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, 1999                                                          0-15204


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


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


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

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

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


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

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


          Class                                   Outstanding at July 30, 1999
-------------------------------               ---------------------------------
Common Stock, $2.50 Par Value                             3,516,977





                        (This report contains 31 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, 1999
           and December 31, 1998                                         4-5

          Consolidated Statements of Income and
           Comprehensive Income, Three Months Ended
           June 30, 1999 and 1998                                        6-7

          Consolidated Statements of Income and
           Comprehensive Income, Six Months Ended
           June 30, 1999 and 1998                                        8-9

          Consolidated Statements of Changes in
           Stockholders' Equity, Six Months Ended
           June 30, 1999 and 1998                                        10

          Consolidated Statements of Cash Flows,
           Six Months Ended June 30, 1999 and 1998                      11-12


     Item 2 - Management's Discussion and Analysis of
          Financial Condition and Results of Operations                 13-27


     Item 3 - Quantitative and Qualitative Disclosures About
          Market Risk                                                   28-29

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

     Items 1 - 3 - Legal Proceedings; Changes in
          Securities; Defaults Upon Senior Securities                    30

     Item  4 - Submission of Matters to a Vote of
          Security Holders                                               30

     Item  5 - Other Information                                         30

     Item  6 - Exhibits and Reports on Form 8 - K                        30

Signatures                                                               31
----------




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







































                                      -3-<PAGE>

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

                                                 June 30,   December 31,
 ($000's, except share and per share data)         1999         1998
                                                 =========  ============
 Assets
 Cash and due from banks                         $ 12,232        14,421
 Interest-bearing deposits                            ---         7,027
 Federal funds sold                                     1         5,090
 Securities available for sale                    120,734       136,078
 Securities held to maturity (fair value
  $25,919 in 1999 and $31,151 in 1998)             25,790        30,676
 Mortgage loans held for sale                         305         2,180
 Loans:
    Real estate construction loans                 16,461        12,827
    Real estate mortgage loans                     51,982        48,724
    Commercial and industrial loans               136,698       110,509
    Loans to individuals                           70,176        69,493
                                                 --------       -------

             Total loans                          275,317       241,553

    Less unearned income and deferred fees         (2,047)       (2,296)
                                                 --------       -------
             Loans, net of unearned income and
              deferred fees                       273,270       239,257

    Less allowance for loan losses                 (2,884)       (2,679)
                                                 --------       -------
             Loans, net                           270,386       236,578
                                                 --------       -------
 Bank premises and equipment, net                   7,629         6,657
 Accrued interest receivable                        3,866         3,777
 Other real estate owned, net                         645           628

 Other assets                                       3,774         2,054
                                                 --------       -------
             Total assets                        $445,362       445,166
                                                 ========       =======
 Liabilities and Stockholders' Equity
 Noninterest-bearing demand deposits             $ 53,669        55,479
 Interest-bearing demand deposits                  86,900        84,319
 Savings deposits                                  47,229        46,387
 Time deposits                                    195,195       196,511
                                                 --------       -------

             Total deposits                       382,993       382,696
                                                 --------       -------
 Other borrowed funds                               8,598           214
 Accrued interest payable                             649           647
 Other liabilities                                  1,060           926
                                                 --------       -------
             Total liabilities                    393,300       384,483
                                                 --------       -------
 Common stock subject to ESOP put option            2,182         2,180
                                                 --------       -------



                                      -4-                     (Continued)<PAGE>


 Stockholders' equity:
    Preferred stock of no par value.
     Authorized 5,000,000 shares; none issued
     and outstanding                                  ---           ---
    Common stock of $2.50 par value. Authorized
     5,000,000 shares; issued and outstanding
     3,516,977 shares in 1999 and 3,792,833 in
     1998                                           8,792         9,482
    Retained earnings                              45,218        50,182
    Accumulated other comprehensive income         (1,948)        1,019
    Common stock subject to ESOP put option        (2,182)       (2,180)
                                                 --------       -------
             Total stockholders' equity            49,880        58,503

 Commitments and contingent liabilities
                                                 --------       -------
             Total liabilities and
              stockholders' equity               $445,362       445,166
                                                 ========       =======









































                                      -5-<PAGE>
                National Bankshares, Inc. and Subsidiaries
        Consolidated Statements of Income and Comprehensive Income
                Three Months Ended June 30, 1999 and 1998
                               (Unaudited)

