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:
June 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 July 31, 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, June 30, 1997
           and December 31, 1996                                         4-5   
                             
          Consolidated Statements of Income, Six
           Months Ended June 30, 1997 and 1996                            6    

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

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

          Consolidated Statements of Cash Flows
           Six Months Ended June 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  six  months  ended  June  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
                   June 30, 1997 and December 31, 1996
                               (Unaudited)

                                                 June 30,   December 31,
 ($000's, except share and per share data)         1997         1996
                                                 =========  ============
 Assets
  Cash and due from banks                        $ 12,838       9,989   
  Interest-bearing deposits                         2,837          91   
  Federal funds sold                                  ---       1,910   
  Securities available for sale                    60,684      62,534   
  Securities held to maturity (fair value
   $97,186 in 1997 and $108,755 in 1996)           97,176     108,710   
  Mortgage loans held for sale                        215         516   
  Loans:                                                  
    Real estate construction loans                 10,226       6,295   
    Real estate mortgage loans                     43,318      43,917   
    Commercial and industrial loans                96,934      87,519   
    Loans to individuals                           63,131      60,991   
                                                 --------     -------   

             Total loans                          213,609     198,722   

    Less unearned income and deferred fees         (2,537)     (2,549)
                                                 --------     -------   
             Loans, net of unearned income and
              deferred fees                       211,072     196,173   

    Less allowance for loan losses                 (2,438)     (2,575)
                                                 --------     -------   
             Loans, net                           208,634     193,598   
                                                 --------     -------   
  Bank premises and equipment, net                  5,124       5,037   
  Accrued interest receivable                       3,529       3,510   
  Other real estate owned, net                        447         474   

  Other assets                                      2,474       2,481   
                                                 --------     -------   
             Total assets                        $393,958     388,850   
                                                 ========     =======   
 Liabilities and Stockholders' Equity
  Noninterest-bearing demand deposits            $ 44,786      44,096   
  Interest-bearing demand deposits                 74,312      73,804   
  Savings deposits                                 47,847      48,164   
  Time deposits                                   170,624     168,520   
                                                 --------     -------   

             Total deposits                       337,569     334,584   
                                                 --------     -------   
  Other borrowed funds                              1,384         627   
  Accrued interest payable                            668         700   
  Other liabilities                                   919       1,495   
                                                 --------     -------   
             Total liabilities                    340,540     337,406   
                                                 --------     -------   
  Common stock subject to ESOP put option           1,893       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                                44,160      42,210   
  Net unrealized losses on securities available
   for sale                                          (224)       (248)  
  Common stock subject to ESOP put option          (1,893)     (1,643)  
                                                 --------     -------   
             Total stockholders' equity            51,525      49,801   

  Commitments and contingent liabilities              ---         ---   
                                                 --------     -------   
             Total liabilities and
              stockholders' equity               $393,958     388,850   
                                                 ========     =======   









































                                      -5-<PAGE>

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

                                                    June 30,   June 30,
 ($000's, except per share data)                      1997       1996
                                                   =========   =========
 Interest Income
  Interest and fees on loans                        $ 9,422      8,290  
  Interest on interest-bearing deposits                  81          7  
  Interest on federal funds sold                        231        270  
  Interest on securities - taxable                    3,983      4,645  
  Interest on securities - nontaxable                   918      1,044  
                                                    -------     ------  
             Total interest income                   14,635     14,256  
                                                    -------     ------  
 Interest Expense
  Interest on time deposits of $100,000 or more       1,103      1,023  
  Interest on other deposits                          5,317      5,496  
  Interest on borrowed funds                             31         13  
                                                    -------     ------  
            Total interest expense                    6,451      6,532  
                                                    -------     ------  
            Net interest income                       8,184      7,724  
  Provision for loan losses                             209        110  
                                                    -------     ------  
            Net interest income after provision              
             for loan losses                          7,975      7,614  
                                                    -------     ------  
 Noninterest Income
  Service charges on deposit accounts                   561        559  
  Other service charges and fees                        135        123  
  Credit card fees                                      288        260  
  Trust income                                          380        245  
  Other income                                           12          5  
  Realized securities gains                              14          4  
                                                    -------     ------  
             Total noninterest income                 1,390      1,196  
                                                    -------     ------  
 Noninterest Expense                                         
  Salaries and employee benefits                      2,702      2,464  
  Occupancy and furniture and fixtures                  569        509  
  Data processing and ATM                               169        175  
  FDIC assessment                                        14          1  
  Credit card processing                                271        220  
  Goodwill amortization                                  15         15  
  Net costs of other real estate owned                    2          6  
  Other operating expense                             1,210      1,290  
                                                    -------     ------  

