 |   |
| Other      operating expenses                                       |   |               | 2,364     |   |               |   | 2,354 |   |
| Total noninterest      expense                                      |   |               | 17,701    |   |               |   | 16,294 |   |
| Income      before income tax expense                               |   |               | 13,180    |   |               |   | 13,097 |   |
| Income      tax expense                                             |   |               | 2,656     |   |               |   | 2,832 |   |
| Net Income                                                          |   | $                  | 10,524    |   |               | $      | 10,265 |   |
|                                                                |   |               |      |   |               |   |   |   |
| Net income per share -      basic                                   |   | $                  | 1.52      |   |               | $      | 1.48 |   |
| Net income per share -      diluted                                 |   | $                  | 1.52      |   |               | $      | 1.48 |   |
|                                                                |   |               |      |   |               |   |   |   |
| Weighted average number of common      shares outstanding - basic   |   |               | 6,931,672 |   |               |   | 6,930,133 |   |
| Weighted average number of common      shares outstanding - diluted |   |               | 6,942,712 |   |               |   | 6,937,018 |   |
| Dividends declared per      share                                   |   | $                  | 0.41      |   |               | $      | 0.39 |   |

----

National Bankshares, Inc. andSubsidiaries

| $      in thousands, except per share data                                             |   | Common      Stock |      |   | Retained      Earnings |   |      | Accumulated      Other Compre-hensive      Income(Loss) |   |   | Compre-hensiveIncome |   |   | Total  |   |
|----------------------------------------------------------------------------------------|--------|-------------------|-----------|--------|------------------------|--------|-----------|---------------------------------------------------------|--------|--------|----------------------|--------|--------|--------|--------|
| Balances      at December 31, 2007                                                     |   | $                 | 8,690     |   |                   | $      | 97,810    |                                                    |   | $      | (1,700               | )      |   |   |   |   | $ | 104,800 |   |
| Net      income                                                                        |   |              | ---       |   |                   |   | 10,265    |                                                    |   |   | ---                  |   |   | $      | 10,265 |   |   |   | 10,265 |   |
| Dividends      $0.39 per share                                                         |   |              | ---       |   |                   |   | (2,702    | )                                                       |   |   | ---                  |   |   |   | ---    |   |   |   | (2,702 | ) |
| Exercise      of stock options                                                         |   |              | 5         |   |                   |   | 41        |                                                    |   |   | ---                  |   |   |   | ---    |   |   |   | 46 |   |
| Other      comprehensive loss, net of tax:                                             |   |              |      |   |                   |   |      |                                                    |   |   |                 |   |   |   |   |   |   |   |   |   |
| Unrealized      loss on securities available for sale, net of income tax      $(1,198) |   |              | ---       |   |                   |   | ---       |                                                    |   |   | ---                  |   |   |   | (2,224 | ) |   |   | --- |   |
| Reclass      adjustment, net of tax $(58)                                              |   |              | ---       |   |                   |   | ---       |                                                    |   |   | ---                  |   |   |   | (108   | ) |   |   | --- |   |
| Other      comprehensive loss, net of tax $(1,256)                                     |   |              | ---       |   |                   |   | ---       |                                                    |   |   | (2,332               | )      |   |   | (2,332 | ) |   |   | (2,332 | ) |
| Comprehensive      income                                                              |   |              | ---       |   |                   |   |  --- |                                                    |   |   | ---                  |   |   | $      | 7,933  |   |   |   | --- |   |
| Effect      of changing pension plan measurement date pursuant to SFAS No.      158    |   |              |  --- |   |                   |   | (45       | )                                                       |   |   | 3                    |   |   |   |   |   |   |   | (42 | ) |
| Stock      repurchase                                                                  |   |              | (36       | )      |                   |   | (526      | )                                                       |   |   | ---                  |   |   |   |   |   |   |   | (562 | ) |
| Balances      at September 30, 2008                                                    |   | $                 | 8,659     |   |                   | $      | 104,843   |                                                    |   | $      | (4,029               | )      |   |   |   |   |   | $ | 109,473 |   |
|                                                                                   |   |              |      |   |                   |   |      |                                                    |   |   |                 |   |   |   |   |   |   |   |   |   |
| Balances      at December 31, 2008                                                     |   | $                 | 8,662     |   |                   | $      | 105,356   |                                                    |   | $      | (3,910               | )      |   |   |   |   |   | $ | 110,108 |   |
| Net      income                                                                        |   |              | ---       |   |                   |   | 10,524    |                                                    |   |   | ---                  |   |   | $      | 10,524 |   |   |   | 10,524 |   |
| Dividends      $0.41per share                                                          |   |              | ---       |   |                   |   | (2,843    | )                                                       |   |   | ---                  |   |   |   | ---    |   |   |   | (2,843 | ) |
| Exercise      of stock options                                                         |   |              | 5         |   |                   |   | 50        |                                                    |   |   | ---                  |   |   |   | ---    |   |   |   | 55 |   |
| Other      comprehensive income, net of tax:                                           |   |              |      |   |                   |   |      |                                                    |   |   |                 |   |   |   |   |   |   |   |   |   |
| Unrealized      gains on securities available for sale, net of income tax      $1,938  |   |              | ---       |   |                   |   | ---       |                                                    |   |   | ---                  |   |   |   | 3,600  |   |   |   | --- |   |
| Reclass      adjustment, net of tax $15                                                |   |              | ---       |   |                   |   | ---       |                                                    |   |   | ---                  |   |   |   | 27     |   |   |   | --- |   |
| Other      comprehensive income, net of tax $1,953                                     |   |              | ---       |   |                   |   | ---       |                                                    |   |   | 3,627                |   |   |   | 3,627  |   |   |   | 3,627 |   |
| Comprehensive      income                                                              |   |              | ---       |   |                   |   | ---       |                                                    |   |   | ---                  |   |   | $      | 14,151 |   |   |   | --- |   |
| Balances      at September 30, 2009                                                    |   | $                 | 8,667     |   |                   | $      | 113,087   |                                                    |   | $      | (283                 | )      |   |   |   |   |   | $ | 121,471 |   |

