United States
                       Securities and Exchange Commission
                            Washington, D. C.  20549

                                   Form 10-Q

                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


For the Quarterly Period Ended                          Commission File Number:
March 31, 1999                                                         0-15204 


                           National Bankshares, Inc.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


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


100 South Main Street
P.O. Box 90002
Blacksburg, Virginia                                                 24062-9002
-------------------------------------------------------------------------------
(Address of principal executive offices)                             (Zip Code)

(Registrant's telephone number, including area code)              (540)552-2011
                                                                  -------------

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      
                     -----              -----

Indicate the  number of shares outstanding  of each of the  issuer's classes of
common stock, as of the latest practicable date.


          Class                                  Outstanding at May 3, 1999    
-------------------------------               ---------------------------------
Common Stock, $2.50 Par Value                             3,792,833            





                        (This report contains 28 pages) <PAGE>
                   National Bankshares, Inc. and Subsidiaries

                                   Form 10-Q

                                     Index




                                                                        Page   
                                                                        ----   

Part I    Financial Information
--------------------------------

     Item 1 - Financial Statements                                             

          Consolidated Balance Sheets, March 31, 1999
           and December 31, 1998                                        4 - 5  
                             
          Consolidated Statements of Income and
           Comprehensive Income, Three Months Ended 
           March 31, 1999 and 1998                                      6 - 7  

          Consolidated Statements of Changes in                
           Stockholders' Equity, Three Months Ended   
           March 31, 1999 and 1998                                        8    

          Consolidated Statements of Cash Flows,
           Three Months Ended March 31, 1999 and 1998                   9 - 10 


     Item 2 - Management's Discussion and Analysis of 
          Financial Condition and Results of Operations                11 - 23 


     Item 3 - Quantitative and Qualitative Disclosures About 
          Market Risk                                                  24 - 25 

Part II   Other Information
----------------------------

     Items 1 - 3 - Legal Proceedings; Changes in
          Securities; Defaults Upon Senior Securities                     26   

     Item  4 - Submission of Matters to a Vote of 
          Security Holders                                             26 - 27 

     Item  5 - Other Information                                          27   

     Item  6 - Exhibits and Reports on Form 8 - K                         27   

Signatures                                                                28   
----------








                                      -2-<PAGE>
                   National Bankshares, Inc. and Subsidiaries

                                     Part I

                             Financial Information

Item 1. Financial Statements

     The  consolidated  financial  statements  of  National  Bankshares,   Inc.
(Bankshares) and its wholly-owned subsidiaries, The National Bank of Blacksburg
(NBB) and  Bank of Tazewell County  (BTC), (the Company), conform  to generally
accepted  accounting principles  and to  general  practices within  the banking
industry.   The accompanying  interim period consolidated  financial statements
are  unaudited;  however,  in  the   opinion  of  management,  all  adjustments
consisting  of  normal recurring  adjustments which  are  necessary for  a fair
presentation  of the consolidated financial statements have been included.  The
results  of operations  for  the three  months  ended March  31,  1999 are  not
necessarily indicative  of results of operations for the full year or any other
interim  period.   The  interim  period consolidated  financial  statements and
financial  information included herein should  be read in  conjunction with the
notes to  consolidated  financial statements  included  in the  Company's  1998
Annual Report to Stockholders  and additional information supplied in  the 1998
Form 10-K.







































                                      -3-<PAGE>
                National Bankshares, Inc. and Subsidiaries
                       Consolidated Balance Sheets
                   March 31, 1999 and December 31, 1998
                               (Unaudited)



                                                 March 31,  December 31,
 ($000's, except share and per share data)         1999         1998
                                                 =========  ============
 Assets                                                   
 Cash and due from banks                         $ 13,815        14,421 
 Interest-bearing deposits                         14,130         7,027 
 Federal funds sold                                 2,500         5,090 
 Securities available for sale                    130,305       136,078 
 Securities held to maturity (fair value                  
  $27,821 in 1999 and $31,151 in 1998)             27,471        30,676 
 Mortgage loans held for sale                         516         2,180 
 Loans:                                                   
    Real estate construction loans                 12,726        12,827 
    Real estate mortgage loans                     50,292        48,724 
    Commercial and industrial loans               123,056       110,509 
    Loans to individuals                           68,473        69,493 
                                                 --------       ------- 
             Total loans                          254,547       241,553

    Less unearned income and deferred fees         (2,123)       (2,296)
                                                 --------       ------- 
             Loans, net of unearned income and            
              deferred fees                       252,424       239,257

    Less allowance for loan losses                 (2,849)       (2,679)
                                                 --------       ------- 
             Loans, net                           249,575       236,578 
                                                 --------       ------- 
 Bank premises and equipment, net                   6,960         6,657 
 Accrued interest receivable                        3,875         3,777 
 Other real estate owned, net                         628           628 
 Other assets                                       2,499         2,054 
                                                 --------       ------- 
             Total assets                        $452,274       445,166 
                                                 ========       ======= 
 Liabilities and Stockholders' Equity
 Noninterest-bearing demand deposits             $ 56,116        55,479 
 Interest-bearing demand deposits                  85,608        84,319 
 Savings deposits                                  47,806        46,387 
 Time deposits                                    198,665       196,511 
                                                 --------       ------- 
             Total deposits                       388,195       382,696 
                                                 --------       ------- 
 Other borrowed funds                                 127           214 
 Accrued interest payable                             697           647 
 Other liabilities                                  1,774           926 
                                                 --------       ------- 
             Total liabilities                    390,793       384,483 
                                                 --------       ------- 
 Common stock subject to ESOP put option            2,194         2,180 
                                                 --------       ------- 






                                      -4-                     (Continued)<PAGE>
 Stockholders' equity:                                    
    Preferred stock of no par value.                      
     Authorized 5,000,000 shares; none issued
     and outstanding                                  ---           --- 
    Common stock of $2.50 par value. Authorized           
     5,000,000 shares; issued and outstanding
     3,792,833 shares                               9,482         9,482 
    Retained earnings                              51,861        50,182 
    Accumulated other comprehensive income            138         1,019 
    Common stock subject to ESOP put option        (2,194)       (2,180)
                                                 --------       ------- 
             Total stockholders' equity            59,287        58,503

 Commitments and contingent liabilities                   
                                                 --------       ------- 
             Total liabilities and                        
              stockholders' equity               $452,274       445,166 
                                                 ========       ======= 













































                                      -5-<PAGE>
                National Bankshares, Inc. and Subsidiaries
        Consolidated Statements of Income and Comprehensive Income
                Three Months Ended March 31, 1999 and 1998
                               (Unaudited)

