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, 1997                                                      0-15204


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


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


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

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

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


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

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


          Class                               Outstanding at November 4, 1997  
-------------------------------               ---------------------------------
Common Stock, $2.50 Par Value                             3,792,833            



                        (This report contains 25 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, 1997
           and December 31, 1996                                         4-5   
                             
          Consolidated Statements of Income, Nine
           Months Ended September 30, 1997 and 1996                       6    

          Consolidated Statements of Income,
           Three Months Ended September 30, 1997 and 1996                 7    

          Consolidated Statements of Changes in                
           Stockholders' Equity, Nine Months Ended   
           September 30, 1997 and 1996                                    8    

          Consolidated Statements of Cash Flows
           Nine Months Ended September 30, 1997 and 1996                 9-10  

          Selected Consolidated Financial Data                          11-16  

     Item 2 - Management's Discussion and Analysis of 
          Financial Condition and Results of Operations                 17-23  


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

     Items 1 - 3 - Legal Proceedings; Changes in
        Securities; Defaults upon Senior Securities                      24    

     Item 4 - Submission of Matters to a Vote of
        Security Holders                                                 24    

     Item 5 - Other Information                                          24    

     Item 6 - Exhibits and Reports on Form 8-K                           24    

     Signatures                                                          25    







                                      -2-<PAGE>


                   National Bankshares, Inc. and Subsidiaries

                                     Part I
                                     ------

                             Financial Information
                             ---------------------


Item 1. Financial Statements

The consolidated financial statements of National Bankshares, Inc. (Bankshares)
and  its wholly-owned subsidiaries, The  National Bank of  Blacksburg (NBB) and
Bank of Tazewell  County (BTC),  (the Company), conform  to generally  accepted
accounting principles  and to  general practices  within the  banking industry.
The  accompanying   interim  period   consolidated  financial  statements   are
unaudited; however, in the opinion of management, all adjustments consisting of
normal recurring adjustments which are necessary for a fair presentation of the
consolidated  financial  statements   have  been  included.    The  results  of
operations for the  nine months ended  September 30, 1997  are not  necessarily
indicative of  results of operations  for the  full year or  any other  interim
period.   The  interim period consolidated  financial statements  and financial
information included  herein should be  read in  conjunction with the  notes to
consolidated financial statements included in  the Company's 1996 Annual Report
to Stockholders and additional information supplied in the 1996 Form 10-K.



































                                      -3-<PAGE>


               National Bankshares, Inc. and Subsidiaries
                       Consolidated Balance Sheets
                September 30, 1997 and December 31, 1996
                               (Unaudited)

                                                 September    December
 ($000's, except share and per share data)       30, 1997     31, 1996
                                                 =========  ============
 Assets
  Cash and due from banks                        $ 12,919       9,989   
  Interest-bearing deposits                         6,628          91   
  Federal funds sold                                4,585       1,910   
  Securities available for sale                    60,986      62,534   
  Securities held to maturity (fair value
   $91,695 in 1997 and $108,755 in 1996)           91,314     108,710   
  Mortgage loans held for sale                        562         516   
  Loans:
    Real estate construction loans                  8,286       6,295   
    Real estate mortgage loans                     43,439      43,917   
    Commercial and industrial loans                99,516      87,519   
    Loans to individuals                           65,407      60,991   
                                                 --------     -------   

             Total loans                          216,648     198,722

    Less unearned income and deferred fees         (2,587)     (2,549)  
                                                 --------     -------   
             Loans, net of unearned income 
              and deferred fees                   214,061     196,173

    Less allowance for loan losses                 (2,419)     (2,575)  
                                                 --------     -------   
             Loans, net                           211,642     193,598   
                                                 --------     -------

  Bank premises and equipment, net                  5,097       5,037   
  Accrued interest receivable                       3,583       3,510   
  Other real estate owned, net                        417         474   
  Other assets                                      2,432       2,481   
                                                 --------     -------   
             Total assets                        $400,165     388,850   
                                                 ========     =======   
 Liabilities and Stockholders' Equity
  Noninterest-bearing demand deposits            $ 45,922      44,096   
  Interest-bearing demand deposits                 73,834      73,804   
  Savings deposits                                 47,373      48,164   
  Time deposits                                   175,217     168,520   
                                                 --------     -------   
             Total deposits                       342,346     334,584   
                                                 --------     -------   

  Other borrowed funds                                484         627   
  Accrued interest payable                            681         700   
  Other liabilities                                 1,380       1,495   
                                                 --------     -------   
             Total liabilities                    344,891     337,406   
                                                 --------     -------

  Common stock subject to ESOP put option           1,783       1,643   
                                                 --------     -------   