----

National Bankshares, Inc. and Subsidiaries

|                                                                                                     |   | September      30, |    |   | September      30, |   |
|----------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------|--------------------|--------|
| $      in thousands                                                                                      |   | 2009               |    |   | 2008               |   |
| Cash      Flows from Operating Activities                                                                |   |               |    |   |               |   |   |
| Net      income                                                                                          |   | $                  | 10,524  |   |               | $      | 10,265 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities:              |   |               |    |   |               |   |   |   |
| Provision for loan      losses                                                                           |   |               | 953     |   |               |   | 515 |   |
| Depreciation of bank      premises and equipment                                                         |   |               | 687     |   |               |   | 730 |   |
| Amortization of      intangibles                                                                         |   |               | 822     |   |               |   | 841 |   |
| Amortization of premiums and      accretion of discounts, net                                            |   |               | 268     |   |               |   | 189 |   |
| Losses on sale of disposal of      fixed assets                                                          |   |               | ---     |   |               |   | 2 |   |
| (Gains) on sales and calls of      securities available for sale, net                                    |   |               | (42     | )      |               |   | (166 | ) |
| (Gains) on calls of securities      held to maturity, net                                                |   |               | (13     | )      |               |   | (23 | ) |
| (Gains) losses on other real      estate owned                                                           |   |               | 54      |   |               |   | (5 | ) |
| Net change in:                                                                                           |   |               |    |   |               |   |   |   |
| Mortgage loans held for      sale                                                                        |   |               | (280    | )      |               |   | 125 |   |
| Accrued interest      receivable                                                                         |   |               | (562    | )      |               |   | (290 | ) |
| Other    assets                                                                                          |   |               | (1,309  | )      |               |   | (2,722 | ) |
| Accrued interest      payable                                                                            |   |               | (182    | )      |               |   | (156 | ) |
| Other      liabilities                                                                                   |   |               | 1,316   |   |               |   | 415 |   |
| Net cash provided by operating      activities                                                           |   |               | 12,236  |   |               |   | 9,720 |   |
|                                                                                                     |   |               |    |   |               |   |   |   |
| Cash      Flows from Investing Activities                                                                |   |               |    |   |               |   |   |   |
| Net      change interest-bearing deposits                                                                |   |               | 6,721   |   |               |   | 17,430 |   |
| Proceeds      from calls, principal payments, sales and maturities of securities      available for sale |   |               | 19,699  |   |               |   | 20,409 |   |
| Proceeds      from calls, principal payments and maturities of securities held to      maturity          |   |               | 31,929  |   |               |   | 19,953 |   |
| Purchases      of securities available for sale                                                          |   |               | (36,542 | )      |               |   | (16,957 | ) |
| Purchases      of securities held to maturity                                                            |   |               | (47,024 | )      |               |   | (32,350 | ) |
| Purchases      of loan participations                                                                    |   |               | (13     | )      |               |   | (369 | ) |
| Collections      of loan participations                                                                  |   |               | 704     |   |               |   | 102 |   |
| Loan      originations and principal collections, net                                                    |   |               | (7,480  | )      |               |   | (24,161 | ) |
| Proceeds      from disposal of other real estate owned                                                   |   |               | 269     |   |               |   | 65 |   |
| Recoveries      on loans charged off                                                                     |   |               | 64      |   |               |   | 110 |   |
| Purchase      of bank premises and equipment                                                             |   |               | (217    | )      |               |   | (194 | ) |
| Proceeds      from disposal of bank premises and equipment                                               |   |               | ---     |   |               |   | 8 |   |
| Net cash used in investing      activities                                                               |   |               | (31,890 | )      |               |   | (15,954 | ) |
|                                                                                                     |   |               |    |   |               |   |   |   |
| Cash      Flows from Financing Activities                                                                |   |               |    |   |               |   |   |   |
| Net      change in other deposits                                                                        |   |               | 39,269  |   |               |   | 716 |   |
| Net      change in time deposits                                                                         |   |               | (21,244 | )      |               |   | 8,931 |   |
| Net      change in other borrowed funds                                                                  |   |               | (8      | )      |               |   | (8 | ) |
| Stocks      options exercised                                                                            |   |               | 55      |   |               |   | 46 |   |
| Cash      dividends                                                                                      |   |               | (2,843  | )      |               |   | (2,702 | ) |
| Common      stock repurchased                                                                            |   |               | ---     |   |               |   | (562 | ) |
| Net cash provided by financing      activities                                                           |   |               | 15,229  |   |               |   | 6,421 |   |
| Net      change in cash and due from banks                                                               |   |               | (4,425  | )      |               |   | 187 |   |
| Cash      and due from banks at beginning of period                                                      |   |               | 16,316  |   |               |   | 16,324 |   |
| Cash      and due from banks at end of period                                                            |   | $                  | 11,891  |   |               | $      | 16,511 |   |
|                                                                                                     |   |               |    |   |               |   |   |   |
| Supplemental      Disclosures of Cash Flow Information                                                   |   |               |    |   |               |   |   |   |
| Interest      paid on deposits and borrowed funds                                                        |   | $                  | 12,744  |   |               | $      | 14,573 |   |
| Income      taxes paid                                                                                   |   | $                  | 3,200   |   |               | $      | 3,034 |   |