                                                    June 30,   June 30,
 ($000's, except per share data)                      1999       1998
                                                   =========   =========
 Interest Income
 Interest and fees on loans                         $  5,840      5,443
 Interest on interest-bearing deposits                    54        163
 Interest on federal funds sold                           26        109
 Interest on securities - taxable                      1,729      1,765
 Interest on securities - nontaxable                     521        443
                                                    --------   --------
             Total interest income                     8,170      7,923
                                                    --------   --------
 Interest Expense
 Interest on time deposits of $100,000 or more           580        592
 Interest on other deposits                            2,810      2,863
 Interest on borrowed funds                                2          3
                                                    --------   --------
            Total interest expense                     3,392      3,458
                                                    --------   --------
            Net interest income                        4,778      4,465
 Provision for loan losses                               237         73
                                                    --------   --------
            Net interest income after provision
             for loan losses                           4,541      4,392
                                                    --------   --------
 Noninterest Income
 Service charges on deposit accounts                     347        308
 Other service charges and fees                           65         46
 Credit card fees                                        214        180
 Trust income                                            210        177
 Other income                                             16         43
 Realized securities gains, net                            4         72
                                                    --------   --------
             Total noninterest income                    856        826
                                                    --------   --------
 Noninterest Expense
 Salaries and employee benefits                        1,507      1,459
 Occupancy and furniture and fixtures                    270        245
 Data processing and ATM                                 216        210
 FDIC assessment                                           8          6
 Credit card processing                                  186        163
 Goodwill amortization                                    10         10
 Net costs of other real estate owned                      3        ---
 Other operating expense                                 746        757
                                                    --------   --------
             Total noninterest expense                 2,946      2,850
                                                    --------   --------
 Income before income tax expense                      2,451      2,368
 Income tax expense                                      651        666
                                                    --------   --------

             Net income                                1,800      1,702







                                      -6-                     (Continued)<PAGE>
 Other comprehensive income, net of taxes:
  Unrealized gains (losses) on securities
   available for sale                                 (1,067)       (10)
                                                    --------   --------

             Comprehensive Income                   $    733      1,692
                                                    ========   --------

             Net income per share                   $   0.50       0.45
                                                    ========   ========




















































                                      -7-<PAGE>
                National Bankshares, Inc. and Subsidiaries
        Consolidated Statements of Income and Comprehensive Income
                 Six Months Ended June 30, 1999 and 1998
                               (Unaudited)

                                                    June 30,   June 30,
 ($000's, except per share data)                      1999       1998
                                                   =========   =========
 Interest Income
 Interest and fees on loans                         $ 11,375     10,597
 Interest on interest-bearing deposits                    55        337
 Interest on federal funds sold                          107        178
 Interest on securities - taxable                      3,606      3,514
 Interest on securities - nontaxable                   1,116        868
                                                    --------   --------
             Total interest income                    16,259     15,494
                                                    --------   --------
 Interest Expense
 Interest on time deposits of $100,000 or more         1,246      1,188
 Interest on other deposits                            5,578      5,560
 Interest on borrowed funds                                4          6
                                                    --------   --------
            Total interest expense                     6,828      6,754
                                                    --------   --------
            Net interest income                        9,431      8,740

 Provision for loan losses                               469         94
                                                    --------   --------
            Net interest income after provision
             for loan losses                           8,962      8,646
                                                    --------   --------
 Noninterest Income
 Service charges on deposit accounts                     608        583
 Other service charges and fees                          113         99
 Credit card fees                                        377        318
 Trust income                                            441        353
 Other income                                             59         54
 Realized securities gains, net                           24         85
                                                    --------   --------
             Total noninterest income                  1,622      1,492
                                                    --------   --------
 Noninterest Expense
 Salaries and employee benefits                        3,066      2,858
 Occupancy and furniture and fixtures                    527        491
 Data processing and ATM                                 415        406
 FDIC assessment                                          24         15
 Credit card processing                                  342        291
 Goodwill amortization                                    19         17
 Net costs of other real estate owned                      6         26
 Other operating expense                               1,473      1,442
                                                    --------   --------
             Total noninterest expense                 5,872      5,546
                                                    --------   --------
 Income before income tax expense                      4,712      4,592
 Income tax expense                                    1,233      1,282
                                                    --------   --------

             Net income                                3,479      3,310







                                      -8-                     (Continued)<PAGE>
 Other comprehensive income, net of taxes:
  Unrealized gains (losses) on securities
   available for sale                                 (2,967)        77
                                                    --------   --------

             Comprehensive Income                   $    512      3,387
                                                    ========   --------

             Net income per share                   $   0.94       0.87
                                                    ========   ========




















































                                      -9-<PAGE>

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




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

     Balances, December 31,
      1997                    $9,482    46,191        194      (1,838)  54,029
     Net income                  ---     3,310        ---         ---    3,310
     Unrealized gains
      (losses) on securities
      available for sale,
      net of tax                 ---       ---         77         ---       77
     Dividend ($.36 per
      share)                     ---    (1,365)       ---         ---   (1,365)
     Change in common stock
      subject to ESOP put
      option                     ---       ---        ---        (357)    (357)
                              ------    ------      -----      ------   ------
     Balances, June 30, 1998  $9,482    48,136        271      (2,195)  55,694
                              ======    ======      =====      ======   ======

