UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549
                                    Form 10-K

              Annual Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

For the fiscal year ended                                 Commission file number
   December 31, 1998                                            O-15204         

                        National Bankshares, Incorporated
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

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

      100 South Main Street
      Blacksburg, Virginia                                          24060       
----------------------------------------                    --------------------
(Address of principal executive offices)                         Zip Code       

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

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, Par Value $2.50 per Share
--------------------------------------------------------------------------------
                                (Title of Class)

Indicate by  a 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 by check mark if  disclosure of delinquent filers pursuant to  Item 405
of Regulation S-K  is not contained  herein, and will  not be contained, to  the
best of  Registrant's knowledge, in  definitive proxy or  information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.      X   
             -------

The  aggregate  market  value  of  voting stock  held  by  nonaffiliates  of the
Registrant as of  February 8, 1999 was $81,628,092.   The aggregate market value
was computed based on  a price determined from transactions known  to management
of  the Registrant  since its  stock is  not extensively  traded, listed  on any
exchange, or  quoted by  NASDAQ.  (In  determining this  amount, the  registrant
assumes that all of its  Directors and principal Officers are affiliates.   Such
assumption shall not be deemed conclusive for any other purposes.)<PAGE>

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

           Class                                Outstanding at February 8, 1999 
------------------------------                 ---------------------------------
Common Stock, $2.50 Par Value                              3,792,833            



                       DOCUMENTS INCORPORATED BY REFERENCE

Selected information from the Registrants' Annual Report to Stockholders for the
year ended December 31, 1998,  is incorporated by reference into Parts I  and II
of this report.

Selected  information from  the  Registrant's  Proxy  Statement for  the  Annual
Meeting  to be held  April 13, 1999  and filed with the  Securities and Exchange
Commission  pursuant to Regulation 14A,  is incorporated by  reference into Part
III of this report.




                        (This report contains 42 pages.)
                                              --
                   (The Index of Exhibits are on pages 41-42.)<PAGE>

                        National Bankshares, Incorporated

                       Annual Report For 1998 on Form 10-K


                                Table of Contents



                                                              Page
                                                              ----

            Part I

            Item 1.  Business                                 3-30
            Item 2.  Properties                                30
            Item 3.  Legal Proceedings                         30
            Item 4.  Submission of Matters to a Vote of
                      Security Holders                         30
                     Executive Officers of the Registrant      31
            Part II

            Item 5.  Market for Registrant's Common
                      Equity and Related Stockholder 
                      Matters                                  32
            Item 6.  Selected Financial Data                   32
            Item 7.  Management's Discussion and Analysis
                      of Financial Condition and Results
                      of Operations                            32
            Item 7A. Quantitative and Qualitative
                      Disclosures About Market Risk           32-35
            Item 8.  Financial Statements and 
                      Supplementary Data                       36
            Item 9.  Changes in and Disagreements with
                      Accountants on Accounting and
                      Financial Disclosure                     36

            Part III

            Item 10. Directors and Executive Officers of
                       the Registrant                          36
            Item 11. Executive Compensation                    36
            Item 12. Security Ownership of Certain
                       Beneficial Owners and Management        36
            Item 13. Certain Relationships and Related
                       Transactions                            37
            Part IV

            Item 14. Exhibits, Financial Statement 
                       Schedules, and Reports on Form 8-K     37-39










                                       -2-<PAGE>

                                     Part I
                                     ------


Item 1.  Business.
-----------------

History and Business

   National Bankshares, Inc.  (Bankshares) is a  bank holding company  organized
under the laws of Virginia in 1986 and registered under the Bank Holding Company
Act (BHCA).  Except for a separate investment portfolio, Bankshares conducts all
of its  business  operations  through its  two  wholly-owned  subsidiaries,  The
National  Bank  of  Blacksburg   (NBB)  and  Bank  of  Tazewell   County  (BTC),
collectively referred to as "the Company".

   On June 1, 1996, Bankshares issued 1,888,209 shares of  its common stock in a
one-for-one  exchange for all the  outstanding common stock  of Bank of Tazewell
County, Tazewell, Virginia.  This business combination has been accounted for as
a pooling-of-interests  and, accordingly, the  consolidated financial statements
for  the periods  prior to  the combination  have been  restated to  include the
accounts and results of  operations of Bank of  Tazewell County.  There  were no
adjustments  of a  material  amount resulting  from  Bank of  Tazewell  County's
adoption of Bankshares' accounting policies.

