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, 1998                                                         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 8, 1998  
-------------------------------               ---------------------------------
Common Stock, $2.50 Par Value                             3,792,833            



                        (This report contains 23 pages) <PAGE>
                   National Bankshares, Inc. and Subsidiaries

                                   Form 10-Q

                                     Index




                                                                        Page   
                                                                        ----   

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

     Item 1 - Financial Statements                                        3    

          Consolidated Balance Sheets, March 31, 1998
           and December 31, 1997                                         4-5   
                             
          Consolidated Statements of Income and
           Comprehensive Income, Three Months Ended 
           March 31, 1998 and 1997                                       6-7   

          Consolidated Statements of Changes in                
           Stockholders' Equity, Three Months Ended   
           March 31, 1998 and 1997                                        8    

          Consolidated Statements of Cash Flows,
           Three Months Ended March 31, 1998 and 1997                    9-10  

          Selected Consolidated Financial Data                          11-15  

     Item 2 - Management's Discussion and Analysis of 
          Financial Condition and Results of Operations                 16-20  


     Item 3 - Quantitative and Qualitative Disclosures About 
          Market Risk                                                    21    

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

     Items 1 - 3 - Legal Proceedings; Changes in
          Securities; Defaults Upon Senior Securities                    22    

     Item 4 - Submission of Matters to a Vote of 
          Security Holders                                               22    

     Item 5 - Other Information                                          22    

     Item 6 - Exhibits and Reports on Form 8 - K                         22    

SIGNATURES                                                               23    
----------







                                      -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,  1998 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  1997
Annual Report to Stockholders  and additional information supplied in  the 1997
Form 10-K.

     In  June  1997, the  Financial  Accounting Standards  Board  (FASB) issued
Statement of  Financial Accounting Standards No.  130, "Reporting Comprehensive
Income."   Statement  130 establishes  standards for  reporting and  display of
comprehensive income and its components (revenues,  expenses, gains and losses)
in  a full  set of  general purpose  financial statements.   Statement  130 was
issued  to  address  concerns  over  the  practice  of  reporting  elements  of
comprehensive income directly in equity.

     This Statement requires all items that are required to be recognized under
accounting standards as  components of  comprehensive income be  reported in  a
financial  statement that  is  displayed in  equal  prominence with  the  other
financial statements.  It does not require a specific format for that financial
statement  but requires that an enterprise display an amount representing total
comprehensive income for the  period in that financial statement.   Enterprises
are required to classify items of  "other comprehensive income" by their nature
in  the  financial  statement and  display  the  accumulated  balance of  other
comprehensive income separately from  retained earnings and additional paid-in-
capital in the equity section  of the balance sheet.   It does not require  per
share amounts  of comprehensive  income to be  disclosed.  The  Company adopted
Statement 130 on January 1, 1998.

     Other  comprehensive  income  at  present  arises  from  unrealized  gains
(losses)  on securities available  for sale.   The following table  shows other
comprehensive  income  arising from  unrealized  gains  (losses) on  securities
available for sale and the related income tax effects:

                                                   Three Months Ended
                                                       March 31,
         ($000's)                                    1998      1997
                                                     ----      ----
         Before tax amount                           $ 132      (648) 
         Tax (expense) benefit at 34%                  (45)      220  
                                                     -----      ----  
         Other comprehensive income, net of taxes    $  87      (428) 
                                                     =====      ====  



                                      -3-<PAGE>

                National Bankshares, Inc. and Subsidiaries
                       Consolidated Balance Sheets
                   March 31, 1998 and December 31, 1997
                               (Unaudited)

                                                 March 31,    December
 ($000's, except share and per share data)         1998       31, 1997
                                                 =========    ========
 Assets
 Cash and due from banks                         $ 12,739        12,435 
 Interest-bearing deposits                         11,568         9,728 
 Federal funds sold                                 6,355         4,300 
 Securities available for sale                     69,198        65,582 
 Securities held to maturity (fair value
  $73,379 in 1998 and $85,005 in 1997)             72,601        84,392 
 Mortgage loans held for sale                         285           405 
 Loans:
    Real estate construction loans                 11,688         8,510 
    Real estate mortgage loans                     43,460        42,969 
    Commercial and industrial loans               103,967       101,379 
    Loans to individuals                           66,728        66,635 
                                                 --------       ------- 