                                                   March 31,   March 31,
 ($000's, except per share data)                      1999       1998
                                                   =========   =========
 Interest Income                                             
 Interest and fees on loans                         $  5,535      5,154 
 Interest on interest-bearing deposits                    53        174 
 Interest on federal funds sold                           29         69 
 Interest on securities - taxable                      1,877      1,749 
 Interest on securities - nontaxable                     595        425 
                                                    --------   -------- 
             Total interest income                     8,089      7,571 
                                                    --------   -------- 
 Interest Expense                                            
 Interest on time deposits of $100,000 or more           666        596 
 Interest on other deposits                            2,768      2,697 
 Interest on borrowed funds                                2          3 
                                                    --------   -------- 
            Total interest expense                     3,436      3,296 
                                                    --------   --------
            Net interest income                        4,653      4,275

 Provision for loan losses                               232         21 
                                                    --------   -------- 
            Net interest income after provision              
             for loan losses                           4,421      4,254 
                                                    --------   -------- 
 Noninterest Income                                          
 Service charges on deposit accounts                     261        275 
 Other service charges and fees                           48         53 
 Credit card fees                                        163        138 
 Trust income                                            231        176 
 Other income                                             43         11 
 Realized securities gains, net                           20         13 
                                                    --------   -------- 
             Total noninterest income                    766        666 
                                                    --------   -------- 
 Noninterest Expense                                         
 Salaries and employee benefits                        1,559      1,399 
 Occupancy and furniture and fixtures                    257        246 
 Data processing and ATM                                 199        196 
 FDIC assessment                                          16          9 
 Credit card processing                                  156        128 
 Goodwill amortization                                     9          7 
 Net costs of other real estate owned                      3         26 
 Other operating expense                                 727        685 
                                                    --------   -------- 
             Total noninterest expense                 2,926      2,696 
                                                    --------   -------- 
 Income before income tax expense                      2,261      2,224 
 Income tax expense                                      582        616 
                                                    --------   -------- 

             Net income                                1,679      1,608 
                                                    --------   -------- 






                                      -6-                     (Continued)<PAGE>
 Other comprehensive income, net of taxes:                   
  Unrealized gains (losses) on securities
   available for sale                                   (881)        87 
                                                    --------   -------- 

             Comprehensive Income                   $    798      1,695 
                                                    ========   -------- 

             Net income per share                   $    .44       0.42 
                                                    ========   ======== 




















































                                      -7-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
            Consolidated Statements of Changes in Stockholder's Equity
                    Three Months Ended March 31, 1999 and 1998
                                   (Unaudited)





                                                             Common
                                                              Stock
                                                Accumulated  Subject
                                                   Other     To ESOP
     ($000's, except for per  Common  Retained Comprehensive   Put
      share data)              Stock  Earnings     Income    Option   Total
                              ======  ====================== ======   =====
     Balances, December 31,
      1997                     $9,482   46,191        194    (1,838)  54,029 
     Net income                   ---    1,608        ---       ---    1,608 
     Unrealized gains
      (losses) on securities
      available for sale,
      net of tax                  ---      ---         87       ---       87 
     Change in common stock
      subject to ESOP put
      option                      ---      ---        ---      (357)    (357)
                               ------   ------      -----    ------   ------ 

     Balances, March 31, 1998  $9,482   47,799        281    (2,195)  55,367 
                               ======   ======      =====    ======   ====== 


     Balances, December 31,
      1998                     $9,482   50,182      1,019    (2,180)  58,503 
     Net income                   ---    1,679        ---       ---    1,679 
     Unrealized gains
      (losses) on securities
      available for sale,
      net of tax (1)              ---      ---       (881)      ---     (881)
     Change in common stock
      subject to ESOP put
      option                      ---      ---        ---       (14)     (14)
                               ------   ------      -----    ------   ------ 
     Balances, March 31, 1999  $9,482   51,861        138    (2,194)  59,287 
                               ======   ======      =====    ======   ====== 



     (1) Net unrealized holding loss for quarter $(1,288) plus
     reclassification adjustment of $(47) unrealized gain for quarter and
     less income tax benefit of $454





                                       -8-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                    Three Months Ended March 31, 1999 and 1998
                                   (Unaudited)

                                                         March 31,  March 31,
    ($000's)                                               1999       1998
                                                         =========  =========
    Cash Flows from Operating Activities                          
     
    Net Income                                           $ 1,679      1,608  
    Adjustments to reconcile net income to net cash               
      provided by operating activities: 
         Provision for loan losses                           232         21  
         Depreciation of bank premises and equipment         217        188  
         Amortization of intangibles                          38         30  
         Amortization of premiums and accretion of
          discounts, net                                     125         13  
         Gains on sales and calls of securities
          available for sale, net                            (20)       ---  
         Gains on calls of securities held to
          maturity, net                                      ---        (13) 
         Losses and writedowns on other real estate
          owned                                              ---         21  
         (Increase) decrease in:
            Mortgage loans held for sale                   1,664        120  
            Accrued interest receivable                      (98)        77  
            Other assets                                     (29)      (336) 
         Increase in:
            Accrued interest payable                          50         14  
            Other liabilities                                848        845  
                                                         -------    -------  
                   Net cash provided by operating                 
                    activities                             4,706      2,588  
                                                         -------    -------  
    Cash Flows from Investing Activities                          

    Net (increase) decrease in federal funds sold          2,590     (2,055) 
    Net increase in interest-bearing deposits             (7,103)    (1,840) 
    Proceeds from calls and maturities of securities
     available for sale                                   11,363      9,134  
    Proceeds from calls and maturities of securities
     held to maturity                                      3,198     11,788  
    Purchases of securities available for sale            (7,023)   (12,615) 
    Purchase of loan participations                       (4,800)       ---  
    Collections of loan participations                     1,991      1,533  
    Net increase in loans made to customers              (10,453)    (7,946) 
    Proceeds from disposal of other real estate owned        ---         44  
    Recoveries on loans charged off                           33        194  
    Bank premises and equipment expenditures                (520)       (81) 
                                                         -------    -------  
                  Net cash used in investing                      
                   activities                            (10,724)    (1,844) 
                                                         -------    -------  







                                       -9-                    (Continued)<PAGE>

    Cash Flows from Financing Activities                          

    Net increase in time deposits                          2,154     (2,263) 
    Net increase in other deposits                         3,345      1,989  
    Net (decrease) in other borrowed funds                   (87)      (166) 
                                                         -------    -------  
                  Net cash provided by (used in)                  
                   financing activities                    5,412       (440) 
                                                         -------    -------  
    Net increase (decrease) in cash and due from banks      (606)       304  
    Cash and due from banks at beginning of period        14,421     12,435  
                                                         -------    -------  
    Cash and due from banks at end of period             $13,815     12,739  
                                                         =======    =======  
    Supplemental Disclosure of Cash Flow Information              

    Cash paid for interest                               $ 3,386      3,282  
                                                         =======    =======  
    Cash paid for income taxes                           $    20         15  
                                                         =======    =======  
    Loans charged to the allowance for loan losses       $    95         67  
                                                         =======    =======  
    Loans transferred to other real estate owned         $   ---         41  
                                                         =======    =======  





































                                       -10-<PAGE>

                    National Bankshares, Inc. and Subsidiaries


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

     The  purpose  of  this discussion  is  to  provide  information about  the
financial  condition and results of operations of National Bankshares, Inc. and
its wholly-owned subsidiaries  (the Company), which are not  otherwise apparent
from the consolidated  financial statements and  other information included  in
this report.   Reference should be  made to the financial  statements and other
information included in this report as well  as the 1998 Annual Report and Form
10-K for an understanding of the following discussion and analysis.