   In May 1996,  Bankshares declared a stock split of  .11129 per share effected
in the form of a stock dividend  to the holders of Bankshares common stock  just
prior to the  merger effective date  to facilitate the one-for-one  common stock
exchange ratio.   All stockholders'  equity accounts, share  and per share  data
have been adjusted retroactively to reflect the stock split.

The National Bank of Blacksburg

   The  National Bank  of Blacksburg  was  originally chartered  as the  Bank of
Blacksburg in 1891.   Its state charter was  converted to a national  charter in
1922 and it became The National Bank of Blacksburg.  NBB operates a full-service
banking  business from its headquarters  in Blacksburg, Virginia,  and its eight
area branch offices.  NBB offers general retail  and commercial banking services
to individuals, businesses, local government units and institutional  customers.
These products and services  include accepting deposits in the  form of checking
accounts,  money  market  deposit  accounts,  interest-bearing  demand   deposit
accounts,  savings accounts and  time deposits; making  real estate, commercial,
revolving,  consumer  and  agricultural  loans;  offering  letters  of   credit;
providing other consumer financial  services, such as automatic funds  transfer,
collections, night  depository, safe  deposit,  travelers checks,  savings  bond
sales and utility payment  services; and providing other  miscellaneous services
normally  offered  by  commercial banks.    NBB  also conducts  a  general trust
business  in Blacksburg  near  its headquarters  location.   Through  its  trust
operation, NBB offers a variety of personal and corporate trust services.

   NBB  makes  loans  in  all  major  loan   categories,  including  commercial,
commercial and residential real estate, construction and consumer loans.

Bank of Tazewell County

   The  antecedents of BTC  are in  a charter issued  on September 28,  1889 for
Clinch  Valley Bank.   On  December 22,  1893,  a second  charter was  issued in
substantially  the same form for Bank of Clinch Valley.  In 1929, Bank of Clinch


                                       -3-<PAGE>

Valley merged with Farmers Bank under the charter of the former, and the name of
the new  institution became  Farmers Bank  of Clinch Valley.   Bank  of Tazewell
County resulted from the 1964 merger of Bank of Graham, Bluefield, Virginia with
Farmers  Bank of  Clinch Valley.   BTC  provides general  retail and  commercial
banking services to individuals,  businesses and local government units.   These
services include commercial, real  estate and consumer loans.   Deposit accounts
offered  include  demand  deposit   accounts,  interest-bearing  demand  deposit
accounts, money  market deposit accounts,  savings accounts and  certificates of
deposit.   Other services include  automatic funds transfer,  collections, night
depository,  safe  deposit, travelers  checks,  savings bond  sales  and utility
payment services; and providing other miscellaneous service normally  offered by
commercial banks.  BTC also conducts a general trust business.

Commercial Loans

   NBB and  BTC make  both  secured and  unsecured loans  to  businesses and  to
individuals for business purposes.  Loan requests are granted based upon several
factors including credit history,  past and present relationships with  the bank
and marketability of collateral.   Unsecured commercial loans must  be supported
by a satisfactory balance sheet and income statement.  Business loans  made on a
secured basis may  be secured by  a security  interest in marketable  equipment,
accounts receivable,  business  equipment  and/or  general  intangibles  of  the
business.  In addition, or in the alternative, the loan may be secured by a deed
of trust lien on business real estate.

   The risks associated with commercial loans are related to the strength of the
individual business,  the value of loan collateral and the general health of the
economy.

Residential Real Estate Loans

   Loans  secured by  residential  real  estate  are  originated  by  both  bank
subsidiaries.  NBB sells a substantial percentage of the residential real estate
loans  it originates  in the  secondary  market on  a servicing  released basis.
There are occasions  when a  borrower or the  real estate do  not qualify  under
secondary market criteria, but  the loan request represents a  reasonable credit
risk.   Also, an  otherwise  qualified borrower  may choose  not  to have  their
mortgage  loan sold.   On  these  occasions, if  the loan  meets NBB's  internal
underwriting criteria, the  loan will be  closed and placed in  NBB's portfolio.
Some loans originated  by BTC are held  in the bank's loan  portfolio and others
are sold in the secondary market.     In their secondary market operations,  NBB
and BTC  participates in insured  loan programs  sponsored by the  Department of
Housing and  Urban Development,  the  Veterans Administration  and the  Virginia
Housing Development Authority.