                                      -4-<PAGE>


 Stockholders' equity:
  Preferred stock of no par value.  Authorized
   5,000,000 shares; none issued and
   outstanding                                        ---         ---   
  Common stock of $2.50 par value. Authorized
   5,000,000 shares; issued and outstanding
   3,792,833 shares                                 9,482       9,482   
  Retained earnings                                45,777      42,210   
  Net unrealized gains (losses) on securities
   available for sale                                  15        (248)  
  Common stock subject to ESOP put option          (1,783)     (1,643)  
                                                 --------     -------   

             Total stockholders' equity            53,491      49,801

  Commitments and contingent liabilities              ---         ---   
                                                 --------     -------   
             Total liabilities and
              stockholders' equity               $400,165     388,850   
                                                 ========     =======   









































                                      -5-<PAGE>

                National Bankshares, Inc. and Subsidiaries
                    Consolidated Statements of Income
              Nine Months Ended September 30, 1997 and 1996
                               (Unaudited)
                                                   September   September
 ($000's, except per share data)                    30, 1997   30, 1996
                                                   =========   =========
 Interest Income
  Interest and fees on loans                        $ 14,418    12,729  
  Interest on interest-bearing deposits                  136        48  
  Interest on federal funds sold                         323       376  
  Interest on securities   taxable                     5,922     6,731  
  Interest on securities   nontaxable                  1,353     1,496  
                                                    --------    ------  
             Total interest income                    22,152    21,380  
                                                    --------    ------  
 Interest Expense
  Interest on time deposits of $100,000 or more        1,715     1,532  
  Interest on other deposits                           8,024     8,217  
  Interest on borrowed funds                              32        23  
                                                    --------    ------  
            Total interest expense                     9,771     9,772  
                                                    --------    ------  
            Net interest income                       12,381    11,608

  Provision for loan losses                              303       216  
                                                    --------    ------  
            Net interest income after provision
             for loan losses                          12,078    11,392  
                                                    --------    ------  
 Noninterest Income
  Service charges on deposit accounts                    801       843  
  Other service charges and fees                         204       175  
  Credit card fees                                       449       376  
  Trust income                                           559       399  
  Other income                                            53        32  
  Realized securities gains, net                          25         6  
                                                    --------    ------  
             Total noninterest income                  2,091     1,831  
                                                    --------    ------  
 Noninterest Expense
  Salaries and employee benefits                       4,088     3,711  
  Occupancy and furniture and fixtures                   843       765  
  Data processing and ATM                                268       257  
  FDIC assessment                                         29         2  
  Credit card processing                                 423       348  
  Goodwill amortization                                   22        22  
  Net costs of other real estate owned                     9        10  
  Other operating expense                              1,845     1,846  
                                                    --------    ------  

             Total noninterest expense                 7,527     6,961  
                                                    --------    ------  
  Income before income tax expense                     6,642     6,262  
  Income tax expense                                   1,824     1,708  
                                                    --------    ------  
             Net income                             $  4,818     4,554  
                                                    ========    ======  
             Net income per share                   $   1.27      1.20  
                                                    ========    ======  

                                      -6-<PAGE>

                National Bankshares, Inc. and Subsidiaries
                    Consolidated Statements of Income
              Three Months Ended September 30, 1997 and 1996
                               (Unaudited)

                                                   September   September
 ($000's, except per share data)                    30, 1997   30, 1996
                                                   =========   =========
 Interest Income
  Interest and fees on loans                        $  4,996     4,439  
  Interest on interest-bearing deposits                   55        16  
  Interest on federal funds sold                          92       131  
  Interest on securities   taxable                     1,939     2,086  
  Interest on securities   nontaxable                    435       452  
                                                    --------    ------  
             Total interest income                     7,517     7,124  
                                                    --------    ------  
 Interest Expense
  Interest on time deposits of $100,000 or more          612       509  
  Interest on other deposits                           2,707     2,721  
  Interest on borrowed funds                               1        10  
                                                    --------    ------  
            Total interest expense                     3,320     3,240  
                                                    --------    ------  
            Net interest income                        4,197     3,884

  Provision for loan losses                               94       106  
                                                    --------    ------  
            Net interest income after provision
             for loan losses                           4,103     3,778  
                                                    --------    ------  
 Noninterest Income
  Service charges on deposit accounts                    240       284  
  Other service charges and fees                          69        52  
  Credit card fees                                       161       131  
  Trust income                                           179       139  
  Other income                                            41        27  
  Realized securities gains, net                          11         2  
                                                    --------    ------  
             Total noninterest income                    701       635  
                                                    --------    ------  
 Noninterest Expense
  Salaries and employee benefits                       1,386     1,247  
  Occupancy and furniture and fixtures                   274       256  
  Data processing and ATM                                 99        82  
  FDIC assessment                                         15         1  
  Credit card processing                                 152       128  
  Goodwill amortization                                    7         7  
  Net costs of other real estate owned                     7         4  
  Other operating expense                                635       556  
                                                    --------    ------  