     This  Quarterly Report  on Form  10-Q contains  forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the  Securities Exchange Act  of 1934.   The Company's actual  results could
differ materially from those set forth in the forward-looking statements.

Results of Operations - for the three months ended March 31,1999
----------------------------------------------------------------

     Net income for the three months  ended March 31, 1999 was $1,679,000 which
represents an increase of $71,000 or 4.42% over the first three months of 1998.
The return on average assets for the quarter-ended March 31, 1999 was 1.54% and
1.63% as of March  31, 1998.  The return  on average equity was 11.12%  for the
period ended March 31, 1999 and 11.49% as of March 31, 1998.

     Earnings per share for  the first quarter of 1999 was $0.44  per share, an
increase of $.02 per share over the first quarter of 1998.

The following table provides selected consolidated dates.

                                      March 31,            December 31,

  ($000's, except per share and       
   percent data)                    1999     1998       1998         1997
                                   ======   ======  ============ ============

  Interest income                  $8,089    7,571      31,828      29,797   
  Interest expense                  3,436    3,296      13,928      13,106   
  Net interest income               4,653    4,275      17,900      16,691   
  Provision for loan losses           232       21         624         435   
  Noninterest income                  766      666       3,174       2,834   
  Noninterest expense               2,926    2,696      11,061      10,031   
  Income taxes                        582      616       2,591       2,499   
  Net income                       $1,679    1,608       6,798       6,560   
  Return on average assets           1.54%    1.63%       1.61%       1.66%  
  Return on average equity (1)      11.12%   11.49%      11.66%      12.21%  
  Basic net income per share       $  .44      .42        1.79        1.73   
  Book value per share (1)         $16.21    15.18       16.00       14.73   

(1)  Includes  amount  related  to common  stock  subject  to  ESOP put  option
     excluded from stockholders' equity on the Consolidated Balance Sheets.


                                      -11-<PAGE>

Net Interest Income
-------------------

     Net interest income at the  end of the first three months of 1999  was    
$4,653,000, an increase of $378,000 or 8.84% over the same period in 1998.

     The net interest  margin is  one of the  primary ratios used  by banks  to
measure net interest income.  The net interest margin is composed of the  yield
on earning assets on a fully tax equivalent basis less the cost to fund earning
assets.   The funding  cost  factor in  interest bearing  deposits  as well  as
capital and demand deposits.  The  following table sets forth the Company's net
interest margin for the period specified.

                                    March 31,              December 31,
                                 1999       1998         1998        1997
                              ---------   ---------   ----------- -----------
  Yield on earning assets        8.18%        8.38%        8.25%        8.24%
  Cost to fund earning assets    3.33%        3.53%        3.50%        3.50%
                              --------     -------      -------      ------- 
  Net interest margin            4.85%        4.85%        4.75%        4.74%
                              ========     =======      =======      ======= 

     A  second measure of net interest income  is the net interest spread.  The
ratio consists of the yield on  earning assets on a fully tax  equivalent basis
less the cost of interest bearing liabilities.  It does not reflect the benefit
received  from "free  funds" such demand  deposits and capital.   The following
table sets forth the company's net interest spread for the periods shown.


                                    March 31,              December 31,
                                1999        1998         1998         1997
                              ---------   ---------   -----------  -----------

 Yield on earning assets         8.18%        8.38%        8.25%        8.24%
 Cost of interest-bearing
  liabilities                    4.26%        4.50%        4.48%        4.43%
                             --------      -------      -------      ------- 
 Net interest spread             3.92%        3.88%        3.77%        3.81%
                             ========      =======      =======      ======= 

     As can be  seen by the table shown above, the  yield on earning assets for
the first  quarter of 1999  has declined by seven  basis points from  the year-
ended  1998.   The cost  to  fund earning  assets declined  by seventeen  basis
points.   These elements combined to  produce a ten basis  point improvement in
the net interest margin.

     The  decline  in the  yield on  earning assets  and  the cost  of interest
bearing  liabilities is due in part to a  declining rate environment.  The cost
of interest bearing liabilities which declined to a greater degree was directly
affected by certain management efforts to contain interest expense.

Provision and Allowance for Loan Losses
---------------------------------------

     The adequacy  of the allowance  for loan losses  is based  on management's
judgement  and  analysis  of  current  and  historical  loss  experience,  risk
characteristics  of  the loan  portfolio,  concentrations of  credit  and asset
quality,  as  well  as other  internal  and  external factors  such  as general
economic conditions.


                                      -12-<PAGE>

     An internal credit review department performs pre-credit analyses of large
credits and also conducts credit review activities that provide management with
an early warning of asset  quality deterioration.  Changing trends in  the loan
mix are  also evaluated in determining  the adequacy of the  allowance for loan
losses.  Loan loss and other  industry indications related to asset quality are
presented in the following table.

                                            For the periods ended
                                      March 31,            December 31,
                                    1999     1998       1998         1997
($000's)                         ========= ========= =========== ============
Balance at beginning of period   $  2,679     2,438       2,438       2,575  

Provision for loan losses             232        21         624         435  

Loans charged off                     (95)      (67)       (638)       (679) 

Recoveries                             33       194         255         107  
                                 --------  --------   ---------   ---------  
Balance at the end of period     $  2,849     2,586       2,679       2,438  
                                 ========  ========   =========   =========  
Ratio of allowance for loan
losses to end of period loans,
net of unearned income and
deferred fees                        1.13%     1.16%       1.12%       1.12% 
                                 ========  ========   =========   =========  
Ratio of net charge-offs
(recoveries) to average loans,
net of unearned income and
deferred fees(1)                      .10%    (.24)%        .17%        .28% 
                                 ========  ========   =========   =========  
Ratio of allowance for loan
losses to nonperforming
loans(2)                         1,656.40% 6,157.14%   9,567.86%   2,802.30% 
                                 ========  ========   =========   =========

(1)  Net charge-offs are on an annualized basis.
(2)  The  Company  defines   nonperforming  loans  as   total  nonaccrual   and
     restructured  loans.    Loans 90  days  past  due and  still  accruing are
     excluded.

