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, 1997                                                          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 April 25, 1997  
-------------------------------                ---------------------------------
COMMON STOCK, $2.50 PAR VALUE                              3,792,833            



                        (This report contains 20 pages) <PAGE>
                            NATIONAL BANKSHARES, INC.

                                    FORM 10-Q

                                      INDEX




                                                                         Page   
                                                                         ----   

PART I    FINANCIAL INFORMATION
--------------------------------

     ITEM 1 - FINANCIAL STATEMENTS

          CONSOLIDATED BALANCE SHEETS, MARCH 31, 1997
           AND DECEMBER 31, 1996                                         4-5    
                             
          CONSOLIDATED STATEMENTS OF INCOME,
           THREE MONTHS ENDED MARCH 31, 1997 AND 1996                     6     

          CONSOLIDATED STATEMENTS OF CHANGES IN                
           STOCKHOLDERS' EQUITY, THREE MONTHS ENDED   
           MARCH 31, 1997 AND 1996                                        7     

          CONSOLIDATED STATEMENTS OF CASH FLOWS
           THREE MONTHS ENDED MARCH 31, 1997 AND 1996                    8-9    

          SELECTED CONSOLIDATED FINANCIAL DATA                          10-14   

     ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS                 15-18   


PART II   OTHER INFORMATION
----------------------------

     ITEMS 1 - 3 - LEGAL PROCEEDINGS; CHANGES IN
        SECURITIES; DEFAULTS UPON SENIOR SECURITIES                      19     

     ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
        SECURITY HOLDERS                                                 19     

     ITEM 5 - OTHER INFORMATION                                          19     

     ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K                         19     

     SIGNATURES                                                          20     












                                       -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),  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, 1997 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  Corporation's  1996 Annual  Report  to
Stockholders and additional information supplied in the 1996 Form 10-K.





































                                       -3-<PAGE>

                       CONSOLIDATED BALANCE SHEETS
                NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
                   MARCH 31, 1997 AND DECEMBER 31, 1996
                               (UNAUDITED)

                                                 MARCH 31,    DECEMBER
 ($000's)                                          1997       31, 1996
                                                 =========    ========
 ASSETS
 Cash and due from banks                         $ 10,973       9,989   
 Interest-bearing deposits                          3,994          91   
 Federal funds sold                                11,395       1,910   
 Securities available for sale                     57,661      62,534   
 Securities held to maturity (fair value
  $98,184 in 1997 and $108,755 in 1996)            98,938     108,710   
 Mortgage loans held for sale                         205         516   
 Loans:
    Real estate construction loans                  9,265       6,295   
    Real estate mortgage loans                     42,622      43,917   
    Commercial and industrial loans                89,034      87,519   
    Loans to individuals                           61,863      60,991   
                                                 --------     -------   

             Total loans                          202,784     198,722

    Less unearned income and deferred fees          2,502       2,549   
                                                 --------     -------   
             Loans, net of unearned income and
              deferred fees                       200,282     196,173

    Less allowance for loan losses                  2,445       2,575   
                                                 --------     -------   
             Loans, net                           197,837     193,598   
                                                 --------     -------   
 Bank premises and equipment, net                   5,112       5,037   
 Accrued interest receivable                        3,561       3,510   
 Other real estate owned, net                         445         474   
 Other assets                                       2,757       2,481   
                                                 --------     -------   
             Total assets                        $392,878     388,850   
                                                 ========     =======   
 LIABILITIES AND STOCKHOLDERS' EQUITY
 Noninterest-bearing demand deposits             $ 42,539      44,096   
 Interest-bearing demand deposits                  76,702      73,804   
 Savings deposits                                  48,394      48,164   
 Time deposits                                    169,891     168,520   
                                                 --------     -------   