             Total noninterest expense                 2,575     2,281  
                                                    --------    ------  
  Income before income tax expense                     2,229     2,132  
  Income tax expense                                     612       567  
                                                    --------    ------  
             Net income                             $  1,617     1,565  
                                                    ========    ======  
             Net income per share                   $   0.43      0.41  
                                                    ========    ======  

                                      -7-<PAGE>

                     National Bankshares, Inc. and Subsidiaries
             Consolidated Statement of Changes in Stockholders' Equity
                   Nine Months Ended September 30, 1997 and 1996
                                    (Unaudited)


                                                      Net
                                                  Unrealized
                                                     Gains    Common
                                                   (Losses)    Stock
                                                      on      Subject
                                                  Securities  To ESOP
       ($000's, except per       Common  Retained  Available    Put
         share data)             Stock   Earnings  For Sale   Option   Total
                                 ====== ========= ==========  ======   =====
       Balances, December 31,
        1995                     $9,482   38,390      282        ---  48,154 
       Net income                   ---    4,554      ---        ---   4,554 
       Cash dividends ($.30 per
        share)                      ---     (571)     ---        ---    (571)
       Cash dividends of BTC
        prior to merger             ---     (510)     ---        ---    (510)
       Change in net unrealized
        gains (losses) on
        securities available
        for sale, net of income
        tax benefit of $582         ---      ---   (1,129)       ---  (1,129)
                                 ------   ------   ------     ------  ------ 

       Balances, September 30,
        1996                     $9,482   41,863     (847)       ---  50,498 
                                 ======   ======   ======     ======  ====== 


       Balances, December 31,
        1996                     $9,482   42,210     (248)    (1,643) 49,801 
       Net income                   ---    4,818      ---        ---   4,818 
       Cash dividend ($.33 per
        share)                      ---   (1,251)     ---        ---  (1,251)
       Change in net unrealized
        gains (losses) on
        securities available
        for sale, net of income
        tax expense of $135         ---      ---      263        ---     263 
       Change in common stock
        subject to ESOP put
        option                      ---      ---      ---       (140)   (140)
                                 ------   ------   ------     ------  ------ 
       Balances, September 30,
        1997                     $9,482   45,777       15     (1,783) 53,491 
                                 ======   ======   ======     ======  ====== 






                                      -8-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
                       Consolidated Statements of Cash Flows
                   Nine Months Ended September 30, 1997 and 1996
                                    (Unaudited)

                                                         September  September
     ($000's)                                            30, 1997    30, 1996
                                                         =========  =========
     Cash Flows From Operating Activities  
      Net Income                                         $  4,818     4,554   
      Adjustments to reconcile net income to net cash
       provided by operating activities: 
          Provision for loan losses                           303       216   
          Provision for deferred income taxes                (127)      582   
          Depreciation of bank premises and equipment         408       351   
          Amortization of intangibles                          22        22   
          Amortization of premiums and accretion of
           discounts, net                                       3        39   
          (Gains) losses on bank premises and equipment
           disposals                                           (2)      ---   
          (Gains)losses on sales and calls of
           securities available for sale, net                 ---        (4)  
          (Gains) losses on calls of securities held to
           maturity, net                                      (25)      ---   
          Net (increase) decrease in mortgage loans
           held for sale                                      (46)      743   
          (Increase) decrease in:
             Accrued interest receivable                      (73)     (130)  
             Other assets                                      18      (509)  
          Increase (decrease) in:
             Accrued interest payable                         (19)     (862)  
             Other liabilities                               (115)      (86)  
                                                          -------    ------   
                    Net cash provided by operating
                     activities                             5,165     4,916   
                                                          -------    ------   
     Cash Flows From Investing Activities
      Net (increase) decrease in federal funds sold        (2,675)    4,062   
      Net (increase) decrease in interest-bearing
       deposits                                            (6,537)    2,343   
      Proceeds from calls and maturities of securities
       available for sale                                   6,795    13,860   
      Proceeds from calls and maturities of securities
       held to maturity                                    25,425    35,830   
      Purchases of securities available for sale           (4,844)   (9,397)  
      Purchases of securities held to maturity             (8,012)  (28,457)  
      Purchases of loan participations                     (1,515)   (1,853)  
      Collections of loan participations                    1,365     1,040   
      Net (increase) decrease in loans made to
       customers                                          (18,293)  (23,620)  
      Proceeds from disposal of other real estate owned        83        29   
      Recoveries on loans charged off                          71       111   
      Bank premises and equipment expenditures               (475)        3   
      Proceeds from sale of bank premises and equipment         9      (587)  
                                                          -------    ------   
                   Net cash used in investing 
                    activities                             (8,603)   (6,636)  
                                                          -------    ------   

