UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                    FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
    ACT OF 1934

    For the quarterly period ended                   September 30, 1997
                                          ------------------------------------

                                                           or

[]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the transition period from                         to



                        Commission File Number: 33-14252

                      FIRST NATIONAL BANKSHARES CORPORATION
             (Exact name of registrant as specified in its charter)



        West Virginia                                62-1306172
(State or other jurisdiction                       (I.R.S. Employer
     of incorporation)                            Identification No.)


One Cedar Street, Ronceverte, West Virginia            24970
(Address of principal executive offices)             (Zip Code)

                                 (304) 647-4500
              (Registrant's telephone number, including area code)


                                       N/A
       (Former name, address or fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.   Yes [X] No []

The number of shares  outstanding of the issuer's  classes of common stock as of
September 30, 1997:

                  Common Stock, $5 par value -- 192,500 shares






                          THIS REPORT CONTAINS 25 PAGES


<PAGE>





                      FIRST NATIONAL BANKSHARES CORPORATION

                                    FORM 10-Q
                For the Quarterly Period Ended September 30, 1997

                                      INDEX



                                                                            Page
PART I.       FINANCIAL INFORMATION

     Item 1.  Financial Statements

              Condensed Consolidated Balance Sheets -
                 September 30, 1997 and December 31, 1996 .................    3

              Condensed Consolidated Statements of Income -
                Three Months Ended September 30, 1997 and 1996 and
                Nine months Ended September 30, 1997 and 1996 .............    4

              Condensed Consolidated Statements of Shareholders' Equity -
                Three Months Ended September 30, 1997 and 1996 and
                Nine months Ended September 30, 1997 and 1996 .............    5

              Condensed Consolidated Statements of Cash Flows -
                Nine months Ended September 30, 1997 and 1996 .............  6-7

              Notes to Condensed Consolidated Financial Statements ........ 8-11


     Item 2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations .................................  12-20


PART II        OTHER INFORMATION

     Item 1. Legal Proceedings ............................................   21

     Item 2. Changes in Securities ........................................ none

     Item 3. Defaults upon Senior Securities .............................. none

     Item 4. Submission of Matters to a Vote of Security Holders ..........   21

     Item 5. Other Information ............................................ none

     Item 6.  Exhibits and Reports on Form 8-K ............................   21

                  Item 11 - Computation of Per Share Earnings .............   23

                  Item 27 - Financial Data Schedule .......................   24



     SIGNATURES                                                               22


                                                           2

<PAGE>



PART I.  FINANCIAL INFORMATION

              FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                (in thousands of dollars, except per share data)


                                                              Sept 30,   Dec 31,
                                                                 1997       1996
ASSETS                                                     (Unaudited)       (1)

Cash and due from banks ....................................   $ 3,754   $ 2,576
Federal funds sold .........................................     4,540     2,663
Securities held to maturity (estimated fair value
     $11,387 and $18,850, respectively) (Note 2) ...........    11,323    18,836
Securities available for sale (Note 2) .....................     5,038     3,782
Loans, net of allowance of $613 and
      $654, respectively (Notes 3 and 4) ...................    66,977    52,800
Bank premises and equipment ................................     2,122     1,965
Accrued interest receivable ................................       582       659
Other assets ...............................................       404       387
                                                               -------   -------

              Total assets .................................   $94,740   $83,668
                                                               =======   =======



LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
     Deposits:
          Noninterest bearing ..............................   $10,174   $10,211
          Interest bearing .................................    66,957    63,105
                                                               -------   -------
              Total deposits ...............................    77,131    73,316

     Repurchase Agreements .................................     2,437       493
     Long-term borrowings (Note 7) .........................     5,000         0
     Other liabilities .....................................     1,010     1,018
                                                               -------   -------

              Total liabilities ............................    85,578    74,827
                                                               -------   -------

Commitments and Contingencies (Note 5)

Shareholders' equity
     Common stock, $5.00 par value, authorized
          500,000 shares, issued 192,500 shares ............       963       963
     Surplus ...............................................     1,000     1,000
     Retained earnings .....................................     7,197     6,878
     Net Unrealized gain (loss) on securities ..............         2         0
                                                               -------   -------
              Total shareholders' equity ...................     9,162     8,841
                                                               -------   -------

              Total liabilities and shareholders' equity ...   $94,740   $83,668
                                                               =======   =======




(1) Extracted from December 31, 1996 audited financial statements.


            See Notes to Condensed Consolidated Financial Statements

                                        3

<PAGE>




              FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
                (In thousands of dollars, except per share data)
<TABLE>
                                                   Three Months Ended   Nine months Ended
                                                        September 30,     September 30,
                                                        1997     1996     1997     1996
<S>                                                   <C>      <C>      <C>      <C>
Interest Income
     Interest and fees on loans ...................   $1,523   $1,169   $4,279   $3,429
     Interest and dividends on
                     securities:
          Taxable .................................      187      256      657      812
          Tax-exempt ..............................       49       53      149      160
     Interest on Federal funds sold ...............       58       64       92      152
                                                      ------   ------   ------   ------
          Total interest income ...................    1,817    1,542    5,177    4,553
                                                      ------   ------   ------   ------

Interest Expense
     Interest on deposits .........................      716      599    2,015    1,757
     Interest on Repurchase Agreements ............       14        4       28        5
     Interest on Fed Funds Purchased ..............        0        0        5        0
     Interest on Long-term Borrowings .............       84        0      175        0
                                                      ------   ------   ------   ------
          Total Interest Expense ..................      814      603    2,223    1,762

          Net interest income .....................    1,003      939    2,954    2,791

Provision for loan losses .........................        9        0       22        0
                                                      ------   ------   ------   ------

          Net interest income after provision
              for loan losses .....................      994      939    2,932    2,791
                                                      ------   ------   ------   ------

Other income
     Service fees .................................       62       68      198      166
     Insurance commissions ........................        4        4       13       15
     Securities gains .............................        0        0        0        1
     Trust income .................................       32        7       44       47
     Insurance Proceeds ...........................        0       94        0       94
     Other income .................................       18       10       64       66
                                                      ------   ------   ------   ------
                                                         116      183      319      389
                                                      ------   ------   ------   ------
Other expense
     Salaries and employee benefits ...............      400      413    1,256    1,168
     Net occupancy expense ........................       41       70      155      165
     Equipment rental, depreciation and maintenance       82       79      222      192
     Data Processing ..............................       31       39       98      123
     Flood Damage Expenses ........................        0       55        0       55
     Other operating expenses .....................      229      230      653      676
                                                      ------   ------   ------   ------
                                                         783      886    2,384    2,379
                                                      ------   ------   ------   ------