----

|                                                             |   |   |   |   |   |   |   |   |
|------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Supplemental      Disclosure of Noncash Activities               |   |   |   |   |   |   |   |   |
| Loans      charged against the allowance for loan losses         |   | $      | 422    |   |   | $      | 409    |   |
| Loans      transferred to other real estate owned                |   | $      | 283    |   |   | $      | 834    |   |
| Unrealized      gains (losses) on securities available for sale  |   | $      | 5,580  |   |   | $      | (3,588 | )      |
| Capital      reduction due to change in pension measurement date |   | $      | ---    |   |   | $      | 63     |   |

----

National Bankshares, Inc. andSubsidiaries

| Options                                |   | Shares |    |   | WeightedAverageExercisePrice |   |   | WeightedAverageRemainingContractualTerm |   |   | AggregateIntrinsicValue |   |
|----------------------------------------|--------|--------|---------|--------|------------------------------|--------|--------|-----------------------------------------|--------|--------|-------------------------|--------|
| Outstanding      at January 1, 2009    |   |   | 113,500 |   |                         | $      | 21.84  |                                    |   |   |                    |   |   |   |
| Granted                                |   |   | ---     |   |                         |   | ---    |                                    |   |   |                    |   |   |   |
| Exercised                              |   |   | 4,000   |   |                         |   | 13.58  |                                    |   |   |                    |   | $ 47 |   |
| Forfeited      or expired              |   |   | ---     |   |                         |   | ---    |                                    |   |   |                    |   |   |   |
| Outstanding      at September 30, 2009 |   |   | 109,500 |   |                         | $      | 22.14  |                                    |   |   | 5.74                    |   |   | $ | 362 |   |
| Exercisable      at September 30, 2009 |   |   | 109,500 |   |                         | $      | 22.14  |                                    |   |   | 5.74                    |   |   | $ | 362 |   |

----

|                                                                                                              |   | Nine      Months endedSeptember      30, |   |   | Year      endedDecember      31, |    |
|-------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|--------|----------------------------------|---------|
| $      in thousands, except % data                                                                                |   | 2009                                     |   | 2008   |                             | 2008    |
| Balance      at beginning of period                                                                               |   | $                                        | 5,858  |   |                             | $       | 5,219 |   |   | $ | 5,219 |   |
| Provision      for loan losses                                                                                    |   |                                     | 953    |   |                             |    | 515 |   |   |   | 1,119 |   |
| Loans      charged off                                                                                            |   |                                     | (422   | )      |                             |    | (409 | ) |   |   | (611 | ) |
| Recoveries                                                                                                        |   |                                     | 64     |   |                             |    | 110 |   |   |   | 131 |   |
| Balance      at the end of period                                                                                 |   |  $                                  | 6,453  |   |                             |  $ | 5,435 |   |   |  $ | 5,858 |   |
| Ratio      of allowance for loan losses to the end of period loans, net of unearned      income and deferred fees |   |                                     | 1.11   | %      |                             |    | 0.99 | % |   |   | 1.02 | % |
| Ratio      of net charge-offs to average loans, net of unearned income and deferred      fees1.                   |   |                                     | 0.08   | %      |                             |    | 0.08 | % |   |   | 0.09 | % |
| Ratio      of allowance for loan losses to nonperforming loans2.                                                  |   |                                     | 165.97 | %      |                             |    | 271.34 | % |   |   | 439.46 | % |

| 1.   | Net      charge-offs are on an annualizedbasis. |
|----------------|-------------------------------------------------|

| 2.   | The      Company defines nonperforming loans as total nonaccrual and restructured      loans.  Loans 90 days or more past due and still accruing are      excluded. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                     |   | September      30, |   |   | December      31, |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
| $      in thousands, except % data                                                                                       |   | 2009               |   | 2008   |              | 2008   |   |
| Nonperforming      assets:                                                                                               |   |               |   |   |              |   |   |   |   |
| Nonaccrual      loans                                                                                                    |   | $                  | 3,888  |   |              | $      | 2,003 |   |   | $ | 1,333 |   |
| Restructured      loans                                                                                                  |   |               | ---    |   |              |   | --- |   |   |   | --- |   |
| Total nonperforming      loans                                                                                           |   |               | 3,888  |   |              |   | 2,003 |   |   |   | 1,333 |   |
| Foreclosed      property                                                                                                 |   |               | 1,944  |   |              |   | 1,037 |   |   |   | 1,984 |   |
| Total nonperforming      assets                                                                                          |   | $                  | 5,832  |   |              | $      | 3,040 |   |   | $ | 3,317 |   |
| Ratio      of nonperforming assets to loans, net of unearned income and deferred      fees, plus other real estate owned |   |               | 1.00   | %      |              |   | 0.55 | % |   |   | 0.57 | % |