             Total deposits                       337,526     334,584   
                                                 --------     -------
 Other borrowed funds                                 533         627
 Accrued interest payable                             722         700   
 Other liabilities                                  1,551       1,495   
                                                 --------     -------   
             Total liabilities                    340,332     337,406   
                                                 --------     -------   
 Common stock subject to ESOP put option            1,668       1,643   
                                                 --------     -------   



                                       -4-<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                                 43,740      42,210   
 Net unrealized losses on securities available
  for sale                                           (676)       (248)  
 Common stock subject to ESOP put option           (1,668)     (1,643)  
                                                 --------     -------   
             Total stockholders' equity            50,878      49,801   

 Commitments and contingent liabilities
                                                 --------     -------   
             Total liabilities and
              stockholders' equity               $392,878     388,850   
                                                 ========     =======   










































                                       -5-<PAGE>

                    CONSOLIDATED STATEMENTS OF INCOME
                NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
                THREE MONTHS ENDED MARCH 31, 1997 AND 1996
                               (UNAUDITED)

                                                   MARCH 31,   MARCH 31,
 ($000's, except per share data)                      1997       1996
                                                   =========   =========
 INTEREST INCOME
 Interest and fees on loans                          $4,602      3,997  
 Interest on interest-bearing deposits                   20        ---  
 Interest on federal funds sold                          82        162  
 Interest on securities-taxable                       1,998      2,338  
 Interest on securities-nontaxable                      463        502  
                                                     ------     ------  
             Total interest income                    7,165      6,999  
                                                     ------     ------  
 INTEREST EXPENSE
 Interest on time deposits of $100,000 or more          533        515  
 Interest on other deposits                           2,643      2,762  
 Interest on borrowed funds                              25          7  
                                                     ------     ------  
            Total interest expense                    3,201      3,284  
                                                     ------     ------  
            Net interest income                       3,964      3,715

 Provision for loan losses                              109         45  
                                                     ------     ------  
            Net interest income after provision
             for loan losses                          3,855      3,670  
                                                     ------     ------  
 NONINTEREST INCOME
 Service charges on deposit accounts                    278        258  
 Other service charges and fees                          84         56  
 Credit card fees                                       120        110  
 Trust income                                           182        132  
 Other income                                             6          2  
 Realized securities gains, net                           8          4  
                                                     ------     ------  
             Total noninterest income                   678        562  
                                                     ------     ------  
 NONINTEREST EXPENSE                                         
 Salaries and employee benefits                       1,372      1,202  
 Occupancy and furniture and fixtures                   244        236  
 Data processing and ATM                                 74         52  
 FDIC assessment                                          3        ---  
 Credit card processing                                 120         97  
 Goodwill amortization                                    7          5  
 Net costs of other real estate owned                     1          2  
 Other operating expense                                620        691  
                                                     ------     ------  

             Total noninterest expense                2,441      2,285  
                                                     ------     ------  
 Income before income tax expense                     2,092      1,947  
 Income tax expense                                     562        552  
                                                     ------     ------  
             Net income                              $1,530      1,395  
                                                     ======     ======  
             Net income per share                    $ 0.40       0.37  
                                                     ======     ======  

                                       -6-<PAGE>

       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
               NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
               THREE MONTHS ENDED MARCH 31, 1997 AND 1996
                              (UNAUDITED)


                                               NET
                                            UNREALIZED
                                              GAINS     COMMON
                                             (LOSSES)   STOCK
                                                ON     SUBJECT
                                            SECURITIES TO ESOP
                          COMMON  RETAINED  AVAILABLE    PUT
 ($000's)                  STOCK  EARNINGS   FOR SALE   OPTION  TOTAL
                          ======  ========= ==========  ======  =====

 Balances, December 31,
  1995                     $9,482   38,390      282       ---   48,154 
 Net income                   ---    1,395      ---       ---    1,395 
 Change in net unrealized
  gains (losses) on
  securities available
  for sale, net of income
  tax benefit of $372         ---      ---     (722)      ---     (722)
                           ------   ------    -----    ------   ------ 