             Total loans                          225,843       219,493 
    Less unearned income and deferred fees         (2,548)       (2,503)
                                                 --------       ------- 
             Loans, net of unearned income and
              deferred fees                       223,295       216,990 
    Less allowance for loan losses                 (2,586)       (2,438)
                                                 --------       ------- 
             Loans, net                           220,709       214,552 
                                                 --------       ------- 
 Bank premises and equipment, net                   5,632         5,739 
 Accrued interest receivable                        3,368         3,445 
 Other real estate owned, net                         397           421 
 Other assets                                       2,169         1,908 
                                                 --------       ------- 
             Total assets                        $405,021       402,907 
                                                 ========       ======= 
 Liabilities and Stockholders' Equity
 Noninterest-bearing demand deposits             $ 47,765        45,093 
 Interest-bearing demand deposits                  76,505        77,863 
 Savings deposits                                  47,448        46,773 
 Time deposits                                    172,875       175,138 
                                                 --------       ------- 

             Total deposits                       344,593       344,867 
                                                 --------       ------- 
 Other borrowed funds                                 319           485 
 Accrued interest payable                             736           722 
 Other liabilities                                  1,811           966 
                                                 --------       ------- 
             Total liabilities                    347,459       347,040 
                                                 --------       ------- 
 Common stock subject to ESOP put option            2,195         1,838 
                                                 --------       ------- 



                                      -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                              47,799        46,191 
    Accumulated other comprehensive income            281           194 
    Common stock subject to ESOP put option        (2,195)       (1,838)
                                                 --------       ------- 
             Total stockholders' equity            55,367        54,029 

 Commitments and contingent liabilities
                                                 --------       ------- 
             Total liabilities and
              stockholders' equity               $405,021       402,907 
                                                 ========       ======= 










































                                      -5-<PAGE>
                National Bankshares, Inc. and Subsidiaries
        Consolidated Statements of Income and Comprehensive Income
                Three Months Ended March 31, 1998 and 1997
                               (Unaudited)
                                                   March 31,   March 31,
 ($000's, except per share data)                      1998       1997
                                                   =========   =========
 Interest Income
 Interest and fees on loans                         $  5,154     4,602  
 Interest on interest-bearing deposits                   174        20  
 Interest on federal funds sold                           69        82  
 Interest on securities - taxable                      1,749     1,998  
 Interest on securities - nontaxable                     425       463  
                                                    --------    ------  
             Total interest income                     7,571     7,165  
                                                    --------    ------  
 Interest Expense
 Interest on time deposits of $100,000 or more           596       533  
 Interest on other deposits                            2,697     2,643  
 Interest on borrowed funds                                3        25  
                                                    --------    ------  
            Total interest expense                     3,296     3,201  
                                                    --------    ------
            Net interest income                        4,275     3,964
 Provision for loan losses                                21       109  
                                                    --------    ------  
            Net interest income after provision
             for loan losses                           4,254     3,855  
                                                    --------    ------  
 Noninterest Income
 Service charges on deposit accounts                     275       278  
 Other service charges and fees                           53        84  
 Credit card fees                                        138       120  
 Trust income                                            176       182  
 Other income                                             11         6  
 Realized securities gains, net                           13         8  
                                                    --------    ------  
             Total noninterest income                    666       678  
                                                    --------    ------  
 Noninterest Expense                                                    
 Salaries and employee benefits                        1,399     1,372  
 Occupancy and furniture and fixtures                    246       205  
 Data processing and ATM                                 196       113  
 FDIC assessment                                           9         3  
 Credit card processing                                  128       120  
 Goodwill amortization                                     7         7  
 Net costs of other real estate owned                     26         1  
 Other operating expense                                 685       620  
                                                    --------    ------  
             Total noninterest expense                 2,696     2,441  
                                                    --------    ------  
 Income before income tax expense                      2,224     2,092  
 Income tax expense                                      616       562  
                                                    --------    ------  