     Balances, December 31,
      1998                    $9,482    50,182      1,019      (2,180)  58,503
     Net income                  ---     3,479        ---         ---    3,479
     Unrealized gains
      (losses) on securities
      available for sale,
      net of tax (1)             ---       ---     (2,967)        ---   (2,967)
     Dividend ($.39 per
      share)                     ---    (1,372)       ---         ---   (1,372)
     Stock tender offer (2)     (690)   (7,071)       ---         ---   (7,761)
     Change in common stock
      subject to ESOP put
      option                     ---       ---        ---          (2)      (2)
                              ------    ------      -----      ------   ------
     Balances, June 30, 1999  $8,792    45,218     (1,948)     (2,182)  49,880
                              ======    ======      =====      ======   ======

     (1) Net unrealized holding loss for year $(4,448) plus reclassification
     adjustment of $(47) unrealized gain for quarter and less income tax
     benefit of $1,528.
     (2) Represents the repurchase of 275,856 shares at $28.00 per share and
     related expenses.


                                       -10-<PAGE>

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


                                                         June 30,   June 30,
    ($000's)                                               1999       1998
                                                         =========  =========
    Cash Flows from Operating Activities
    Net Income                                           $  3,479     3,310
    Adjustments to reconcile net income to net cash
      provided by operating activities:
         Provision for loan losses                            469        94
         Depreciation of bank premises and equipment          431       383
         Amortization of intangibles                           76        68
         Amortization of premiums and accretion of
          discounts, net                                      241        28
         Gains on sales and calls of securities
          available for sale, net                             (24)      ---
         Gains on calls of securities held to
          maturity, net                                        (2)      (85)
         Gains on other real estate owned                     ---       (19)
         (Increase) decrease in:
            Mortgage loans held for sale                    1,875      (459)
            Accrued interest receivable                       (89)     (177)
            Other assets                                     (268)     (477)
         Increase in:
            Accrued interest payable                            2        32
            Other liabilities                                 134       325
                                                          -------   -------
                   Net cash provided by operating
                    activities                              6,324     3,023
                                                          -------   -------
    Cash Flows from Investing Activities

    Net (increase) decrease in federal funds sold           5,089    (3,120)
    Net (increase) decrease in interest-bearing
     deposits                                               7,027    (6,180)
    Proceeds from calls and maturities of securities
     available for sale                                    21,376    14,936
    Proceeds from sales of securities available for
     sale                                                   1,218       ---
    Proceeds from calls and maturities of securities
     held to maturity                                       4,870    23,775
    Purchases of securities available for sale            (11,944)  (37,747)
    Purchases of loan participations                       (4,688)   (2,910)
    Collections of loan participations                      7,209     3,853
    Net increase in loans made to customers               (36,855)  (15,159)
    Proceeds from disposal of other real estate owned         ---       194
    Recoveries on loans charged off                            40       205
    Bank premises and equipment expenditures               (1,408)     (553)
    Proceeds from disposal of fixed assets                      5       ---
                                                          -------   -------
                  Net cash used in investing
                   activities                              (8,061)  (22,706)
                                                          -------   -------




                                       -11-                   (Continued)<PAGE>

    Cash Flows from Financing Activities

    Deposits assumed, net of premium paid                     ---     7,025
    Net increase (decrease) in time deposits               (1,316)    5,541
    Net increase in other deposits                          1,613     7,401
    Net increase (decrease) in other borrowed funds         8,384        (7)
    Dividend paid                                          (1,372)   (1,365)
    Repurchase of common stock                             (7,761)      ---
                                                          -------   -------
                  Net cash provided by (used in)
                   financing activities                      (452)   18,595
                                                          -------   -------
    Net decrease in cash and due from banks                (2,189)   (1,088)
    Cash and due from banks at beginning of period         14,421    12,435
                                                          -------   -------
    Cash and due from banks at end of period              $12,232    11,347
                                                          =======   =======
    Supplemental Disclosure of Cash Flow Information

    Cash paid for interest                                $ 6,826     6,722
                                                          =======   =======
    Cash paid for income taxes                            $ 1,410     1,233
                                                          =======   =======
    Loans charged to the allowance for loan losses        $   304       193
                                                          =======   =======
    Loans transferred to other real estate owned          $    17        40
                                                          =======   =======


































                                       -12-<PAGE>

                    National Bankshares, Inc. and Subsidiaries


Item 2.   Management's Discussion and Analysis of Financial Condition and
           Results of Operations

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

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

Results of Operations - for the six months ended June 30, 1999
----------------------------------------------------------------

     Net income  for the  six months  ended June 30,  1999 was  $3,479,000 which
represents an increase of $169,000  or 5.11% over the first six months  of 1998.
The  return on average assets for  the six months ended June  30, 1999 was 1.58%
and 1.63% as of June 30, 1998.  The return on average  equity was 11.84% for the
period ended June 30, 1999 and 11.75% as of June 30, 1998.