|                                                                                                                    |   | September      30, |   |   | December      31, |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
| $      in thousands, except % data                                                                                      |   | 2009               |   | 2008   |              | 2008   |   |
| Loans      past due 90 days or more and still accruing                                                                  |   | $                  | 2,153  |   |              | $      | 1,324 |   |   | $ | 1,127 |   |
| Ratio      of loans past due 90 days or more and still accruing to loans, net of      unearned income and deferred fees |   |               | 0.37   | %      |              |   | 0.24 | % |   |   | 0.20 | % |
| Impaired      loans:                                                                                                    |   |               |   |   |              |   |   |   |   |   |   |   |
| Total      impaired loans                                                                                               |   | $                  | 5,812  |   |              | $      | 4,374 |   |   | $ | 3,576 |   |
| Impaired      loans with a valuation allowance                                                                          |   | $                  | 5,812  |   |              | $      | 3,271 |   |   | $ | 2,548 |   |
| Valuation      allowance                                                                                                |   |               | (1,718 | )      |              |   | (996 | ) |   |   | (679 | ) |
| Impaired      loans, net of allowance                                                                                   |   | $                  | 4,094  |   |              | $      | 2,275 |   |   | $ | 1,869 |   |
| Impaired      loans with no valuation allowance                                                                         |   | $                  | ---    |   |              | $      | 1,103 |   |   | $ | 1,028 |   |
| Average      recorded investment in impaired loans                                                                      |   | $                  | 5,995  |   |              | $      | 3,861 |   |   | $ | 3,790 |   |
| Income      recognized on impaired loans                                                                                |   | $                  | 137    |   |              | $      | 124 |   |   | $ | 140 |   |
| Amount      of income recognized on a cash basis                                                                        |   | $                  | ---    |   |              | $      | --- |   |   | $ | --- |   |

----

|                                           |   | September      30, 2009 |    |
|------------------------------------------------|--------|-------------------------|---------|
| $      in thousands                            |   | AmortizedCosts          |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValues |   |
| Available      for sale:                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| U.S.      Treasury                             |   | $                       | 2,021   |   |   | $ | 156 |   |   | $ | --- |   |   | $ | 2,177 |   |
| U.S.      Government agencies and corporations |   |                    | 42,165  |   |   |   | 486 |   |   |   | 410 |   |   |   | 42,241 |   |
| State      and political subdivisions          |   |                    | 76,857  |   |   |   | 2,352 |   |   |   | 299 |   |   |   | 78,910 |   |
| Mortgage-backed      securities                |   |                    | 17,689  |   |   |   | 817 |   |   |   | --- |   |   |   | 18,506 |   |
| Corporate      debt securities                 |   |                    | 22,962  |   |   |   | 635 |   |   |   | 327 |   |   |   | 23,270 |   |
| Federal      Reserve Bank stock-restricted     |   |                    | 92      |   |   |   | --- |   |   |   | --- |   |   |   | 92 |   |
| Federal      Home Loan Bank stock-restricted   |   |                    | 1,677   |   |   |   | --- |   |   |   | --- |   |   |   | 1,677 |   |
| Other      securities                          |   |                    | 2,790   |   |   |   | --- |   |   |   | 206 |   |   |   | 2,584 |   |
| Total securities available for      sale       |   | $                       | 166,253 |   |   | $ | 4,446 |   |   | $ | 1,242 |   |   | $ | 169,457 |   |

|                                           |   | September      30, 2009 |    |
|------------------------------------------------|--------|-------------------------|---------|
| $      in thousands                            |   | AmortizedCosts          |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValues |   |
| Held      to maturity:                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| U.S.      Government agencies and corporations |   | $                       | 29,083  |   |   | $ | 394 |   |   | $ | 208 |   |   | $ | 29,269 |   |
| State      and political subdivisions          |   |                    | 93,999  |   |   |   | 2,294 |   |   |   | 734 |   |   |   | 95,559 |   |
| Mortgage-backed      securities                |   |                    | 1,536   |   |   |   | 83 |   |   |   | --- |   |   | 1,619 |   |
| Corporate      debt securities                 |   |                    | 8,168   |   |   |   | 92 |   |   |   | 422 |   |   |   | 7,838 |   |
| Total securities held to      maturity         |   | $                       | 132,786 |   |   | $ | 2,863 |   |   | $ | 1,364 |   |   | $ | 134,285 |   |

|                                           |   | September      30, 2009  |   |
|------------------------------------------------|--------|--------------------------|--------|
|                                           |   | Less      Than 12 Months |   |   | 12      Months or More |   |
| $      in thousands                            |   | FairValue                |   |   | UnrealizedLoss |   |   | FairValue |   |   | UnrealizedLoss |   |
| U.S.      Government agencies and corporations |   | $                        | 34,556 |   |   | $ | 618 |   |   | $ | --- |   |   | $ | --- |   |
| State      and political subdivisions          |   |                     | 23,782 |   |   |   | 401 |   |   |   | 13,452 |   |   |   | 632 |   |
| Mortgage-backed      securities                |   |                     | ---    |   |   |   | --- |   |   |   | --- |   |   |   | --- |   |
| Corporate      debt and other securities       |   |                     | ---    |   |   |   | --- |   |   |   | 10,784 |   |   |   | 955 |   |
| Total temporarily impaired      securities     |   | $                        | 58,338 |   |   | $ | 1,019 |   |   | $ | 24,236 |   |   | $ | 1,587 |   |