   Residential  real  estate  loans carry  risk  associated  with the  continued
credit-worthiness of the borrower and changes in the value of the collateral.

Construction Loans

   NBB makes loans for the purpose of financing the construction of business and
residential  structures  to  financially   responsibly  business  entities   and
individuals.  These loans are subject  to the same credit criteria as commercial
and residential real estate loans.  Although  BTC offers construction loans, its
involvement in this area of lending is more limited than NBB's due to the nature
of its market area.




                                       -4-<PAGE>

   In addition to the risks associated with all real estate loans,  construction
loans  bear  the risks  that  the  project will  not  be  finished according  to
schedule, the project will  not be finished according to budget and the value of
the collateral may at any point in time be less than the principal amount of the
loan.   Construction loans also bear  the risk that the  general contractor, who
may or may not be the bank's loan customer, is unable to finish the construction
project  as planned  because of  financial pressures  unrelated to  the project.
Loans to customers  that are made as  permanent financing of  construction loans
may  likewise under  certain  circumstances be  affected  by external  financial
pressures.

Consumer Loans

   NBB and BTC  routinely make consumer loans, both secured  and unsecured.  The
credit history and character of  individual borrowers is evaluated as a  part of
the credit decision.  Loans used to purchase vehicles or other specific personal
property and loans  associated with real estate are usually  secured with a lien
on the  subject vehicle  or property.   NBB also  originates a  small number  of
student loans that are sold to the Student Loan Marketing Association.

   Negative  changes  in a  customer's financial  circumstances  due to  a large
number  of  factors, such  as  illness  or loss  of  employment,  can place  the
repayment of a consumer loan at  risk.  In addition, deterioration in collateral
value can add risk to consumer loans.

Sales and Purchases of Loans

   NBB and BTC will  occasionally buy or sell all or a portion of a loan.  These
purchases and sales  are in addition to the secondary  market mortgage loans and
student loans regularly sold by NBB.  Because the demand for loans, particularly
for commercial loans, is greater in NBB's market area than in BTC's market area,
NBB regularly sells loans and participations in loans to BTC.  

   Both banks will consider selling a loan or a participation in a loan, if: (i)
the full  amount of the  loan will  exceed the bank's  legal lending limit  to a
single  borrower;  (ii) the  full  amount  of the  loan,  when  combined with  a
borrower's previously outstanding  loans, will exceed  the bank's legal  lending
limit to  a single borrower;  (iii) the Board  of Directors or an  internal Loan
Committee believes that  a particular borrower  has a sufficient  level of  debt
with the  bank; (iv)  the borrower requests  the sale; (v)  the loan  to deposit
ratio is at or above the optimal level as determined by bank  management; and/or
(vi) the loan may  create too great a  concentration of loans in one  particular
location or in one particular type of loan.

   The banks will consider purchasing a loan, or a participation in a loan, from
another financial institution (including from another subsidiary of the Company)
if the  loan meets all  applicable credit quality  standards and (i)  the bank's
loan to deposit ratio is  at a level where additional loans  would be desirable;
and/or (ii) a common customer requests the purchase.

   The following table sets forth, for the three fiscal years ended December 31,
1998, 1997  and 1996  the percentage of  total operating revenue  contributed by
each class of similar services which  contributed 15% or more of total operating
revenues of the Company during such periods.






                                       -5-<PAGE>


                                                            Percentage of
      Period             Class of Service                   Total Revenues
      ------             ----------------                   --------------
      December 31, 1998  Interest and Fees on Loans             61.97%
                         Interest on Investments                25.99%
      December 31, 1997  Interest and Fees on Loans             59.92%
                         Interest on Investments                29.31%
      December 31, 1996  Interest and Fees on Loans             54.98%
                         Interest on Investments                34.61%


Market Area

The National Bank of Blacksburg Market Area 

   NBB's  primary market  area consists  of the  northern portion  of Montgomery
County, all of Giles County, the City  of Galax and adjacent portions of Carroll
and Grayson  Counties, Virginia.  This area includes the towns of Blacksburg and
Christiansburg in Montgomery  County and the towns  of Pearisburg, Pembroke  and
Rich Creek, in  Giles County.   The  local economy  is diverse  and is  oriented
toward   higher  education,   retail  and   service,  light   manufacturing  and
agriculture.    For the  years  1998, 1997  and  1996 the  unemployment  rate in
Montgomery County was  1.9%, 2.6% and 3.3%, respectively, and  the rate in Giles
County during those years  was 5.8% in 1998, 6.7% in 1997 and 8.4% in 1996.  The
City of Galax had an unemployment rate of 3.9% in 1998, 2.6% in 1997 and 4.7% in
1996.