             Net income                                1,608     1,530  







                                      -6-                    (Continued)<PAGE>
 Other comprehensive income, net of taxes:
  Unrealized gains (losses) on securities
  available for sale                                      87      (428) 
                                                    --------    ------  

             Comprehensive income                   $  1,695     1,102  
                                                    ========    ======  

             Net income per share                   $   0.42      0.40  
                                                    ========    ======  




















































                                      -7-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
            Consolidated Statements of Changes in Stockholder's Equity
                    Three Months Ended March 31, 1998 and 1997
                                   (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,
      1996                     $9,482   42,210       (248)   (1,643)  49,801 
     Net income                   ---    1,530        ---       ---    1,530 
     Unrealized gains
      (losses) on securities
      available for sale,
      net of tax                  ---      ---       (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 
                               ======   ======      =====    ======   ====== 


     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 
                               ======   ======      =====    ======   ====== 











                                       -8-<PAGE>

              National Bankshares, Inc. and Subsidiaries
                 Consolidated Statements of Cash Flows
              Three Months Ended March 31, 1998 and 1997
                              (Unaudited)

                                                         March 31,  March 31,
    ($000's)                                               1998       1997
                                                         =========  =========
    Cash Flows from Operating Activities  
    Net Income                                           $ 1,608      1,530  
    Adjustments to reconcile net income to net cash                          
      provided by operating activities: 
         Provision for loan losses                            21        109  
         Provision for deferred income taxes                 ---       (127) 
         Depreciation of bank premises and equipment         188        113  
         Amortization of intangibles                          30         31  
         Amortization of premiums and accretion of
          discounts, net                                      13        ---  
         Gains on bank premises and equipment 
          disposals                                          ---         (2) 
         Gains on sales and calls of securities
          available for sale, net                            ---        (23) 
         Gains on calls of securities held to
          maturity, net                                      (13)        (8) 
         Losses and writedowns on other real estate
          owned                                               21        ---  
         (Increase) decrease in:
            Mortgage loans held for sale                     120        311  
            Accrued interest receivable                       77        (51) 
            Other assets                                    (336)        41  
         Increase (decrease) in:
            Accrued interest payable                          14         22  
            Other liabilities                                845         56  
                                                         -------    -------  
                   Net cash provided by operating
                    activities                             2,588      2,002  
                                                         -------    -------  
    Cash Flows from Investing Activities
    Net increase in federal funds sold                    (2,055)    (9,485) 
    Net increase in interest-bearing deposits             (1,840)    (3,994) 
    Proceeds from calls and maturities of securities
     available for sale                                    9,134      4,726  
    Proceeds from calls and maturities of securities
     held to maturity                                     11,788     12,795  
    Purchases of securities available for sale           (12,615)      (500) 
    Purchases of securities held to maturity                 ---     (2,993) 
    Collections of loan participations                     1,533        174  
    Net increase in loans made to customers               (7,946)    (4,475) 
    Proceeds from disposal of other real estate owned         44         29  
    Recoveries on loans charged off                          194         47  
    Bank premises and equipment expenditures                 (81)      (190) 
                                                         -------    -------  
                  Net cash used in investing 
                   activities                             (1,844)    (3,866) 
                                                         -------    -------  






                                       -9-                   (Continued)<PAGE>

    Cash Flows from Financing Activities  
    Net increase (decrease) in time deposits              (2,263)     1,371  
    Net increase in other deposits                         1,989      1,571  
    Net (decrease) in other borrowed funds                  (166)       (94) 
                                                         -------    -------  
                  Net cash provided by (used in)
                   financing activities                     (440)     2,848  
                                                         -------    -------  
    Net increase in cash and due from banks                  304        984  
    Cash and due from banks at beginning of period        12,435      9,989  
                                                         -------    -------  
    Cash and due from banks at end of period             $12,739     10,973  
                                                         =======    =======  
    Supplemental Disclosure of Cash Flow Information
    Interest paid                                        $ 3,282      3,179  
                                                         =======    =======  
    Cash paid for income taxes                           $    15        450  
                                                         =======    =======  
    Loans charged to the allowance for loan losses       $    67        286  
                                                         =======    =======  
    Loans transferred to other real estate owned         $    41        ---  
                                                         =======    =======  







