                                      -9-<PAGE>

     Cash Flows From Financing Activities  
      Net increase (decrease) in time deposits              6,697     1,710   
      Net increase (decrease) in other deposits             1,065     3,728   
      Net increase (decrease) in other borrowed funds        (143)    1,301   
      Cash dividends paid                                  (1,251)   (1,081)  
                                                          -------    ------   
                   Net cash provided by financing
                    activities                              6,368     5,658   
                                                          -------    ------   
      Net increase (decrease) in cash and due from
       banks                                                2,930     3,938   
      Cash and due from banks at beginning of period        9,989    10,055   
                                                          -------    ------   

      Cash and due from banks at end of period            $12,919    13,993   
                                                          =======    ======   
     Supplemental Cash Flow Information
      Unrealized gains (losses) on securities available
       for sale (gross)                                   $   398    (1,711)  
      Deferred income tax benefit (expense)                  (135)      582   
                                                          -------    ------   
      Net unrealized gains (losses) on securities
       available for sale                                 $   263    (1,129)  
                                                          =======    ======   

      Loans charged to the allowance for loan losses      $   530       364   
                                                          =======    ======   
      Interest paid                                       $ 9,790     9,858   
                                                          =======    ======   
      Cash paid for income taxes                          $ 2,276     1,839   
                                                          =======    ======   

      Investments charged to the allowance for
       securities losses                                  $   272       ---   
                                                          =======    ======   

























                                      -10-<PAGE>

                   National Bankshares, Inc. and Subsidiaries
                          Selected Balance Sheet Data




                                                September      December
            ($000's)                             30, 1997      31, 1996
                                                =========      ========

            Selected Data at Period-end
             Loans, net                          $211,642       193,598  
             Total securities                     152,300       171,244  
             Total assets                         400,165       388,850  
             Total deposits                       342,346       334,584  
             Stockholders' equity                  53,491        49,801  

            Selected Data Daily Averages
             Loans, net                          $201,849       177,419
             Total securities                     159,121       177,403  
             Total assets                         393,909       388,045  
             Total deposits                       337,740       335,938  
             Stockholders' equity (1)              51,354        49,459  




            (1)  Includes amount related to common stock subject to ESOP
                 put option.  The effect is immaterial.


























                                      -11-<PAGE>

                   National Bankshares, Inc. and Subsidiaries
                         Selected Income Statement Data



                                                    For the periods ended
                                                 September 30,     December 31,

   ($000's, except per share data)             1997      1996         1996
                                             ========  ========   ============
   Selected Income Statement Data
    Interest income                          $22,152     21,380       28,647  
    Interest expense                           9,771      9,772       13,036  
    Net interest income                       12,381     11,608       15,611  
    Provision for loan losses                    303        216          331  
    Noninterest income                         2,091      1,831        2,693  
    Noninterest expense                        7,527      6,961        9,515  
    Income taxes                               1,824      1,708        2,341  
    Net income                                 4,818      4,554        6,117  


   Selected Ratios and Per Share Data
    Return on average assets (1)                1.64%      1.57%        1.58% 
    Return on average equity (1)               12.13%     12.45%       12.37% 
    Net income per share                     $  1.27       1.20         1.61  
    Book value per share                     $ 14.57      13.31        13.56  



 Note - Return on  average equity and  book value per  share has been  computed
        including  common stock  subject  to  ESOP  put  option as  a  part  of
        stockholders' equity.   At September 30,  1997 and  December 31,  1996,
        the return on average  equity and book value  per share, excluding  the
        common  stock subject  to  ESOP put  option from  stockholders' equity,
        were 12.54% and 12.74%, and $14.38 and $13.36, respectively.

 (1)    Calculated on an annualized basis.















                                      -12-<PAGE>

  <TABLE>
                               National Bankshares, Inc. and Subsidiaries
                                  Average Balances and Interest Rates


                                                       For the periods ended
  <CAPTION>
                                September 30, 1997       September 30, 1996       December 31, 1996
                               Average      Yield/      Average      Yield/      Average     Yield/
  ($000's)                     Balance       Cost       Balance       Cost       Balance      Cost
                               =======     =======      =======      =======     =======     =======
  <S>                          <C>         <C>          <C>          <C>         <C>         <C>
  Interest-earning
   assets(1)                   $372,605     8.24%       365,350       8.14%      364,575       8.16%  
  Interest-bearing
   liabilities                  295,175     4.43%       294,175       4.44%      294,374       4.43%  
                                           -----                     -----                    -----   
  Net interest spread                       3.81%                     3.70%                    3.73%  
                                           =====                     =====                    =====   

  Net interest margin                       4.73%                     4.55%                    4.59%  
                                           =====                     =====                    =====   


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

</TABLE>
















                                                  

                                                  -13-<PAGE>

                  National Bankshares, Inc. and Subsidiaries
                          Interest Rate Sensitivity





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

  Interest-earning
   assets               $ 85,972     25,941      51,104    135,986    79,133 
  Interest-bearing               
   liabilities           156,942     43,596      51,837     44,210       323 
                        --------    -------     -------    -------   ------- 

  Gap                    (70,970)   (17,655)       (733)    91,776    78,810 
                        ========    =======     =======    =======   ======= 

  Cumulative gap         (70,970)   (88,625)    (89,358)     2,418    81,228 
                        ========    =======     =======    =======   ======= 






  NOTE:   Data shown reflects the earliest of the next repricing
          opportunity or maturity.