     Earnings per share for the period ending June 30, 1999 was $0.94 per share,
an increase of $0.07 per share over the same period in 1998.

The following table provides selected consolidated data.

                                       June 30,            December 31,

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

  Interest income                  $16,259   15,494      31,828      29,797
  Interest expense                   6,828    6,754      13,928      13,106
  Net interest income                9,431    8,740      17,900      16,691
  Provision for loan losses            469       94         624         435
  Noninterest income                 1,622    1,492       3,174       2,834
  Noninterest expense                5,872    5,546      11,061      10,031
  Income taxes                       1,233    1,282       2,591       2,499
  Net income                       $ 3,479    3,310       6,798       6,560
  Return on average assets            1.58%    1.63%       1.61%       1.66%
  Return on average equity (1)       11.84%   11.75%      11.66%      12.21%
  Basic net income per share       $   .94      .87        1.79        1.73
  Book value per share (1)         $ 14.80    15.26       16.00       14.73

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



                                      -13-<PAGE>

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

     Net interest  income at the end  of the first  six months of  1999 was
$9,431,000, an increase of $691,000 or 7.91% over the same period in 1998.

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

                                     June 30,               December 31,
                                 1999        1998        1998         1997
                               ---------  ---------  ------------ ------------
  Yield on earning assets         8.10%       8.35%        8.25%         8.24%
  Cost to fund earning assets     3.26%       3.52%        3.50%         3.50%
                               --------    -------      -------       -------
  Net interest margin             4.84%       4.83%        4.75%         4.74%
                               ========    =======      =======       =======

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


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

  Yield on earning assets        8.10%        8.35%        8.25%         8.24%
  Cost of interest-bearing
   liabilities                   4.18%        4.50%        4.48%         4.43%
                             --------      -------      -------       -------
  Net interest spread            3.92%        3.85%        3.77%         3.81%
                             ========      =======      =======       =======

     As can be  seen by the table shown  above, the yield on earning  assets for
the six months ended June 30, 1999 has declined by fifteen basis points from the
year-ended 1998.   The cost to fund earning assets declined by twenty-four basis
points.   These elements combined to  produce a nine basis  point improvement in
the net interest margin.

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

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

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


                                      -14-<PAGE>

mix are also  evaluated in determining  the adequacy of  the allowance for  loan
losses.  Loan  loss and other industry indications related  to asset quality are
presented in the following table.

                                            For the periods ended
                                      June 30,             December 31,
                                    1999     1998       1998         1997
($000's, except for % data)      ========= ========== ==========  ==========

Balance at beginning of period   $  2,679     2,438       2,438       2,575
Provision for loan losses             469        94         624         435
Loans charged off                    (304)     (193)       (638)       (679)
Recoveries                             40       205         255         107
                                 --------  --------   ---------   ---------
Balance at the end of period     $  2,884     2,544       2,679       2,438
                                 ========  ========   =========   =========
Ratio of allowance for loan
losses to end of period loans,
net of unearned income and
deferred fees                        1.06%     1.10%       1.12%       1.12%
                                 ========  ========   =========   =========
Ratio of net charge-offs
(recoveries) to average loans,
net of unearned income and
deferred fees(1)                      .21%    (.01)%        .17%        .23%
                                 ========  ========   =========   =========
Ratio of allowance for loan
losses to nonperforming
loans(2)                         1,802.50% 6,204.88%   9,567.86%   2,802.30%
                                 ========  ========   =========   =========
(1)  Net charge-offs are on an annualized basis.
(2)  The   Company  defines   nonperforming  loans   as  total   nonaccrual and
     restructured  loans.    Loans  90  days past  due  and  still accruing are
     excluded.

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

  Nonperforming Assets

   Nonaccrual loans                  $  160       42          28            87
   Restructured loans                   ---      ---         ---           ---
                                     ------   ------      ------        ------

       Total nonperforming loans        160       42          28            87

   Foreclosed property                  645      286         628           421
                                     ------   ------      ------        ------
       Total nonperforming assets    $  805      328         656           508
                                     ======   ======      ======        ======
   Ratio of nonperforming assets to
    loans, net of unearned income and
    deferred fees, plus other real
    estate owned                        .29%     .14%        .27%          .23%
                                     ======   ======      ======        ======


                                      -15-<PAGE>

  Accruing Loans Past Due 90 Days or More
  ---------------------------------------
   Past due 90 days or more and
    still accruing                   $2,484      962         550           672
                                     ======   ======      ======        ======

   Ratio of loans past due 90 days or
    more to loans, net of unearned
    income and deferred fees            .91%     .42%        .23%          .31%
                                     ======   ======      ======        ======
  Impaired Loans
  --------------