                                       -10-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
                           Selected Balance Sheet Data
                       March 31, 1998 and December 31, 1997



                                              March 31,    December 31,
          ($000's)                               1998          1997
                                              =========    ============

          Selected Period-End Data
          Loans, net                           $220,709      214,552
          Total securities                      141,799      149,974
          Total assets                          405,021      402,907
          Total deposits                        344,593      344,867
          Stockholders' equity                   55,367       54,029

          Selected Daily Averages Data
          Loans, net                           $215,980      204,540
          Total securities                      144,285      157,179
          Total assets                          401,010      395,932
          Total deposits                        341,736      339,439
          Stockholders' equity                   54,772       53,712































                                       -11-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
               Selected Income Statement, Ratios and Per Share Data
                    Three Months Ended March 31, 1998 and 1997
                         And Year Ended December 31, 1997



                                                  March 31,       December 31,

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

   Interest income                           $ 7,571      7,165       29,797  
   Interest expense                            3,296      3,201       13,106  
   Net interest income                         4,275      3,964       16,691  
   Provision for loan losses                      21        109          435  
   Noninterest income                            666        678        2,834  
   Noninterest expense                         2,696      2,441       10,031  
   Income taxes                                  616        562        2,499  
   Net income                                  1,608      1,530        6,560  
   Return on average assets                     1.63%      1.59%        1.66% 
   Return on average equity (1)                11.49%     12.30%       12.21% 
   Net income per share                      $  0.42       0.40         1.73  
   Book value per share (1)                    15.18      13.85        14.73  



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


























                                       -12-<PAGE>
   <TABLE>
                                National Bankshares, Inc. and Subsidiaries
                                Average Balances and Interest Yields/Rates
                              Three Months Ended March 31, 1998 and 1997 and
                                       Year Ended December 31, 1997

   <CAPTION>

   ($000's)                        March 31, 1998           March 31, 1997         December 31, 1997

                                Average      Yield/      Average      Yield/      Average     Yield/
                                Balance       Rate       Balance       Rate       Balance      Rate
                                =======     =======      =======      =======     =======     =======
   <S>                          <C>         <C>          <C>          <C>         <C>         <C>
   Interest-earning
    assets(1)                  $379,134       8.38%        368,671      8.18%      374,478      8.24%  
   Interest-bearing                                  
    liabilities                 296,789       4.50%        293,968      4.42%      295,565      4.43%  
                                             -----                     -----                   -----   
   Net interest spread                        3.88%                     3.76%                   3.81%  
                                             =====                     =====                   =====   

   Net interest margin                        4.85%                     4.66%                   4.74%  
                                             =====                     =====                   =====   


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


</TABLE>

















                                                   -13-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
             Nonperforming Assets, Past Due Loans and Impaired Loans
                  March 31, 1998 and 1997 and December 31, 1997



                                            March 31,  March 31,  December 31,
   ($000's)                                   1998        1997        1997
                                            =========  =========  ============
   Nonperforming Assets
    Nonaccrual loans                        $   42         361           87   
    Restructured loans                         ---         ---          ---   
                                            ------      ------       ------   
        Total nonperforming loans               42         361           87   
                                            ------      ------       ------   
    Nonaccrual securities
    (Net of valuation allowance)               ---          65          ---   
    Foreclosed property                        397         445          421   
                                            ------      ------       ------   
         Total nonperforming assets         $  439         871          508   
                                            ======      ======       ======   
    Ratio of nonperforming assets to
     loans, net of unearned income and
     deferred fees and foreclosed
     properties (excludes
     nonaccrual securities)                    .20%        .40%         .23%  
                                            ======      ======       ======   
   Accruing Loans Past Due 90 Days or More
    Past due 90 days or more and
     still accruing                         $  921         460          672   
                                            ======      ======       ======   
    Ratio of loans past due 90 days or
     more to loans, net of unearned
     income and deferred fees                  .41%        .23%         .31%  
                                            ======      ======       ======   
   Impaired Loans
    Total impaired loans                    $   89         435          177   
                                            ======      ======       ======   
    Impaired loans with a
     valuation allowance                       ---         109           53   
    Valuation allowance                        ---         ---           53   
                                            ------      ------       ------   
    Impaired loans net of allowance         $  ---         109          ---   
                                            ======      ======       ======   
    Impaired loans with no
     valuation allowance                    $   89         326          124   
                                            ======      ======       ======   
    Average recorded investment
     in impaired loans                      $   89         580          458   
                                            ======      ======       ======   
    Income recognized on impaired loans     $    2           6           23   
                                            ======      ======       ======   
    Amount of income recognized
     on a cash basis                        $  ---           3           12   
                                            ======      ======       ======   