   Montgomery County's largest  employer is Virginia  Polytechnic Institute  and
State  University  (VPI  &  SU)  located  in  Blacksburg.    VPI  &  SU  is  the
Commonwealth's  land grant college and also  its largest university.  Employment
at  VPI &  SU has  remained stable  over the  past three  years, and  it  is not
expected to change materially in the  next few years.  A second state  supported
university, Radford University,  is located in the western edge of NBB's service
area.  It too has provided stable employment opportunities in the region.

   Giles  County's primary employer is the  Celanese Corp. plant, a manufacturer
of  the material  from  which cigarette  filters are  made.   In  1995 and  1996
employment at  that plant was stable,  however, in late  1997 temporary employee
furloughs were announced,  and a  small number of  these temporary layoffs  have
become permanent.

   The  City  of  Galax is  located  in the  Virginia-North  Carolina furniture-
manufacturing region.   Three  furniture  companies, Vaughan  Bassett  Furniture
Company, Vaughan  Furniture Company,  Inc. and  Webb Furniture  Company together
employ the largest  percentage of the area's  work force.  The Galax  economy is
stable.

   Several  other small  manufacturing concerns  are located  in Montgomery  and
Giles Counties and  in the City  of Galax.   These concerns manufacture  diverse
products and  are not dependent on  one sector of the economy.   Agriculture and
tourism are also important to the region,  especially in Giles County and in the
area near Galax.







                                       -6-<PAGE>

   Since  1988, Montgomery County has  developed into a  regional retail center,
with the construction of two large shopping areas.  Two area hospitals,  each of
which are  affiliated with different large health care systems, have in the past
several years constructed  additional facilities and  have attracted  additional
health care providers to Montgomery County,  making it a center for basic health
care services.  VPI &  SU's Corporate Research Center has brought  several small
high tech companies to Blacksburg, and further expansion is planned.

   Montgomery County, with an approximate  population of 77,000, has experienced
moderate population growth and this trend is predicted to continue.  Neighboring
Giles County  is more rural,  with a total  population of  approximately 16,500.
The population of Giles County is expected  to slowly decline over the next  few
years.  It  is not anticipated  that this decline  will materially impact  NBB's
business in Giles County.   The City of Galax has  a population of approximately
7,000, and the neighboring, mostly rural, counties of Carroll and Grayson have a
total  of approximately 50,000  in habitants.  The  area's population is stable,
and no dramatic changes are predicted.

   NBB's primary  market area offers the  advantages of a good  quality of life,
scenic  beauty, moderate  climate  and the  cultural  attractions of  two  major
universities.  The region  has marketed itself as a retirement  destination, and
it  has had  some  recent success  attracting  retirees, particularly  from  the
Northeast and urban Northern Virginia.  These marketing efforts are expected  to
continue.

Bank of Tazewell County Market Area

   Most of BTC's business  originates from Tazewell County, Virginia  and Mercer
County, West  Virginia.   This includes  the  towns of  Tazewell and  Bluefield,
Virginia and Bluefield,  West Virginia.  BTC's  primary market area  has largely
depended  on the coal  mining industry  and farming for  its economic  base.  In
recent years, coal companies have mechanized  and this has reduced the number of
individuals required  for the production of coal.   There are still  a number of
support  industries  for  the coal  mining  business  that  continue to  provide
employment  in the  area.    Additionally,  several  new  businesses  have  been
established in the  area, and Bluefield, West Virginia has begun  to emerge as a
regional  medical center.  Unemployment  has stabilized, and  real estate values
also remain stable and comparable to other areas in southwest Virginia.

   For  1998, 1997 and 1996 the unemployment  rate for Tazewell County was 7.0%,
9.5% and 9.5%, respectively.  In  the same years, Mercer County, West Virginia's
unemployment rate was 4.2%, 5.3% and 5.2%, respectively.