   Total impaired loans              $  265      572         373           177
                                     ======   ======      ======        ======
   Impaired loans with a
    valuation allowance                 145      284         145            53
   Valuation allowance                 (145)     (52)       (145)          (53)
                                     ------   ------      ------        ------
   Impaired loans net of allowance   $  ---      232         ---           ---
                                     ======   ======      ======        ======
   Impaired loans with no
    valuation allowance              $  120      288         228           124
                                     ======   ======      ======        ======
   Average recorded investment
    in impaired loans                $  302      279         387           458
                                     ======   ======      ======        ======
   Income recognized on impaired
    loans                            $    7       26          32            23
                                     ======   ======      ======        ======
   Amount of income recognized
    on a cash basis                  $  ---      ---         ---            12
                                     ======   ======      ======        ======

     As  can be seen by the  preceding table, the provision  for loan losses was
$469,000 for the period ending  June 30, 1999, up $375,000 over the  same period
the prior year.   The ratio  of the allowance  for loan losses  to loans net  of
unearned income  declined by four  basis points.   The net charge-offs  ratio at
period-end was .21%.

     It  should be noted that loans past due 90 days or more have increased when
compared to prior  period data.  As  mentioned in the Company's  1998 Form 10-K,
the Company has two additional credits totaling approximately $1.7 million which
are experiencing  collection problems.   These  loans are 90  days or  more past
due  at June  30, 1999.  Management believes, at present, that these credits can
be recovered  without loss.   At  June 30, 1999  both loans  were on  an accrual
basis.

     Overall, it  is expected  that provisions  for loan  loss  expense will  be
higher  in 1999.   Such expense will be  required by strong  loan growth and the
need to maintain an adequate  overall reserve.  Further additions could  be made
necessary  by unforeseen losses and/or a change in the circumstances surrounding
the two credits mentioned above.





                                      -16-<PAGE>

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

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

     Noninterest income  for the period ended  June 30, 1999 was  $1,622,000, an
increase of $130,000 or 8.71% over the same period in 1998.

     Service  charges on  deposit accounts  were $608,000 at  June 30,  1999, an
increase of $25,000 or 4.29% from  the same period in 1998.  This  was primarily
due to  an  increase in  the  volume of  return checks  and  overdraft fees  and
enhanced collection efforts.

     Other service charges increased by $14,000  when June 30, 1999 and 1998 are
compared.

     Credit card fees  increased by $59,000 or 18.55% when  the first six months
of 1999 and 1998 are compared.  Continued growth in volume was the primary cause
of this increase.

     Trust income increased by 24.93%  when compared to the first six  months of
1998.   Trust income is dependent  on market conditions as well  as the types of
accounts being  handled  at any  given  point in  time.   The  level  of  estate
business, for example, cannot be predicted with any degree of preciseness.

     Other  income, which is comprised of various miscellaneous types of income,
increased by $5,000 for the first six  months of 1999.  Included in other income
in 1999 was approximately $12,000 which  represented a recovery of principal for
a bond charged-off in prior year.

     Net  securities gains and losses  decreased $61,000 when  1999 and 1998 are
compared.  The  income in this category reflects gains  and losses on securities
called prior to maturity.

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

     Noninterest  expenses for the first six months  of 1999 were $5,872,000, an
increase of $326,000 or 5.88% over the first six months of 1998.

     Salaries and  fringe benefits were $3,066,000  at the end of  the first six
months of 1999.  This represents an increase of $208,000 or 7.28% over the first
six months of 1998.   A portion of this  increase was due to the  acquisition of
the Galax  branch.  This  facility was acquired  in the second  quarter of 1998.
Accordingly,  1998 data  contains  only  a  small  amount  of  salaries  expense
associated  with the  acquisition.   The remainder  of the  increase was  due to
normal merit increases and other personnel related costs.

     Occupancy expenses increased by  $36,000 or 7.33% when the first six months
of 1999  and 1998 are compared.   Acquisition of the  previously mentioned Galax
Branch contributed to this increase.

     Data processing expense increased by $9,000 or 2.22%.





                                      -17-<PAGE>

     Credit card expense increased by $51,000 or 17.53% in the  first six months
of  1999.   Increases  in  overall  volume also  contributed  to this  increase.
Included in  the category  was approximately  $4,000 in  expense related  to the
reissuance of debit cards.  The next scheduled reissuance will be in four years.

     Other  expenses at  June  30, 1999  were  $1,473,000, which  represents  an
increase of $31,000  or 2.15%  over the  same period  in 1998.   Other  expenses
include  various types  of costs.   Examples  of expense  accounts  included are
telephone,   franchise  taxes,   stationary   and   supplies,  market   expense,
correspondent charges and numerous others.  Some expenses  included in this area
represent  accrued expense for anticipated  expenditures, while others  are on a
cash or  pay as incurred basis.  Some categories are within management's ability
to control while others can only be controlled to a degree.