                                       -14-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
                   Allowance for Loan Losses and Loan Loss Data
                  March 31, 1998 and 1997 and December 31, 1997



                                              For the periods ended

                                      March 31,     March 31,    December 31,
    ($000's)                             1998          1997          1997
                                      =========     =========    ============

    Balance at beginning of period     $ 2,438        2,575         2,575    
    Provision for loan losses               21          109           435    
    Loans charged off                      (67)        (286)         (679)   
    Recoveries                             194           47           107    
                                      --------       ------      --------    

    Balance at end of period           $ 2,586        2,445         2,438    
                                      ========       ======      ========    

    Ratio of allowance for loan
     losses to end of period
     loans, net of unearned income
     and deferred fees                    1.16%        1.22%         1.12%   
                                      ========       ======      ========    
    Ratio of net charge-offs
     (recoveries) to average
     loans, net of unearned
     income and deferred
     fees (1)                            (.24)%         .49%          .23    
                                      ========       ======      ========    

    Ratio of allowance for loan
     losses to nonperforming loans
     (2)                              6,157.14%      677.29%     2,802.30%   
                                      ========       ======      ========    

















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



                                       -15-<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  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  1997 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
---------------------

    Net income for  the three months ended March  31, 1998 was $1,608,000 which
represents an increase of  $78,000 or 5.1% over the first three months of 1997.
The return on average  assets as of March 31, 1998 and March 31, 1997 was 1.63%
and 1.59%, respectively.  The return on average equity was 11.49% and 12.30% at
March 31, 1998 and 1997, respectively.

    Earnings per share  at the end of the  first quarter of 1998 was  $0.42 per
share,  an  increase  of $0.02  per  share  over  the  first quarter  of  1997.
Statement of Financial Accounting Standards No. 128, "Earnings per Share," does
not  have any effect on  current or prior period EPS  data presented due to the
Company's simple capital structure.  

    The  overall  improvement  in  net  income  was  primarily  the  result  of
continued growth in net interest income and a decline in the provision for loan
losses.   These factors were offset  to a degree by  increased costs associated
with data processing.

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

    Net  interest  income at  the end  of the  first three  months of  1998 was
$4,275,000, an increase of $311,000 or 7.85% over the same period in 1997.  The
net interest margin increased to 4.85% from 4.66% as a result of an increase in
the yield  on interest-earning  assets of  20 basis points  during that  period
while the cost to fund interest-earning assets increased by 8 basis points.

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

    The provision  for loan  losses for  the period  ended March  31, 1998  was
$21,000, a decrease of $88,000 from the same period the previous year.  The net
charge-off (recovery) ratio at March 31, 1998 was (.24%).  Loans charged off at
March 31, 1998 were $67,000 compared to $286,000 at March 31, 1997.  Recoveries
of loans previously  charged off at the end  of the first three months  of 1998
were $194,000 compared to $47,000 for the same period in 1997.



                                      -16-<PAGE>
    Management anticipates that additional provisions will be  needed in future
periods  to ensure an adequate allowance for loan losses, due in part to future
loan growth and factors related to portfolio composition.

    Overall asset  quality remains satisfactory  as indicated by  nonperforming
asset data shown elsewhere in this report.