             Total noninterest expense                4,952      4,680  
                                                    -------     ------  
  Income before income tax expense                    4,413      4,130  
  Income tax expense                                  1,212      1,141  
                                                    -------     ------  
             Net income                             $ 3,201      2,989  
                                                    =======     ======  
             Net income per share                   $  0.84       0.79  
                                                    =======     ======  

                                      -6-<PAGE>

                National Bankshares, Inc. and Subsidiaries
                    Consolidated Statements of Income
                Three Months Ended June 30, 1997 and 1996
                               (Unaudited)
                                                    June 30,   June 30,
 ($000's, except per share data)                      1997       1996
                                                   =========   =========
 Interest Income
  Interest and fees on loans                        $ 4,820      4,308  
  Interest on interest-bearing deposits                  61          7  
  Interest on federal funds sold                        149        107  
  Interest on securities - taxable                    1,985      2,306  
  Interest on securities - nontaxable                   455        543  
                                                    -------     ------  
             Total interest income                    7,470      7,271  
                                                    -------     ------  
 Interest Expense
  Interest on time deposits of $100,000 or more         570        508  
  Interest on other deposits                          2,674      2,734  
  Interest on borrowed funds                              6          8  
                                                    -------     ------  
            Total interest expense                    3,250      3,250  
                                                    -------     ------  
            Net interest income                       4,220      4,021  
  Provision for loan losses                             100         65  
                                                    -------     ------  
            Net interest income after provision
             for loan losses                          4,120      3,956  
                                                    -------     ------  
 Noninterest Income
  Service charges on deposit accounts                   283        301  
  Other service charges and fees                         51         68  
  Credit card fees                                      168        150  
  Trust income                                          198        113  
  Other income                                            6          3  
  Realized securities gains                               6        ---  
                                                    -------     ------  
             Total noninterest income                   712        635  
                                                    -------     ------  
 Noninterest Expense                                         
  Salaries and employee benefits                      1,330      1,262  
  Occupancy and furniture and fixtures                  325        246  
  Data processing and ATM                                95         96  
  FDIC assessment                                        11          1  
  Credit card processing                                151        123  
  Goodwill amortization                                   8          7  
  Net costs of other real estate owned                    1          3  
  Other operating expense                               590        654  
                                                    -------     ------  

             Total noninterest expense                 2,511     2,392  
                                                                ------  
                                                    -------  
  Income before income tax expense                    2,321      2,199  
  Income tax expense                                    650        605  
                                                    -------     ------  
             Net income                             $ 1,671      1,594  
                                                    =======     ======  
             Net income per share                   $  0.44       0.42  
                                                    =======     ======  

                                      -7-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
            Consolidated Statement of Changes in Stockholders' Equity
                     Six Months Ended June 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                     $9,482   38,390      282        ---  48,154 
      Net income                   ---    2,989      ---        ---   2,989 
      Cash dividends ($.30 per
       share)                      ---     (572)     ---        ---    (572)
      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 $750         ---      ---   (1,456)       ---  (1,456)
                                ------   ------   ------     ------  ------ 

      Balances, June 30, 1996   $9,482   40,297   (1,174)       ---  48,605 
                                ======   ======   ======     ======  ====== 


      Balances, December 31,
       1996                     $9,482   42,210     (248)    (1,643) 49,801 
      Net income                   ---    3,201      ---        ---   3,201 
      Cash dividend ($.33 per
       share)                      ---   (1,251)     ---        ---  (1,251)
      Change in net unrealized
       gains (losses) on
       securities available
       for sale, net of income
       tax expense of $12          ---      ---       24        ---      24 
      Change in common stock
       subject to ESOP put
       option                      ---      ---      ---       (250)   (250)
                                ------   ------   ------     ------  ------ 

      Balances, June 30, 1997   $9,482   44,160     (224)    (1,893) 51,525 
                                ======   ======   ======     ======  ====== 