Income before income taxes ........................      327      236      867      801

     Income tax expense ...........................      129       70      317      232
                                                      ------   ------   ------   ------

          Net income ..............................   $  198   $  166   $  550   $  569
                                                      ======   ======   ======   ======

Earnings per common share (Note 6) ................   $ 1.03   $ 0.86   $ 2.86   $ 2.95
                                                      ======   ======   ======   ======

Dividends per common share ........................   $ 0.40   $ 0.33   $ 1.20   $ 0.99
                                                      ======   ======   ======   ======
</TABLE>
                                                       (Continued)
            See Notes to Condensed Consolidated Financial Statements

                                                           4

<PAGE>




              FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
            CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                   (Unaudited)
                (In thousands of dollars, except per share data)


                                          Three Months Ended   Nine months Ended
                                              September 30,       September 30,
                                            1997       1996       1997     1996

Balance, beginning of period ..........   $9,035    $ 8,648    $ 8,841   $8,416

     Net income .......................      198        166        550      569

     Cash dividends declared ..........      (77)       (63)      (231)    (189)

     Change in net unrealized (loss) on
          securities available for sale        6         (1)         2      (46)
                                          ------    -------    -------   -------

Balance, end of period ................   $9,162    $ 8,750    $ 9,162   $ 8,750
                                          =======    =======    =======  =======


































            See Notes to Condensed Consolidated Financial Statements

                                                           5

<PAGE>



              FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                            (In thousands of dollars)
<TABLE>
                                                                   Nine months Ended
                                                                      September 30,

                                                                    1997        1996
<S>                                                             <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income .............................................   $    550    $    569
     Adjustments to reconcile net income to net cash
        provided by (used in) operating activities:
          Depreciation ......................................        169         121
          Provision for loan losses .........................         22           0
          Amortization of security premiums (accretion) of
              security discounts, net .......................        (29)         21
          (Gain) Loss on asset disposal .....................         (2)          0
          (Increase) Decrease in accrued interest receivable          77         243
          (Increase) Decrease in other assets ...............        (17)       (390)
          Increase (Decrease) in other liabilities ..........        226         327
                                                                --------    --------

          Net cash provided by (used in) operating activities        996         891
                                                                --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from maturities and calls of securities held
          to maturity .......................................      8,735       4,272
     Proceeds from maturities and calls of securities
          available for sale ................................      1,500       7,141
     Purchases of securities held to maturity ...............     (1,197)     (6,994)
     Purchases of securities available for sale .............     (3,004)          0
     Principal collected on (loans made to) customers, net ..    (14,177)     (2,322)
     Purchases of bank premises and equipment ...............       (326)       (903)
                                                                --------    --------


          Net cash provided by (used in) investing activities     (8,469)      1,194
                                                                --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase (decrease) in demand deposits, NOW
          and savings accounts ..............................       (381)      5,207
     Proceeds from sales of (payments for matured)
          time deposits, net ................................      4,196         832
     Net increase (decrease) in Repurchase Agreements .......      1,944         328
     Proceeds from long-term borrowings .....................      5,000           0
     Dividends paid .........................................       (231)       (189)
                                                                --------    --------

          Net cash provided by (used in) financing activities     10,528       6,178
                                                                --------    --------

          Increase (decrease) in cash and cash equivalents ..   $  3,055    $  8,263

Cash and cash equivalents:
     Beginning ..............................................   $  5,239    $  3,614
                                                                --------    --------

     Ending .................................................   $  8,294    $ 11,877
                                                                ========    ========
</TABLE>
                                   (Continued)
            See Notes to Condensed Consolidated Financial Statements

                                        6

<PAGE>




              FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
                                   (Unaudited)
                            (In thousands of dollars)

                                                         Nine months Ended
                                                           September 30,
                                                           1997          1996
                                                       --------    ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Cash payments for:
          Interest paid to depositors                 $   1,961    $    1,742
                                                      =========    ==========

          Income taxes                                $     358    $      159
                                                      =========    ==========


SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

     Dividends declared and unpaid                     $      77    $       63
                                                       =========    ==========







































            See Notes to Condensed Consolidated Financial Statements

                                        7

<PAGE>




              FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1.       Basis of Presentation
              The accounting and reporting policies of First National Bankshares
              Corporation and Subsidiary  (the  "Company")  conform to generally
              accepted accounting  principles and to general policies within the
              financial   services   industry.   The  preparation  of  financial
              statements  in  conformity  with  generally  accepted   accounting
              principles  requires  management to make estimates and assumptions
              that affect the  reported  amounts of assets and  liabilities  and
              disclosure of contingent assets and liabilities at the date of the
              financial  statements  and the  reported  amounts of revenues  and
              expenses during the reporting period.  Actual results could differ
              from those estimates.

              The condensed consolidated  statements include the accounts of the
              Company and its wholly-owned subsidiary,  First National Bank. All
              significant  intercompany  balances  and  transactions  have  been
              eliminated.   The   information   contained   in   the   condensed
              consolidated   financial  statements  is  unaudited  except  where
              indicated.  In the opinion of management,  all  adjustments  for a
              fair  presentation of the results of the interim periods have been
              made. All such adjustments were of a normal, recurring nature. The
              results  of  operations  for  the  three  and  nine  months  ended
              September 30, 1997 are not  necessarily  indicative of the results
              to be  expected  for the full  year.  The  condensed  consolidated
              financial  statements and notes included  herein should be read in
              conjunction with the Company's 1996 audited  financial  statements
              and Form 10-K.

              Certain amounts in the condensed consolidated financial statements
              for  the  prior  year,   as   previously   presented,   have  been
              reclassified to conform to current year classifications.

Note 2.       Securities
              The  amortized  cost,  unrealized  gains,  unrealized  losses  and
              estimated  fair values of  securities  at  September  30, 1997 and
              December 31, 1996 are summarized as follows (in thousands):

<TABLE>
                                                                                     September 30, 1997
                                                                                                             Estimated
                                                                   Amortized   Unrealized    Unrealized       Fair
                                                                    Cost         Gains        Losses          Value
              <S>                                                <C>          <C>           <C>            <C>
              Held to maturity:
                  Taxable:
                  U.S. Treasury Securities                       $     1,500  $         0   $         0    $     1,500
                  U.S. Government Agencies
                      and corporations                                 5,233            7             6          5,234
                  Corporate Debt Securities                              500            0             3            497
                                                                 -----------  -----------   -----------    -----------
                      Total Taxable                                    7,233            7             9          7,231

                  Tax Exempt:
                  State & political subdivisions                       4,090           66             0          4,156
                                                                 -----------  -----------   -----------    -----------

