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:
September 30, 1999                                                     0-15204


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


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


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

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

Indicate  by  check  mark whether  the  registrant (1)  has  filed  all reports
required to be filed by Section 13  or 15(d) of the Securities Exchange Act  of
1934  during the  preceding 12  months  (or for  such shorter  period that  the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


               Yes     X           No
                     -----              -----

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


          Class                                Outstanding at November 8, 1999
-------------------------------               ---------------------------------
Common Stock, $2.50 Par Value                             3,516,977





                        (This report contains 36 pages) <PAGE>
                   National Bankshares, Inc. and Subsidiaries

                                   Form 10-Q

                                     Index




                                                                        Page
                                                                        ----

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

     Item 1 - Financial Statements

          Consolidated Balance Sheets, September 30, 1999
           and December 31, 1998                                         3-4

          Consolidated Statements of Income and
           Comprehensive Income, Three Months Ended
           September 30, 1999 and 1998                                   5-6

          Consolidated Statements of Income and
           Comprehensive Income, Nine Months Ended
           September 30, 1999 and 1998                                   7-8

          Consolidated Statements of Changes in
           Stockholders' Equity, Nine Months Ended
           September 30, 1999 and 1998                                    9

          Consolidated Statements of Cash Flows,
           Nine Months Ended September 30, 1999 and 1998                10-11


     Item 2 - Management's Discussion and Analysis of
          Financial Condition and Results of Operations                 18-29


     Item 3 - Quantitative and Qualitative Disclosures About
          Market Risk                                                   32-34

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

     Items 1 - 3 - Legal Proceedings; Changes in
          Securities and Use of Proceeds;
          Defaults Upon Senior Securities                                35

     Item  4 - Submission of Matters to a Vote of
          Security Holders                                               35

     Item  5 - Other Information                                         35

     Item  6 - Exhibits and Reports on Form 8-K                          35

Signatures                                                               36
----------



                                      -2-<PAGE>

                National Bankshares, Inc. and Subsidiaries
                       Consolidated Balance Sheets
                 September 30, 1999 and December 31, 1998
                               (Unaudited)

                                              September 30,   December 31,
($000's, except share and per share data)          1999           1998
                                              =============   ============
ASSETS
Cash and due from banks                           $ 11,899        14,421
Interest-bearing deposits                            7,320         7,027
Federal funds sold                                     150         5,090
Securities available for sale                      117,274       136,078
Securities held to maturity (fair value
 $25,157 in 1999 and $31,151 in 1998)               25,185        30,676
Mortgage loans held for sale                           570         2,180
Loans:
   Real estate construction loans                   17,451        12,827
   Real estate mortgage loans                       55,180        48,724
   Commercial and industrial loans                 142,866       110,509
   Loans to individuals                             73,155        69,493
                                                  --------       -------
            Total loans                            288,652       241,553

   Less unearned income and deferred fees           (2,023)       (2,296)
                                                  --------       -------
            Loans, net of unearned income
             and deferred fees                     286,629       239,257

   Less allowance for loan losses                   (2,918)       (2,679)
                                                  --------       -------
            Loans, net                             283,711       236,578
                                                  --------       -------
Bank premises and equipment, net                     8,370         6,657
Accrued interest receivable                          3,963         3,777
Other real estate owned, net                           340           628
Other assets                                         3,891         2,054
                                                  --------       -------
            Total assets                          $462,673       445,166
                                                  ========       =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits               $ 57,487        55,479
Interest-bearing demand deposits                    83,001        84,319
Savings deposits                                    47,012        46,387
Time deposits                                      219,485       196,511
                                                  --------       -------

            Total deposits                         406,985       382,696
                                                  --------       -------
Other borrowed funds                                   559           214
Accrued interest payable                               692           647
Other liabilities                                    1,113           926
                                                  --------       -------
            Total liabilities                      409,349       384,483
                                                  --------       -------
Common stock subject to ESOP put option              2,182         2,180
                                                  --------       -------



                                      -3-                    (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 3,516,977 shares in 1999 and
    3,792,833 in 1998                                8,792         9,482
   Retained earnings                                47,022        50,182
   Accumulated other comprehensive income
    (loss)                                          (2,490)        1,019
   Common stock subject to ESOP put option          (2,182)       (2,180)
                                                  --------       -------
            Total stockholders' equity              51,142        58,503

Commitments and contingent liabilities
                                                  --------       -------
            Total liabilities and
             stockholders' equity                 $462,673       445,166
                                                  ========       =======








































                                      -4-<PAGE>
                National Bankshares, Inc. and Subsidiaries
        Consolidated Statements of Income and Comprehensive Income
              Three Months Ended September 30, 1999 and 1998
                               (Unaudited)

                                               September 30,   September 30,
($000's, except per share data)                    1999             1998
                                               =============   =============
INTEREST INCOME
Interest and fees on loans                         $  6,237          5,532
Interest on interest-bearing deposits                   ---            207
Interest on federal funds sold                          ---             99
Interest on securities - taxable                      1,597          1,820
Interest on securities - nontaxable                     582            492
                                                 ----------      ---------
            Total interest income                     8,416          8,150
                                                 ----------      ---------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more           600            625
Interest on other deposits                            2,830          2,961
Interest on borrowed funds                               76              4
                                                 ----------      ---------
           Total interest expense                     3,506          3,590
                                                 ----------      ---------
           Net interest income                        4,910          4,560

Provision for loan losses                               371            225
                                                 ----------      ---------
           Net interest income after provision
            for loan losses                           4,539          4,335
                                                 ----------      ---------
NONINTEREST INCOME
Service charges on deposit accounts                     391            295
Other service charges and fees                           72             54
Credit card fees                                        216            170
Trust income                                            277            212
Other income                                            ---              9
Realized securities gains, net                          ---             14
                                                 ----------      ---------
            Total noninterest income                    956            754
                                                 ----------      ---------
NONINTEREST EXPENSE
Salaries and employee benefits                        1,486          1,460
Occupancy and furniture and fixtures                    313            250
Data processing and ATM                                 242            197
FDIC assessment                                          12             17
Credit card processing                                  196            155
Goodwill amortization                                     9              9
Net costs of other real estate owned                     18            ---
Other operating expense                                 749            692
                                                 ----------      ---------
            Total noninterest expense                 3,025          2,780
                                                 ----------      ---------
Income before income tax expense                      2,470          2,309
Income tax expense                                      666            638
                                                 ----------      ---------