                                       -8-<PAGE>

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

                                                         June 30,    June 30,
    ($000's)                                               1997        1996
                                                         =========  =========
    Cash Flows From Operating Activities  
     Net Income                                           $ 3,201     2,989   
     Adjustments to reconcile net income to net cash
      provided by operating activities: 
         Provision for loan losses                            209       110   
         Provision for deferred income taxes                 (127)     (146)  
         Depreciation of bank premises and equipment          265       252   
         Amortization of intangibles                           29        15   
         Amortization of premiums and accretion of
          discounts, net                                      (11)        9   
         Gains on bank premises and equipment 
          disposals                                            (2)      ---   
         Losses on sales and calls of securities                  
          available for sale, net                             ---         4   
         Gains on calls of securities held to
          maturity, net                                       (14)      ---   
         Net (increase) decrease in mortgage loans
          held for sale                                       301       (46)  
         (Increase) decrease in:
            Accrued interest receivable                       (19)     (168)  
            Other assets                                       93       281   
         Increase (decrease) in:
            Accrued interest payable                          (32)      (81)  
            Other liabilities                                (576)     (966)  
                                                          -------    ------   
                   Net cash provided by operating
                    activities                              3,317     2,253   
                                                          -------    ------   
    Cash Flows From Investing Activities
     Net (increase) decrease in federal funds sold          1,910      (225)  
     Net (increase) decrease in interest-bearing
      deposits                                             (2,746)     (151)  
     Proceeds from calls and maturities of securities
      available for sale                                    4,741     8,036   
     Proceeds from calls and maturities of securities
      held to maturity                                     18,370    22,953   
     Purchases of securities available for sale            (2,852)   (6,708)  
     Purchases of securities held to maturity              (6,816)  (13,206)  
     Purchases of loan participations                      (1,149)   (4,496)  
     Collections of loan participations                     1,070       484   
     Net (increase) decrease in loans made to
      customers                                           (15,222)  (13,614)  
     Proceeds from disposal of other real estate owned         29        21   
     Recoveries on loans charged off                           56        31   
     Bank premises and equipment expenditures                (350)     (228)  
     Proceeds from sale of bank premises and equipment        ---         3   
                                                          -------    ------   
                  Net cash used in investing 
                   activities                              (2,959)   (7,100)  
                                                          -------    ------   



                                       -9-<PAGE>

    Cash Flows From Financing Activities  
     Net increase (decrease) in time deposits               2,104       330   
     Net increase (decrease) in other deposits                881     5,830   
     Net increase (decrease) in other borrowed funds          757       918   
     Cash dividends paid                                   (1,251)   (1,082)  
                                                          -------    ------   
                  Net cash provided by financing
                   activities                               2,491     5,996   
                                                          -------    ------   
     Net increase (decrease) in cash and due from
      banks                                                 2,849     1,149   
     Cash and due from banks at beginning of period         9,989    10,041   
                                                          -------    ------   
     Cash and due from banks at end of period             $12,838    11,190   
                                                          =======    ======   
    Supplemental Cash Flow Information
     Unrealized gains (losses) in securities available
      for sale (gross)                                    $  (339)   (1,779)  
     Deferred income tax benefit                              115       605   
                                                          -------    ------   
     Net unrealized gains (losses) on securities
      available for sale                                  $  (224)   (1,174)  
                                                          =======    ======   
     Loans charged to the allowance for loan losses       $   402       191   
                                                          =======    ======   
     Interest paid                                        $ 6,483     6,613   
                                                          =======    ======   
     Cash paid for income taxes                           $ 1,585       989   
                                                          =======    ======   
































                                       -10-<PAGE>
                    National Bankshares, Inc. and Subsidiaries
                           Selected Balance Sheet Data





                                               June 30,    December 31,
          ($000's)                               1997          1996
                                              =========    ============
          Selected Data at Period-end
           Loans, net                          $208,634      193,598
           Total securities                     157,860      171,244
           Total assets                         393,958      388,850
           Total deposits                       337,569      334,584
           Stockholders' equity                  51,525       49,801


          Selected Data Daily Averages
           Loans, net                          $198,482      177,419
           Total securities                     160,822      177,403
           Total assets                         392,171      388,045
           Total deposits                       336,150      335,938
           Stockholders' equity                  50,779       49,459
































                                       -11-<PAGE>
                    National Bankshares, Inc. and Subsidiaries
                          Selected Income Statement Data




                                                   For the periods ended

                                                  June 30,        December 31,
   ($000's, except per share data)             1997      1996         1996
                                              ======    ======    ============