                  Total securities held to maturity              $    11,323  $        73   $         9    $    11,387
                                                                 ===========  ===========   ===========    ===========
</TABLE>
                                                           8

<PAGE>




              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
                                                                                   September 30, 1997
                                                                                                             Estimated
                                                                  Amortized    Unrealized    Unrealized       Fair
                                                                   Cost          Gains        Losses          Value
              <S>                                                <C>          <C>           <C>            <C>
              Available for Sale:
                  Taxable:
                  U.S. Treasury Securities                       $    1,992   $         4   $         0    $     1,996
                  U.S. Government Agencies
                      and corporations                                2,500             4             2          2,502
                  Federal Home Loan Bank Stock                          481             0             0            481
                  Federal Reserve Bank Stock                             57             0             0             57
                                                                 ----------   -----------   -----------    -----------
                      Total Taxable                                   5,030             8             2          5,036

                  Tax Exempt:
                  Federal Reserve Bank Stock                              2             0             0              2
                                                                 ----------   -----------   -----------    -----------

                  Total securities available for sale            $    5,032   $         8   $         2    $     5,038
                                                                 ==========   ===========   ===========    ===========
</TABLE>
<TABLE>
                                                                                                           December 31, 1996
                                                                                                             Estimated
                                                                  Amortized    Unrealized    Unrealized       Fair
              <S>                                                <C>          <C>           <C>            <C>
                                                                   Cost          Gains        Losses          Value
              Held to maturity:
                Taxable:
                  U.S. Treasury Securities                       $    3,003   $         2   $        0     $     3,005
                  U.S. Government Agencies
                      and corporations                               11,203            20            31         11,192
                  Corporate Debt Securities                             500             0             7            493
                                                                 ----------   -----------   -----------    -----------
                      Total Taxable                                  14,706            22            38         14,690

                Tax Exempt:
                  State & political subdivisions                      4,130            44            14          4,160
                                                                 ----------   -----------   -----------    -----------

                  Total securities held to maturity              $   18,836   $        66   $        52    $    18,850
                                                                 ==========   ===========   ===========    ===========
</TABLE>
<TABLE>
                                                                                                           December 31, 1996
                                                                                                             Estimated
                                                                  Amortized    Unrealized    Unrealized       Fair
                                                                   Cost          Gains        Losses          Value
              <S>                                                <C>          <C>           <C>            <C>

              Available for Sale:
                Taxable:
                  U.S. Treasury Securities                       $      980   $         3   $         0    $       983
                  U.S. Government Agencies
                      and corporations                                2,500             6             8          2,498
                  Federal Home Loan Bank Stock                          242             0             0            242
                  Federal Reserve Bank Stock                             57             0             0             57
                                                                 ----------   -----------   -----------    -----------
                      Total Taxable                                   3,779             9             8          3,780

                Tax Exempt:
                  Federal Reserve Bank Stock                              2             0             0              2
                                                                 ----------   -----------   -----------    -----------

                  Total securities available for sale            $    3,781   $         9   $         8    $     3,782
                                                                 ==========   ===========   ===========    ===========

</TABLE>


                                                           9

<PAGE>






              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The  maturities,  amortized  cost and  estimated  fair  values of the  Company's
securities at September 30, 1997 are summarized as follows (in thousands):

                                    Held to Maturity     Available for Sale
                                          Estimated             Estimated
                               Amortized       Fair   Amortized      Fair
                                     Cost     Value        Cost     Value

Due within 1 year .............   $ 5,353   $ 5,359     $ 1,992   $ 1,996
Due after 1 but within 5 years      3,461     3,462       2,500     2,502
Due after 5 but within 10 years     2,509     2,566           0         0
Equity Securities .............         0         0         540       540
                                  -------   -------     -------   -------

                                  $11,323   $11,387     $ 5,032   $ 5,038
                                  =======   =======     =======   =======

     The Company's  Federal  Reserve Bank stock and Federal Home Loan Bank stock
     are equity  securities which are included in securities  available for sale
     in the  accompanying  condensed  consolidated  financial  statements.  Such
     securities  are  carried  at cost,  since they may only be sold back to the
     respective Federal Reserve or Federal Home Loan Bank at par value.

     The proceeds  from sales and calls and  maturities  of  securities  and the
     related  gross gains and losses  realized for the nine month  periods ended
     September 30, 1997 and 1996 are as follows (in thousands):

                                            Proceeds From        Gross Realized
                                         Calls and   Principal
                                   Sales Maturities  Payments   Gains     Losses

Nine months ended Sept. 30, 1997
 Securities held to maturity .   $     0   $ 8,735   $     0   $     0   $     0
 Securities available for sale         0     1,500         0         0         0
                                 -------   -------   -------   -------   -------
                                 $     0   $10,235   $     0   $     0   $     0
                                 =======   =======   =======   =======   =======

Nine months ended Sept. 30, 1996:
 Securities held to maturity .   $     0   $ 4,272   $     0   $     0   $     0
 Securities available for sale         0     7,141         0         0         0
                                 -------   -------   -------   -------   -------
                                 $     0   $11,413   $     0   $     0   $     0
                                 =======   =======   =======   =======   =======

Note 3.       Loans
              Total loans as of  September  30, 1997 and  December  31, 1996 are
              summarized as follows (in thousands):

                                         September 30,  December 31,
                                              1997         1996
                                          ---------   ---------
Commercial, financial and agricultural     $ 27,221    $ 19,578
Real estate - construction ...........        3,193       2,396
Real estate - mortgage ...............       28,907      24,031
Installment loans to individuals .....        6,657       6,254
Other ................................        1,633       1,300
                                           --------    --------
    Total loans ......................       67,611      53,559

Less unearned income .................          (21)       (105)
                                           --------    --------
    Total loans net of unearned income       67,590      53,454

Less allowance for loan losses .......         (613)       (654)
                                           --------    --------
        Loans, net ...................     $ 66,977    $ 52,800
                                           ========    ========


                                                           10

<PAGE>



              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 4.       Allowance for Loan Losses
              Analyses of the allowance for loan losses are presented  below (in
              thousands) for the nine month periods ended September 30, 1997 and
              1996:
                                Nine months Ended
                                   September 30,
                                   1997      1996
                               --------   -------

Balance, beginning of period ..   $ 654    $ 643
                                  -----    -----

    Loans charged off .........    (105)    (171)
    Recoveries ................      42      132
                                  -----    -----
        Net (losses) recoveries     (63)     (39)
                                  -----    -----

    Provision for loan losses .      22        0
                                  -----    -----

Balance, end of period ........   $ 613    $ 604
                                  =====    =====


Note 5.       Commitments and Contingencies
              The Company's  subsidiary  bank is, through the ordinary course of
              business,  party to financial  instruments with off-balance  sheet
              risk.  These  financial  instruments  include  standby  letters of
              credit and  commitments to extend credit.  The contract  amount of
              unused portions of existing Lines of Credit and other  commitments
              to lend as of  September  30,  1997 and 1996  are as  follows,  in
              thousands of dollars:
                                                         September 30,
                                                      1997           1996
                                                  -----------   ------------

              Commitments to extend credit        $    11,713   $      8,599
                                                  ===========   -------=====

              Management is not aware of any commitments or contingencies  which
              may reasonably be expected to have a material  impact on operating
              results,  liquidity or capital resources. The Company continues to
              have commitments related to various legal actions,  commitments to
              extend  credit,  and  employment  contracts  arising in the normal
              course of business.