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

The following table sets forth selected consolidated balance sheet data.

                                    June 30,              December 31,
                                1999        1998        1998         1997
                              =========  =========  ============ ============
($000's)
Selected Period-End Data
------------------------

Loans, net                    $270,386    228,429     236,578        214,552
Total Securities               146,524    149,188     166,754        149,974
Total Assets                   445,362    425,480     445,166        402,907
Total Deposits                 382,993    365,068     382,696        344,867
Stockholders' Equity            49,880     55,694      58,503         54,029

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

Loans, net                    $250,981    220,437     225,613        204,540
Total securities               160,418    146,456     152,432        157,179
Interest-earning assets        421,317    386,664     398,340        374,478
Total assets                   444,256    408,837     420,988        395,932
Total deposits                 382,576    349,106     359,970        339,439
Interest-bearing liabilities   328,696    302,392     310,634        295,565
Stockholders' equity            57,093     54,821      58,282         53,712

     Total  average assets at  June 30, 1999  were $444,256,000,  an increase of
$35,419,000 or 8.66% from June 30, 1998.  A portion of this increase was due
to  the acquisition  of the  Galax branch in  the second  quarter of  1998.  The
Company  also  continues  to  experience satisfactory  growth  in  deposits from
nonacquisition related sources.



                                      -18-<PAGE>

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

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

                                     June 30,             December 31,
                                 1999       1998        1998        1997
                               ========= =========  ============ ============

Assets
------

Interest bearing-deposits          ---       3.74%       1.58%        2.41%
Federal funds sold                 ---       1.74%       1.14%        1.07%
Securities available for sale    27.11%     20.80%      30.57%       16.28%
Securities held to maturity       5.79%     14.26%       6.89%       20.95%
Mortgage loans held for sale       .07%       .20%        .49%         .10%
Real estate construction
 loans                            3.70%      2.73%       2.88%        2.11%
Real estate mortgage loans       11.67%     10.89%      10.95%       10.66%
Commercial and industrial
 loans                           30.69%     24.91%      24.82%       25.16%
Loans to individuals             15.76%     16.35%      15.61%       16.54%

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

Noninterest-bearing demand
 deposits                        12.05%     11.84%      12.46%       11.19%
Interest-bearing demand
 deposits                        19.51%     19.11%      18.94%       19.33%
Savings deposits                 10.60%     11.26%      10.42%       11.61%
Time deposit                     43.83%     43.59%      44.14%       43.47%
Other borrowed funds              1.93%       .11%        .05%         .12%


     At present the Company is  relying on short-term borrowings for  liquidity.
It is  anticipated  that this  condition  will  be resolved  through  securities
portfolio maturities and/or calls.  While the procurement of additional deposits
remains an option, increased interest  expense would likely result, as  interest
rates would have to increase to attract new deposits.





                                      -19-<PAGE>

     As shown by the  above table, management has shifted  a substantial portion
of its investment portfolio to  the available for sale  category.  A portion  of
this  shift  was  accomplished through  calls,  maturities  of  bonds and  their
subsequent reinvestment.   In the fourth  quarter of  1998, the Company  adopted
Statement of  Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments  and hedging Activities".  The statement allowed, upon adoption, the
transfer of securities from the held to maturity classification to the available
for sale without calling into question management's intent to hold its remaining
securities  until maturity.    The Company  used  this opportunity  to  transfer
approximately $20,516,000 in securities to held for sale category.

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

Liquidity
---------

     Liquidity  is the  ability  to  provide  sufficient  cash  levels  to  meet
financial commitments and to fund loan demand and deposit withdrawals.  Net cash
provided by operating activities  was $6,324,000 for the  six months ended  June
30,  1999.   Net  cash used  in  investing activities  was  $8,061,000 with  the
majority of  that cash  invested in  securities  and loans.   Net  cash used  in
financing  activities was $452,000.  Net cash decreased $2,189,000 from December
31, 1998.

     During the first half of 1999 the Company repurchased 275,856 of its common
shares at $28.00 per share.  Cash used for the purchase and related expenses was
$7,761,000.

     The Company actively  manages its liquidity position  through its investing
activities.   In addition, securities with a remaining maturity of less than one
year totaled $28,573,000.   Liquidity is also managed through  the management of
deposit  liabilities, in particular, volatile  funds such as  time deposits over
$100,000.  The  amount of  such deposits  is largely  dependent on  the rate  of
interest  offered.  The Company  had approximately $35,758,000  in such deposits
due  within twelve  months.   Other types  of deposits such  as interest-bearing
demand, savings  and time deposits less than $100,000 are less volatile and less
rate dependent historically.

     Short-term  liquidity  needs  can  also  be  satisfied  by  way  of  credit
facilities  established with correspondent banks, the Federal Home Loan Bank and
Federal Reserve.  Longer  term borrowings, if necessary, can be obtained through
the Federal Home Loan Bank.