            Net income                                1,804          1,671







                                      -5-                    (Continued)<PAGE>
Other comprehensive income (loss), net of
 taxes:
 Unrealized gains (losses) on securities
  available for sale                                   (542)         691
                                                 ----------    ---------

            Comprehensive Income                 $    1,262        2,362
                                                 ==========    =========

            Net income per share                 $     0.51         0.44
                                                 ==========    =========
            Weighted average number of common
             shares outstanding                   3,516,977    3,792,833
                                                 ==========    =========
















































                                      -6-<PAGE>
               National Bankshares, Inc. and Subsidiaries
       Consolidated Statements of Income and Comprehensive Income
              Nine Months Ended September 30, 1999 and 1998
                               (Unaudited)

                                              September 30,   September 30,
($000's, except per share data)                    1999            1998
                                              =============   =============
INTEREST INCOME
Interest and fees on loans                        $ 17,612         16,129
Interest on interest-bearing deposits                   77            544
Interest on federal funds sold                          11            277
Interest on securities - taxable                     5,203          5,334
Interest on securities - nontaxable                  1,698          1,360
                                                ----------      ---------
            Total interest income                   24,601         23,644
                                                ----------      ---------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more        1,846          1,813
Interest on other deposits                           8,408          8,521
Interest on borrowed funds                               6             10
                                                ----------      ---------
           Total interest expense                   10,260         10,344
                                                ----------      ---------
           Net interest income                      14,341         13,300
Provision for loan losses                              840            319
                                                ----------      ---------
           Net interest income after
            provision for loan losses               13,501         12,981
                                                ----------      ---------
NONINTEREST INCOME
Service charges on deposit accounts                    999            878
Other service charges and fees                         186            153
Credit card fees                                       594            488
Trust income                                           718            565
Other income                                            57             63
Realized securities gains, net                          24             99
                                                ----------      ---------
            Total noninterest income                 2,578          2,246
                                                ----------      ---------
NONINTEREST EXPENSE
Salaries and employee benefits                       4,552          4,318
Occupancy and furniture and fixtures                   840            741
Data processing and ATM                                657            603
FDIC assessment                                         36             32
Credit card processing                                 538            446
Goodwill amortization                                   28             26
Net costs of other real estate owned                    24             26
Other operating expense                              2,222          2,134
                                                ----------      ---------
            Total noninterest expense                8,897          8,326
                                                ----------      ---------
Income before income tax expense                     7,182          6,901
Income tax expense                                   1,899          1,920
                                                ----------      ---------

            Net income                               5,283          4,981







                                      -7-                    (Continued)<PAGE>
Other comprehensive income (loss), net of
 taxes:
 Unrealized gains (losses) on securities
  available for sale                                (3,509)           768
                                                ----------      ---------

            Comprehensive Income                $    1,774          5,749
                                                ==========      =========

            Net income per share                $     1.45           1.31
                                                ==========      =========
            Weighted average number of common
             shares outstanding                  3,638,232      3,792,833
                                                ==========      =========
















































                                      -8-<PAGE>

                   National Bankshares, Inc. and Subsidiaries
           Consolidated Statements of Changes in Stockholders' Equity
                 Nine Months Ended September 30, 1999 and 1998
                                  (Unaudited)


                                                               Common
                                                               Stock
                                                Accumulated   Subject
                                                   Other      To ESOP
   ($000's, except for per   Common  Retained  Comprehensive    Put
    share data)              Stock   Earnings     Income       Option   Total
                             ====== =========  =============  =======   =====

   Balances, December 31,
    1997                     $9,482   46,191         194       (1,838)  54,029
   Net income                   ---    4,981         ---          ---    4,981
   Unrealized gains
    (losses) on securities
    available for sale,
    net of tax (1)              ---      ---         768          ---      768
   Dividend ($0.36 per
    share)                      ---   (1,365)        ---          ---   (1,365)
   Change in common stock
    subject to ESOP put
    option                      ---      ---         ---            3        3
                             ------   ------       -----       ------   ------

   Balances, September 30,
    1998                     $9,482   49,807         962       (1,835)  58,416
                             ======   ======       =====       ======   ======

   Balances, December 31,
    1998                     $9,482   50,182       1,019       (2,180)  58,503
   Net income                   ---    5,283         ---          ---    5,283
   Unrealized gains
    (losses) on securities
    available for sale,
    net of tax (1)              ---      ---      (3,509)         ---   (3,509)
   Dividend ($0.39 per
    share)                      ---   (1,372)        ---          ---   (1,372)
   Stock tender offer (2)      (690)  (7,071)        ---          ---   (7,761)
   Change in common stock
    subject to ESOP put
    option                      ---      ---         ---           (2)      (2)
                             ------   ------       -----       ------   ------

   Balances, September 30,
    1999                     $8,792   47,022      (2,490)      (2,182)  51,142
                             ======   ======       =====       ======   ======

   (1) Tax benefit of $1,808 in 1999 and tax expense of $396 for 1998.
   (2) Represents the repurchase of 275,856 shares at $28.00 per share and
       related expenses.