----

|                                           |   | December      31, 2008   |   |
|------------------------------------------------|--------|--------------------------|--------|
|                                           |   | Less      Than 12 Months |   |   | 12      Months or More |   |
| $      in thousands                            |   | FairValue                |   |   | UnrealizedLoss |   |   | FairValue |   |   | UnrealizedLoss |   |
| U.S.      Government agencies and corporations |   | $                        | 995    |   |   | $ | 4 |   |   | $ | --- |   |   | $ | --- |   |
| State      and political subdivisions          |   |                     | 54,480 |   |   |   | 2,533 |   |   |   | 1,000 |   |   |   | 2 |   |
| Mortgage-backed      securities                |   |                     | 1,309  |   |   |   | 9 |   |   |   | 635 |   |   |   | 3 |   |
| Corporate      debt securities                 |   |                     | 13,786 |   |   |   | 851 |   |   |   | 12,046 |   |   |   | 3,255 |   |
| Other      securities                          |   |                     | ---    |   |   |   | --- |   |   |   | 492 |   |   |   | 96 |   |
| Total temporarily impaired      securities     |   | $                        | 70,570 |   |   | $ | 3,397 |   |   | $ | 14,173 |   |   | $ | 3,356 |   |

| ·   | The      Company does not intend to sell any impaired  security. |
|--------------------|------------------------------------------------------------------|

| ·   | It      is more likely than not that the Company will not be required to sell any      impaired security before recovering its amortized cost    basis. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      amortized cost basis of each impaired security does not exceed the present      value of its expected cash flows. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------|

----

----

|                                              |   | Pension      Benefits                |   |
|---------------------------------------------------|--------|--------------------------------------|--------|
|                                              |   | Nine      Months ended September 30, |   |
| $      in thousands                               |   | 2009                                 |   |   | 2008 |   |
| Service      cost                                 |   | $                                    | 264    |   |   | $ | 321 |   |
| Interest      cost                                |   |                                 | 495    |   |   |   | 462 |   |
| Expected      return on plan assets               |   |                                 | (396   | ) |   |   | (500 | ) |
| Amortization      of prior service cost           |   |                                 | (75    | ) |   |   | (75 | ) |
| Amortization      of net obligation at transition |   |                                 | (9     | ) |   |   | (11 | ) |
| Recognized      net actuarial loss                |   |                                 | 252    |   |   |   | 116 |   |
| Net periodic benefit      cost                    |   | $                                    | 531    |   |   | $ | 313 |   |

| ·   | Level      1 – inputs to the valuation methodology are quoted prices (unadjusted) for      identical assets or liabilities in active  markets. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      2 – inputs to the valuation methodology include quoted prices for similar      assets and liabilities in active markets, and inputs that are observable      for the asset or liability, either directly or indirectly, for      substantially the full term of the financial  instrument. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      3 – inputs to the valuation methodology are unobservable and significant      to the fair value measurement. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                                        |   |                                           |    |   | Fair      Value Measurements at September 30, 2009 Using                            |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|---------|--------|-------------------------------------------------------------------------------------|--------|
| $      in      thousands                            Description |   | Balance      as of September      30,2009 |    |   | Quoted      Pricesin      ActiveMarkets      forIdentical      Assets(Level      1) |   |   | SignificantOtherObservableInputs(Level      2) |   |   | SignificantUnobservable      Inputs(Level      3) |   |
| Assets:                                                                                                                                                                                                     |   |                                           |    |   |                                                                                |   |   |   |   |   |   |   |
| Available      for sale securities                                                                                                                                                                          |   | $                                              | 167,688 |   |                                                                                | $      | --- |   |   | $ | 167,688 |   |   | $ | --- |   |

|                                                                                                                                                                                                        |   |                                           |   |   | Carrying      Value at September 30, 2009                                           |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------|--------|
| $      in      thousands                            Description |   | Balance      as of September      30,2009 |   |   | Quoted      Pricesin      ActiveMarkets      forIdentical      Assets(Level      1) |   |   | SignificantOtherObservableInputs(Level      2) |   |   | SignificantUnobservable      Inputs(Level      3) |   |
| Assets:                                                                                                                                                                                                     |   |                                           |   |   |                                                                                |   |   |   |   |   |   |   |
| Impaired      loans net of valuation allowance                                                                                                                                                              |   | $                                              | 4,094  |   |                                                                                | $      | --- |   |   | $ | --- |   |   | $ | 4,094 |   |

|                                                                                                                                                                                                        |   |                                           |   |   | Carrying      Value at September 30, 2009                                           |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------|--------|
| $      in      thousands                            Description |   | Balance      as of September      30,2009 |   |   | Quoted      Pricesin      ActiveMarkets      forIdentical      Assets(Level      1) |   |   | SignificantOtherObservableInputs(Level      2) |   |   | SignificantUnobservable      Inputs(Level      3) |   |
| Assets:                                                                                                                                                                                                     |   |                                           |   |   |                                                                                |   |   |   |   |   |   |   |
| Other      real estate owned net of valuation allowance                                                                                                                                                     |   | $                                              | 1,944  |   |                                                                                | $      | --- |   |   | $ | --- |   |   | $ | 1,944 |   |