 Balances, March 31, 1996  $9,482   39,785     (440)      ---   48,827 
                           ======   ======    =====    ======   ====== 


 Balances, December 31,
  1996                     $9,482   42,210     (248)   (1,643)  49,801 
 Net income                   ---    1,530      ---              1,530 
 Change in net unrealized
  gains (losses) on
  securities available
  for sale, net of income
  tax benefit of $220         ---      ---     (428)      ---     (428)
 Change in common stock
  subject to ESOP put
  option                      ---      ---      ---       (25)     (25)
                           ------   ------    -----    ------   ------ 
 Balances, March 31, 1997  $9,482   43,740     (676)   (1,668)  50,878 
                           ======   ======    =====    ======   ====== 














                                       -7-<PAGE>

                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                    NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
                    THREE MONTHS ENDED MARCH 31, 1997 AND 1996
                                    (UNAUDITED)

                                                         MARCH 31,  MARCH 31,
     ($000's)                                              1997        1996
                                                         =========  =========
     CASH FLOWS FROM OPERATING ACTIVITIES  
     Net Income                                          $ 1,530      1,395   
     Adjustments to reconcile net income to net cash
       provided by operating activities: 
          Provision for loan losses                          109         45   
          Provision for deferred income taxes               (127)       ---   
          Depreciation of bank premises and equipment        113        114   
          Amortization of intangibles                         31         30   
          Amortization of premiums and accretion of
           discounts, net                                    ---         (3)  
          Gains on bank premises and equipment 
           disposals                                          (2)       ---   
          Gains on sales and calls of securities
           available for sale, net                           (23)        (4)  
          Gains on calls of securities held to
           maturity, net                                      (8)       ---   
          Net decrease in mortgage loans held for sale
          Losses and writedowns on other real estate         ---        ---   
           owned                                             311        306   
          (Increase) decrease in:
             Accrued interest receivable                     ---        ---   
             Other assets
          Increase (decrease) in:                            (51)      (250)  
             Accrued interest payable                         41       (487)  
             Other liabilities
                                                              22          7   
                                                              56       (441)  
                                                         -------     ------   
                    Net cash provided by operating
                     activities                            2,002        712   
                                                         -------     ------   
     CASH FLOWS FROM INVESTING ACTIVITIES
     Net increase in federal funds sold                   (9,485)     (7,845) 
     Net increase in interest-bearing deposits (Note 1)   (3,994) 
     Proceeds from calls and maturities of securities                   ---   
      available for sale                                   4,726  
     Proceeds from calls and maturities of securities                 5,746   
      held to maturity                                    12,795  
     Purchases of securities available for sale             (500)    11,249   
     Purchases of securities held to maturity             (2,993)    (5,969)  
     Purchases of loan participations                        ---     (9,702)  
     Collections of loan participations                      174     (1,996)  
     Net increase in loans made to customers              (4,475)       529   
     Proceeds from disposal of other real estate owned        29       (901)  
     Recoveries on loans charged-off                          47          1   
     Bank premises and equipment expenditures               (190)        12   
     Proceeds from sale of bank premises and equipment       ---       (207)  
                                                         -------        ---   
                                                                     ------   
                    Net cash used in investing 
                     activities                           (3,866)    (9,083)  
                                                         -------     ------   

                                       -8-<PAGE>

     CASH FLOWS FROM FINANCING ACTIVITIES  
     Net increase in time deposits                         1,371      1,648   
     Net increase in other deposits                        1,571      5,125   
     Net increase (decrease) in other borrowed funds         (94)       966   
                                                         -------     ------   
                    Net cash provided by financing
                     activities                            2,848      7,739   
                                                         -------     ------   
     Net increase (decrease) in cash and due from
      banks                                                  984       (632)  
     Cash and due from banks at beginning of period        9,989     10,055   
                                                         -------     ------   
     Cash and due from banks at end of period            $10,973      9,423   
                                                         =======     ======   
     SUPPLEMENTAL CASH FLOW INFORMATION
     Unrealized gains/losses in securities available
      for sale (gross)                                   $  (648)    (1,094)  
     Deferred income tax benefit                             220        372   
                                                         -------     ------   
     Net unrealized losses on securities
      available for sale                                 $  (428)      (722)  
                                                         =======     ======   
     Loans charged to the allowance for loan losses      $   286         77   
                                                         =======     ======   
     Interest paid                                       $ 3,179      3,277   
                                                         =======     ======   