   Selected Income Statement Data
    Interest income                          $14,635    14,256        28,647  
    Interest expense                           6,451     6,532        13,036  
    Net interest income                        8,184     7,724        15,611  
    Provision for loan losses                    209       110           331  
    Noninterest income                         1,390     1,196         2,693  
    Noninterest expense                        4,952     4,680         9,515  
    Income taxes                               1,212     1,141         2,341  
    Net income                                 3,201     2,989         6,117  


   Selected Ratios and Per Share Data
    Return on average assets                    1.65%     1.55%         1.58% 
    Return on average equity                   12.29%    12.29%        12.37% 
    Net income per share                     $  0.84      0.79          1.61  
    Book value per share                       14.08     12.81         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 June  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 12.71%
       and 12.74%, and $13.85 and $13.36, respectively.


















                                       -12-<PAGE>
   <TABLE>
                                National Bankshares, Inc. and Subsidiaries
                                    Average Balances and Interest Rates


   <CAPTION>
                                                        For the periods ended
                                   June 30, 1997            June 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)                  $370,857       8.25%      367,910        8.09%     364,575       8.16%  
   Interest-bearing                                  
    liabilities                 294,720       4.41%      294,738        4.44%     294,374       4.43%  
                                             -----                     -----                   -----   

   Net interest spread                        3.84%                     3.65%                   3.73%  
                                             =====                     =====                   =====   
   Net interest margin                        4.74%                     4.53%                   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               $ 71,865     21,155      46,695    149,771    80,060 

   Interest-bearing
    liabilities           160,490     33,409      57,195     42,509       564 

   Gap                    (88,625)   (12,254)    (10,500)   107,262    79,496

   Cumulative gap         (88,625)  (100,879)   (111,379)    (4,117)   75,379






   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

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

    Balance at beginning of period     $ 2,575        2,625         2,625
    Provision for loan losses              209          110           331    
    Loans charged off                     (402)        (191)         (506)   
    Recoveries                              56           31           125    
                                       -------       ------        ------    

    Balance at end of period           $ 2,438        2,575         2,575    
                                       =======       ======        ======    
    Ratio of allowance for loan
     losses to loans, net of
     unearned income and deferred
     fees                                 1.16%        1.40%         1.31%   
                                       =======       ======        ======    
    Ratio of net charge-offs to
     average loans, net of
     unearned income and deferred
     fees (1)                              .35%         .18%          .21%   
                                       =======       ======        ======    
    Ratio of allowance for loan
     losses to nonperforming loans
     (2)                                679.11%      368.90%       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


                                            June 30,    June 30,  December 31,
   ($000's)                                   1997        1996        1996
                                            =========  =========  ============
   Nonperforming Assets
    Nonaccrual loans                         $  359        698          616   
    Restructured loans                          ---        ---          ---   
                                             ------     ------       ------   
       Total nonperforming loans                359        698          616   
                                             ------     ------       ------   
    Nonaccrual securities                            
    (Net of valuation allowance)                ---        215           80   

    Foreclosed property                         447        741          474   
    Other repossessed property                  ---         17           27   
                                             ------     ------       ------   
       Total foreclosed and
        repossessed properties                  447        758          501   
                                             ------     ------       ------   
         Total nonperforming assets          $  806      1,671        1,197   
                                             ======     ======       ======   
    Ratio of nonperforming assets to
     loans, net of unearned income and
     deferred fees and foreclosed/
     repossessed assets                         .21%       .79%         .57%  
                                             ======     ======       ======   
   Accruing Loans Past Due 90 Days or More
    Past due 90 days or more and
     still accruing                          $  504        436          458   
                                             ======     ======       ======   
    Ratio of loans past due 90 days or
     more to loans, net of unearned
     income and deferred fees                   .24%       .24%         .23%  
                                             ======     ======       ======   
   Impaired Loans 
    Total impaired loans                     $  464        786          725   
                                             ======     ======       ======   
    Impaired loans with a
     valuation allowance                     $  188        376          371   
    Valuation allowance                        (106)      (294)        (290)  
                                             ------     ------       ------   
    Impaired loans, net of allowance         $   82         82           81   
                                             ======     ======       ======   
    Impaired loans with no
     valuation allowance                     $  276        410          354   
                                             ======     ======       ======   
    Average recorded investment
     in impaired loans                       $  551        812          800   
                                             ======     ======       ======   
    Income recognized on impaired loans      $    6         16           33   
                                             ======     ======       ======   
    Amount of income recognized
     on a cash basis                         $    6        ---           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    1997 vs 1996
-------------------------------------

     Net  Income for the  six months  ended June 30, 1997  was $3,201,000 which
represents an  increase of $212,000 or 7.09% over the first six months of 1996.
The return  on average assets as of June 30, 1997  and June 30, 1996 were 1.65%
and 1.55%, respectively.  The return on average equity was 12.71% and 12.29% at
June 30, 1997 and 1996, respectively.