                                      -9-<PAGE>

                   National Bankshares, Inc. and Subsidiaries
                     Consolidated Statements of Cash Flows
                 Nine Months Ended September 30, 1999 and 1998
                                  (Unaudited)

                                                   September 30,  Septmeber 30,
 ($000's)                                               1999          1998
                                                   =============  =============
 CASH FLOWS FROM OPERATING ACTIVITIES
 Net Income                                              $ 5,283       4,981
 Adjustments to reconcile net income to net cash
   provided by operating activities:
      Provision for loan losses                              840         319
      Depreciation of bank premises and equipment            655         593
      Amortization of intangibles                            114         106
      Amortization of premiums and accretion of
       discounts, net                                        361          47
      Gains on bank premises and equipment
       disposals                                             ---          (7)
      Gains on sales and calls of securities
       available for sale, net                               (24)        ---
      Gains on calls of securities held to
       maturity, net                                         ---         (99)
      (Gains) losses on other real estate owned               14         (19)
      (Increase) decrease in:
         Mortgage loans held for sale                      1,610        (127)
         Accrued interest receivable                        (186)       (198)
         Other assets                                       (143)       (706)
      Increase in:
         Accrued interest payable                             45           3
         Other liabilities                                   187         599
                                                         -------     -------
                Net cash provided by operating
                 activities                                8,756       5,492
                                                         -------     -------
 CASH FLOWS FROM INVESTING ACTIVITIES
 Net decrease in federal funds sold                        4,940          70
 Net increase in interest-bearing
  deposits                                                  (293)     (6,404)
 Proceeds from calls and maturities of securities
  available for sale                                      23,903      23,000
 Proceeds from sales of securities available for
  sale                                                     1,218         ---
 Proceeds from calls and maturities of securities
  held to maturity                                         5,464      30,472
 Purchases of securities available for sale              (11,944)    (57,235)
 Purchases of securities held to maturity                    ---      (2,000)
 Purchases of loan participations                         (6,763)     (1,640)
 Collections of loan participations                       11,045       4,074
 Loans purchased, including premium                          ---      (3,811)
 Net increase in loans made to customers                 (52,362)    (15,215)
 Proceeds from disposal of other real estate owned           336         194
 Recoveries on loans charged off                              45         215
 Bank premises and equipment expenditures                 (2,368)       (948)
 Proceeds from sale of bank premises and equipment           ---           7
                                                         -------     -------
               Net cash used in investing
                activities                               (26,779)    (29,221)
                                                         -------     -------


                                      -10-                   (Continued)<PAGE>

 CASH FLOWS FROM FINANCING ACTIVITIES

 Deposits acquired, net of premium paid                      ---       6,827
 Net increase in time deposits                            22,974       7,974
 Net increase in other deposits                            1,315       7,875
 Net increase (decrease) in other borrowed funds             345        (297)
 Cash dividends paid                                      (1,372)     (1,365)
 Repurchase of common stock                               (7,761)        ---
                                                         -------     -------
               Net cash provided by financing
                activities                                15,501      21,014
                                                         -------     -------
 Net decrease in cash and due from banks                  (2,522)     (2,715)
 Cash and due from banks at beginning of period           14,421      12,435
                                                         -------     -------
 Cash and due from banks at end of period                $11,899       9,720
                                                         =======     =======


 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 Cash paid for interest                                  $10,215      10,341
                                                         =======     =======
 Cash paid for income taxes                              $ 2,154       2,052
                                                         =======     =======
 Loans charged to the allowance for loan losses          $   646         313
                                                         =======     =======
 Loans transferred to other real estate owned            $    62          40
                                                         =======     =======
































                                      -11-<PAGE>

                   National Bankshares, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                               September 30, 1999
                                  (Unaudited)


Note (1)

     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 nine  months ended  September 30,  1999 are not
necessarily indicative of results of operations  for the full year or any other
interim period.    The interim  period  consolidated financial  statements  and
financial  information included herein should  be read in  conjunction with the
notes  to consolidated  financial  statements included  in  the Company's  1998
Annual Report to Stockholders  and additional information supplied in  the 1998
Form 10-K.




































                                      -12-<PAGE>

Note (2)  Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

                                            For the periods ended

                                    September 30,          December 31,
                                    1999     1998       1998         1997
($000's, except for % data)      ========= ======== ============= ============
Balance at beginning of period   $  2,679     2,438       2,438       2,575
Provision for loan losses             840       319         624         435
Loans charged off                    (646)     (313)       (638)       (679)
Recoveries                             45       215         255         107
                                 --------  --------   ---------   ---------
Balance at the end of period     $  2,918     2,659       2,679       2,438
                                 ========  ========   =========   =========
Ratio of allowance for loan
losses to end of period loans,
net of unearned income and
deferred fees                        1.02%     1.14%       1.12%       1.12%
                                 ========  ========   =========   =========
Ratio of net charge-offs
(recoveries) to average loans,
net of unearned income and
deferred fees(1)                      .31%      .06%        .17%        .28%
                                 ========  ========   =========   =========
Ratio of allowance for loan
losses to nonperforming
loans(2)                         4,421.21% 6,647.50%   9,567.86%   2,802.30%
                                 ========  ========   =========   =========

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

                                       September 30,        December 31,
 ($000's, except for % data)           1999     1998      1998        1997
                                     ======== ========  ========    ========

 Nonperforming Assets

  Nonaccrual loans                  $   67       40          28            87
  Restructured loans                   ---      ---         ---           ---
                                    ------   ------      ------        ------
      Total nonperforming loans         67       40          28            87

  Foreclosed property                  340      286         628           421
                                    ------   ------      ------        ------
      Total nonperforming assets    $  407      326         656           508
                                    ======   ======      ======        ======
  Ratio of nonperforming assets to
   loans, net of unearned income and
   deferred fees, plus other real
   estate owned                        .14%     .14%        .27%          .23%
                                    ======   ======      ======        ======




                                      -13-<PAGE>

 Accruing Loans Past Due 90 Days or More
 ---------------------------------------
  Past due 90 days or more and
   still accruing                   $2,755      899         550           672
                                    ======   ======      ======        ======

  Ratio of loans past due 90 days or
   more to loans, net of unearned
   income and deferred fees            .96%     .39%        .23%          .31%
                                    ======   ======      ======        ======
 Impaired Loans
 --------------

  Total impaired loans              $   67      600         373           177
                                    ======   ======      ======        ======
  Impaired loans with a
   valuation allowance              $  ---      284         145            53
  Valuation allowance                  ---      (52)       (145)          (53)
                                    ------   ------      ------        ------
  Impaired loans net of allowance   $  ---      232         ---           ---
                                    ======   ======      ======        ======
  Impaired loans with no
   valuation allowance              $   67      316         228           124
                                    ======   ======      ======        ======