Note (1)  Interest-bearing deposits have been  reclassified on the balance sheet
          for  the period ended  March 31, 1997.   Included in  the cash flow of
          $3,994  is $91 which  represents the reclassification  of the December
          31, 1996  period-end balance, which was included  in Cash and due from
          deposits.




























                                       -9-<PAGE>
                   NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
                           SELECTED BALANCE SHEET DATA





                                              MARCH 31,   DECEMBER 31,
          ($000's)                              1997          1996
                                              =========   ============
          SELECTED DATA AT PERIOD-END

          Loans, net                           $197,837      193,598
          Total securities                      156,599      171,244
          Total assets                          392,878      388,850
          Total deposits                        337,526      334,584
          Stockholders' equity                   50,878       49,801

          SELECTED DATA DAILY AVERAGES

          Loans, net                           $195,355      177,419
          Total securities                      163,788      177,403
          Total assets                          389,743      388,045
          Total deposits                        333,400      335,938
          Stockholders' equity                   50,457       49,459

































                                      -10-<PAGE>
                   NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
                         SELECTED INCOME STATEMENT DATA




                                                 MARCH 31,       DECEMBER 31,

   ($000's, except per share data)            1997       1996        1996
                                             ======     ======   ============
   SELECTED RATIOS AND PER SHARE DATA

   Interest income                           $ 7,165    6,999        28,647  
   Interest expense                            3,201    3,284        13,036  
   Net interest income                         3,964    3,715        15,611  
   Provision for loan losses                     109       45           331  
   Noninterest income                            678      562         2,693  
   Noninterest expense                         2,441    2,285         9,515  
   Income taxes                                  562      552         2,341  
   Net income                                  1,530    1,395         6,117  
   Return on average assets                     1.59%    1.45%         1.58% 
   Return on average equity                    12.30%   11.37%        12.37% 
   Net income per share                      $  0.40     0.37          1.61  
   Book value per share (1)                    13.85    12.88         13.56  



Note -    Book  value per share has been computed including common stock subject
          to ESOP put option as part of stockholders' equity.



























                                      -11-<PAGE>

   <TABLE>
                                NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
                                   AVERAGE BALANCES AND INTEREST RATES

   <CAPTION>

   ($000's)                       MARCH 31, 1997           MARCH 31, 1996         DECEMBER 31, 1996
                               AVERAGE      YIELD/      AVERAGE       YIELD/     AVERAGE      YIELD/
                               BALANCE       COST       BALANCE        COST      BALANCE       COST
                               =======      =======     =======      =======     =======     =======
   <S>                        <C>           <C>         <C>          <C>         <C>         <C>
   Interest-earning
    assets(1)                 $368,671        8.18%     361,871        8.19%     364,575       8.16%  
   Interest-bearing                                  
    liabilities                293,968        4.42%     293,302        4.49%     294,374       4.43%  
                                             -----                    -----                   -----   

   Net interest spread                        3.76%                    3.70%                   3.73%  
                                             =====                    =====                   =====   

   Net interest margin                        4.66%                    4.55%                   4.59%  
                                             =====                    =====                   =====   


(1)  The yield on interest-earning assets is shown on a fully tax equivalent basis.