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

    Noninterest income  for the  period ended  March 31, 1998  was $666,000,  a
decrease  of $12,000  or 1.77%.    The principal  cause of  the decrease  was a
decline  in other service charges offset in  part by an increase in credit card
fees.  Other service charges are comprised of various miscellaneous charges and
are subject to fluctuations.  Credit card fees increased as a result of a debit
card program introduced in 1997 and increased volume.  Other noninterest income
categories experienced nominal variances.

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

    Noninterest expense for  the first three months of  1998 was up 10.45% when
compared to  the same period in  1997.  Salaries and employee  benefits were up
$27,000 or  1.97% when the  first three months of  1998 and 1997  are compared.
Data  processing expense increased  by $83,000 over  the first three  months of
1997.  In the  fourth quarter of 1997, the Company upgraded its data processing
equipment  and software  which  increased depreciation  and maintenance  costs.
Also, in  anticipation of a  data processing  upgrade at BTC,  depreciation was
accelerated on  certain data processing  equipment that  would become  obsolete
upon conversion later in 1998.

    OREO  expense was  up $25,000 as a  result of an  increase in the valuation
allowance for  other real estate owned.  The valuation allowance for other real
estate is periodically adjusted  to reflect market conditions which  may affect
net realizable values.

    Other expenses  at March 31,  1998 were  $685,000, an  increase of  $65,000
over the same period in 1997.  This was due to normal increases in  the various
categories.  This category contains various  cash basis expenses such as office
supplies and postage which may vary due to the timing and amount of purchases.

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

    Total  assets  at   March  31,  1998  were  $405,021,000,  an  increase  of
$2,114,000 or .52%  over year-end 1997.  Total deposits at  March 31, 1998 were
$344,593,000 a decrease of $274,000 from year-end 1997.  

    At March 31, 1998,  total loans net of  unearned income were  $223,295,000,
an  increase of  $6,305,000 or  2.91% over  total loans  at December  31, 1997.
Growth as can be seen on the  balance sheet occurred primarily in the areas  of
real estate  construction and commercial loans, real  estate loans and loans to
individuals continued to increased though at a lesser rate.

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

    Nonperforming loans, which include nonaccrual loans  and restructured loans
but exclude loans past due 90 days and still accruing, totaled $42,000 at March
31, 1998 compared to $87,000 at December 31, 1997.  Total foreclosed properties


                                      -17-<PAGE>
were $397,000 at March 31,  1998 a decline of  $24,000 from December 31,  1997.
The ratio  of net charge-offs  (recoveries) to average  loans, net  of unearned
income and deferred  fees was (.24%) at  March 31, 1998.   At year-end December
31, 1997, the ratio was .23%.  

    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 provided by operating activities was $2,588,000 for the three months ended
March 31, 1998.  Net cash used in investing activities was  $1,844,000 with the
majority of  that cash  invested in  securities and  loans.  Net  cash used  in
financing activities was $440,000.   Net cash increased $304,000  from December
31, 1997.

    The  Company actively manages its liquidity  position through its investing
activities.  At  March 31, 1998, overnight  funds which includes Federal  Funds
sold and  funds on deposit with the Federal Home Loan Bank totaled $17,923,000.
In addition, securities with a remaining maturity of less than one year totaled
$23,168,000.    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 $28,547,000 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.

    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 stockholders' equity increased $1,338,000 or 2.48% from December  31,
1997.   During the first quarter of 1998, retained earnings grew by $1,608,000.
Accumulated comprehensive  income  increased stockholders'  equity by  $87,000.
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 $357,000.  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.





                                      -18-<PAGE>

                                            March 31,    December 31,
                                               1998          1997
                                            =========    ============
          Consolidated Capital Ratios
          ---------------------------
           Total capital (to risk
            weighted assets)                  23.71%        23.30%   
           Tier 1 Capital (to risk
            weighted assets)                  22.67%        22.30%   
           Tier 1 capital (to average
            assets, leverage ratio)           14.16%        13.70%   


Acquisition
-----------

    On  December 26,  1997,  NBB  entered into  an  agreement to  purchase  the
assets, including real estate  and improvements, and assume the  liabilities of
the  Galax, Virginia,  branch office  of First  American Federal  Savings Bank.
Settlement of  this purchase agreement  occurred on April  3, 1998 and  did not
have a material impact on the Company's results of operations or liquidity.