  Average recorded investment
   in impaired loans                $  107      360         387           458
                                    ======   ======      ======        ======
  Income recognized on impaired
   loans                            $  ---       49          32            23
                                    ======   ======      ======        ======
  Amount of income recognized
   on a cash basis                  $  ---      ---         ---            12
                                    ======   ======      ======        ======

























                                      -14-<PAGE>

Note (3)  Securities

     The amortized costs, gross unrealized  gains, gross unrealized losses  and
fair  values for  securities available for  sale by  major security  type as of
September 30, 1999 are as follows:

                                          September 30, 1999

                                             Gross        Gross
                              Amortized    Unrealized   Unrealized      Fair
  ($ in thousands)              Costs        Gains        Losses       Values
                              ---------    ----------   ----------     ------

  Available for sale:
    U.S. Treasury             $  7,249           53           42        7,260
    U.S. Government
     agencies and
     corporations               50,870           24        2,171       48,723
    States and political
     subdivisions               32,894          192        1,086       32,000
    Mortgage-backed
     securities                 13,895           14          180       13,729
    Corporate debt
     securities                 14,352           26          603       13,775
    Federal Home Loan
     Bank stock                  1,328          ---          ---        1,328
    Other securities               459          ---          ---          459
                              --------     --------     --------     --------
      Total securities
       available for sale     $121,047          309        4,082      117,274
                              ========     ========     ========     ========


     The amortized costs,  gross unrealized gains, gross  unrealized losses and
fair  values  for securities  held to  maturity by  major  security type  as of
September 30, 1999 are as follows:


                                          September 30, 1999

                                             Gross        Gross
                              Amortized    Unrealized   Unrealized      Fair
  ($ in thousands)              Costs        Gains        Losses       Values
                              ---------    ----------   ----------     ------
  Held to maturity:
    U.S. Treasury             $   502          ---          ---           502
    U.S. Government
     agencies and
     corporations               5,499            5          213         5,291
    States and political
     subdivisions              18,792          198           29        18,961
    Mortgage-backed
     securities                   392           11          ---           403
                              --------     --------     --------      -------

      Total securities
       held to maturity       $25,185          214          242        25,157
                              ========     ========     ========      =======





                                      -15-<PAGE>

Note (4)  Restrictions on Dividend Payments and Capital Requirements

     Bankshares' and its  subsidiaries' actual regulatory  capital amounts  and
ratios are also presented in the following tables:

                                                                To Be Well
                                                             Capitalized Under
                                            For Capital     Prompt   Corrective
                           Actual        Adequacy Purposes  Action   Provisions
 ($ in thousands)     Amount    Ratio    Amount    Ratio    Amount     Ratio
                      ------    -----    ------    -----    ------     -----
 September 30, 1999:

   Total capital(1)
   Bankshares
    consolidated      $57,720    18.56%   24,883   8.00%     N/A        N/A
   NBB                 28,751    13.90%   16,552   8.00%    20,691     10.00%
   BTC                 26,475    24.77%    8,551   8.00%    10,689     10.00%

   Tier I capital(1)
   Bankshares
    consolidated      $54,802    17.62%   12,441   4.00%     N/A        N/A
   NBB                 26,761    12.93%    8,276   4.00%    12,414      6.00%
   BTC                 25,547    23.90%    4,275   4.00%     6,413      6.00%

   Tier I capital(2)
   Bankshares
    consolidated      $54,802    12.06%   18,170   4.00%     N/A        N/A
   NBB                 26,761     9.70%   11,037   4.00%    16,556      5.00%
   BTC                 25,547    14.09%    7,253   4.00%    10,879      5.00%


(1)  To Risk Weighted Assets
(2)  To Average Assets




























                                      -16-<PAGE>

                                                                 To Be Well
                                                              Capitalized Under
                                             For Capital     Prompt  Corrective
                            Actual        Adequacy Purposes  Action  Provisions
 ($ in thousands)      Amount    Ratio    Amount    Ratio    Amount     Ratio
                       ------    -----    ------    -----    ------     -----
 December 31, 1998:

   Total capital(1)
   Bankshares
    consolidated       $61,216   22.4%    21,819     8.0%     N/A        N/A
   NBB                  30,411   16.5%    14,747     8.0%    18,433     10.0%
   BTC                  28,284   31.8%     7,112     8.0%     8,890     10.0%

   Tier I capital(1)
   Bankshares
    consolidated       $58,537   21.5%    10,910     4.0%     N/A        N/A
   NBB                  28,511   15.5%     7,373     4.0%    11,060      6.0%
   BTC                  27,505   30.9%     3,536     4.0%     5,334      6.0%

   Tier I capital(2)
   Bankshares
    consolidated       $58,537   13.4%    17,457     4.0%     N/A        N/A
   NBB                  28,511   11.1%    10,292     4.0%    12,865      5.0%
   BTC                  27,505   15.6%     7,068     4.0%     8,835      5.0%


(1)  To Risk Weighted Assets
(2)  To Average Assets


     Substantially all  of  Bankshares'  retained  earnings  are  undistributed
earnings  of  its  banking  subsidiaries,  which  are   restricted  by  various
regulations administered by federal  and state bank regulatory agencies.   Bank
regulatory  agencies  restrict,  without  prior approval,  the  total  dividend
payments of a bank  in any calendar year to  the bank's retained net  income of
that year  to date, as  defined, combined with its  retained net income  of the
preceding two years, less any required  transfers to surplus.  At September 30,
1999, retained  net income from the  Company's NBB affiliate which  was free of
such restriction amounted to approximately $2,506.

     At  present, no dividends are  available from the  Company's BTC affiliate
without prior regulatory approval.  BTC remains well capitalized and management
does not believe that such approvals will be withheld.