Note 6.       Earnings Per Share
              Earnings   per   common   share   are   computed   based   on  the
              weighted-average  shares  outstanding.  For the nine month periods
              ended  September 30, 1997 and 1996,  the  weighted-average  common
              shares outstanding was 192,500. The weighted average common shares
              outstanding  for the  three  month  periods  then  ended  was also
              192,500.

Note 7.       Long-Term Borrowings
              The Company's subsidiary bank is a member of the Federal Home Loan
              Bank of Pittsburgh,  Pennsylvania ("FHLB"). On March 24, 1997, the
              Bank entered into a long-term borrowing  arrangement with the FHLB
              of  Pittsburgh.  This  advance  is secured by stock in the FHLB of
              Pittsburgh,   qualifying   first  mortgage  loans  and  investment
              securities  not otherwise  pledged.  The advance is payable in one
              balloon payment on March 24, 2000.  Interest is payable monthly at
              a fixed rate of 6.68% per annum.




                                                           11

<PAGE>



                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis focused on significant changes in the
financial  condition  and results of  operations  of First  National  Bankshares
Corporation  (the "Company" ), and its  subsidiary,  First National Bank for the
periods  indicated.  This  discussion and analysis should be read in conjunction
with the Company's 1996 consolidated  financial statements and notes included in
its Annual Report to  Shareholders  and Form 10-K.  This  discussion may include
forward-looking  statements  based upon  management's  expectations,  and actual
results may differ materially.


EARNINGS SUMMARY
The Company reported net income of $198,000 for the three months ended September
30,  1997  compared  to  $166,000  for the quarter  ended  September  30,  1996,
representing  a 19.3%  increase.  For the nine month period ended  September 30,
1997,  the  Company's  net income of $550,000  decreased  3.3% from the $569,000
reported for the same period of 1996. The increase in quarterly earnings was due
largely to increased trust revenues, while the decrease in year-to-date earnings
were  primarily  attributable  to an increased loan loss provision and increased
income tax expense as further discussed in the analysis below. Also, during 1996
the Company had a  non-recurring  $39,000 book gain,  before income taxes,  from
insurance  proceeds  related to flood  damage,  as  previously  reported  in the
Company's  September  30, 1996 report on Form 10-Q.  This  $39,000 book gain was
realized during the third quarter of 1996,  which was an additional  contributor
to both third quarter and year-to-date 1996 earnings.

Earning per common  share were $1.03 for the quarter  ended  September  30, 1997
compared to the $0.86  reported  for the third  quarter of 1996,  an increase of
19.8%.  For the nine month period ended September 30, 1997,  earnings per common
share totaled $2.86  compared with $2.95 for the same period of 1996, a decrease
of  3.1%.  An  analysis  of the  contribution  of each  major  component  of the
statement of income to earnings per share is  presented in the  following  chart
both for the three month and for the nine month periods ended September 30, 1997
and 1996.
<TABLE>
                                                                 Three Months Ended                       Nine months Ended
                                                                 September 30,                            September 30,
                                                                   Increase                                 Increase
                                           1997        1996        (Decrease)      1997         1996        (Decrease)
                                         ---------   ---------   ------------   ----------   ----------   ------------
<S>                                      <C>         <C>         <C>            <C>          <C>          <C>
Interest income                          $    9.44   $    8.00   $      1.44    $    26.89   $    23.65   $       3.25
Interest expense                              4.23        3.13          1.10         11.55         9.15           2.40
                                         ---------   ---------   ------------   ----------   ----------   ------------
     Net interest income                      5.21        4.87          0.34         15.34        14.50           0.85
Provision for loan losses                     0.05        0.00          0.05          0.11         0.00           0.11
                                         ---------   ---------   ------------   ----------   ----------   ------------
     Net interest income after
     provision for loan losses                5.16        4.87          0.29         15.23        14.50           0.74
                                         ---------   ---------   ------------   ----------   ----------   ------------
Non-interest income                           0.60        0.95         (0.35)         1.66         2.02         (0.36)
Non-interest expense                          4.06        4.60         (0.53)        12.38        12.36           0.02
                                         ---------   ---------   ------------   ----------   ----------   ------------
     Income before income taxes               1.70        1.22           0.47         4.51         4.16           0.36
Income tax expense                            0.67        0.36           0.31         1.65         1.21           0.44
                                         ---------   ---------   ------------   ----------   ----------   ------------
                  Net income             $    1.03   $    0.86   $       0.16   $     2.86   $     2.95   $     (0.08)
                                         =========   =========   ============   ==========   ==========   ============
</TABLE>

The Company's annualized return on average assets (ROA) for the third quarter of
1997 was 0.89%  compared to 0.83% for the third  quarter of 1996.  This compares
with ROA of 0.83% and 0.96% for the nine month periods ended  September 30, 1997
and 1996, respectively.  Annualized return on average shareholders' equity (ROE)
was 8.80% for the third  quarter of 1997  compared to 7.55% in the third quarter
of 1996, while year-to-date ROE was 8.15% and 8.75% as of September 30, 1997 and
1996, respectively.


NET INTEREST INCOME
The most  significant  component of the  Company's  net earnings is net interest
income,  which represents the excess of interest income earned on earning assets
over the  interest  expense paid for sources of funds.  Net  interest  income is
affected  by changes in volume  resulting  from  growth  and  alteration  of the
balance sheet's composition, as well as by fluctuations in market interest rates
and maturities of sources and uses of funds.


                                                           12

<PAGE>



For purposes of this  discussion,  net  interest  income is presented on a fully
tax-equivalent  basis  to  enhance  the  comparability  of  the  performance  of
tax-exempt to fully taxable earning assets.  For the periods ended September 30,
1997  and  1996,  the   tax-equivalent   adjustment  was  $77,000  and  $79,000,
respectively.