     NBB is  in process of constructing a  new building which is  expected to be
completed  in the third quarter.   This facility  will provide additional office
space  to replace  existing leased  properties and  also add a  branch facility.
This  project  is not  expected  to  have a  material  impact  on the  Company's
liquidity.

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





                                      -20-<PAGE>

     Management is not aware of any other trend, commitment or  events that will
result  in or that  are reasonably likely  to result in a  decrease in liquidity
that  would  be adverse  and to  a degree  that  operations would  be materially
impaired.

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

     Total stockholders' equity decreased $8,623,000 or 14.74% from December 31,
1998.   During  the first  six months  of 1999,  retained earnings  decreased by
$4,964,000.  Retained earnings experienced this net decrease due to  the payment
of a  dividend ($1,372,000), the  repurchase of 275,856  shares of common  stock
($7,071,000) offset by earnings of $3,479,000.  Accumulated comprehensive income
decreased stockholders' equity by $2,967,000.  This category is comprised solely
of changes in  the net  unrealized gains  (losses) on  securities available  for
sale.  Common stock subject to put option increased by $2,000.  The common stock
subject to put option  is affected by the current market  price of the Company's
common stock as well as the number of shares outstanding.

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

                                       June 30,             December 31,
                                   1999       1998       1998         1997
                                 ========= =========  ==========  ============
  Consolidated Capital Ratios
  ---------------------------
   Total capital (to risk
    weighted assets)              18.7%         22.6%     22.4%       23.3%

   Tier 1 Capital (to risk
    weighted assets)              17.8%         21.6%     21.5%       22.3%

   Tier 1 capital (to average
    assets, leverage ratio)       11.9%         13.6%     13.4%       13.7%


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

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

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

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










                                      -21-<PAGE>


                                                June 30, 1999
                                               --------------
      (000's, except for % data)           NBB                 BTC
                                           ---                 ---
      Assets                             $269,957             172,946
      Deposits                            237,901             145,130
      Shareholders Equity                  25,670              23,918
      Net Income                            2,351               1,099
      Return on Average Assets               1.78%               1.26%
      Return on Average Equity              15.96%               8.20%
      Tier 1 Capital Rates                  12.90%              25.10%
      Total Risk Based Capital
       Rates                                13.80%              26.00%
      Tier 1 Leverage Ratio                  9.50%              14.20%

Year 2000
---------

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

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

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

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






                                      -22-<PAGE>

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

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

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

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

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

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

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





                                      -23-<PAGE>

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

Results of Operations for the Three Months Ended June 30, 1999
--------------------------------------------------------------

     Net Income  for the second quarter of  1999 was $1,800,000 which represents
an increase of $98,000 or 5.76% over the second quarter of 1998.

     The return on  average assets for the quarter-ended June  30, 1999 and June
30, 1998 was 1.61% and  1.64%, respectively.  The  return on average equity  for
the second quarter of 1999 was 12.62% and 11.94% for the second quarter of 1998.

     Earnings per share for the second quarter of 1999 was $0.50  an increase of
$0.05 over the second quarter in 1998.

     The following table sets forth selected quarterly consolidated data.

                                           For the Quarter-Ended
                                           ---------------------
  ($000's, except per
   share of percent and per    June 30,    June 30,                 Percent %
   share data)                   1999        1998    $ Difference  Difference
                               --------    --------  ------------  ----------

  Interest income               $ 8,170     7,923           247       3.12%
  Interest expense                3,392     3,458           (66)     (1.91%)
  Net interest income             4,778     4,465           313        7.01%
  Provision for loan loss           237        73           164      224.66%
  Noninterest income                856       826            30        3.63%
  Noninterest expense             2,946     2,850            96        3.37%
  Income taxes                      651       666            15        2.25%
  Net income                      1,800     1,702            98        5.76%
  Return on average assets      $  1.61      1.64%          ---         ---
  Return on average equity        12.62%    11.94%          ---         ---
  Basic net income per share     $  .50       .45           ---         ---


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

     Net  interest income  for  the second  quarter  of 1999  was $4,778,000  an
increase of $313,000  over the second quarter  of 1998.  The principal  cause of
this net increase was loan volume.

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

     The  provision for loan losses for the second quarter was $237,000 compared
to $73,000  in 1999.   As previously  mentioned, it  is expected that  bad debts
expense will continue to increase in 1999 due to loan growth and losses.




                                      -24-<PAGE>

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

     Noninterest income for the second quarter of 1999 was $856,000, an increase
of  $30,000 or  3.63% over the  same period  last year.   While  most categories
experienced increases, securities gains and losses declined substantially.  Such
gains and losses are dependent primarily on securities with call  features.  The
security of these calls are dependent on the rate environment at the time.