Note (5)  Stock Option Plan

In  April 1999,  the  National  Bankshares, Inc.  1999  Stock Option  Plan  was
approved  by the Company's shareholders.  The  purpose of the Stock Option Plan
is  to provide  additional incentive  to  key employees  in the  form of  stock
options.   The determination of key employees and the  amount of awards will be
determined by the Stock Option Committee of the Board of Directors.  On June 4,
1999,   Form  S-8  was  filed  with  the  Securities  and  Exchange  Commission
registering  250,000 shares under  the Plan.   To date, no  stock option awards
have been granted.







                                      -17-<PAGE>

                   National Bankshares, Inc. and Subsidiaries


Item 2.   Management's Discussion and Analysis of Financial Condition and
           Results of Operations (In thousands, except for per share data)

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

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

Analysis of Financial  Condition and Results of Operations for  the Nine Months
Ended September 30, 1999
-------------------------------------------------------------------------------

     Net income for the nine  months ended September 30, 1999 was  $5,283 which
represents an  increase of $302  or 6.06% over the  first nine months  of 1998.
The return  on average assets for the nine months  ended September 30, 1999 was
1.59% and 1.60% for the period ended September 30, 1998.  The return on average
equity was 12.36% for the  period ended September 30,  1999 and 11.58% for  the
period ended September 30, 1998.

     Earnings  per share for the period ended  September 30, 1999 was $1.45 per
share, an increase of $0.14 per share over the same period in 1998.

The following table provides selected consolidated financial data.

                                    September 30,          December 31,

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

 Interest income                  $24,601   23,644       31,828      29,797
 Interest expense                  10,260   10,344       13,928      13,106
 Net interest income               14,341   13,300       17,900      16,691
 Provision for loan losses            840      319          624         435
 Noninterest income                 2,578    2,246        3,174       2,834
 Noninterest expense                8,897    8,326       11,061      10,031
 Income taxes                       1,899    1,920        2,591       2,499

 Net income                       $ 5,283    4,981        6,798       6,560
 Return on average assets            1.59%    1.60%        1.61%       1.66%
 Return on average equity (1)       12.36%   11.58%       11.66%      12.21%

 Basic net income per share       $  1.45     1.31         1.79        1.73
 Book value per share (1)         $ 15.16    15.88        16.00       14.73

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


                                      -18-<PAGE>

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

     Net interest income  at the end of the first  nine months of 1999 was
$14,341, an increase of $1,041 or 7.83% over the same period in 1998.

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

                                  September 30,            December 31,
                                 1999       1998         1998        1997
                              ---------   ---------  ------------------------
  Yield on earning assets        8.12%        8.32%        8.25%         8.24%
  Cost to fund earning assets    3.25%        3.52%        3.50%         3.50%
                              --------     -------      -------       -------
  Net interest margin            4.87%        4.80%        4.75%         4.74%
                              ========     =======      =======       =======


     As can be  seen by the table shown above, the  yield on earning assets for
the  nine months ended September 30, 1999 has decreased by 13 basis points from
the year-ended  1998.  The  cost to fund earning  assets decreased by  25 basis
points.   These elements combined to produce  a 12 basis point  increase in the
net interest margin.

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

                                  September 30             December 31,
                                1999        1998         1998         1997
                              ---------   ---------  ------------ ------------

 Yield on earning assets         8.12%        8.32%        8.25%         8.24%
 Cost of interest-bearing
  liabilities                    4.15%        4.51%        4.48%         4.43%
                             --------      -------      -------       -------
 Net interest spread             3.97%        3.81%        3.77%         3.81%
                             ========      =======      =======       =======


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

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



                                      -19-<PAGE>

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

     It should be noted that loans past due 90 days or more have increased when
compared to prior period data.  Included in loans past due 90 days or  more are
two credits  with the same borrower totaling approximately $1.7 million.  As of
September  30, 1999, these  loans are well  collaterialized and  currently in a
work-out  process.  Management believes  the work-out will  be completed during
the fourth quarter.   However, should circumstances change and  consumation not
occur as expected, these loans may be placed on nonaccrual status.

     Overall, it is  expected that  provisions for  loan loss  expense will  be
higher in 1999.   Such expense will  be required by strong loan  growth and the
need to maintain an adequate overall allowance.

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

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

     Noninterest income for the period ended September 30, 1999  was $2,578, an
increase of $332 or 14.78% over the same period in 1998.

     Service charges on deposit  accounts were $999 at  September 30, 1999,  an
increase of  $121 or 13.78% from the  same period in 1998.   This was primarily
due to an  increase in the level  of account service charges, return  check and
overdraft fees and ATM transaction fees.

     Other service charges  increased by $33 when  September 30, 1999  and 1998
are compared.

     Credit card fees increased by $106 or 21.72% when the first nine months of
1999 and  1998 are compared.  Continued growth in  volume was the primary cause
of this increase.

     Trust income increased by 27.08% when compared to the first nine months of
1998.  Trust income is dependent on  market conditions as well as the types  of
accounts being  handled at  any  given point  in time.    The level  of  estate
business, for example, cannot be predicted with any degree of preciseness.

     Other income, which is comprised of various miscellaneous types of income,
decreased by $6 for the first nine months of 1999.

     Net  securities gains  and losses  decreased  $75 when  1999 and  1998 are
compared.  The income in  this category primarily reflects gains and  losses on
securities called prior to maturity.









                                      -20-<PAGE>

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

     Noninterest expenses for  the first nine  months of  1999 were $8,897,  an
increase of $571 or 6.86% over the first nine months of 1998.

     Salaries  and fringe  benefits were $4,552  at the  end of  the first nine
months of 1999.   This represents an increase  of $234 or 5.42% over  the first
nine months of 1998.   A portion of this increase was due to the acquisition of
the  Galax branch.  This facility  was acquired in the  second quarter of 1998.
Accordingly,  1998 data  contains  only a  lesser  amount of  salaries  expense
associated with  the acquisition.   The remainder  of the increase  was due  to
normal merit increases and other personnel related costs.