                                         March 31,          December 31,

 ($000's)                             1999      1998      1998        1997
                                    ========  ========  ========    ========
 Nonperforming Assets                        

  Nonaccrual loans                   $  172        42        28          87 
                                              
  Restructured loans                    ---       ---       ---         --- 
                                     ------    ------    ------      ------ 
      Total nonperforming loans         172        42        28          87 


  Foreclosed property                   628       397       628         421 
                                     ------    ------    ------      ------ 
      Total nonperforming assets     $  800       439       656         508 
                                     ======    ======    ======      ====== 





                                      -13-<PAGE>

  Ratio of nonperforming assets to           
   loans, net of unearned income and
   deferred fees, plus other real
   estate owned                         .32%      .20%      .27%        .23%
                                     ======    ======    ======      ======

 Accruing Loans Past Due 90 Days or More
 ---------------------------------------
  Past due 90 days or more and               
   still accruing                    $2,153       921       550         672 
                                     ======    ======    ======      ====== 


  Ratio of loans past due 90 days or         
   more to loans, net of unearned
   income and deferred fees             .85%      .41%      .23%        .31%
                                     ======    ======    ======      ======

 Impaired Loans                              
 --------------

  Total impaired loans               $  268        89       373         177 
                                     ======    ======    ======      ====== 
  Impaired loans with a                      
   valuation allowance                  145       ---       145          53 
  Valuation allowance                   145       ---       145          53 
                                     ------    ------    ------      ------ 
  Impaired loans net of allowance    $  ---       ---       ---         --- 
                                     ======    ======    ======      ====== 
  Impaired loans with no                     
   valuation allowance               $  123        89       228         124 
                                     ======    ======    ======      ====== 
  Average recorded investment                 
   in impaired loans                 $  268        89       387         458 
                                     ======    ======    ======      ====== 
  Income recognized on impaired               
   loans                             $    4         2        32          23 
                                     ======    ======    ======      ====== 
  Amount of income recognized                
   on a cash basis                   $  ---       ---       ---          12 
                                     ======    ======    ======      ====== 

     As  can be seen by the preceding  table, the provision for loan losses was
$232,000 for the first quarter  of 1999, up $211,000  over the same period  the
prior  year.   The ratio  of  the allowance  for loan  losses to  loans  net of
unearned income has  remained relatively stable.  The net charge-offs ratio for
the first quarter of 1999 was lower than most of the other periods shown.

     It should  be noted that loans  past due 90  days or more have  risen when
compared to prior  period data.  As mentioned in the  Company's 1998 Form 10-K,
the Company  has  two additional  credits totaling  approximately $1.7  million
which are experiencing collection problems.  These loans are at present 90 days
or more past due.   Management believes, at present, that these credits  can be
recovered without loss.  At March 31, 1999 both loans were on an accrual basis.

     Overall,  it is  expected that  provisions for loan  loss expense  will be
higher in  1999.  Such expense will  be required by strong  loan growth and the
need to maintain an adequate overall reserve.  Further additions  could be made
necessary by unforeseen losses and/or a change in the circumstances surrounding
the two credits mentioned above.


                                      -14-<PAGE>

     The total amount of  foreclosed properties at March 31,  1999 and December
31, 1998 was $628,000.  At March 31, 1999 approximately $267,000 of that amount
was held  by the Company's NBB affiliate.  The property consists of undeveloped
real estate originally intended to be a  residential subdivision.  The property
has been held for a period in excess of five years.  Three other properties are
being held by the Company's BTC affiliate.  With the exception of one property,
which  is  being  carried  for  approximately  $20,000,  these  properties  are
relatively recent acquisitions and timely disposal is expected.

Noninterest Income
------------------

     Noninterest income is an important source  of the company's income.   This
category is comprised  of service  charges on deposit  accounts, other  service
charges and  fees,  credit card  fees,  trust income  and  other income.    Net
securities gains and losses are also included in this category.  

     Noninterest income  for the period ended  March 31, 1999  was $766,000, an
increase of $100,000 or 15.02% over the same period in 1998.

     Service  charges on deposit  accounts were $261,000  at March  31, 1999, a
decrease of $14,000 or 5.09% from the same period in 1998.

     Other service  charges declined by $5,000 when March 31, 1999 and 1998 are
compared.  

     Credit card fees grew  by $25,000 or 18.12% when the first three months of
1999 and 1998 are compared.   Continued growth in volume was the  primary cause
of this increase.

     Trust income increased  by 31.25% when compared to the  first three months
of 1998.  Trust income  is dependent on market conditions as well  as the types
of accounts being  handled at  any given point  in time.   The level of  estate
business, for example, cannot be predicted with any degree of preciseness.

     Other income, which is comprised of various miscellaneous types of income,
increased by $32,000 for the first three months of 1999.

     Included  in  other  income  in  1999  was   approximately  $12,000  which
represented a  recovery of principal for  a bond charged-off in  prior year and
$9,000 for gains on the sale of repossessed autos.

     Net  securities gains and  losses decreased $7,000 when  1999 and 1998 are
compared.   The  income in this  category reflects  securities called  prior to
maturity.

Noninterest Expense
-------------------

     Noninterest expenses for the  first three months of 1999  were $2,926,000,
an increase of $230,000 or 8.53% over the first three months of 1998.

     Salaries and fringe benefits were $1,559,000 at the end of the first three
months  of 1999.   This represents an  increase of $160,000 or  11.44% over the
first three  months  of 1998.    A portion  of  this increase  was due  to  the
acquisition of  the Galax  branch.   This facility was  acquired in  the second
quarter  of  1998.    Accordingly,  1998  data  contains  no  salaries  expense
associated  with the  acquisition.  The  remainder of  the increase  was due to
normal merit increases and other personnel related costs.


                                      -15-<PAGE>

     Occupancy  expenses increased  by $11,000  or 4.47%  when the  first three
months of 1999 and 1998 are  compared.  Acquisition of the previously mentioned
Galax Branch contributed to this increase.

     Data processing expense increased by $3,000 or 1.53%.

     Credit card expense rose by $28,000 of 21.88% in the first three months of
1999.  Increases in overall volume also contributed to this increase.  Included
in the category  was approximately $4,000 in expense related  to the reissuance
of debit cards.  The next scheduled reissuance will be in four years.  

     Other  expenses at  March  31, 1999  were  $727,000, which  represents  an
increase of  $42,000 or  6.13% over the  same period  in 1998.   Other expenses
include various  types of  costs.   Examples of  expense accounts  included are
telephone,   franchise  taxes,   stationary   and  supplies,   market  expense,
correspondent charges and numerous others.  Some expenses included in this area
represent accrued expense for  anticipated expenditures, while others are  on a
cash or pay as incurred basis.  Some categories are within management's ability
to control while others can only be controlled to a degree.

Balance Sheet
-------------

The following table sets forth selected consolidated balance sheet data.