Year 2000
---------

    The Company  is cognizant  of the  risks  and challenges  presented by  the
impact of the  century date change on information processing and other computer
controlled systems.  The Year 2000 presents two related but distinct issues for
financial  institutions.   The  Company's internal  information processing  and
computer controlled systems  must be  Year 2000 compliant,  and the  subsidiary
banks' compliance efforts are subject to regulatory review.  In addition, banks
face credit  risk should their  commercial loans  customers 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.

    As a normal  part of business  operations, the  Company's subsidiaries  are
currently in the process of upgrading information processing systems which will
include the  acquisition of new  information processing hardware  and software.
The primary  goal of this project is to provide a shared information processing
system for affiliates,  additional capacity  and the  ability to  use the  most
advanced software available from vendors.

    While the overall costs  associated with the upgrade are substantial, it is
not  anticipated that  the Year  2000  component of  this upgrade  will have  a
material effect on the Company's consolidated financial statements.

Future Accounting Considerations
--------------------------------

    In March  1998, the AICPA Accounting  Standards Executive Committee (AcSEC)
issued Statement  of  Position  98-1,"Accounting  for  the  Costs  of  Computer
Software Developed  or Obtained for Internal  Use."  SOP 98-1  is applicable to
all  nongovernmental entities and provides guidance on accounting for the costs
of computer  software developed or obtained for internal use.  The SOP requires
that  certain  costs related  to the  development  or purchase  of internal-use
software be  capitalized and amortized  over the  estimated useful life  of the
software.   The SOP also requires that costs related to the preliminary project
stage  and the post-implementation/operations stage (as defined in SOP 98-1) is
an internal-use computer software development project be expensed as incurred.


                                      -19-<PAGE>
    SOP 98-1  is effective  for financial  statements issued  for fiscal  years
beginning after December 15, 1998.  Earlier application is encouraged in fiscal
years for  which annual  financial statements have  not been  issued.   Initial
application  should be as of the beginning of  the fiscal year in which the SOP
is first  adopted and applied  to costs incurred  for all projects  during that
fiscal  year,  including those  in progress  upon  initial application.   Costs
incurred prior to initial application  of the SOP, whether capitalized or  not,
should not be adjusted to  the amounts that would have been capitalized had the
SOP been in effect when those costs were incurred.

    In  late 1998,  BTC plans  to  complete an  upgrade  of information  system
hardware and software and expand its microcomputer network.

    There  have  been no  other  accounting  pronouncements issued  during  the
period  that would  have  a  material  effect  on  the  consolidated  financial
position, results of operations or liquidity of the Company.














































                                      -20-<PAGE>
                   National Bankshares, Inc. and Subsidiaries



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,
1998 approximated $13,570,000.

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, 1998, 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 reprise  in accordance  with
their contracted terms.

    Certain shortcomings  are inherent in the  method of  analysis presented in
the following table.  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.  Also, loan
prepayments  and early withdrawals of  certificates of deposit  could cause the
interest sensitivities to vary from those which appear on the table.


    ($000's)          <3 Months   6 Months  12 Months  1-5 Years   >5 Years
                      =========   ========  =========  =========   ========

    Interest-earning
     assets           $ 85,199     22,943     54,870     144,819     61,032
    Interest-bearing
     liabilities       157,300     34,434     57,317      47,961        135
                      --------    -------    -------     -------    -------

    Gap                (72,101)   (11,491)    (2,447)     96,858     60,897
                      ========    =======    =======     =======    =======

    Cumulative gap     (72,101)   (83,592)   (86,039)     10,819     71,716
                      ========    =======    =======     =======    =======







                                      -21-<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, 1998.

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

              None for the three months ended
              March 31, 1998.

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, 1998:

                  None


































                                      -22-<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:                                                   
          -------------       -----------------------------
                              James G. Rakes, President and
                              Chief Executive Officer





   Date:                                                      
          -------------       -----------------------------
                              J. Robert Buchanan, Treasurer
                              (principal financial officer)

























                                      -23-<PAGE>