The  Company's  net  interest  income on a fully  tax-equivalent  basis  totaled
$3,031,000  for the nine month  period  ended  September  30,  1997  compared to
$2,870,000 for the same period of 1996,  representing an increase of $161,000 or
5.6%. For the quarters ended September 30, 1997 and 1996, net interest income on
a fully tax- equivalent basis totaled $1,029,000 and $964,000, respectively. The
Company's net yield on interest  earning assets  decreased to 4.84% in 1997 from
5.14% in 1996.  The  decrease  in the net  yield on  earning  assets is due to a
higher  cost  of  rate-sensitive  liabilities.  The  cost  of  interest  bearing
liabilities  increased  to 4.29%  versus  the  previous  year's  3.93%,  and was
primarily  due to  increased  rates paid on time and  savings  deposits  and the
additional  interest  expense  associated with the Bank's Federal Home Loan Bank
borrowings.  Further analysis of the Company's yields on interest earning assets
and interest  bearing  liabilities  and changes in its net  interest  income are
presented in TABLE I and TABLE II.




                                                           13

<PAGE>


<TABLE>
                                                         TABLE I
                                                AVERAGE BALANCE SHEET AND
                                              NET INTEREST INCOME ANALYSIS
                                                (In thousands of dollars)

                                                                       Nine months Ended                     Nine months Ended
                                                                       September 30, 1997                    September 30, 1996
                                             ----------------------------------------------------------------------------------
                                               Average                   Yield/      Average                   Yield/
                                               Balance    Interest(1)     Rate       Balance    Interest(1)     Rate
<S>                                          <C>          <C>          <C>         <C>          <C>          <C>
INTEREST EARNING ASSETS
     Loans                                   $   62,023   $    4,279      9.20%    $   47,002   $    3,426       9.72%

     Securities:
          Taxable                                15,126          657      5.79         19,080          812       5.67
          Tax-exempt                              4,129          226      7.29          4,518          242       7.15
                                             ----------   ----------   -------     ----------   ----------   --------
              Total securities                   19,255          883      6.11         23,598        1,054       5.96
                                             ----------   ----------   -------     ----------   ----------   --------

     Federal funds sold                           2,247           92      5.46          3,884          152       5.23
                                             ----------   ----------   -------     ----------   ----------   --------

              Total interest earning
                  assets                         83,525        5,254      8.39         74,484        4,632       8.29
                                             ----------   ----------   -------     ----------   ----------   --------

NON-INTEREST EARNING ASSETS
     Cash and due from banks                     2,606                                  2,397
     Bank premises and equipment                 2,089                                  1,362
     Other assets                                1,128                                  1,156
     Allowance for loan losses                    (643)                                  (654)
                                             ----------                            ----------

              Total assets                   $   88,705                            $   78,745
                                             ==========                            ==========

INTEREST BEARING LIABILITIES
Demand deposits                              $   13,285   $      259        2.60   $   13,384   $      268      2.67
Savings deposits                                 21,744          628        3.85       20,148          532      3.52
Time deposits                                    29,426        1,128        5.11       26,126          958      4.89
                                             ----------   ----------   ---------   ----------   ----------   -------
     Total Interest-bearing deposits             64,455        2,015        4.17       59,658        1,757      3.93

Repurchase Agreements                               975           28        3.83          159            5       4.19
Federal Funds Purchased                             168            5        3.97            0            0       0.00
Long-term FHLB borrowings                         3,462          175        6.74            0            0       0.00
                                             ----------   ----------   ---------   ----------   ----------   --------
   Total other interest bearing liabilities       4,605          208        6.02          159            5       4.19

Total Interest bearing liabilities               69,060        2,223        4.29       59,817        1,762       3.93

NON-INTEREST BEARING LIABILITIES
     AND SHAREHOLDERS' EQUITY
          Demand deposits                    $    9,440                            $    9,220
          Other liabilities                         990                                 1,071
          Shareholders' equity                    9,215                                 8,637
                                             ----------                            ----------

                  Total liabilities and
                  shareholders' equity       $   88,705                            $   78,745
                                             ==========                            ==========

              NET INTEREST
                  EARNINGS                                $    3,031                            $    2,870
                                                          ==========                            ==========

NET YIELD ON INTEREST EARNING
     ASSETS                                                                4.84%                                 5.14%
                                                                       =========                             =========
</TABLE>

(1) - Calculated on a fully  tax-equivalent basis using the rate of 34% for 1997
and 1996.

                                                           14

<PAGE>




                                    TABLE II

                     CHANGES IN INTEREST INCOME AND EXPENSE
               DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
                            (In thousands of dollars)


                                                     Nine months Ended
                                               Sep 30, 1997 vs. Sep 30, 1996

                                              Increase (Decrease)
                                              Due to Changes in:
                                              Volume(1)    Rate(1)     Total
INTEREST EARNING ASSETS
     Loans .................................   $ 1,045    $  (192)   $   853

     Securities:
          Taxable ..........................      (172)        17       (155)
          Tax-exempt (2) ...................       (21)         5        (16)
                                               -------    -------    -------
              Total securities .............      (193)        22       (171)
                                               -------    -------    -------

     Federal funds sold ....................       (66)         6        (60)
                                               -------    -------    -------

          Total interest earning assets ....       786       (164)       622
                                               -------    -------    -------

INTEREST BEARING LIABILITIES
     Demand deposits .......................        (2)        (7)        (9)
     Savings deposits ......................        44         52         96
     Time deposits .........................       125         45        170
     Repurchase agreements .................        23          0         23
     Federal funds purchased ...............         0          5          5
     Long-term FHLB borrowings .............         0        175        175
                                               -------    -------    -------

          Total interest bearing liabilities       190        270        460
                                               -------    -------    -------

              NET INTEREST EARNINGS ........   $   596    $  (434)   $   162
                                               =======    =======    =======


(1) - The change in  interest  due to both rate and  volume  has been  allocated
between the factors in proportion  to the  relationship  of the absolute  dollar
amounts of the change in each.

(2) - Calculated on a fully tax-equivalent basis using the rate of 34%.



                                                           15

<PAGE>



PROVISION FOR LOAN LOSSES
The  provision  for loan  losses  represents  charges to earnings  necessary  to
maintain an adequate  allowance for potential  future loan losses.  Management's
determination  of the appropriate  level of the allowance is based on an ongoing
analysis of credit quality and loss potential in the loan portfolio, actual loan
loss experience  relative to the size and characteristics of the loan portfolio,
change in the composition and risk characteristics of the loan portfolio and the
anticipated influence of national and local economic conditions. The adequacy of
the allowance for loan losses is reviewed  quarterly and adjustments are made as
considered necessary.