Competition

   The  banking and  financial service  business in  Virginia generally,  and in
NBB's  and  BTC's  market  areas  specifically,  is  highly  competitive.    The
increasingly competitive  environment  is a  result  of changes  in  regulation,
changes in technology and product delivery systems and new competition from non-
traditional financial  services provides the accelerating  pace of consolidation
among  financial service providers.  The Company's bank subsidiaries compete for
loans and deposits with  other commercial banks, savings and  loan associations,
securities and  brokerage companies,  mortgage  companies, money  market  funds,
credit unions and  other nonbank  financial service  providers.   Many of  these
competitors are much  larger in  total assets and  capitalization, have  greater
access to capital  markets and offer a broader array  of financial services than
NBB  and BTC.  In order to compete with these other financial service providers,
NBB  and   BTC  rely   upon   service-based  business   philosophies,   personal


                                       -7-<PAGE>

relationships with  customers, specialized services tailored  to meet customers'
needs  and the  convenience of  office locations.   In  addition, the  banks are
generally  competitive with other  financial institutions in  their market areas
with respect to interest rates paid  on deposit accounts, interest rates charged
on loans and other service charges on loans and deposit accounts.

Registrant's Organization and Employment

   Bankshares,  NBB and BTC are  organized in a  holding company/subsidiary bank
structure.    Bankshares has  no employees,  except  for officers,  and conducts
substantially  all of its operations through its subsidiaries.  All compensation
paid to  officers  and  employees  is paid  by  NBB,  except for  fees  paid  by
Bankshares  to President  and Chief  Executive Officer  James  G. Rakes  for his
service as a director of the Company.  

   At December 31, 1998, NBB employed 115 full time equivalent  employees at its
main office,  operations center and  branch offices.   BTC at December  31, 1998
employed 70 in its various offices and operational areas.

Certain Regulatory Considerations

   Bankshares, NBB and BTC are subject to various state and federal banking laws
and  regulations  which impose  specific  requirements  or restrictions  on  and
provide for general regulatory  oversight with respect to virtually  all aspects
of operations.   As a result  of the substantial regulatory  burdens on banking,
financial  institutions, including  Bankshares, NBB  and BTC,  are disadvantaged
relative to other competitors who  are not as highly regulated, and  their costs
of doing  business are much  higher.   The following is  a brief summary  of the
material  provisions of  certain  statutes, rules  and regulations  which affect
Bankshares,  NBB  and/or BTC.   This  summary is  qualified  in its  entirety by
reference  to the  particular statutory  and regulatory  provisions  referred to
below and  is not intended  to be an exhaustive  description of the  statutes or
regulations which are  applicable to  the businesses of  Bankshares, NBB  and/or
BTC.  Any change in applicable  laws or regulations may have a material  adverse
effect on the business and prospects of Bankshares, NBB and/or BTC.

National Bankshares, Inc.

   Bankshares  is a  bank holding  company within  the meaning  of the  BHCA and
Chapter  13 of the Virginia Banking Act,  as amended (the Virginia Banking Act).
The activities of Bankshares also are governed by the Glass-Steagall Act of 1933
(the Glass-Steagall Act).

   The  Bank Holding  Company Act.    The BHCA  is administered  by the  Federal
Reserve Board, and Bankshares is required to file with the Federal Reserve Board
an annual  report and any additional  information the Federal  Reserve Board may
require under the BHCA.  The Federal Reserve Board also is authorized to examine
Bankshares and its  subsidiaries.  The BHCA requires every  bank holding company
to obtain the approval of the Federal Reserve Board  before (i) it or any of its
subsidiaries (other than  a bank) acquires  substantially all the assets  of any
bank;  (ii) it acquires ownership or control of any voting shares of any bank if
after the acquisition it would own or control, directly or indirectly, more than
5% of the voting shares of the bank; or (iii) it merges or consolidates with any
other bank holding company.