----

----

|                              |   | September      30, 2009 |    |
|-----------------------------------|--------|-------------------------|---------|
|  $ in      thousands         |   | CarryingAmount          |    |   | Estimated      Fair Value |   |
| Financial      assets:            |   |                    |    |   |   |   |
| Cash and due from      banks      |   | $                       | 11,891  |   |   | $ | 11,891 |   |
| Interest-bearing      deposits    |   |                    | 22,935  |   |   |   | 22,935 |   |
| Securities                        |   |                    | 302,243 |   |   |   | 303,742 |   |
| Mortgage loans held for      sale |   |                    | 628     |   |   |   | 628 |   |
| Loans, net                        |   |                    | 575,188 |   |   |   | 579,215 |   |
| Accrued interest      receivable  |   |                    | 6,322   |   |   |   | 6,322 |   |
| Financial      liabilities:       |   |                    |    |   |   |   |   |   |
| Deposits                          |   | $                       | 835,873 |   |   | $ | 840,826 |   |
| Other borrowed      funds         |   |                    | 46      |   |   |   | 46 |   |
| Accrued interest      payable     |   |                    | 473     |   |   |   | 473 |   |

Item 2. Management's Discussion and Analysis of FinancialCondition and Results of Operations

| ·   | interest      rates, |
|--------------------|----------------------|

| ·   | general      economic conditions, |
|--------------------|-----------------------------------|

| ·   | the      legislative/regulatory climate, |
|--------------------|------------------------------------------|

| ·   | monetary      and fiscal policies of the U.S. Government, including policies of the U.S.      Treasury, the Office of the Comptroller of the Currency and the Federal      Reserve Board, and the impact of any policies or programs implemented      pursuant to the Emergency Economic Stabilization Act of 2008 (EESA) and      other financial reform legislation, |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | unanticipated      increases in the level of unemployment in the Company’s trade      area, |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | the      quality or composition of the loan and/or investment      portfolios, |
|--------------------|--------------------------------------------------------------------------------|

| ·   | demand      for loan products, |
|--------------------|--------------------------------|

| ·   | deposit      flows, |
|--------------------|---------------------|

| ·   | competition, |
|--------------------|--------------|

| ·   | demand      for financial services in the Company’s trade  area, |
|--------------------|------------------------------------------------------------------------|

| ·   | the      real estate market in the Company’s tradearea, |
|--------------------|---------------------------------------------------------------|

| ·   | the      Company’s technology initiatives,and |
|--------------------|-----------------------------------------------------|

| ·   | applicable      accounting principles, policies andguidelines. |
|--------------------|----------------------------------------------------------------|

----

----

|                                      |   | September      30,2009 |   |   | December      31,2008 |   |
|-------------------------------------------|--------|------------------------|--------|--------|-----------------------|--------|
| Return      on average assets             |   |                   | 1.45   | %      |                  |   | 1.51 | % |
| Return      on average equity             |   |                   | 12.20  | %      |                  |   | 12.52 | % |
| Net      interest margin (1)              |   |                   | 4.13   | %      |                  |   | 4.12 | % |
| Noninterest      margin (2)               |   |                   | 1.55   | %      |                  |   | 1.46 | % |
| Basic      net earnings per share         |   | $                      | 1.52   |   |                  | $      | 1.96 |   |
| Fully      diluted net earnings per share |   | $                      | 1.52   |   |                  | $      | 1.96 |   |

| (1)   | Net      interest margin: Year-to-date tax-equivalent net interest income divided      by year-to-date average earningassets. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Noninterest      margin: Noninterest income (excluding securities gains and losses) less      noninterest expense (excluding the provision for bad debts and income      taxes) divided by average year-to-dateassets. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|              |   | September      30, 2009 |    |   | December      31, 2008 |   | Percent      Change |
|-------------------|--------|-------------------------|---------|--------|------------------------|--------|---------------------|
| Securities        |   | $                       | 302,243 |   |                   | $      | 264,999             |   | 14.05 | % |
| Loans,      net   |   |                    | 575,188 |   |                   |   | 569,699             |   | 0.96 | % |
| Deposits          |   |                    | 835,873 |   |                   |   | 817,848             |   | 2.20 | % |
| Total      assets |   |                    | 965,888 |   |                   |   | 935,374             |   | 3.26 | % |

----

|                                    |   | September      30, 2009 |   | December      31, 2008 |
|-----------------------------------------|--------|-------------------------|--------|------------------------|
| Nonperforming      loans                |   | $                       | 3,888  |                   |   | $ | 1,333 |   |
| Loans      past due 90 days or more     |   |                    | 2,153  |                   |   |   | 1,127 |   |
| Other      real estate owned            |   |                    | 1,944  |                   |   |   | 1,984 |   |
| Allowance      for loan losses to loans |   |                    | 1.11   | %                      |   |   | 1.02 | % |
| Net      charge-off ratio               |   |                    | 0.08   | %                      |   |   | 0.09 | % |

----

|                                     |   | Nine      Months ended  |   |   |
|------------------------------------------|--------|-------------------------|--------|--------|
|                                     |   | September      30, 2009 |   |   | September      30, 2008 |   | Percent      Change |
| Service      charges on deposit accounts |   | $                       | 2,506  |   |   | $ | 2,502 |   | 0.16 |   | % |
| Other      service charges and fees      |   |                    | 263    |   |   |   | 250 |   | 5.20 |   | % |
| Credit      card fees                    |   |                    | 2,060  |   |   |   | 2,101 |   | (1.95 | ) | % |
| Trust      fees                          |   |                    | 792    |   |   |   | 929 |   | (14.75 | ) | % |
| Bank-owned      life insurance income    |   |                    | 554    |   |   |   | 446 |   | 24.22 |   | % |
| Other      income                        |   |                    | 261    |   |   |   | 314 |   | (16.88 | ) | % |
| Realized      securities gains           |   |                    | 55     |   |   |   | 189 |   | (70.90 | ) | % |