During the third  quarter  of 1997,  the Bank made a $9,000  provision  for loan
losses  bringing  the  year-to-date  provision  to $22,000.  Prior to the second
quarter  of 1997,  no  provision  had been made  since  1994 due to the  general
strengthening of the Bank's underwriting standards and loan loss experience. The
provision for loan losses was initiated  again during the second quarter of 1997
due to the strong growth in the loan portfolio. For additional discussion of the
Allowance, refer to the Loan section of this discussion.

NON-INTEREST INCOME
Non-interest income includes revenues for all sources other than interest income
and yield related loan fees. For the nine month period ended September 30, 1997,
non-interest  income totaled  $319,000,  representing a decrease of $70,000 from
the $389,000  recorded  during the same period of 1996.  This decrease is due to
the non-recurring gain from insurance proceeds realized during the third quarter
of 1996, as fully disclosed in the Company's  September 30, 1996, Report on Form
10-Q. As a percentage of average assets, non-interest income was 0.36% and 0.49%
for the nine month  periods  ended  September  30, 1997 and 1996,  respectively.
Service fees increased 19.3% to $198,000 from $166,000 as a result of the Bank's
concentrated effort to increase fee income on deposits and related products.

On a quarter-to-quarter basis, non-interest income decreased to $116,000 for the
third  quarter of 1997 compared to $183,000 for the third quarter of 1996 due to
the  non-recurring  income  outlined  above.  Trust income  increased to $32,000
compared to only $7,000 for the third quarter of 1996 due to the  administration
of two large  trusts.  While the Company  seeks to attract  new trust  business,
estates and other trust  services  tend to  fluctuate,  and trust  revenues  may
revert to historical levels in the future. However,  management anticipates that
trust  revenues  will be slightly  ahead of 1996's  levels for the  remainder of
1997.

NON-INTEREST EXPENSE
Non-interest  expense comprises overhead costs which are not related to interest
expense or to losses from loans or  securities.  As of September  30, 1997,  the
Company's  non-interest expense totaled $2,384,000,  representing an increase of
$5,000,  or 0.2%, over total  non-interest  expense incurred for the nine months
ended September 30, 1996. However,  expressed as a percentage of average assets,
non-interest  expense  decreased to 2.69% at September 30, 1997, versus 3.02% at
September 30, 1996.

Salaries and employee  benefits are the  Company's  largest  non-interest  cost,
representing  approximately  53%  and  49%  of  total  non-interest  expense  at
September  30,  1997 and 1996,  respectively.  Salaries  and  employee  benefits
increased  $88,000,  or 7.5% as of September  30, 1997 compared to September 30,
1996.  This  increase is primarily due to the addition of four new employees for
the Company's new Charleston  branch location during the second half of 1996, as
well as normal merit increases for certain members of the existing staff.

Net occupancy  expense decreased 6.1%, or $10,000 to $155,000 for the first nine
months  of  1997.  However,  equipment  rentals,  depreciation  and  maintenance
expenditures increased 15.6%, or $30,000 to $222,000 due to the additional fixed
assets associated with the new Charleston branch and the new Lewisburg facility.
Other  operating  expenses  decreased to $653,000 as of September 30, 1997, from
$676,000  for  the  first  nine  months  of 1996 as a  result  of the  Company's
deliberate efforts to reduce fixed and variable  non-interest  expenses.  During
1996, the Company  experienced an additional  $55,000 in costs  associated  with
flood damage disclosed in September 30, 1996 Form 10-Q.

On a quarter-to-quarter basis, other non-interest expense decreased to $783,000,
or 11.6%,  for the third quarter of 1997 from $886,000  during the third quarter
of 1996. This is due to the $55,000 in non-recurring  flood expenses during 1996
mentioned above.  Salaries and employee  benefits  decreased to $400,000 for the
third quarter of 1997 from $413,000 for the same period of 1996,  due largely to
one-time  signing  incentives  paid in 1996 and the  elimination of two salaried
positions during 1997. Net occupancy  expense decreased to $41,000 for the third
quarter  of 1997 from  $70,000  for the third  quarter  of 1996 due  largely  to
increased  operating  efficiencies  at the  Company's  Ronceverte  and Lewisburg
locations,  and certain  start-up  expenses  associated  with the new Charleston
branch  during the third  quarter of 1996.  Other  operating  expenses  remained
relatively consistent, decreasing only $1,000 from $230,000 in the third quarter
of 1996 to $229,000 during the third quarter of 1997.

                                                           16

<PAGE>




INCOME TAXES
The Company's  income tax expense,  which includes both Federal and State income
taxes,  totaled  $317,000 for the nine month period  ended  September  30, 1997,
reflecting a $85,000  increase when compared to the same period of 1996.  Income
tax expense equaled 36.6% and 29.0% of income before taxes at September 30, 1997
and 1996,  respectively.  For financial reporting  purposes,  income tax expense
does not equal the Federal  statutory  income tax rate of 34.0% when  applied to
pre-tax income,  primarily because of State income taxes and tax-exempt interest
income included in income before income taxes.

FINANCIAL CONDITION
The Company's total assets were  $94,740,000 at September 30, 1997,  compared to
$83,668,000 at December 31, 1996, representing a 13.2% increase,  primarily as a
result of loan  growth in the  Charleston,  WV,  market.  This growth was funded
through increases in deposits and long-term Federal Home Loan Bank borrowings as
further discussed below.

Securities
The Bank's total  securities  portfolio  decreased by  $6,257,000  or 27.7% from
December  31,  1996.  This  decrease  is a result  of normal  maturities  in the
Company's  securities  portfolio  and the  corresponding  shift  of  funds  into
higher-yielding  loan products.  A summary of the Company's securities portfolio
(both  held-to-maturity  and  available-  for-sale) is included as Note 2 to the
condensed consolidated financial statements.

Loans
Loans,  net of unearned  income,  increased by  $14,136,000  or 26.4% during the
first nine months of 1997. A summary of the Bank's loans by category is included
as Note 3 to the condensed consolidated financial statements. This increase is a
result  of the  Bank's  concentrated  effort  to grow  its loan  portfolio,  and
management  believes that loan growth will continue throughout 1997, although at
a slower rate. The majority of this growth has been in  high-quality  commercial
and commercial real estate loans. Refer to Note 3 to the Condensed  Consolidated
Financial  Statements for a detailed breakdown of loans by type at September 30,
1997, compared with December 31, 1996.