                                    March 31,             December 31,
                                 1999        1998        1998         1997
                               ========   =========  ============ ============
($000's)
Selected Period-End Data                
------------------------

Loans, net                     $ 249,575   220,709      236,578      214,552 
                                                   
Total Securities                 157,776   141,799      166,754      149,974 

Total Assets                     452,274   405,021      445,166      402,907 
                                                   
Total Deposits                   388,195   344,593      382,696      344,867 

Stockholders' Equity              59,287    55,367       58,503       54,029 

Selected Daily Averages Data            
----------------------------

Loans, net                     $ 241,776   215,980      225,613      204,540 

Total securities                 167,674   144,285      152,432      157,179 

Interest-earning assets          417,885   379,134      398,340      374,478 

Total assets                     442,801   401,010      420,988      395,932 

Total deposits                   379,511   341,736      359,970      339,439

Interest-bearing liabilities     326,942   296,789      310,634      295,565 

Stockholders' equity              59,029    54,772       58,282       53,712 



                                      -16-<PAGE>

     Total average assets at  March 31, 1999 were $442,801,000,  an increase of
$41,791,000 or 10.42% from March 31, 1998.   A portion of this increase was due
to the acquisition  of the Galax  branch in the  second quarter  of 1998.   The
Company  also  continues to  experience  satisfactory growth  in  deposits from
nonacquisition related sources.

     The  following  table  sets forth  selected  balance  sheet  caption as  a
percentage of total assets at the dates shown.

                                      March 31,             December 31,
                                   1999       1998        1998        1997
                                 ========= =========   =========== ===========

Assets                                  
------

Interest bearing deposits          3.12%      2.86%        1.58%        2.41%

Federal funds sold                  .55%      1.57%        1.14%        1.07%

Securities available for sale     28.81%     17.09%       30.57%       16.28%

Securities held to maturity        6.07%     17.93%        6.89%       20.95%

Mortgage loans held for sale        .11%       .07%         .49%         .10%

Real estate construction
 loans                             2.81%      2.89%        2.88%        2.11%

Real estate mortgage loans        11.12%     10.73%       10.95%       10.66%

Commercial and industrial
 loans                            27.21%     25.67%       24.82%       25.16%

Loans to individuals              15.14%     16.48%       15.61%       16.54%

Liabilities                             
-----------

Noninterest bearing demand
 deposits                         12.41%     11.79%       12.46%       11.19%

Interest bearing demand
 deposits                         18.93%     18.89%       18.94%       19.33%

Savings deposits                  10.57%     11.71%       10.42%       11.61%

Time deposit                      43.93%     42.68%       44.14%       43.47%

Other borrowed funds                .03%       .08%         .05%         .12%

     As  shown by the above table, management has shifted a substantial portion
of its investment portfolio to the  available for sale category.  A  portion of
this shift  was  accomplished through  calls,  maturities  of bonds  and  their
subsequent reinvestment.   In the fourth quarter  of 1998, the Company  adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and hedging Activities".  The statement allowed, upon adoption, the
transfer  of  securities  from  the  held  to  maturity classification  to  the
available  for sale without  calling into question  management's intent to hold


                                      -17-<PAGE>

its  remaining securities until maturity.  The Company used this opportunity to
transfer approximately $20,516,000 in securities to held for sale category.

     This  shift will increase the Company's flexibility to deal with liquidity
and interest rate sensitivity.

     The overall mix of loan and deposits has remained roughly the same.

Liquidity
---------

     Liquidity  is  the  ability to  provide  sufficient  cash  levels to  meet
financial commitments  and to  fund loan demand  and deposit withdrawals.   Net
cash provided by operating activities was $4,706,000 for the three months ended
March 31, 1999.  Net cash used in investing activities was $10,724,000 with the
majority of that cash  invested in securities and loans.  Net  cash provided by
financing activities was $5,412,000.  Net cash decreased $606,000 from December
31, 1998.

     The Company actively manages its  liquidity position through its investing
activities.   At March  31, 1999, overnight funds  which includes Federal Funds
sold and funds on deposit with the Federal Home Loan  Bank totaled $16,630,000.
In addition, securities with a remaining maturity of less than one year totaled
$33,644,000.    Liquidity is  also managed  through  the management  of deposit
liabilities, in particular, volatile funds such as time deposits over $100,000.
The  amount of  such deposits  is  largely dependent  on the  rate of  interest
offered.  The Company had approximately $72,427,000 in such deposits due within
twelve  months.   Other  types of  deposits  such as  interest-bearing  demand,
savings and  time deposits less than  $100,000 are less volatile  and less rate
dependent historically.

     Short  term  liquidity  needs  can also  be  satisfied  by  way  of credit
facilities established with correspondent banks, the Federal Home Loan Bank and
Federal Reserve.  Longer term borrowings, if necessary, can be obtained through
the Federal Home Loan Bank.

     NBB  is in  process of constructing  a new  building.   This facility will
provide  additional office space to replace existing leased properties and also
add  a branch facility.  This project is not expected to have a material impact
on the Company's liquidity.

     On March 15, 1999, the Company announced a tender offer in which it sought
to repurchase  up to 200,000  shares of  its stock  at $28.00 per  share.   The
impact  of  this offer  is  not expected  to  materially  impact the  Company's
liquidity.

     The Year 2000 also has liquidity  implications.  Management is fully aware
of   customer  apprehension  associated   with  the  Year   2000  date  change.
Accordingly, it is  management's plan  to provide for  additional liquidity  as
part  of  its contingency  planning  processes.    Please refer  to  the  above
information related to the establishment of credit facilities and the Year 2000
discussion  which  follows  for the  steps  the  Company  is  taking  to  allay
unwarranted customer concerns.

     Management is not aware of any other trend, commitment or events that will
result in or  that are reasonably likely  to result in a  decrease in liquidity
that  would be  adverse and  to a  degree that  operations would  be materially
impaired.



                                      -18-<PAGE>

Capital Resources
-----------------

     Total stockholders'  equity increased $784,000 or 1.34%  from December 31,
1998.   During  the  first three  months  of 1999,  retained  earnings grew  by
$1,679,000.  Accumulated comprehensive income decreased stockholders' equity by
$881,000.   This category is comprised solely  of changes in the net unrealized
gains (losses) on  securities available for sale.  Common  stock subject to put
option increased  by  $14,000.   The  common stock  subject  to put  option  is
affected by the current market price of Bankshares' common stock as well as the
number of shares outstanding.

     The following table sets forth the various ratios by which bank capital is
measured.  Bankshares and its subsidiaries continue to be well capitalized.