     Earnings per share at  the end of the second quarter was  $0.84 per share,
an increase of $0.05 per share over the second quarter of 1996.

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


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

     Net  interest  income at  the end  of  the first  six  months of  1997 was
$8,184,000 an increase of $460,000 or 5.96% over the same period in 1996.

     The  net interest  margin increased  to 4.74%  from 4.53%.   The  yield on
earning  assets rose from  8.09% at the  end of the  second quarter of  1996 to
8.25%  at the end of  the first six months  of 1997, primarily due to continued
loan growth.  The  cost to fund earning  assets was 3.51% at  June 30, 1997,  a
five  basis point decline from  the same period the previous  year.  During the
period, the  Company funded its loan  growth from the  maturities and calls  of
investment securities.   The absorption  of existing excess  funds allowed  the
Company to exercise a greater degree of control over interest expense.


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

     The  provision for  loan losses  for the  period ended  June 30,  1997 was
$209,000,  an  increase  of $99,000  or 90.00%.    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 $186,000 when the
first half 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  June 30, 1997 was  $1,390,000 an
increase of $194,000 or 16.22% when compared to the same period the prior year.

     In this category,  trust income  exhibited the  most significant  increase
rising $135,000 or  55.10%.  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 first half of 1997 were $288,000, an  increase of
10.77% over the first six months  of 1996.  This increase was primarily due  to
increases in the volume of activity.

     Other  noninterest  income categories  showed  only  nominal increases  in
dollar volume.


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

     Noninterest expense for the first six months  of 1997 was $4,952,000 which
represents an increase of $272,000  or 5.81% from the same period  the previous
year.  This increase was primarily the result of the absence of  merger related
expenses incurred  in 1996,  offset to  a degree by  normal increases  in other
expenses included  in this category.   Salary and benefits  expense, along with
occupancy  expense, contained additional  expenses related to the  opening of a
new branch office.  

     Credit   card  processing   expense  increased   by  $51,000,   which  was
attributable to a  general increase in business volume.  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 long
term effects of the savings and loan crisis. 

     In a  recent decision, management has  elected to go forward  with a major
upgrade of  its data processing systems.  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 are expected 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 June 1997 vs June 1996
------------------------------------------------------------------ 

     Net income  for the  quarter ending  June 30,  1997  was $1,671,000  which
represents an  increase of $77,000  or 4.83% over  the quarter  ending June 30,
1996.

     Earnings per share for the  second quarter of 1997 were $0.44, an increase
of $.02 per share over the second quarter of 1996.


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

     Second  quarter 1997  net interest  income was  $4,220,000 an  increase of
$199,000 or 4.95%  over the second quarter  of 1996.  This  increase was due to
increased interest income associated with loan growth.


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

     The provision for loan losses  for the second quarter of 1997 was $100,000
and $65,000  for the  same  period in  1996.   Continuing loan  growth and  the
necessity  to maintain  an  adequate allowance  for  loan losses  prompted  the
increase.   The increase  does not represent  a change  in the  trend of  asset
quality.


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

     Overall, total noninterest income for the second quarter of 1997 increased
$77,000 or 12.13% over the same quarter of the previous year.

     Service  charges on  deposit accounts  declined by  $18,000 or  5.98%, the
result of a lower  volume of charges.  Other service charge  income declined by
$17,000  or 25.00%.   This category contains various  miscellaneous items which
can vary from time to time.

     Offsetting  these declines was trust income, which rose $85,000 or 75.22%,
and credit card fees which increased $18,000 or 12.00%, when the second 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 during the quarter
and market value of assets managed.

     The  remaining categories, other income and net realized gains and losses,
increased slightly.


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

     Total noninterest expense  for the second quarter of 1997  was $2,511,000,
an increase of $119,000 or 4.97%.




                                      -19-<PAGE>

     Salaries  and benefit costs included in this category increased $68,000 or
5.39%.  Normal merit  increases and the opening of a  new branch office in Rich
Creek, Virginia contributed to this increase.