The allowance for loan losses is maintained at a level considered to be adequate
to provide for losses  that can be  reasonably  anticipated.  The  allowance  is
increased  by  provisions  charged  to  operating  expense  and  reduced  by net
charge-offs.  The  Company's  management,  on  a  quarterly  basis,  performs  a
comprehensive  loan  evaluation  which  encompasses  the  identification  of all
potential problem credits, which are included on an internally generated "watch"
list.  The allowance for loan losses was $613,000 at September 30, 1997 compared
to $654,000 at December  31, 1996.  Expressed  as a percentage  of loans (net of
unearned income),  the allowance for loan losses was 0.91% at September 30, 1997
compared to 1.22% at December 31, 1996. Loans charged-off,  net of recoveries of
previously  charged-off loans, totaled $63,000 and $39,000 for the periods ended
September  30,  1997 and  1996,  respectively.  See  Note 4 of the  notes to the
condensed  consolidated  financial statements for an analysis of the activity in
the  Company's  allowance  for loan  losses  for the nine  month  periods  ended
September 30, 1997 and 1996.  Management  believes that the current allowance is
sufficient to cover any potential losses in the current portfolio.

A summary of the Company's past due loans and non-performing  assets is provided
in the following table.

               SUMMARY OF PAST DUE LOANS AND NON-PERFORMING ASSETS
                            (in thousands of dollars)

                             September 30,   December 31,
                                 1997   1996   1996
                                 ----   ----   ----
Loans past due 90 or more days
     still accruing interest .   $  0   $  0   $  0
                                 ====   ====   ====

Non-performing assets:
     Non-accruing loans ......   $851   $253   $161
     Other real estate owned .     22     24     22
                                 ----   ----   ----
                                 $873   $277   $183
                                 ====   ====   ====


Non-accrual  loans  increased to $851,000 as of September 30, 1997,  compared to
$253,000 at September  30, 1996.  Included in the  non-accrual  totals above are
impaired loans totaling $791,000 and $131,000 as of September 30, 1997 and 1996,
respectively. The Company places into non-accrual status those loans which the

                                                           17

<PAGE>



full  collection of principal and interest are unlikely or which are past due 90
or more days,  unless the loans are  adequately  secured  and in the  process of
collection.  The increase in  non-accruing  loans is related to a single line of
credit  secured by accounts  receivable  that is in the  process of  collection.
Management and bank counsel are still in the process of evaluating  this credit,
however at the  present  time it  appears  that the  unallocated  portion of the
current allowance for loan losses is sufficient to cover any possible losses. It
is currently anticipated that any under-secured balances will be restructured on
an amortizing basis at a later date.


Deposits
Total deposits  increased  5.2% to  $77,131,000  as of September 30, 1997,  from
$73,316,000   at  December  31,  1996.   This   increase  was  centered  in  the
interest-bearing  deposit accounts,  primarily savings deposits and certificates
of  deposits.  This  increase  resulted  from an increase  in interest  rates on
certificates  of  deposit,  special  promotions,  and  other  local  competitive
conditions.


Long-term Borrowings
Due to increased loan demand, the Company obtained a $5,000,000,  3-year advance
from the  Federal  Home Loan Bank.  In  anticipation  of an increase in interest
rates on borrowed funds,  the Company's  subsidiary bank borrowed the funds from
the FHLB of Pittsburgh  at a fixed rate of interest to lock-in a funding  source
for its anticipated  loan growth.  For more information on this FHLB debt please
see Note 7 to the condensed consolidated financial statements.


LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
Liquidity  reflects the Company's ability to ensure the availability of adequate
funds to meet loan commitments and deposit  withdrawals,  as well as provide for
other Company  transactional  requirements.  Liquidity is provided  primarily by
funds invested in cash and due from banks and Federal funds sold,  which totaled
$8,294,000  at September 30, 1997 versus  $5,239,000  at December 31, 1996.  The
Company's liquidity position is monitored continuously to ensure that day-to-day
as well as anticipated funding needs are met.

Further  enhancing the Company's  liquidity is the  availability as of September
30, 1997 of $7,349,000 in securities maturing within one year. Also, the Company
has  classified  additional  securities  with an estimated  fair value  totaling
$2,502,000  as  available  for  sale  in  response  to an  unforeseen  need  for
liquidity.  Additionally,  the  Company's  subsidiary  bank has unused  lines of
credit available under existing borrowing arrangements.

Management is not aware of any trends, commitments, events or uncertainties that
have resulted in or are reasonably  likely to result in a material change to the
Company's liquidity position.

Interest rate risk  represents  the  volatility in earnings and market values of
interest earning assets and liabilities  resulting from changes in market rates.
The  Company  seeks to  minimize  interest  rate  risk  through  asset/liability
management.  The Company's principal asset/liability  management strategy is gap
management. Gap is the measure of the difference between the volume of repricing
interest  earning  assets and  interest  bearing  liabilities  during given time
periods. When the volume of repricing interest earning assets exceeds the volume
of repricing  interest bearing  liabilities,  the gap is positive -- a condition
which usually is favorable during a rising rate environment.  The opposite case,
a negative gap,  generally is favorable during a falling rate environment.  When
the interest rate sensitivity gap is near zero, the impact of interest rate risk
is  limited,  for at this point  changes  in net  interest  income  are  minimal
regardless of whether  interest rates are rising or falling.  An analysis of the
Company's current gap position is presented in TABLE III.

                                                           18

<PAGE>




<TABLE>
                                                        TABLE III
                                             INTEREST RATE SENSITIVITY GAPS
                                                   September 30, 1997
                                                (In thousands of dollars)

                                                                                                Repricing (1)
                                                           0 to 3      3 to 6       6 to 12     After
                                                             Months      Months       Months    12 Months    Total
<S>                                                       <C>          <C>          <C>         <C>          <C>
INTEREST EARNING ASSETS
     Loans, net of unearned income                        $    22,758  $    4,647   $   7,555   $  32,630    $  67,590
     Securities                                                 1,000       1,500       4,849       9,012       16,361
     Federal funds sold                                         4,540         -           -           -          4,540
                                                          -----------  ----------   ---------   ---------    ---------
              Total interest earning assets                    28,298       6,147      12,404      41,642       88,491
                                                          -----------  ----------   ---------   ---------    ---------

INTEREST BEARING LIABILITIES
     Demand deposits                                           12,232        -           -           -          12,232
     Savings deposits                                          22,909        -           -           -          22,909
     Time deposits                                             10,840       7,453       5,919       7,604       31,816
     Repurchase agreements                                      2,437        -           -           -           2,437
     Long-term FHLB borrowings                                   -           -           -          5,000        5,000
                                                          -----------  ----------   ---------   ---------    ---------
          Total interest bearing liabilities                   48,418       7,453       5,919      12,604       74,394
                                                          -----------  ----------   ---------   ---------    ---------

          Contractual interest sensitivity gap               (20,120)     (1,306)       6,485      29,038       14,097

     Adjustment (2)                                            35,141    (35,141)
                                                          -----------  ----------

          Adjusted interest sensitivity gap               $    15,021  $  (36,477)  $   6,485   $  29,038    $  14,097
                                                          ===========  ===========  =========   =========    =========

          Cumulative adjusted interest sensitivity gap    $    15,021  $  (21,426)  $ (14,941)  $  14,097
                                                          ===========  ===========  ==========  =========

              Cumulative adjusted gap ratio                      2.13        0.14        0.76        1.19
                                                          ===========  ==========   =========   =========

          Cumulative adjusted gap as a percentage
              of Total Earning Assets                          16.97%    (24.21%)    (16.88%)      15.93%
                                                           ==========  ==========   =========   =========
</TABLE>

(1) - Repricing on a contractual basis unless otherwise noted.
(2) - Adjustment to approximate the actual  repricing of interest bearing demand
deposits and savings accounts based upon historical experience.