     Occupancy expenses increased by  $99 or 13.36% when the first  nine months
of  1999 and 1998 are compared.   Acquisition of the previously mentioned Galax
Branch  contributed to  this  increase.   Occupancy  expenses are  expected  to
increase  with the  addition of a  new facility  in the third  quarter of 1999.
This addition was  built to serve  as a corporate  headquarters and to  provide
office space to replace leased properties.  The facility also contains a branch
bank of NBB.

     Data processing expense increased by $54 or 8.96%.

     Credit card expense increased by $92 or 20.63% in the first nine months of
1999.  Increases  in overall volume contributed to this  increase.  Included in
the category was approximately $4 in expense related to the reissuance of debit
cards.  The next scheduled reissuance will be in four years.

     Other  expenses at  September 30,  1999 were  $2,222, which  represents an
increase of $88 or 4.12% over the same period in 1998.   Other expenses include
various types of costs.   Examples of expense accounts included are  telephone,
franchise taxes, stationary and supplies, market expense, correspondent charges
and numerous  others.  Some  expenses included in  this area represent  accrued
expense for  anticipated expenditures,  while others  are on a  cash or  pay as
incurred basis.   Some categories  are within management's  ability to  control
while others can only be controlled to a degree.
























                                      -21-<PAGE>

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

The following table sets forth selected consolidated balance sheet data.

                                  September 30,           December 31,

                                1999        1998        1998         1997
                              =========  =========  ============ ============
($000's)
Selected Period-End Data
------------------------

Loans, net                    $283,711    230,570     236,578        214,552

Total Securities               142,459    156,953     166,754        149,974

Total Assets                   462,673    430,631     445,166        402,907

Total Deposits                 406,985    367,902     382,696        344,867

Stockholders' Equity            51,142     58,416      58,503         54,029

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

Loans, net                    $259,934    222,538     225,613        204,540

Total securities               155,252    149,606     152,432        157,179

Interest-earning assets        421,457    392,998     398,340        374,478

Total assets                   445,384    415,109     420,988        395,932

Total deposits                 385,959    354,830     359,970        339,439

Interest-bearing liabilities   330,576    306,855     310,634        295,565

Stockholders' equity            54,944     55,449      58,282         53,712



     Total average assets  at September 30, 1999 were $445,384,  an increase of
$30,275 or 7.29% from September 30, 1998.   A portion of this increase was  due
to the  acquisition of  the Galax  branch in the  third quarter  of 1998.   The
Company also  continues  to experience  satisfactory  growth in  deposits  from
nonacquisition related sources.

     In  the  third quarter  of  1999, the  Office of  the  Controller Currency
announced  the  closure of  a National  Banking  Institution in  Keystone, West
Virginia.  As a result of the  closure, depositors in that area were forced  to
seek banking  relationships with other institutions  in the general  area.  The
Company's BTC affiliate was a benefactor of this event.









                                      -22-<PAGE>

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


                                  September 30,           December 31,

                                 1999       1998        1998        1997
                               ========= =========  ========================

Assets
------

Interest bearing-deposits         1.58%      3.75%       1.58%        2.41%

Federal funds sold                 .03%       .98%       1.14%        1.07%

Securities available for sale    25.35%     23.45%      30.57%       16.28%

Securities held to maturity       5.44%     13.00%       6.89%       20.95%

Mortgage loans held for sale       .12%       .12%        .49%         .10%

Real estate construction
 loans                            3.77%      2.33%       2.88%        2.11%

Real estate mortgage loans       11.93%     10.83%      10.95%       10.66%

Commercial and industrial
 loans                           30.88%     25.71%      24.82%       25.16%

Loans to individuals             15.81%     15.86%      15.61%       16.54%

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

Noninterest-bearing demand
 deposits                        12.42%     12.31%      12.46%       11.19%

Interest-bearing demand
 deposits                        17.94%     17.86%      18.94%       19.33%

Savings deposits                 10.16%     11.08%      10.42%       11.61%

Time deposit                     47.44%     44.19%      44.14%       43.47%

Other borrowed funds               .12%       .04%        .05%         .12%


     A  comparison  of the  loan  portfolio  at  September  30, 1999  and  1998
indicates that construction and commercial loans  have experienced the greatest
increase followed by real estate.  Loans to individuals  have declined slightly
as part of total assets.









                                      -23-<PAGE>

     As  shown by the above table, management has shifted a substantial portion
of its investment portfolio to the  available for sale category.  A  portion of
this  shift was  accomplished  through calls,  maturities  of bonds  and  their
subsequent reinvestment.   In the fourth quarter  of 1998, the Company  adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and hedging Activities".  The statement allowed, upon adoption, the
transfer  of securities  from  the  held  to  maturity  classification  to  the
available  for sale without calling  into question management's  intent to hold
its remaining securities until maturity.   The Company used this opportunity to
transfer approximately $20,516 in securities to held for sale category.

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

Liquidity
---------

     Liquidity  is  the  ability to  provide  sufficient  cash  levels to  meet
financial  commitments and  to fund loan  demand and deposit  withdrawals.  Net
cash provided  by operating  activities was  $8,756 for  the nine months  ended
September 30, 1999.  Net cash used in investing activities was $26,779 with the
majority  of that  cash invested  in securities and  loans.   Net cash  used in
financing activities was $15,501.  Net cash decreased $2,522 from  December 31,
1998.

     During the  first nine months of  1999 the Company repurchased  275,856 of
its common shares at $28.00  per share.  Cash used for the purchase and related
expenses was $7,761.

     The Company actively manages its  liquidity position through its investing
activities.  In addition, securities with a remaining maturity of less than one
year  totaled $8,191.   Liquidity  is also  managed through  the management  of
deposit liabilities, in particular,  volatile funds such as time  deposits over
$100.  The amount of such deposits is largely dependent on the rate of interest
offered.   The Company had  approximately $35,060 in  such deposits due  within
twelve  months.   Other  types of  deposits  such as  interest-bearing  demand,
savings  and  time deposits  less than  $100 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.

     At  present the Company is relying on short-term borrowings for liquidity.
While the  procurement  of additional  deposits  remains an  option,  increased
interest  expense would  likely result,  as  interest rates  would  have to  be
increased  to attract  new  deposits.   The increase  in  interest rates  would
eventually affect  the  existing  deposit  base  creating  additional  interest
expense.