                                      -14-<PAGE>

                  National Bankshares, Inc. and Subsidiaries
                                Loan Loss Data




                                             For the periods ended

                                     September     September      December
   ($000's)                           30, 1997      30, 1996      31, 1996
                                     =========     =========     ==========

   Balance at beginning of period     $ 2,575         2,625        2,625    
   Provision for loan losses              303           216          331    
   Loans charged off                     (530)         (364)        (506)   
   Recoveries                              71           111          125    
                                      -------        ------       ------    
   Balance at end of period           $ 2,419         2,588        2,575    
                                      =======        ======       ======    

   Ratio of allowance for loan
    losses to loans, net of
    unearned income and deferred
    fees                                 1.13%         1.36%        1.31%   
                                      =======        ======       ======    
   Ratio of net charge-offs to
    average loans, net of
    unearned income and deferred
    fees (1)                              .30%          .19%         .21%   
                                      =======        ======       ======    

   Ratio of allowance for loan
    losses to nonperforming loans
    (2)                                675.70%       412.10%      418.02%   
                                      =======        ======       ======    





   (1)  Net charge-offs are calculated 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 from nonperforming loans.
















                                      -15-<PAGE>


                  National Bankshares, Inc. and Subsidiaries
           Nonperforming Assets, Past Due Loans and Impaired Loans

                                           September  September    December
  ($000's)                                 30, 1997    30, 1996    31, 1996
                                           =========  =========   ==========
  Nonperforming Assets
   Nonaccrual loans                        $   358         628         616   
   Restructured loans                          ---         ---         ---   
                                           -------      ------      ------   
       Total nonperforming loans               358         628         616   
                                           -------      ------      ------   
   Nonaccrual securities
   (net of valuation allowance)                ---         ---          80   
   Foreclosed property                         417         731         474   
   Other repossessed property                   11           6          27   
                                           -------      ------      ------   
       Total foreclosed and
        repossessed properties                 428         737         501   
                                           -------      ------      ------   
         Total nonperforming assets        $   786       1,365       1,197   
                                           =======      ======      ======   
   Ratio of nonperforming assets to
    loans, net of unearned income and
    deferred fees and foreclosed/
    repossessed assets                         .37%        .72%        .57%  
                                           =======      ======      ======

   Accruing Loans Past Due 90 Days or More $   546         329         458   
                                           =======      ======      ======   
   Ratio of loans past due 90 days or
    more to loans, net of unearned
    income and deferred fees                   .26%        .17%        .23%  
                                           =======      ======      ======   
  Impaired Loans 

   Total impaired loans                    $   424       1,053         725   
                                           =======      ======      ======   
   Impaired loans with a
    valuation allowance                        382         736         371   
   Valuation allowance                        (140)       (655)       (290)  
                                           -------      ------      ------   
   Impaired loans, net of allowance        $   242          81          81   
                                           =======      ======      ======   
   Impaired loans with no
    valuation allowance                    $    42         317         354   
                                           =======      ======      ======   
   Average recorded investment
    in impaired loans                      $   519       1,036         800   
                                           =======      ======      ======

   Income recognized on impaired loans     $     8          18          33   
                                           =======      ======      ======   
   Amount of income recognized
    on a cash basis                        $     9         ---          23   
                                           =======      ======      ======   




                                      -16-<PAGE>
                   National Bankshares, Inc. and Subsidiaries
                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations


     The  purpose of  this discussion  is to  set forth  information about  the
financial  condition and results of operations of National Bankshares, Inc. and
its wholly-owned subsidiaries (the  Company), which are not otherwise  apparent
from the  consolidated financial statements  and other information  included in
this report.   Reference should be  made to the financial  statements and other
information included in this report as well  as the 1996 Annual Report and Form
10-K for an understanding of the following discussion and analysis.

Results of Operations    Nine Months Ended September 30, 1997 
                         vs September 30, 1996
-------------------------------------------------------------

     Net  income for the  nine months ended  September 30,  1997 was $4,818,000
which represents an increase of $264,000 or 5.80% over the first nine months of
1996.  The return on  average assets as of September 30, 1997 and September 30,
1996 were  1.64% and 1.57%,  respectively.   The return on  average equity  was
12.13% and 12.45% at September 30, 1997 and 1996, respectively.