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|                                      |   | Nine      Months ended  |   |   |
|-------------------------------------------|--------|-------------------------|--------|--------|
|                                      |   | September      30, 2009 |   |   | September      30, 2008 |   | Percent      Change |
| Salaries      and employee benefits       |   | $                       | 8,409  |   |   | $ | 8,395 |   | 0.17 |   | % |
| Occupancy,      furniture and fixtures    |   |                    | 1,344  |   |   |   | 1,328 |   | 1.20 |   | % |
| Data      processing and ATM              |   |                    | 1,016  |   |   |   | 1,033 |   | (1.65 | ) | % |
| FDIC      insurance                       |   |                    | 1,429  |   |   |   | 90 |   | 1,478.78 |   | % |
| Credit      card processing               |   |                    | 1,551  |   |   |   | 1,570 |   | (1.21 | ) | % |
| Intangibles      amortization             |   |                    | 822    |   |   |   | 841 |   | (2.26 | ) | % |
| Net      costs of other real estate owned |   |                    | 100    |   |   |   | 64 |   | 56.25 |   | % |
| Franchise      taxes                      |   |                    | 666    |   |   |   | 619 |   | 7.59 |   | % |
| Other      operating expenses             |   |                    | 2,364  |   |   |   | 2,354 |   | 0.42 |   | % |

| Assets                               |   | September      30, 2009 |    |   | December      31, 2008 |   | Percent      Change |
|--------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|---------------------|
| Interest-bearing      deposits       |   | $                       | 38,706  |   |                   | $      | 21,440              |   | 80.53 |   | % |
| Securities      available for sale   |   |                    | 166,446 |   |                   |   | 157,291             |   | 5.82 |   | % |
| Securities      held to maturity     |   |                    | 131,888 |   |                   |   | 124,076             |   | 6.30 |   | % |
| Mortgage      loans held for sale    |   |                    | 901     |   |                   |   | 386                 |   | 133.42 |   | % |
| Real      estate construction loans  |   |                    | 54,477  |   |                   |   | 56,063              |   | (2.83 | ) | % |
| Real      estate mortgage loans      |   |                    | 165,120 |   |                   |   | 148,816             |   | 10.96 |   | % |
| Commercial      and industrial loans |   |                    | 255,789 |   |                   |   | 225,806             |   | 13.28 |   | % |
| Loans      to individuals            |   |                    | 101,876 |   |                   |   | 108,908             |   | (6.46 | ) | % |
| Total      assets                    |   |                    | 972,363 |   |                   |   | 899,462             |   | 8.10 |   | % |

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|                                            |   |   |    |   |   |   |    |   |   |   |   |
|-------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|--------|
| Liabilities      and stockholders’ equity |   |   |    |   |   |   |    |   |   |   |   |
| Noninterest-bearing      demand deposits        |   | $      | 113,541 |   |   | $      | 112,608 |   | 0.83   |   | %      |
| Interest-bearing      demand deposits           |   |   | 279,391 |   |   |   | 243,409 |   | 14.78  |   | %      |
| Savings      deposits                           |   |   | 48,377  |   |   |   | 45,796  |   | 5.64   |   | %      |
| Time      deposits                              |   |   | 407,946 |   |   |   | 381,961 |   | 6.80   |   | %      |
| Other      borrowings                           |   |   | 50      |   |   |   | 297     |   | (83.16 | )      | %      |
| Stockholders’      equity                 |   |   | 115,337 |   |   |   | 107,963 |   | 6.83   |   | %      |

|                           |   | September      30, 2009 |    |   | December      31, 2008 |   | Percent      Change |
|--------------------------------|--------|-------------------------|---------|--------|------------------------|--------|---------------------|
| Real      estate construction  |   | $                       | 47,671  |   |                   | $      | 60,798              |   | (21.59 | ) | % |
| Real      estate mortgage      |   |                    | 167,589 |   |                   |   | 162,757             |   | 2.97 |   | % |
| Commercial      and industrial |   |                    | 268,868 |   |                   |   | 246,218             |   | 9.20 |   | % |
| Loans      to individuals      |   |                    | 98,632  |   |                   |   | 106,907             |   | (7.74 | ) | % |
| Total      loans               |   | $                       | 582,760 |   |                   | $      | 576,680             |   | 1.05 |   | % |

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|                                     |   | September      30, 2009 |    |   | December      31, 2008 |   | Percent      Change |
|------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|---------------------|
| Noninterest-bearing      demand deposits |   | $                       | 122,519 |   |                   | $      | 109,630             |   | 11.76 |   | % |
| Interest-bearing      demand deposits    |   |                    | 277,884 |   |                   |   | 256,416             |   | 8.37 |   | % |
| Saving      deposits                     |   |                    | 50,241  |   |                   |   | 45,329              |   | 10.84 |   | % |
| Time      deposits                       |   |                    | 385,229 |   |                   |   | 406,473             |   | (5.23 | ) | % |
| Total      deposits                      |   | $                       | 835,873 |   |                   | $      | 817,848             |   | 2.20 |   | % |

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Item 3. Quantitative and Qualitative Disclosures About MarketRisk