     The Company completed construction of  a new office building in  the third
quarter.    This  facility  will  serve   as  corporate  headquarters,  provide
additional office  space to replace existing  leased properties and also  add a
branch facility.  This project did not have a  material impact on the Company's
liquidity.






                                      -24-<PAGE>

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

     Management  is not aware of  any other 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  decreased $7,361 or  12.58% from December  31,
1998.   During the first  nine months of  1999, retained earnings  decreased by
$3,160.   Retained earnings experienced this net decrease due to the payment of
a dividend ($1,372), the  repurchase of 275,856 shares of common stock ($7,071)
offset  by earnings  of  $5,283.   Accumulated  comprehensive income  decreased
stockholders' equity by $3,509.   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 $2.  The common  stock subject to put
option is affected by the current market price of the Company's common stock as
well  as the number of shares outstanding.  See Note (4) for the Company's Risk
Based Capital Ratio's.

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

     On March  15, 1999,  the  Company announced  a stock  tender  offer.   The
Company sought to repurchase 200,000 shares, but reserved the right to purchase
an  additional two  percent of  its outstanding  shares of  common stock.   The
tender off closed on April 30,  1999.  The offer resulted in the  repurchase of
275,856 shares.   The Company's Form 13E-4 filed March  15, 1999, amended 13E-4
filed  March  31,  1999  and  the  Final  Amendment  filed  May  24,  1999  are
incorporated herein.

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

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


                                             September 30, 1999
                                             ------------------

      (000's, except for % data)          NBB                 BTC
                                          ---                 ---

      Assets                            $278,311             196,482
      Deposits                           235,987             171,096
      Net Income                           3,608               1,665
      Return on Average Assets              1.79%               1.25%
      Return on Average Equity             16.89%               8.55%






                                      -25-<PAGE>

Year 2000
---------

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

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

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

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

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

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

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


                                      -26-<PAGE>

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

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

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

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

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

















                                      -27-<PAGE>

<TABLE>

Analysis of Financial Condition and Results of Operations for the Three Months Ended September 30, 1999
--------------------------------------------------------------------------------------------------------

     The following table sets forth selected quarterly consolidated financial data.

<CAPTION>
                                                         For the Quarter-Ended

    ($000's, except per share       September 30,  June 30,    March 31,  December 31, September 30,
    and percent data)                   1999         1999        1999         1998         1998
                                    -------------  --------    ---------  ------------ -------------
    <S>                             <C>            <C>         <C>        <C>          <C>
    Interest income                    $8,416        8,170       8,089        8,184         8,150
    Interest expense                    3,506        3,392       3,436        3,584         3,590
    Net interest income                 4,910        4,778       4,653        4,600         4,560
    Provision for loan loss               371          237         232          305           225
    Noninterest income                    956          856         766          928           754
    Noninterest expense                 3,025        2,946       2,926        2,735         2,780
    Income taxes                          666          651         582          671           638
    Net income                         $1,804        1,800       1,679        1,817         1,671
    Return on average assets             1.60%        1.61%       1.54%        1.65%         1.56%
    Return on average equity            13.64%       12.55%      11.12%       11.80%        11.37%
    Basic net income per share         $ 0.51         0.50        0.44         0.48          0.44

</TABLE>

<TABLE>
                                                  Daily Averages for the Quarter Ended

<CAPTION>

    ($000's, except per share       September 30,  June 30,    March 31,  December 31, September 30,
    and percent data)                   1999         1999        1999         1998         1998
                                    -------------  --------    ---------  ------------ -------------
    <S>                             <C>            <C>         <C>        <C>          <C>
    Loans, net                         $277,588     260,077     241,788      234,817       226,338
    Total securities                    145,064     153,227     167,828      161,873       155,884
    Total assets                        452,176     447,683     442,926      439,469       427,725
    Total deposits                      392,710     385,610     379,465      375,607       366,490
    Stockholders' equity                 52,908      57,361      61,338       61,596        58,778


     Net Income for the third quarter of 1999  was $1,804 which represents an increase of $133  or 7.96%
over the third quarter of 1998.

     The return on average assets for the quarter-ended  September 30, 1999 and September 30, 1998 was
1.60% and  1.56%, respectively.  The return  on average equity for the third  quarter of 1999 was 13.64%
and  11.37% for the third quarter of 1998.

     The improvement in the return on average equity was in part due to an increase in net income and to
a reduction in average equity as a result of a tender offer completed in the second quarter of 1999.

     Earnings per share for  the third quarter of  1999 was $0.51, an  increase of $0.07 over the  third
quarter in 1998.

</TABLE>

                                                  -28-<PAGE>

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

     Net  interest income for the third quarter  of 1999 was $4,910 an increase
of  $350 over  the third  quarter of  1998.   The principal  cause of  this net
increase was loan volume.

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

     The provision for  loan losses for the third quarter  was $371 compared to
$225 in 1999.  As  previously mentioned, it is expected that bad  debts expense
will continue to  increase in 1999 due to loan growth  and the need to maintain
an adequate overall allowance.

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

     Noninterest income for the third quarter of 1999 was $956,  an increase of
$202  or  26.79%  over the  same  period  last  year.   While  most  categories
experienced  increases, securities  gains  and losses  declined  substantially.
Such gains and losses are dependent primarily on securities with call features.

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

     Noninterest expense for the  quarter ended September 30, 1999  was $3,025,
an increase of  $245 or 8.81% over the same period in 1998.  Occupancy expenses
increased by  $63 when compared  to the  third quarter of  1998.  In  the third
quarter  1999  the Company  opened  a  new facility  to  serve  as a  corporate
headquarters and an additional  NBB branch, which contributed to  the increase.
It is expected  that this category  will increase further  as a result of  that
addition.

     Data processing expense also showed an increase.  In the fourth quarter of
1998 the Company updated its computer mainframe and converted its BTC affiliate
to  the same system utilized by NBB.   Accordingly, additional costs related to
this project are included in 1999 third quarter income only.