                                       -8-<PAGE>

   The BHCA  and  the Change  in  Bank Control  Act,  together with  regulations
promulgated  by  the  Federal Reserve  Board,  require  that,  depending on  the
particular circumstances, either Federal Reserve Board approval must be obtained
or notice must  be furnished to  the Federal Reserve  Board and not  disapproved
prior to  any person or company  acquiring "control" of a  bank holding company,
such  as Bankshares,  subject to  certain exemptions.   Control  is conclusively
presumed to exist if an individual or  company acquires 25% or more of any class
of voting securities of Bankshares.   Control is rebuttably presumed to exist if
a  person  acquires 10%  or more,  but less  than  25%, of  any class  of voting
securities of Bankshares.   The regulations provide a procedure  for challenging
the rebuttable control presumption.

   Under the  BHCA, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of more than 5% of the voting shares
of  any company  engaged in  nonbanking activities,  unless the  Federal Reserve
Board,  by order  or regulation,  has found  those activities  to be  so closely
related  to banking  or  managing or  controlling  banks as  to  be incident  to
banking.  Some of the  activities that the Federal Reserve Board  has determined
by regulation to be  proper incidents to the business of  a bank holding company
include  making or  servicing loans  and certain  types of  leases, engaging  in
certain  insurance and  discount brokerage  activities, performing  certain data
processing  services,  acting   in  certain  circumstances  as  a  fiduciary  or
investment  or  financial  adviser,  owning  savings  associations  and   making
investments  in certain corporations  or projects designed  primarily to promote
community welfare.

   The Federal Reserve Board imposes  certain capital requirements on Bankshares
under the  BHCA, including  a  minimum leverage  ratio and  a  minimum ratio  of
"qualifying"   capital  to  risk-weighted  assets.     Subject  to  its  capital
requirements and certain other restrictions, Bankshares can borrow money to make
a capital  contribution  to NBB  or BTC,  and  these loans  may be  repaid  from
dividends paid from NBB or BTC to Bankshares (although the ability of NBB or BTC
to pay dividends are subject to regulatory restrictions).   Bankshares can raise
capital for contribution to NBB and BTC by issuing securities  without having to
receive  regulatory  approval,  subject to  compliance  with  federal  and state
securities laws.

   The Virginia Banking Act.  All Virginia bank  holding companies must register
with  the  Virginia State  Corporation  Commission  (the  Commission) under  the
Virginia  Banking Act.    A registered  bank  holding company  must  provide the
Commission with information with respect to the financial condition, operations,
management  and  intercompany  relationships  of  the  holding company  and  its
subsidiaries.  The  Commission also  may require  such other  information as  is
necessary  to keep itself informed about  whether the provisions of Virginia law
and the  regulations and orders issued under Virginia law by the Commission have
been complied  with, and may make  examinations of any bank  holding company and
its subsidiaries.

   In March 1994, the Virginia General Assembly adopted  an amendment to Chapter
15  of the Virginia Banking  Act to allow bank  holding companies located in any
state to acquire a Virginia bank or bank holding company if the Virginia bank or
bank holding company could acquire a bank holding company in their state and the
Virginia bank or bank  holding company to be acquired has  been in existence and
continuously operated for more than  two years.  This amendment may  permit bank
holding  companies from  throughout  the United  States  to enter  the  Virginia
market, subject to federal and state approval.




                                       -9-<PAGE>

   Glass-Steagall Act.   Bankshares is also restricted in  its activities by the
provisions  of the  Glass-Steagall  Act, which  prohibit Bankshares  from owning
subsidiaries that are engaged principally in the issue, flotation, underwriting,
public  sale or distribution of securities. Bankshares does not presently engage
in securities-related activities in any material respect.

NBB and BTC

   General.  NBB  is a national banking association incorporated  under the laws
of  the United  States  and is  subject  to examination  by  the Office  of  the
Comptroller of the Currency (the OCC).  Deposits in  NBB are insured by the FDIC
up to a maximum amount (generally $100,000 per depositor, subject to aggregation
rules).  The OCC and the FDIC regulate or monitor all areas of NBB's operations,
including security devices  and procedures, adequacy of  capitalization and loss
reserves,  loans,  investments,  borrowings,  deposits,  mergers,  issuances  of
securities, payment  of dividends, interest rates payable  on deposits, interest
rates  or  fees  chargeable  on  loans,  establishment  of  branches,  corporate
reorganizations and maintenance of books  and records.  The OCC requires  NBB to
maintain  certain  capital ratios.    NBB  is required  by  the  OCC to  prepare
quarterly reports on NBB's financial condition and to conduct an annual audit of
its  financial  affairs in  compliance  with  minimum  standards and  procedures
prescribed  by the  OCC.   NBB also  is required  by the  OCC to  adopt internal
control structures and  procedures in order to safeguard  assets and monitor and
reduce risk  exposure.   While appropriate  for safety and  soundness of  banks,
these requirements impact banking overhead costs.