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

     Noninterest expense for the quarter ended June 30, 1999 were $2,946,000, an
increase of $96,000 or 3.37% over the same period in 1998.  The largest increase
was in the salaries and employee benefits area.

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

     The following table sets forth selected consolidated quarterly averages.

                                             Quarterly Averages for the
                                                 Second Quarter of
                                             --------------------------

       (In 000's)                             1999                1998
                                              ----                ----

       Loans, net                           $260,743            225,666
       Total securities                      153,227            148,596
       Total assets                          447,683            416,415
       Total deposits                        385,610            356,440
       Stockholders' equity                   57,361             57,107


     Total average  quarterly assets  for the three  months ended June  30, 1999
were $447,683,000 an increase of $31,268,000 or 7.51% over the second quarter of
1998.   Total deposits increased $29,170,000  or 8.18% when the  two periods are
compared.  As can  be seen by the table above the majority  of the growth was in
lending activities.  The securities portfolio increased slightly.





















                                      -25-<PAGE>

Banking Terms


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


                                      -26-<PAGE>

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

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


                                      -27-<PAGE>

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Derivatives

     The Company  is not a  party to derivative financial  instruments with off-
balance sheet risks such as  futures, forwards, swaps and options.   The Company
is  a party  to  financial  instruments with  off-balance  sheet risks  such  as
commitments   to  extend  credit,  standby  letters   of  credit,  and  recourse
obligations in the normal course  of business to meet the financing needs of its
customers.   Management  does not  plan  any  future involvement  in  high  risk
derivative products.  The Company has investments in mortgage-backed securities,
collateralized  mortgage  obligations,  structured   notes  and  other   similar
instruments which are included  in securities available for sale  and securities
held  to maturity.    The  fair value  of  these investments  at  June 30,  1999
approximated $6,592,000.

Interest Rate Sensitivity

     The Company's securities and loans and its deposits are subject to interest
rate risk.   The  Company's profitability  in the near  term may  temporarily be
affected, either positively by a falling interest rate scenario or negatively by
a period of rising rates.  The table below sets forth, as  of June 30, 1999, the
distribution of repricing opportunities of the Company's interest-earning assets
and  interest-bearing  liabilities, the  interest  rate  sensitivity gap  (i.e.,
interest rate sensitive  assets less interest  rate sensitive liabilities),  and
the cumulative  interest rate sensitivity  gap.  The  table sets forth  the time
periods  during which interest-earning  assets and  interest-bearing liabilities
will mature or may reprice in accordance with their contracted terms.

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

   (In $000's, except
    for ratios)          <3 Months   6 Months  12 Months 1-5 Years  >5 Years
                         =========   ========  ========= =========  ========
   Interest-earning
    assets              $   62,525     23,710    41,558    150,939   141,368
   Interest-bearing
    liabilities            189,224     33,109    74,394     41,195       ---
                         ---------   --------  --------   --------  --------
   Gap                    (126,699)    (9,399)  (32,836)   109,744   141,368
                         =========   ========  ========   ========  ========
   Cumulative gap        $(126,699)  (136,098) (168,934)   (59,190)   82,178
                         =========   ========  ========   ========  ========
   Cumulative gap ratio        .33        .39       .43        .82      1.24
                         =========   ========  ========   ========  ========


                                      -28-<PAGE>


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

        ($000's, except for percent data)

                                        Return on          Return on
         Rate Shift    Net Income     Average Equity     Average Assets
         ==========    ==========     ==============     ==============

              300           $5,067              8.81%              1.06%
              200            5,939             10.48%              1.27%
              100            6,805             12.10%              1.48%
           (-)100            8,986             16.07%              2.02%
           (-)200            9,842             17.52%              2.23%
           (-)300            9,963             17.73%              2.25%


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

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






















                                      -29-<PAGE>

                    National Bankshares, Inc. and Subsidiaries
                                   Part II
                              Other Information




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

              None for the three months ended
              June 30, 1999.

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

              None

Item 5.       Other Information

              None

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibit 27 - Financial Data Schedule

              (b) Reports on Form 8-K  filed during the three months  ended June
                  30, 1999:

                  --     Tender offer results as of May 3, 1999

                  --     Tender offer results as of May 24, 1999

                  The aforementioned Form 8-K's are incorporated by reference.




























                                      -30-<PAGE>

                  National Bankshares, Inc. and Subsidiaries

                                 Signatures





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



                            National Bankshares, Inc.
                                  (Registrant)








   Date:  August 3, 1999      /s/James G. Rakes
          --------------      -------------------------------------
                              James G. Rakes, Chairman
                              President and Chief Executive Officer





   Date:  August 2, 1999      /s/J. Robert Buchanan
          --------------      -------------------------------------
                              J. Robert Buchanan, Treasurer
                              (principal financial officer)
























                                      -31-<PAGE>