                                      March 31,            December 31,
                                  1999       1998        1998         1997
                                =========  =========  ==========  ============
 Consolidated Capital Ratios              
 ---------------------------
  Total capital (to risk                  
   weighted assets)               22.2%        23.7%     22.4%       23.3%
  Tier 1 Capital (to risk                 
   weighted assets)               21.2%        22.7%     21.5%       22.3%
  Tier 1 capital (to average              
   assets, leverage ratio)        13.7%        14.2%     13.4%       13.7%


Tender Offer
------------

     On  March 15,  1999, the  Company  announced a  stock tender  offer.   The
Company sought to repurchase 200,000 shares, but reserved the right to purchase
up to two percent of  its outstanding shares of  common stock.  The tender  off
closed  on April 30,  1999.  The  offer resulted  in the repurchase  of 275,856
shares.  The Company's Form 13E-4 filed March 15,  1999 and amended 13E-4 filed
March 31, 1999 are incorporated herein.

Selected Affiliate Bank Data
----------------------------

     The following table sets forth selected data for NBB and BTC:

                                               March 31, 1999
                                               --------------
      (000's, except for % data)          NBB                 BTC
                                          ---                 ---
      Assets                            $271,482             178,216     
      Deposits                           238,798             149,422     
      Shareholders Equity                 30,974              27,946     
      Net Income                           1,101                 547     
      Return on Average Assets              1.69%               1.25%    
      Return on Average Equity             14.51%               7.95%    
      Tier 1 Capital Rates                 15.90%              29.74%    
      Total Risk Based Capital                       
       Rates                               16.95%              30.70%    
      Tier 1 Leverage Ratio                11.32%              15.86%    


                                      -19-<PAGE>

Year 2000
---------

     The Company recognizes the risks and challenges presented by the impact of
the  century   date  change  on  information  processing  and  other  microchip
controlled  systems.   The  Year  2000  ("Y2K")  involves  several  issues  for
financial institutions.  The Company's own  internal information processing and
microchip controlled systems, as  well as those of  its major service  vendors,
must be Y2K compliant.   Banks face credit, earnings and liquidity  risk should
commercial  loan  customers or  large  depositors  suffer significant  business
disruptions  as a  result  of the  impact  of computer  failures  in their  own
operations or  in those of their suppliers or customers.  Banks could encounter
temporary  funding shortages if customers withdraw unusually large sums of cash
because they  are unduly  concerned about  the effects of  Y2K.   And, although
management believes the level  of counterpart trading risk is low,  there could
be  a temporary or permanent effect  on the investment portfolio resulting from
the negative impact of Y2K on the underlying entities.

     Both  of  the Company's  bank  subsidiaries have  established  Y2K project
management  teams that have developed  Y2K plans with  assessment, testing, and
remediation  phases.  The internal  audit department is  conducting Y2K audits,
and  both  banks are  subject  to the  guidelines  promulgated  by the  Federal
Financial  Institutions Examination  Counsel (FFIEC)  and to regular  Year 2000
compliance examinations by their respective federal regulators.

     The assessment phase  outlined in both NBB's and BTC's  Y2K plans has been
completed.  The banks have identified all internal mission critical information
technology  and microchip  controlled systems.   Outside  vendors  that provide
mission critical service to the institutions have also been identified.

     Because of  their importance  to  daily business  operations,  substantial
attention  has  been  focused on  the  banks'  customer  information processing
hardware  and  software.   In  1997,  in the  normal  course  of business,  NBB
purchased a new Unisys  host computer and peripherals and  installed the latest
version  of its  Information Technology,  Inc.  (ITI) software.    In the  last
quarter   of  1998,  BTC  converted  from  its  previous  in-house  information
processing system.   BTC is now  processed using  NBB's hardware and  software.
The  NBB system  has  been tested,  including century  date rollover  and other
critical dates, and validation of the ITI application is complete.

     Each  bank  has identified  as  mission  critical independent  information
technology  systems in their Trust Departments.  NBB has successfully completed
proxy testing of its external service provider, and BTC has successfully tested
its  internal  system.   Microchip controlled  bank  security systems  are also
mission critical.  Testing of these systems at both banks determined that minor
renovations  were  necessary  at three  offices.    Those  renovations are  now
complete.

     The Federal Reserve Bank of Richmond has provided comprehensive procedures
and instructions for interface testing.   During the first quarter of 1999, NBB
and BTC  successfully tested  all utilized  services, including  wire transfer,
automated clearing house and savings bonds.

     Both NBB and BTC deal  with outside vendors that provide mission  critical
support  for bank card processing and ATM  servicing.  The banks are monitoring
these vendors' progress to  assure their Y2K readiness.   The vendors regularly
provide  status reports and  testing criteria.   In the first  quarter of 1999,
both BTC and NBB converted to a  new ATM servicer.  Testing of that application
was  successfully concluded.


                                      -20-<PAGE>

     Each  bank has developed and  implemented programs to  assess the level of
Y2K risk among large loan customers.  NBB's Credit Review department performs a
precredit analysis of all new large loans made by both banks.  An assessment of
the potential effects of the Year 2000 on the credit-worthiness of borrowers is
a part of this  analysis.  BTC  is asking new commercial  borrowers to sign  an
agreement  to insure  compliance  with minimum  standards  with regard  to  Y2K
issues.  That  bank is also  following up with these  borrowers to insure  that
promised deadlines are  met.  Both NBB and BTC  have also completed assessments
of Year 2000 preparedness among existing large commercial loan customers.

     The banks have ongoing initiatives designed to educate customers about Y2K
issues and  to allay any unwarranted concerns about the safety and soundness of
the institutions.   Leaflets discussing the topic  were sent to  all customers,
and the banks have  posted information on their Web  sites.  NBB held  a public
forum directed at small businesses and has  established a toll free information
hotline.    Employee  training and  awareness  campaigns  have been  completed.
Additional  employee   training  and  public  education   efforts  are  planned
throughout the rest of 1999.

     Contingency  plans  have been  drafted  by  NBB  and  BTC to  1)  identify
alternatives  if mission critical applications do not meet the banks' readiness
plan,  and 2) develop a  course of action to  assure business continuity in the
event there  are system  failures on  critical  dates.   Both institutions  are
providing their Boards of Directors with regular reports on Y2K initiatives and
preparedness.

     At  this time, National Bankshares, Inc.  believes that in the most likely
worst-case scenarios,  Y2K will  not have a  material effect  on the  Company's
operations,  liquidity  or financial  condition.    Although contingency  plans
address multiple alternative scenarios, the  Company believes it is  impossible
for  any business  to  address the  potentially  unlimited number  of  possible
circumstances relating  to  Y2K issues.   Even  though it  is highly  unlikely,
National  Bankshares recognizes  that  if its  Y2K  assessment, remediation  or
contingency plans prove to be inadequate, this could have a  material impact on
its  operations  and therefore  result  in  a material  adverse  effect on  the
Company's results of operations and financial condition.