</TABLE>



















                                                   -12-<PAGE>
                   NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
                                 LOAN LOSS DATA




                                              For the periods ended

                                      MARCH 31,     MARCH 31,   DECEMBER 31,
    ($000's)                            1997          1996          1996
                                      =========     =========   ============

    Balance at beginning of period    $ 2,575        2,551         2,625    
    Provision for loan losses             109           45           331    
    Loans charged-off                    (286)         (77)         (506)   
    Recoveries                             47           12           125    
                                      -------       ------        ------    

    Balance at end of period          $ 2,445        2,531         2,575    
                                      =======       ======        ======    
    Ratio of allowance for loan
     losses to loans, net of
     unearned income and deferred
     fees                                1.22%        1.55%         1.31%   
                                      =======       ======        ======    
    Ratio of net charge-offs to
     average loans, net of
     unearned income and deferred
     fees (1)                             .49%         .15%          .21%   
                                      =======       ======        ======    
    Ratio of allowance for loan
     losses to nonperforming loans
     (2)                               677.29%      357.34%       418.02%   
                                      =======       ======        ======    





















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


                                      -13-<PAGE>
                   NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
             NONPERFORMING ASSETS, PAST DUE LOANS AND IMPAIRED LOANS


                                           MARCH 31,   MARCH 31,  DECEMBER 31,
  ($000's)                                    1997       1996         1996
                                           =========   =========  ============
  Nonperforming Assets
  --------------------
   Nonaccrual loans                         $  361        729           536   
   Restructured loans                          ---        ---           ---   
                                            ------     ------        ------   
      Total nonperforming loans                361        729           536   
                                            ------     ------        ------   
   Nonaccrual securities                        65        215            80   
   (Net of valuation allowance)
   Foreclosed property                         445        761           474   
   Other repossessed property                   23          3            27   
                                            ------     ------        ------   
      Total foreclosed and
       repossessed properties                  468        764           501   
                                            ------     ------        ------   
         Total nonperforming assets         $  894      1,708         1,117   
                                            ======     ======        ======   
   Ratio of nonperforming assets to
    loans, net of unearned income and
    deferred fees and foreclosed/
    repossessed assets (excludes
    nonaccrual securities)                     .41%       .88%          .52%  
                                            ======     ======        ======   
  Accruing Loans Past Due 90 Days or More
  ---------------------------------------
   Past due 90 days or more and
    still accruing                          $  460        562           458   
                                            ======     ======        ======   
   Ratio of loans past due 90 days or
    more to loans, net of unearned
    income and deferred fees                   .23%       .33%          .23%  
                                            ======     ======        ======   
  Impaired Loans
  --------------
   Total impaired loans                     $  435      1,031           725   
                                            ======     ======        ======   
   Impaired loans with a
    valuation allowance                        109        377           371   
   Valuation allowance                         ---       (296)         (290)  
                                            ------     ------        ------   
   Impaired loans net of allowance          $  109         81            81   
                                            ======     ======        ======   
   Impaired loans with no
    valuation allowance                     $  326        301           354   
                                            ======     ======        ======   
   Average recorded investment
    in impaired loans                       $  580      1,041           800   
                                            ======     ======        ======   
   Income recognized on impaired loans      $    6          5            33   
                                            ======     ======        ======   
   Amount of income recognized
    on a cash basis                         $    3          5            23   
                                            ======     ======        ======   

                                      -14-<PAGE>
                   NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


     The  purpose of  this  discussion is  to set  forth  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 1996  Annual Report and Form
10-K for an understanding of the following discussion and analysis.

Results of Operations
---------------------

     Net income for  the three months ended March 31,  1997 was $1,530,000 which
represents an increase of $135,000 or 9.68% over the first three months of 1996.
The return on average assets as of March 31,  1997 and March 31, 1996 were 1.59%
and 1.45%, respectively.  The return on average equity was 12.30% and 11.37%  at
March 31, 1997 and 1996, respectively.

     Earnings per share  at the end of the  first quarter of 1997 was  $0.40 per
share, an increase of $0.03 per share over the first quarter of 1996.