   BTC is organized as a Virginia-chartered banking corporation and is regulated
and supervised by  the Bureau of  Financial Institutions (BFI)  of the  Virginia
State Corporation Commission.  In addition,  as a federally insured bank, BTC is
regulated and  supervised by  the Federal  Reserve Board,  which  serves as  its
primary federal regulator and  is subject to certain regulations  promulgated by
the FDIC.   Under  the provisions  of federal law,  federally insured  banks are
subject, with  certain  exceptions, to  certain  restrictions on  extensions  of
credit  to their affiliates, on investments in  the stock or other securities of
affiliates and on the taking of such stock  or securities as collateral from any
borrower.  In addition, these banks are prohibited from engaging in certain tie-
in-arrangements in connection  with any extension of credit or  the providing of
any property of service.

   The  Virginia  State Corporation  Commission  and the  Federal  Reserve Board
conduct  regular examinations  of BTC  reviewing the  adequacy of the  loan loss
reserves,  quality  of  the  loans  and  investments,  propriety  of  management
practices, compliance with laws and regulations and  other aspects of the bank's
operations.  In addition to these regular examinations, Virginia chartered banks
must  furnish to the Federal Reserve Board quarterly reports containing detailed
financial statements and schedules.

   Community Reinvestment Act.  NBB and BTC are subject to the provisions of the
Community Reinvestment Act  of 1977  (the CRA), which  requires the  appropriate
federal bank regulatory agency, in connection with its regular examination  of a
bank, to assess the bank's record in  meeting the credit needs of the  community
served by the  bank, including low and moderate-income neighborhoods.  Under the
implementing CRA  regulations, banks have the  option of being assessed  for CRA
compliance under one of several methods.   Small banks are evaluated differently
than  larger banks  and  technically are  not  subject to  some data  collection
requirements.  The focus of the regulations is on the volume and distribution of
a  bank's  loans,  with  particular emphasis  on  lending  activity  in low  and
moderate-income areas and to  low and moderate-income persons.   The regulations


                                      -10-<PAGE>

place substantial importance on  a bank's product delivery  system, particularly
branch  locations.   The regulations require  banks, other than  small banks, to
comply with significant  data collection requirements.  The  regulatory agency's
assessment of the bank's record is made available to  the public.  Further, this
assessment is  required for any bank  which has applied to,  among other things,
establish a new  branch office that  will accept deposits, relocate  an existing
office, or  merge,  consolidate  with  or  acquire  the  assets  or  assume  the
liabilities of a federally regulated financial  institution.  It is likely  that
banks' compliance  with the CRA, as  well as other so-called  fair lending laws,
will  face ongoing government scrutiny and that costs associated with compliance
will continue to increase.

   NBB has received  a CRA rating  of "Outstanding" in  its last examination  by
federal bank regulators.  BTC was rated as "Satisfactory".

   Federal  Deposit  Insurance  Corporation  Improvement  Act  of  1991.     The
difficulties encountered nationwide  by financial institutions  during 1990  and
1991 prompted federal legislation designed to reform the banking industry and to
promote the  viability of  the industry  and of  the  deposit insurance  system.
FDICIA,  which became  effective  on December  19,  1991, bolsters  the  deposit
insurance fund, tightens bank regulation and trims  the scope of federal deposit
insurance.

   The legislation  bolsters the bank deposit insurance fund with $70 billion in
borrowing authority and increases to $30 billion from $5 billion  the amount the
FDIC can borrow from the U.S. Treasury to cover the cost of bank failures.   The
loans,  plus interest, would  be repaid by  premiums that banks  pay on domestic
deposits over the next fifteen years.

   Among  other things,  FDICIA requires  the federal  banking agencies  to take
"prompt corrective action" in respect to banks that do not  meet minimum capital
requirements.   FDICIA  establishes  five  capital  tiers:  "well  capitalized,"
"adequately  capitalized," "undercapitalized,"  "significantly undercapitalized"
and "critically undercapitalized."  