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

     Total  average quarterly assets for  the three months  ended September 30,
1999 were $452,176  an increase of $24,451  or 5.72% over the  third quarter of
1998.  Total average quarterly deposits increased $26,220 or 7.15% when the two
periods are  compared.   Reference  is  made to  previous comments  related  to
deposit growth at the Company's BTC affiliate.













                                      -29-<PAGE>

Banking Terms


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

                                      -30-<PAGE>

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

Taxable-Equivalent  In-
come -  income that has
been     adjusted    by
increasing   tax-exempt
interest  income to  an
equivalent       pretax
amount    of    taxable
income.            This
adjustment       allows
corporations to compare

                                      -31-<PAGE>

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Derivatives

     The Company is not a party  to derivative financial instruments with  off-
balance sheet  risks such as futures, forwards, swaps and options.  The Company
is  a  party to  financial  instruments with  off-balance sheet  risks  such as
commitments  to  extend  credit,  standby   letters  of  credit,  and  recourse
obligations in the normal course of business to meet the financing needs of its
customers.   Management does  not  plan any  future  involvement in  high  risk
derivative  products.     The   Company  has  investments   in  mortgage-backed
securities, collateralized  mortgage  obligations, structured  notes and  other
similar instruments which  are included  in securities available  for sale  and
securities held to maturity.  The  fair value of these investments at September
30, 1999 approximated $6,463.

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
September  30,  1999,  the  distribution  of  repricing  opportunities  of  the
Company's   interest-earning  assets  and   interest-bearing  liabilities,  the
interest rate  sensitivity  gap  (i.e., interest  rate  sensitive  assets  less
interest  rate  sensitive  liabilities),   and  the  cumulative  interest  rate
sensitivity gap.   The table sets forth the time periods during which interest-
earning assets and interest-bearing  liabilities will mature or may  reprice in
accordance with their contracted terms.

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
















                                      -32-<PAGE>

<TABLE>

<CAPTION>
               Interest Rate                                     September 30, 1999
            Sensitivity Table (1)              Interest-sensitive (days)
                                                                              1-5       >5
  ($ in thousands)                              1-90     91-180    181-365   Years     Years    Total
                                             ---------  --------   -------  -------   -------  -------
 <S>                                         <C>        <C>        <C>      <C>       <C>      <C>
 Interest-earning assets:
  Loans, net of unearned income (2)          $  39,837    28,904    27,169  128,590    62,062  286,562
  Federal funds sold                               150       ---       ---      ---       ---      150
  Interest bearing deposits                      7,320       ---       ---      ---       ---    7,320
  Securities available for sale (3)              3,464     2,017     3,125   26,313    86,128  121,047
  Securities held to maturity (3)                2,368     1,491     1,699   16,544     3,083   25,185
  Mortgage loans held for sale                     570       ---       ---      ---       ---      570
    Total interest-earning assets            $  53,776    32,412    31,993  171,447   151,274  440,902

 Interest-bearing liabilities:
  Interest-bearing demand deposits           $  83,001       ---       ---      ---       ---   83,001
  Savings deposits                              47,012       ---       ---      ---       ---   47,012
  Time deposits                                 37,462    47,883    63,882   70,258       ---  219,485
  Other borrowed funds                             559       ---       ---      ---       ---      559
    Total interest-bearing liabilities       $ 168,034    47,883    63,882   70,258       ---  350,057
 Cumulative ratio of interest-
  sensitive assets to interest-
  sensitive liabilities                      $(114,258) (129,729) (161,618) (60,429)   90,845   90,845
 Cumulative interest-sensitivity gap         $     .32       .40       .42      .83      1.26      ---


(1)  The Company  is sensitive to interest rate changes, as liabilities generally reprice or mature
     before  interest-earning assets.  The above  gap table  reflects the  Company's rate-sensitive
     position at  September 30, 1999, and is not necessarily  reflective of its position throughout
     the  year.   The  carrying  amounts  of interest-rate  sensitive  assets  and liabilities  are
     presented in  the periods in which  they reprice to market  rates or mature and  are summed to
     show the interest-rate sensitivity gap.
(2)  Excludes nonaccrual loans.
(3)  Call features  on certain securities, if exercised  could have the effect  of materially shortening
     the average life of the investment portfolio.  The exercise of a call feature is dependent upon the
     rate environment.  The call decision is at the issuers discretion and ultimate benefit.  Securities
     available for sale are shown at amortized cost.

</TABLE>



                                                  -33-<PAGE>


     The  Company also uses simulation  analysis to forecast  its balance sheet
and monitor interest rate  sensitivity.  One test used by  the Company is shock
analysis, which measures the  effect of a hypothetical, immediate  and parallel
shift in interest rates.  The following table shows the results of a rate shock
of 100, 200,  and 300 basis points and the effects  on net income and return on
average assets and return on average equity for the nine months ended September
30, 1999.

       ($000's, except for percent data)

                                             Return on          Return on
         Rate Shift       Net Income      Average Equity     Average Assets
         ==========       ==========      ==============     ==============
              300           $4,935              8.61%              1.03%
              200            5,742             10.10%              1.22%
              100            6,544             11.55%              1.40%
           (-)100            8,133             14.35%              1.77%
           (-)200            8,921             15.70%              1.95%
           (-)300            9,255             16.29%              2.03%


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

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





















                                      -34-<PAGE>


                    National Bankshares, Inc. and Subsidiaries
                                   Part II
                              Other Information




Items 1-3.    Legal Proceedings;  Changes in  Securities and  Use of  Proceeds;
              Defaults Upon Senior Securities

              None for the three months ended
              September 30, 1999.

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

              None

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
                  September 30, 1999:

                  --     None






























                                      -35-<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:  11/12/1999          /s/James G. Rakes
          -------------       -------------------------------------
                              James G. Rakes, Chairman
                              President and Chief Executive Officer





   Date:  11/12/1999          /s/J. Robert Buchanan
          -------------       -------------------------------------
                              J. Robert Buchanan, Treasurer
                              (principal financial officer)






















                                      -36-<PAGE>