     The overall improvement in performance was attributable to continued growth
in  all  major income  categories.    Noninterest expense  categories  reflected
controlled increases.   Income tax expense  increased as a result  of the higher
level of taxable income.

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

     Net  interest income  at the  end of  the first  three months  of  1997 was
$3,964,000, an increase of $249,000 or 6.70% over the  same period in 1996.  The
net interest  margin increased  to 4.66%  from 4.55%  as  a result  of a  slight
decline in the yield on earning assets by 1 basis point during that period while
the cost to fund  earning assets declined by 12 basis points.   The net increase
was due to the shifting of investments to loans.

Provision for Loan Losses
-------------------------

     The  provision for  loan losses  for the  period ended  March 31,  1997 was
$109,000, an increase of  $64,000 from the same  period the previous year.   The
increased level of the  provision in 1997 was primarily  due to loan growth  and
the  need to maintain a  satisfactory ratio of the  allowance for loan losses to
loans.  Net charge-offs, which  bear directly on the amount of  provisions, were
up $174 in the first quarter  of 1997.  This increased level of  net charge-offs
reflects the write-off of  previously identified and allocated credits  and does
not reflect an overall deterioration of asset quality or a declining trend. 

     Management anticipates  that additional provisions will be needed in future
periods to ensure  an adequate allowance  for loan losses,  due in most  part to
future loan growth.

     Since the  amount of the provision is largely dependent on loan growth, the
level of  which is  difficult to ascertain,  management is  unable to  precisely
determine the amount of provision that may ultimately be necessary.



                                      -15-<PAGE>

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

     Noninterest income  for the period  ended March 31,  1997 was $678,000,  an
increase of $116,000 or 20.64%.   Service charges on deposits increased by 7.75%
and was primarily attributable to an  increased collection of return check fees.
Bankcard fees also  improved by 9.09% due  to the  increased levels  of business
activity.   Trust  income, which  is dependent  on the  market values  of assets
managed and the types of services provided, increased 37.88%.  Trust income also
benefited from the acquisition of new business.

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

     Noninterest expense  for the first three  months of 1997 was  up 6.83% when
compared to the same period in 1996.  Salaries and benefits expense increased by
$170,000, which  was due in  part to normal  merit and promotion  related salary
increases. 

     Occupancy expense remained essentially stable when the periods ending March
31, 1997 and  March 31, 1996 are compared.  It is anticipated that such expenses
will increase with the opening of a new branch in Rich Creek, Virginia by NBB.

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

     Total  assets   at  the  end  of  the  first  three  months  of  1997  were
$392,878,000, an  increase of  $4,028,000 or  1.04% over  year-end 1996.   Total
deposits  at  period-end  March  31,  1997  were  $337,526,000  an  increase  of
$2,942,000  from year-end 1996.  While the interest-bearing deposits grew during
the first three months of 1997, demand deposits at period-end  reflected a 3.53%
decrease.

Asset Quality
-------------

     Nonperforming loans, which include  nonaccrual loans and restructured loans
but exclude loans past due 90 days and still accruing, totaled $361,000 at March
31,  1997 and $536,000  at December 31,  1996.  Total  foreclosed properties and
other repossessed property were $468,000 at March 31, 1997 a  decline of $33,000
from December 31,  1996.  The ratio of net charge-offs  to average loans, net of
unearned  income and deferred  fees was  .49% at  March 31,  1997.   At year-end
December 31, 1996, the  ratio was .21%.  The increased level  of net charge-offs
reflects for the most part, the write-off of previously identified and allocated
credits and does not represent an overall deterioration of credit quality or the
onset  of an  unfavorable  trend based  on  information presently  available  to
management.

     While asset quality trends  are generally favorable at  present, management
cannot  predict the  duration  of the  current trend  as it  can be  affected by
changes  in  the local  and national  economic conditions,  the impact  of which
cannot be precisely determined.