     Earnings per share at the end of the third quarter was $1.27 per share, an
increase of $0.07 per share over the third quarter of 1996.

     The overall improvement in performance  was attributable to continued loan
growth  and growth  in noninterest income.   These  increases were  offset to a
degree by increases in the  provision for loan losses and noninterest  expense.
Income tax expense increased as a result of the higher level of taxable income.

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

     Net  interest income  at  the end  of the  first nine  months of  1997 was
$12,381,000 an increase of $773,000 or 6.66% over the same period in 1996.

     The  net interest  margin increased  to 4.73%  from 4.55%.   The  yield on
earning assets rose from 8.14% at the end  of the first nine months of 1996  to
8.24% at the end of  the first nine months of 1997, primarily  due to continued
loan growth.  The cost  to fund earning assets was 3.51% at September 30, 1997,
an eight basis  point decline from the  same period the previous  year.  During
the current period, the Company funded the majority of its loan growth from the
maturities  and calls of investment  securities and the  remainder with deposit
growth.  

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

     The provision for loan losses for  the period ended September 30, 1997 was
$303,000, an  increase  of $87,000  or  40.28%.   The  increased level  of  the
provision in 1997 was  primarily due to loan growth and the  need to maintain a
satisfactory ratio of the allowance for loan losses to loans.  Net charge-offs,
which bear directly on  the amount of the provision, were up  $206,000 when the
first nine  months of 1997 and 1996 are compared.   This increased level of net
charge-offs  reflects  the write-off  of  previously  identified and  allocated
credits and does not reflect  an overall deterioration of asset quality  or the
initial stages of a declining trend.




                                      -17-<PAGE>
     Management anticipates that additional provisions will be needed in future
periods  to ensure an adequate  allowance for loan losses, due  in most part to
future loan growth.

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

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

     Noninterest income for the period ended September 30, 1997 was $2,091,000,
an increase of $260,000  or 14.20% when compared  to the same period the  prior
year.

     Service  charges on  deposit accounts  declined by  $42,000 or  4.98%.   A
significant portion of  these fees consists of charges for  checks returned for
insufficient  funds and overdrafts.   The  level of  income derived  from these
charges  is directly dependent on the willingness  of the customer to bear such
charges.  Accordingly, bank income in this area may vary.

     Trust income exhibited  the most significant  increase in the  noninterest
income category, rising  $160,000 or 40.10%.  Trust income  is dependent on the
market  value of assets managed, types  of services performed and new business.
The increase in 1997 income was the result of a combination of these factors.

     Credit card  fees for the third quarter of 1997 were $449,000, an increase
of 19.41% over the first nine months of 1996.   This increase was primarily due
to increases in transaction volume.

     Other  noninterest  income categories  showed  only  nominal increases  in
dollar volume and were associated with normal increases in business activity.

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

     Noninterest expense for the first nine months of 1997 was $7,527,000 which
represents an increase  of $566,000 or 8.13% from the  same period the previous
year.  

     Salary  and  benefits  expense,  along  with  occupancy  expense,  include
additional  expenses related  to the  opening of  a new  branch office  in Rich
Creek, Virginia in April 1997.

     Credit   card  processing   expense  increased   by  $75,000,   which  was
attributable  to a general increase in business  volume, and was in turn offset
by certain  types of  credit card  fees included in  noninterest income.   FDIC
expense increased due to the  imposition of a new assessment.   This assessment
affects all banks and is  being used to fund interest payments on  bonds issued
to resolve the savings and loan crisis. 

     Management  has scheduled a major  upgrade of its  information systems for
the last quarter of 1997.  A second major project has  also been approved which
involves the building of a new  facility to house various banking  departments,
for which office space is currently leased.

     These projects have and are expected to continue to increase the Company's
noninterest  expense.  These additional expenses will  in part be offset by the
elimination  of  lease  payments  for  space  presently  utilized  for  banking
operations.


                                      -18-<PAGE>
Results of Operations    Three Months Ended September 1997 vs September 1996
---------------------------------------------------------------------------- 

     Net income  for the quarter ending September 30, 1997 was $1,617,000 which
represents an increase of  $52,000 or 3.32% over  the quarter ending  September
30, 1996.

     Earnings per share for the third quarter of 1997 was $0.43, an increase of
$0.02 per share over the third quarter of 1996.

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

     Third  quarter  1997 net  interest income  was  $4,197,000 an  increase of
$313,000  or 8.06% over the  third quarter of  1996.  This increase  was due to
increased net interest income associated with loan growth.