The  preceding  table  reflects  the  Bank's  cumulative  one year net  interest
sensitivity  position, or gap, as 0.76, or ($14,941,000.) Thus, the Bank is in a
negative  gap  position  within a one year time  frame.  This  indicates  that a
significant increase in interest rates within a short time frame during the next
12 months could have a  significant  negative  impact on the Bank's net interest
income.  However,  interest rates on the majority of the Bank's interest-bearing
deposits may be changed by  management  at any time based on their terms.  Since
management believes that repricing of interest bearing deposits in an increasing
interest rate  environment  will  generally lag behind the repricing of interest
bearing  assets,  the  Bank's  interest  rate  risk  within  one  year  is at an
acceptable level.

The  information  presented  in the table above  represents a static view of the
Bank's gap position as of September  30,  1997,  and as such,  does not consider
variables such as future loan and deposit volumes, mixes and interest rates. The
Company seeks to maintain its adjusted interest sensitivity gap within 12 months
to a relatively small balance,  positive or negative,  regardless of anticipated
upward or down  movements in interest rates in an effort to limit the effects of
interest rate risk on Company net interest income.





                                                           19

<PAGE>



CAPITAL RESOURCES
Maintenance of a strong capital  position is a continuing  goal of the Company's
management.  Through management of its capital  resources,  the Company seeks to
provide an  attractive  financial  return to its  shareholders  while  retaining
sufficient capital to support future growth.

Total  shareholders'  equity at September  30, 1997 was  $9,162,000  compared to
$8,841,000 at December 31, 1996,  representing an increase of $321,000, or 3.6%.
Total  shareholders'  equity expressed as a percentage of total assets decreased
from 10.6% at  December  31,  1996 to 9.7% at  September  30,  1997,  due to the
increased asset level and increased  dividend  payout.  Cash dividends  totaling
$231,000,  or $1.20 per share were declared during the first nine months of 1997
versus  dividends  of  $191,000,  or $0.99 per  share,  during  the first  three
quarters of 1996.  These payout levels  represented 42% and 34% of the company's
year-to-date earnings for September 30, 1997 and 1996, respectively.


REGULATORY RESTRICTIONS ON CAPITAL AND DIVIDENDS
The primary source of funds for the dividends paid by First National  Bankshares
Corporation is dividends  received from its subsidiary  bank.  Dividends paid by
the subsidiary bank are subject to restrictions by banking regulations. The most
restrictive  provision  requires  approval by the regulatory agency if dividends
declared  in any year exceed the year's net  income,  as  defined,  plus the net
retained profits of the two preceding years.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the subsidiary bank to maintain  minimum amounts and ratios of total and
Tier I capital  (as  defined in the  regulations)  to  risk-weighted  assets (as
defined),  and of Tier  capital  (as  defined) to average  assets (as  defined).
Management  believes,  as of September 30, 1997,  that the subsidiary bank meets
all capital  adequacy  requirements to which it is subject.  As of September 30,
1997, the subsidiary bank's Risk Based Capital Ratios are as follows:

                            RISK-BASED CAPITAL RATIOS
                               September 30, 1997
                                                               Minimum
                                              Actual           Requirement

          Total risk-based capital ratio      15.09%           8.00%
          Tier 1 risk-based capital ratio     14.14%           4.00%
          Leverage ratio                       9.81%           3.00%

Improved  operating results and a consistent  dividend program,  coupled with an
effective  management  of credit and interest rate risk will be the key elements
towards the Company  continuing to maintain its present strong capital  position
in the future.





                                                           20

<PAGE>




PART II.  OTHER INFORMATION

     Item 1. Legal Proceedings
          Neither the Company nor its subsidiary  Bank is currently  involved in
          any  material  legal   proceedings,   other  than  routine  litigation
          incidental to their business.


     Item 2 - Changes in Securities
          None


     Item 3 - Defaults upon Senior Securities
          None


     Item. 4. Submission of Matters to a Vote of Security Holders
          No matters were submitted to stockholders during the third quarter
          of 1997.

     Item 5. Other Information
          None


     Item 6.  Exhibits and Reports on Form 8-K
          a)  All exhibits  included with this filing follow the signature page.
              1.  Exhibit  11,  Computation  of Per  Share  Earnings,  is  filed
              herewith.  2.  Exhibit  27,  Financial  Data  Schedule,  is  filed
              herewith.

          b). The Company did not file any Form 8-K, Current Reports during the
              quarter ended September 30, 1997.


                                                           21

<PAGE>




                                                       SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.







                                        FIRST NATIONAL BANKSHARES CORPORATION



                                        By      /S/  L. Thomas Bulla
                                        --------------------------------------
                                        L. Thomas Bulla
                                        President and Chief Executive Officer



                                        By      /S/ Keith E. Morgan
                                        --------------------------------------
                                        Keith E. Morgan
                                        Secretary & Treasurer



                                        By      /S/ Jack D. Whitt
                                        --------------------------------------
                                        Jack D. Whitt
                                        Chief Financial Officer
                                        First National Bank
                                        (Principal Financial and
                                        Accounting Officer)


Date: 11/12/97
      --------



                                       22

<PAGE>



                                   EXHIBIT 11
                        COMPUTATION OF PER SHARE EARNINGS


Primary Earnings Per Share
     Primary  Earnings  per Share is  calculated  based upon the  Company's  net
     income after income taxes, divided by the weighted average number of shares
     outstanding during the fiscal period.

Fully Diluted Earnings Per Share
     Fully Diluted Earnings Per Share is calculated based upon the Company's net
     income after income taxes, divided by the weighted average number of shares
     outstanding   during  the  period  plus  all   exercisable   stock  options
     outstanding but not yet exercised at the end of the period.

     As of September 30, 1997, the Company had 3,000  exercisable  stock options
     outstanding. No options have yet been exercised.





                                                           23
<PAGE>



                                   EXHIBIT 27
                             FINANCIAL DATA SCHEDULE

DATE: 09/30/97