     The Company's recently  completed upgrade of  internal processing  systems
does enhance Y2K preparedness.  However, the major goals of the upgrade were to
provide  a shared information processing  system for affiliates  and to provide
additional processing capacity and the ability to use the most advanced version
of software  available.  The  costs of  the upgrade were  substantial, but  the
total of  costs of the  upgrade directly related to  the Y2K component  was not
material.

















                                      -21-<PAGE>

Banking Terms

Basis    Point    -    a     Earnings   Per    Share-    assets.
measurement         unit     Basic   -   net  income,
defined      as      one     reduced by dividends  on    Nonperforming Assets  -
hundredth     of     one     preferred         stock,    the  sum  of  loans  on
percent;   it    usually     divided  by  the average    which  interest  income
refers  to  an  interest     number of common  shares    is  not being  accrued;
rate.                        outstanding    in    the    restructured  loans  on
                             period.                     which   the    interest
Book Value  Per Share  -                                 rates   or   terms   of
the value of a share  of     Equity    Capital/Share-    repayment   have   been
common stock  determined     holders'   Equity   -  a    materially revised  and
b y      d i v i d i n g     balance   sheet   amount    real  estate  that  has
shareholders' equity  at     that   represents    the    been  acquired  through
the  end  of  a  period,     total  investment in the    foreclosure.
excluding      preferred     corporation  by  holders
stock, by the  number of     of common and  preferred    Rate-Sensitive  Assets/
common            shares     stock;    it    includes    Liabilities  -  earning
outstanding  at the  end     amounts  added   through    assets  and   interest-
of the same period.          the     retention     of    bearing     liabilities
                             earnings.                   that  can  be  repriced
Core  Deposits -  demand                                 or   replaced   at    a
deposits,        savings     Interest-Bearing            different      interest
accounts,       interest     Liabilities  -  deposits    rate,     within      a
checking       accounts,     and  borrowed  funds  on    specific  period,   due
insured   money   market     which  the   corporation    to   rate  changes   or
a c c o u n t s    a n d     pays interest;  includes    maturity.
certificates of  deposit     interest        checking
under  $100,000.    This     accounts,  money  market    Return    on    Average
is a more  stable source     accounts,   certificates    Assets   (ROA)   -  net
of   funds  than   funds     of  deposit,  short-term    income as a  percentage
purchased  on the  basis     borrowings   and   long-    of    average     total
of rate only.                term debt.                  assets.    It is  a key
                                                         profitability     ratio
Cost    of    Funds    -     Leverage         Capital    that   indicates    how
interest   on   deposits     Ratio  -  the  total  of    effectively  a bank has
and    borrowed    funds     Tier   1  capital   less    used     its      total
divided  by the  average     certain       intangible    resources.
balance of such funds.       assets      such      as
                             goodwill,   divided   by    Return    on    Average
Comprehensive  Income  -     quarterly        average    Equity   (ROE)  -   net
net   income   plus  the     assets.         A    key    income  as a percentage
change   in   unrealized     regulatory       capital    of    total     average
gains  and  losses,  net     requirement   with   the    shareholders'   equity.
of  tax,  on  securities     minimum  amount  allowed    Provides  a  measure of
available  for sale  for     of 4%.                      how   productively    a
the period.                                              bank's equity has  been
                             Net  Interest  Income  -    employed.
Earning  Assets -  loans     the  difference  between
(net     of     unearned     income   from    earning    Risk-Based  Assets -  a
income),      investment     assets   and    interest    regulatory  method   of
securities,        money     paid  on  deposits   and    classifying      assets
market  investments  and     borrowed funds.             based     on      their
interest-bearing                                         potential    risk    of
deposits    in     other     Net  Interest  Margin  -    loss,      used      in
banks.                       net   taxable-equivalent    calculating     various
                             interest income  divided    capital         ratios.
                             by    average    earning    Assets  are  classified


                                      -22-<PAGE>

in     one    of    four     Tier  1 Risk-Based Capi-
categories         based     tal   Ratio   -   common
primarily   on    credit     shareholders'     equity
risk  and  are  adjusted     less certain  intangible
to reflect the  relative     assets,     such      as
riskiness    of     that     goodwill,   divided   by
category.                    risk-based       assets.
                             Current       regulatory
Securities     Available     minimum  requires   that
for  Sale  -  securities     at  least a  4% ratio be
that  will be  held  for     maintained.
indefinite  periods   of
time  and  that  may  be     Total         Risk-Based
sold  as  part   of  the     Capital  Ratio  -  total
bank's   asset/liability     capital    divided    by
strategy.          These     risk-based       assets.
securities are  recorded     Total  capital  consists
at their current  market     of common  shareholders'
value   rather  than  at     equity,  the   allowance
their         historical     for     loan     losses,
amortized cost.              certain  components   of
                             nonpermanent   preferred
Securities    Held    to     stock  and  subordinated
Maturity  -   securities     debt    less     certain
that  the bank  has  the     intangible assets,  such
ability  and the  intent     as  goodwill.    Current
to  hold  to   maturity.     regulatory       minimum
These   securities   are     requires  that  at least
recorded    at     their     an    8%    ratio     be
original cost,  adjusted     maintained.
for   amortization    of
premium   or    discount     Yield on Earning  Assets
accretion.                   -     total     taxable-
                             equivalent      interest
Spread or  Interest-Rate     income  dividend by  the
Differential    -    the     average    balance    of
difference  between  the     earnings assets.
average  interest  rates
received   on    earning
assets  and  the average
interest rates paid  for
interest-bearing
liabilities.

Taxable-Equivalent   In-
come -  income that  has
been     adjusted     by
increasing    tax-exempt
interest  income  to  an
equivalent        pretax
amount    of     taxable
income.             This
adjustment        allows
corporations to  compare
the   effective   pretax
yields   on    different
mixes  of  taxable   and
tax-exempt assets.



                                      -23-<PAGE>

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Derivatives

     The  Company is not a party  to derivative financial instruments with off-
balance sheet  risks such as futures, forwards, swaps and options.  The Company
is a  party to  financial  instruments with  off-balance  sheet risks  such  as
commitments  to  extend  credit,  standby  letters  of  credit,   and  recourse
obligations in the normal course of business to meet the financing needs of its
customers.   Management  does not  plan  any future  involvement in  high  risk
derivative  products.     The  Company  has   investments  in   mortgage-backed
securities,  collateralized mortgage  obligations, structured  notes  and other
similar instruments which  are included  in securities available  for sale  and
securities held to maturity.   The fair value of these investments at March 31,
1999 approximated $23,518,000.