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

     The provision for loan losses  for the third quarter of 1997  was $94,000,
compared to $106,000 for the same period  in 1996.  Continuing loan growth  and
the necessity to  maintain an adequate allowance  for loan losses prompted  the
current year's  addition.  The  provision does  not represent a  change in  the
trend of asset quality.

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

     Overall,  total noninterest income for the third quarter of 1997 increased
$66,000 or 10.39% over the same quarter of the previous year.

     Service charges on  deposit accounts  declined by $44,000  or 15.49%,  the
result of a lower volume  of charges.  Other service charge income increased by
$17,000  or 32.69%.  This  category contains various  miscellaneous items which
can vary from time to time.

     Trust  income rose  $40,000  or 28.78%,  and  credit card  fees  increased
$30,000  or 22.90%, when the third quarter of  1997 and 1996 are compared.  The
increase in trust  income was due  to a combination  of factors, including  the
acquisition of new  business, types of  services provided and  market value  of
assets managed.

     The remaining categories, other  income and net realized gains  and losses
on  securities,   also  increased.     The   other  income   category  contains
miscellaneous income  items which may  vary in amount  from time to  time.  Net
realized gains and losses on securities levels are generally governed in  large
part by securities called or sold.  In  the third quarter of 1997, the sale  of
certain bonds resulted in a $10,000 gain.

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

     Total noninterest expense for the third quarter of 1997 was $2,575,000, an
increase of $294,000 or 12.89%.

     Salaries and benefit costs included in this category increased $139,000 or
11.15%.  Normal  merit increases and the opening of a new branch office in Rich
Creek, Virginia contributed to this increase.



                                      -19-<PAGE>
     Occupancy expense also increased,  related to costs associated with  a new
branch office, lease expenses  for additional office space and  the acquisition
of other fixed assets.

     FDIC  expense increased  due to  the previously  mentioned new  assessment
related to the resolution of the savings and loan crisis.

     Other  expenses   increased  $79,000  or   14.21%.    This   increase  was
attributable  in  part  to increases  in  supplies,  training  costs and  other
expenses.

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

     Total  assets  at September  30, 1997  were  $400,165,000, an  increase of
$11,315,000  or 2.91% when compared to December  31, 1996.  Total average daily
assets at September 30, 1997 were $393,909,000, which represents an increase of
$5,864,000 or 1.51% from December 31, 1996.

     Total  investments at September 30,  1997 were $152,300,000,  a decline of
$18,944,000 or 11.06%.   Daily average investments  at September 30,  1997 were
$159,121,000 a decrease of $18,282,000 or 10.31% from December 31, 1996.

     Net  loans at period-end increased  $18,044,000 or 9.32%  with average net
loans rising to $201,849,000, an increase of $24,430,000 or 13.77%.

     The decrease in investments  and increase in loans reflects  the continued
use of internal funds, to the extent possible, to  fund new loans.  Because the
Company  has had  a  limited need  to  attract new  deposits  or utilize  other
external funding sources to fund loan growth,  it has in the past avoided to  a
degree the  higher costs associated with  these sources.  However,  there is an
indication that recent market conditions may necessitate higher rates to retain
and procure deposits, which can be  expected to increase the Company's interest
expense.   Growth in average  daily deposits for the  first nine months of 1997
was less than 1%.

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

     Nonperforming  loans,  which  include  nonaccrual loans  and  restructured
loans, but  which exclude loans  past due 90  days and still  accruing, totaled
$358,000 at September 30, 1997 and $616,000  at December 31, 1996.  Total other
real  estate owned,  net was $417,000  and $474,000  at September  30, 1997 and
December 31, 1996, respectively.

     The  net charge-off ratio at September 30,  1997 was .30% compared to .21%
at  December  31,  1996.   This  increase largely  reflects  the  charge-off of
previously identified and allocated  credits and does not represent  a negative
change in the asset quality trend.

     The ratio  of allowance for loan  losses to loans, net  of unearned income
and fees,  was 1.13% at September  30, 1997 compared  to 1.31% at  December 31,
1996.  This decline was due in part to loan growth and to the charge-off of the
previously identified credits mentioned above.








                                      -20-<PAGE>
Liquidity
---------

     Liquidity  is  the  ability to  provide  sufficient  cash  levels to  meet
financial commitments  and to  fund loan  demand and  deposit withdrawals.   As
mentioned previously, the  Company has, and will continue, to  fund loan growth
and  other cash  needs through  excess liquidity  in the  investment portfolio,
acquiring external  funds, through  its deposit  gathering  activities to  meet
additional funding needs.

     In  order to  provide  the best  possible service  to  its customers,  the
Company for the last quarter of 1997 has scheduled a substantial upgrade to its
information  systems. In addition, management  is planning for the construction
of a new office building, which  is intended to replace currently leased office
space.  It is expected that neither project will have a material impact  on the
Company's liquidity.  Management is not aware of any other trend, commitment or
event that will result in or that  is reasonably likely to result in a decrease
in  liquidity that would be  adverse and to  a degree that  operations would be
materially affected.