     Occupancy  expense also increased, attributable 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 decreased $64,000 or 9.79%.  This was due primarily to the
absence  of 1996 merger expenses, reduced to  a degree by normal operating cost
increases.


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

     Total assets at June 30, 1997 were $393,958,000, an increase of $5,108,000
or  1.31% when compared  to December 31, 1996.   Total average  daily assets at
June 30, 1997 were $392,171,000, which represents an increase  of $4,126,000 or
1.06% from December 31, 1996.

     Total  investments  at  June  30, 1997  were  $157,860,000,  a decline  of
$13,384,000  or  7.82%.    Daily average  investments  at  June  30,  1997 were
$160,822,000 a decrease of $16,581,000 or 9.35% from December 31, 1996.

     Net  loans at period-end  increased $15,036,000 or 7.77%  with average net
loans rising to $198,482,000, an increase of $21,063,000 or 11.87%.

     The  decrease in investments and increase in loans reflects the continuing
reliance on  internal  funds, rather  than new  deposits,  to fund  new  loans.
Because the  Company has not needed  to attract new  deposits or utilize  other
external  funding sources to fund  loan growth, it has  avoided to a degree the
higher costs associated  with these sources.  Growth  in average daily deposits
for the first six months of 1997 was less than 1%.

     This  trend  is  expected  to continue  until  excess  liquidity is  fully
absorbed.


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

     Nonperforming loans, which include nonaccrual loans and restructured loans
but exclude loans past due 90 days and still accruing, totaled $359,000 at June
30, 1997 and $616,000 at December 31, 1996.   Total other real estate owned was
$447,000 and $474,000 at June 30, 1997 and December 31, 1996, respectively.

     The net  charge-off ratio at  June 30, 1997  was .35% 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  1.16% at June 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.

     In  order to  provide  the best  possible  service to  its  customers, the
Company  has elected  to make  a  substantial upgrade  to  its data  processing
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 are 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 June 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 shifts.

     The  Company regularly quantifies  interest rate  risk and,  if necessary,
adjusts   its  asset/liability  management  strategy  to  accommodate  changing
conditions.


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

     Total stockholders' equity  at June 30, 1997 was $51,525,000,  an increase
of $1,724,000 or 3.46% 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 its subsidiaries continue to be well capitalized.









                                      -21-<PAGE>

 Capital Ratios                     June 30, 1997     December 31, 1996
 --------------                     -------------     -----------------

 Total capital (to risk
  weighted assets)                      23.41%              23.00%      

 Tier 1 capital (to risk
  weighted assets)                      22.37%              21.89%      

 Tier 1 capital (to average
  assets, leverage ratio)               13.44%              12.96%      


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

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

     In  February  1997,  the  Financial  Accounting  Standards  Board   issued
Statement  of Financial  Accounting Standards  No. 128,  "Earnings  per Share".
Statement 128 establishes standards  for computing and presenting  earnings per
share  (EPS)  and  applies  to entities  with  publicly  held  common  stock or
potential  common stock.  Statement  128 simplifies the standards for computing
earnings  per share  previously  found in  APB Opinion  No.  15, "Earnings  per
Share",  and makes them comparable to international EPS standards.  It replaces
the presentation  of primary EPS  with a  presentation of basic  EPS.  It  also
requires dual presentation of basic and  diluted EPS on the face of  the income
statement  for 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.  Further  management does
not plan any future involvement in high risk derivative products.

     In  June 1997,  the  Financial Accounting  Standards  Board  (FASB) issued
Statement of  Financial Accounting Standards No.  130, "Reporting Comprehensive
Income"(Statement 130). 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" (see the Summary
for the definition of and  items that make up "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 applicable  to all  entities that provide a  full set of
financial statements consisting of  a statement of financial  position, results
of  operations  and cash  flows.    Enterprises that  have  no  items of  other
comprehensive income in  any period presented  or not-for-profit  organizations
required  to  follow  the  provisions of  FASB  Statement  No. 117,  "Financial
Statements of  Not-for-Profit Organizations",  are excluded  from the  scope of
this Statement.

     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:    08/14/97          /s/James G. Rakes            
          -------------       -----------------------------
                              James G. Rakes, President and
                              Chief Executive Officer





   Date:    08/14/97          /s/Joan C. Nelson               
          -------------       -----------------------------
                              Joan C. Nelson, Treasurer
                              (principal financial officer)

























                                      -25-<PAGE>