Interest Rate Sensitivity

     The  Company's  securities  and loans  and  its  deposits  are subject  to
interest  rate  risk.    The  Company's profitability  in  the  near  term  may
temporarily  be affected, either positively by a falling interest rate scenario
or negatively by a period  of rising rates.  The table below sets  forth, as of
March  31, 1999, the distribution  of repricing opportunities  of the Company's
interest-earning assets  and interest-bearing  liabilities,  the interest  rate
sensitivity  gap  (i.e.,  interest rate  sensitive  assets  less interest  rate
sensitive  liabilities), and the cumulative interest rate sensitivity gap.  The
table  sets forth  the time  periods during  which interest-earning  assets and
interest-bearing  liabilities will  mature or  may reprice  in  accordance with
their contracted terms.

     The  method of  analysis  presented in  the  following table  has  certain
inherent shortcomings.   For example,  although certain assets  and liabilities
may  have similar  maturities  or  periods  of repricing,  they  may  react  in
different degrees and at  different times to changes in  market interest rates.
In  addition, loan prepayments and early withdrawals of certificates of deposit
could cause the interest sensitivities  to vary from those which appear  on the
table.   The classification of securities as  held to maturity or available for
sale also effects rate sensitivity.  Available for sale securities which may be
sold can be used  to adjust the  Company's interest rate sensitivity  position.
Finally,  call features  in the  investment portfolio  can have  a considerable
effect.   Since the  call decision  is dependent on  interest rate levels  at a
future point in  time, the ultimate effect on interest  rate sensitivity cannot
be precisely  determined.   A  substantial number  of bonds  in the  investment
portfolio contain these features.

    ($000's)          <3 Months   6 Months  12 Months  1-5 Years  >5 Years
                      =========   ========  =========  =========  ========
    Interest-earning
     assets           $  65,456     20,670     43,732   155,454    139,185 
    Interest-bearing
     liabilities        179,198     36,195     74,691    42,122        --- 
                      ---------   --------   --------  --------   -------- 
    Gap                (113,742)   (15,525)   (30,959)  113,332    139,185 
                      =========   ========   ========  ========   ======== 
    Cumulative gap    $(113,742)  (129,267)  (160,226)  (46,894)    92,291 
                      =========   ========   ========  ========   ======== 
    Cumulative gap
     ratio                  .37        .40        .45       .86       1.28 
                      =========   ========   ========  ========   ======== 


                                      -24-<PAGE>

     The  Company also uses simulation  analysis to forecast  its balance sheet
and monitor interest rate sensitivity.   One test used by the Company  is shock
analysis, which measures the  effect of a hypothetical, immediate  and parallel
shift in interest rates.  The following table shows the results of a rate shock
of 100, 200,  and 300 basis points and the effects  on net income and return on
average assets and return on average equity at March 31, 1999.

       ($000's, except for percent data)

                                            Return on          Return on
         Rate Shift       Net Income      Average Equity     Average Assets
         ==========       ==========      ==============     ==============

              300           $5,215              7.63%               .98%
              200            5,991              8.95%              1.17%
              100            6,763             10.23%              1.35%
           (-)100            8,527             13.11%              1.76%
           (-)200            9,330             14.38%              1.95%
           (-)300            9,629             14.90%              2.03%


     Simulation  analysis allows  the  Company  to  test  asset  and  liability
management strategies under rising and  falling rate conditions.  As a  part of
simulation  process,  certain estimates  and assumptions  must be  made dealing
with, but not limited to, asset growth, the mix of assets and liabilities, rate
environment, local and national economic conditions.   Asset growth and the mix
of assets can to a degree be influenced by management.  Other areas such as the
rate environment and  economic factors cannot  be controlled.  For  this reason
actual  results may  vary  materially from  any  particular forecast  or  shock
analysis.

     This shortcoming is offset  to a degree by the periodic  re-forecasting of
the balance  sheet to reflect  current trends and  economic conditions.   Shock
analysis must also be updated periodically as a part of the asset and liability
management process.























                                      -25-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
                                   Part II
                              Other Information




Items 1-3.    Legal Proceedings;  Changes in Securities;  Defaults Upon  Senior
              Securities

              None for the three months ended
              March 31, 1999.

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

              Two proposals were  submitted to  a vote of  security holders  at
              the Company's  Annual Meeting of  Stockholders held on  April 13,
              1999.


              Proposal No. 1 - Election of Directors
              --------------------------------------

                  Three Class  Three Directors were elected for a term of three
              years each.   Two Class One Directors were  elected for a term of
              one year each.

                  The name of each Director elected at the meeting follows:

              Class Three Directors     Class One Directors
              ---------------------     -------------------

              Charles L. Boatwright     L. Allen Bowman
              James A. Deskins, Sr.     Cameron L. Forrester
              William T. Peery

                  The  name of  each Director  whose term  of  office continued
              after the meeting is listed:

                  Alonzo A. Crouse
                  Paul A. Duncan
                  James G. Rakes
                  Jeffrey R. Stewart

                  The number  of votes  cast for  and against  each nominee  is
              provided below.   There were  no abstaining votes  and no  broker
              non-votes.

                                     Election of Directors
                 Director                    Votes For      Votes Against
                 --------                    ---------      -------------

                 Charles L. Boatwright       2,899,273        19,294          
                 James A. Deskins, Sr.       2,909,815         8,752          
                 William T. Peery            2,909,929         8,638          
                 L. Allen Bowman             2,911,849         6,718          
                 Cameron L. Forrester        2,909,932         8,635          



                                      -26-<PAGE>

              Proposal No. 2 - Approval of the 1999 Stock Option Plan
              -------------------------------------------------------

                  The  1999  Stock Option  Plan,  which makes  available  up to
              250,000 shares of  Common Stock  for awards to  key employees  of
              the Company  and its subsidiaries  in the form  of stock options,
              was approved by the stockholders.

                  The number of  shares cast  for and against  approval of  the
              1999 Stock  Option Plan, and  the number of  votes abstaining, is
              listed below.  There were 282,563 broker non-votes.

                 Votes For            Votes Against        Votes Abstaining
                 ---------            -------------        ----------------

                 2,400,281            183,336              52,387
         
Item 5.       Other Information

              None

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibit 27 - Financial Data Schedule

              (b) Reports  on  Form 8-K  filed  during the  three  months ended
                  March 31, 1999:

                  --     Press release  dated March 17, 1999  related to Tender
                         Offer

                  --     Announcement of Amendment to  Tender Offer dated March
                         31, 1999

                  The aforementioned Form 8-K's are incorporated by reference.


























                                      -27-<PAGE>

                  National Bankshares, Inc. and Subsidiaries

                                 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.



                           National Bankshares, Inc.
                                  (Registrant)








   Date:  May 7, 1999         /s/James G. Rakes      
          -------------       -------------------------------------
                              James G. Rakes, Chairman
                              President and Chief Executive Officer





   Date:  May 7, 1999         /s/J. Robert Buchanan
          -------------       -------------------------------------
                              J. Robert Buchanan, Treasurer
                              (principal financial officer)
























                                      -28-<PAGE>