Interest Rate Sensitivity
------------------------- 

     Interest  rate  sensitivity is  the ability  to  adjust interest  rates in
periods of  rising  and falling  interest  rates.   A  positive cumulative  gap
indicates  that in periods of rising rates interest-earning assets will reprice
faster  than interest-bearing liabilities.  This in  turn has a positive effect
on earnings.  The opposite would be true in a falling rate environment in which
interest-earning  assets would reprice downward at a faster rate than interest-
bearing liabilities, compressing the interest rate spread and having a negative
effect on profitability.

     At September  30, 1997, the Company  is negatively gapped into  the one to
five  year  time period.    In the  event  interest rates  rise,  the Company's
profitability  would   be  negatively  affected,  as   its  interest  sensitive
liabilities would reprice at a faster rate than its interest sensitive  assets.
The  ultimate effect, however, would depend on  the degree of increase in rates
and the  period of  time at the  higher rate  level and  subsequent changes  in
interest rates.

     The  Company regularly  quantifies interest  rate risk  and the  resultant
effect on earnings and  capital.  If necessary, its  asset/liability management
strategy is adjusted to accommodate changing conditions.

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

     Total stockholders'  equity  at September  30,  1997 was  $53,491,000,  an
increase  of $3,690,000  or 7.41% from  December 31,  1996.   This increase was
primarily the result of current period net income less dividends paid.

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








                                      -21-<PAGE>

  Capital Ratios                        September 30, 1997  December 31, 1996
  --------------                        ------------------  -----------------
  Total capital (to risk
   weighted assets)                            23.58%            23.00%      
  Tier 1 capital (to risk
   weighted assets)                            22.57%            21.89%      
  Tier 1 capital (to average
   assets, leverage ratio)                     13.76%            12.96%      

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

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

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

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

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

     In  June 1997,  the Securities and  Exchange Commission  issued guidelines
related  to the  disclosure  of derivatives  and  other financial  instruments.
These guidelines  require the  Company to make  certain disclosures  related to
accounting  policy,  as   they  apply  to   derivatives  and  other   financial
instruments.    It further  requires  additional  quantitative disclosures  for
fiscal year-end 1997.






                                      -22-<PAGE>
     To date, the Company's involvement in derivative products has been limited
to  mortgage-backed  securities,  CMO's,  structured notes  and  other  similar
instruments that  have  less  complex  risk  factors.    Management  investment
strategy does not provide for  the use of off-balance sheet  instruments except
for  loan commitments and standby  letters of credit.   Furthermore, management
does not plan any future involvement in high risk derivative products.

     In  June 1997, FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income".  Statement 130 establishes standards for
reporting and display of comprehensive income and its components in  a full set
of general purpose financial statements.  It does not, however, specify when to
recognize or how to measure items that make up comprehensive income.  Statement
130  was issued to address concerns over  the practice of reporting elements of
comprehensive income directly in equity.

     This Statement requires all items that are required to be recognized under
accounting standards as  components of  comprehensive income be  reported in  a
financial  statement that  is  displayed in  equal  prominence with  the  other
financial statements.  It does not require a specific format for that financial
statement  but requires that an enterprise display an amount representing total
comprehensive income for the  period in that financial statement.   Enterprises
are required to classify items of  "other comprehensive income" by their nature
in  the  financial statement  and display  the  balance of  other comprehensive
income  separately in the equity section  of a statement of financial position.
It does not require per share amounts of comprehensive income to be disclosed.

     Statement 130 is effective  for both interim and annual  periods beginning
after  December 15,  1997.   Earlier  application  is permitted.    Comparative
financial   statements  provided  for  earlier  periods   are  required  to  be
reclassified  to reflect  the provisions  of this  statement.   Publicly traded
enterprises  that issue condensed financial  statements for interim periods are
required  to report  a  total  for  comprehensive  income  in  those  financial
statements.

     The Company plans to implement Statement 130 at the effective date.



























                                      -23-<PAGE>
                   National Bankshares, Inc. and Subsidiaries
                                    Part II
                               Other Information


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

              None


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) Form 8-K 
                    None



































                                      -24-<PAGE>
                   National Bankshares, Inc. and Subsidiaries

                                   Signatures





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



                           National Bankshares, Inc.
                                  (Registrant)








   Date:  11/14/97            /s/James G. Rakes
          -------------       -----------------------------
                              James G. Rakes, President and
                              Chief Executive Officer





   Date:  11/14/97            /s/Joan C. Nelson
          -------------       -----------------------------
                              Joan C. Nelson, Treasurer
                              (principal financial officer)

























                                      -25-<PAGE>