Item 4. Controls and Procedures

Part II

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Useof Proceeds

Item 3. Defaults Upon SeniorSecurities

Item 4. Submission of Matters to a Vote of SecurityHolders

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Item 5. Other Information

Item 6. Exhibits

Signatures

| DATE:      November 9, 2009 | /s/      JAMES G. RAKES                                                                                                                 |
|-----------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|
|                        | James      G. RakesPresident      andChief      Executive Officer(Authorized      Officer)(Principal      Executive Officer)            |
|                        |                                                                                                                                    |
| DATE:      November 9, 2009 | /s/      DAVID K. SKEENS                                                                                                                |
|                        | David      K. SkeensTreasurer      andChief      Financial Officer(Principal      Financial Officer)(Principal      Accounting Officer) |

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Index ofExhibits

| Exhibit      No. |  Description                                                                                                                            | Page      No. inSequential      System                                                                                                              |
|------------------|----------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i)             | Amended      and Restated Articles of Incorporation of National Bankshares,      Inc.                                                        | (incorporated      herein by reference to Exhibit 3.1 of the Form 8K for filed on March 16,      2006)                                              |
| 3(ii)            | Amended      By-laws of National Bankshares, Inc.                                                                                            | (incorporated      herein by reference to Exhibit 3(ii) of the Annual Report on Form 10K for      fiscal year ended December 31, 2007)              |
| 4(i)             | Specimen      copy of certificate for National Bankshares, Inc. common      stock                                                            | (incorporated      herein by reference to Exhibit 4(a) of the Annual Report on Form 10K for      fiscal year ended December 31, 1993)               |
| *10(iii)(A)      | National      Bankshares, Inc. 1999 Stock Option Plan                                                                                        | (incorporated      herein by reference to Exhibit 4.3 of the Form S-8, filed as Registration      No. 333-79979 with the Commission on June 4,1999) |
| *10(iii)(A)      | Executive      Employment Agreement dated December 17, 2008, between National Bankshares,      Inc. and James G. Rakes                       | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K      for the fiscal year ended December 31, 2008)     |
| *10(iii)(A)      | Employee      Lease Agreement dated August 14, 2002, between National Bankshares, Inc.      and The National Bank of Blacksburg              | (incorporated      herein by reference to Exhibit 10 (iii) (A) of Form 10Q for the period      ended September 30, 2002)                            |
| *10(iii)(A)      | Executive      Employment Agreement dated December 17, 2008, between National Bankshares,      Inc. and F. Brad Denardo                      | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K      for the fiscal year ended December 31, 2008)     |
| *10(iii)(A)      | Executive      Employment Agreement dated December 17, 2008, between National Bankshares,      Inc. and Marilyn B. Buhyoff                   | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K      for the fiscal year ended December 31, 2008)     |
| *10(iii)(A)      | Salary      Continuation Agreement dated February 8, 2006, between The National Bank      of Blacksburg and James G. Rakes                   | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on February      8, 2006)                                         |
| *10(iii)(A)      | Salary      Continuation Agreement dated February 8, 2006, between The National Bank      of Blacksburg and F. Brad Denardo                  | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on February      8, 2006)                                         |
| *10(iii)(A)      | Salary      Continuation Agreement dated February 8, 2006, betweenNational      Bankshares, Inc. and Marilyn B. Buhyoff                      | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on February      8, 2006)                                         |
| *10(iii)(A)      | First      Amendment, dated December 19, 2007, to The National Bank of Blacksburg      Salary Continuation Agreement for James G. Rakes      | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on December      19, 2007)                                        |
| *10(iii)(A)      | First      Amendment, dated December 19, 2007, to The National Bank of Blacksburg      Salary Continuation Agreement for F. Brad Denardo     | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on December      19, 2007)                                        |
| *10(iii)(A)      | First      Amendment, dated December 19, 2007, to National Bankshares, Inc. Salary      Continuation Agreement for Marilyn B. Buhyoff        | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on December      19, 2007)                                        |
| *10(viii)(A)     | Second      Amendment, dated June 12, 2008, to The National Bank of Blacksburg Salary      Continuation Agreement for F. Brad Denardo        | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on June 12,      2008)                                            |
| *10(viii)(A)     | Second      Amendment, dated December 17, 2008, to The National Bank of Blacksburg      Salary Continuation Agreement for James G. Rakes     | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K      for the fiscal year ended December 31, 2008)     |
| *10(viii)(A)     | Second      Amendment, dated December 17, 2008, to The National Bank of Blacksburg      Salary Continuation Agreement for Marilyn B. Buhyoff | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K      for the fiscal year ended December 31, 2008)     |
| *10(viii)(A)     | Third      Amendment, dated December 17, 2008, to The National Bank of Blacksburg      Salary Continuation Agreement for F. Brad Denardo     | (incorporated      herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K      for the fiscal year ended December 31, 2008)     |
| 31(i)            | Section      906 Certification of Chief Executive Officer                                                                                    | (included      herewith)                                                                                                                            |
| 31(ii)           | Section      906 Certification of Chief Financial Officer                                                                                    | (included      herewith)                                                                                                                            |
| 32(i)            | 18      U.S.C. Section 1350 Certification of Chief Executive      Officer                                                                    | (included      herewith)                                                                                                                            |
| 32(ii)           | 18      U.S.C. Section 1350 Certification of Chief Financial      Officer                                                                    | (included      herewith)                                                                                                                            |

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|   | 1.  I      have reviewed this quarterly report on Form 10-Q of National Bankshares,      Inc.; |
|--------|----------------------------------------------------------------------------------------------------------|

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