Liquidity
---------

     Liquidity  is the  ability  to  provide  sufficient  cash  levels  to  meet
financial commitments and to fund loan demand and deposit withdrawals.  Net cash
from operating activities  was $2,002,000 at March  31, 1997.  Net cash  used in

                                      -16-<PAGE>

investing activities was  $3,866,000 with the majority of that  cash invested in
securities and  federal  funds sold.   Net  cash from  financing activities  was
$2,848,000.  Net cash increased $984,000 from December 31, 1996.

     Management is not aware of any 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.

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

     Total stockholder  equity increased $1,077,000  or 2.16% from  December 31,
1996.   During the first quarter of  1997, retained earnings grew by $1,530,000.
This  was, however,  offset in  part by  a $428,000  increase in  unrealized net
losses on securities held for sale and a $25,000 increase in the value of common
stock subject to put option.  The common stock subject to put option is affected
by the current market price of Bankshares common stock. 

     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,
                                               1997          1996
                                             =========   ============

           Capital Ratios
           --------------
            Total capital (to risk
             weighted assets)                  23.24%        23.00%   
            Tier 1 Capital (to risk
             weighted assets)                  22.20%        21.89%   
            Tier 1 capital (to average
             assets, leverage ratio)           13.50%        12.96%   


Accounting Considerations 
------------------------- 

     The  Company  adopted  the  provisions of  SFAS  No.  125,  "Accounting for
Transfers and Servicing of Financial  Assets and Extinguishments of Liabilities"
on January 1, 1997.  This Statement provides accounting and reporting  standards
for  transfers  and  servicing  of  financial  assets  and   extinguishments  of
liabilities based  on consistent application of  a financial-components approach
that focuses  on control.  It  distinguishes transfers of financial  assets that
are  sales  from  transfers  that are  secured  borrowings.    Adoption  of this
Statement did not have a material impact on the Company's consolidated financial
position, results of operations or liquidity.

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings  per Share".  Statement 128
establishes standards for computing and presenting earnings  per share (EPS) and
applies to entities  with publicly held common stock  or potential common stock.
Statement  128  simplifies  the  standards  for  computing  earnings  per  share
previously found  in APB Opinion  No. 15, "Earnings  per Share", and  makes them
comparable  to international  EPS standards.   It  replaces the  presentation of
primary  EPS  with  a  presentation  of  basic  EPS.    It  also  requires  dual
presentation  of basic and diluted  EPS on the face  of the income statement for

                                      -17-<PAGE>

all  entities with complex capital  structures and requires  a reconciliation of
the numerator and denominator of the  basic EPS computation to the numerator and
denominator of the diluted EPS computation.

     Basic EPS excludes dilution and is computed by dividing income available to
common  stockholders by the weighted-average number of common shares outstanding
for the period.  Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were  exercised or converted
into common stock  or resulted in the issuance of common  stock that then shared
in the earnings of the entity.

     Statement  128 is  effective for  financial statements  issued for  periods
ending after December 15,  1997, including interim periods;  earlier application
is not permitted.   Statement 128  requires restatement of all  prior-period EPS
data  presented.  It is not anticipated  that Statement 128 will have any effect
on current or prior year's EPS data presented by the Company.












































                                      -18-<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 period ended
              March 31, 1997.

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

              None for the period ended
              March 31, 1997.

Item 5.       Other Information

              None

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibit 27 - Financial Data Schedule

              (b) Form 8-K 
                    None


































                                      -19-<PAGE>

                   NATIONAL BANKSHARES, INC. AND SUBSIDIARIES

                                   SIGNATURES





Pursuant  to the requirements  of the Securities  and 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:  05/13/97            /s/James G. Rakes             
          -------------       -----------------------------
                              James G. Rakes, President and
                              Chief Executive Officer





   Date:  05/13/97            /s/Joan C. Nelson                
          -------------       -----------------------------
                              Joan C. Nelson, Treasurer
                              (principal financial officer)























                                      -20-<PAGE>