   If a depository institution's principal  federal regulator determines that an
otherwise  adequately  capitalized  institution  is  in  an  unsafe  or  unsound
condition  or is engaging in an  unsafe or unsound practice,  it may require the
institution to submit  a corrective action  plan, restrict its asset  growth and
prohibit   branching,  new  acquisitions  and   new  lines  of   business.    An
institution's  principal  federal  regulator  may deem  the  institution  to  be
engaging  in  an  unsafe  or  unsound  practice  if  it  receives  a  less  than
satisfactory  rating for asset quality, management, earnings or liquidity in its
most recent examination.

   Among  other possible sanctions,  an undercapitalized  depository institution
may not pay  dividends and is required  to submit a capital restoration  plan to
its  principal federal  regulator.   In  addition, its  holding  company may  be
required to guarantee compliance with the capital restoration plan under certain
circumstances.  If an undercapitalized depository institution fails to submit or
implement  an acceptable  capital restoration  plan, it can  be subject  to more
severe sanctions, including an order to  sell sufficient voting stock to  become
adequately  capitalized.   More  severe sanctions  and  remedial actions  can be
mandated  by the  regulators if  an institution  is considered  significantly or
critically undercapitalized.





                                      -11-<PAGE>

   In  addition, FDICIA requires  regulators to draft  a new set  of non-capital
measures  of  bank  safety, such  as  loan  underwriting  standards and  minimum
earnings levels.  The legislation also requires regulators to perform annual on-
site  bank examinations,  places  limits on  real estate  lending  by banks  and
tightens  auditing requirements.  In  April 1995, the  regulators adopted safety
and  soundness  standards as  required  by FDICIA  in  the following  areas: (i)
operational and managerial; (ii) asset quality earnings and stock valuation; and
(iii) employee compensation.

   FDICIA reduces the scope of federal deposit  insurance.  The most significant
change ended the "too big to fail" doctrine, under which the government protects
all deposits in  most banks,  including those exceeding  the $100,000  insurance
limit.   The FDIC's ability to reimburse uninsured deposits--those over $100,000
and  foreign deposits--has  been  sharply limited.    Since December  1993,  the
Federal Reserve Board's ability to finance undercapitalized  banks with extended
loans from its discount  window has been restricted.  In addition, only the best
capitalized banks  will be able to offer  insured brokered deposits without FDIC
permission or to insure accounts established under employee pension plans.

   Branching.   In  1986, the  Virginia Banking  Act was  amended to  remove the
geographic restrictions  governing the establishment of  branch banking offices.
Subject to  the approval of  the appropriate federal  and state  bank regulatory
authorities, BTC  as a  state bank,  may establish a  branch office  anywhere in
Virginia.

   National banks,  like NBB, are required by the National Bank Act to adhere to
branch banking laws  applicable to state banks  in the states in  which they are
located.  Under  current Virginia law,  NBB may open  branch offices  throughout
Virginia  with the prior approval of the  OCC.  In addition, with prior approval
of one or more of  the Federal Reserve Board,  the Virginia Commission, the  OCC
and  the  FDIC, NBB  will  be able  to  acquire existing  banking  operations in
Virginia.

   On  September  29, 1994,  the  Riegle-Neal Interstate  Banking  and Branching
Efficiency Act  of 1994 (the  Interstate Act) became  law.  The  Interstate Act,
which  became effective  September 29,  1995, allows  bank holding  companies to
acquire banks  in any state,  without regard to  state law,  except that if  the
state  has a  minimum requirement  for  the amount  of time  a bank  must  be in
existence,  that  law must  be preserved.   Under  the  Virginia Banking  Act, a
Virginia bank or all of the subsidiaries of Virginia holding companies sought to
be  acquired must  have been  in continuous  operation for  more than  two years
before the  date of such proposed acquisition.  The Interstate Act permits banks
to acquire  out-of-state branches through interstate mergers,  beginning June 1,
1997.   States could opt-in  to interstate branching earlier,  or opt-out before
June  1, 1997.   De novo branching,  where an out-of-state  bank holding company
sets up a new branch in another state, requires a state's specific approval.  An
acquisition or  merger is not  permitted under the  Interstate Act if  the bank,
including its insured  depository affiliates, will control more than  10% of the
total  amount of  deposits  of insured  depository  institutions in  the  United
States,  or will control 30% or more of  the total amount of deposits of insured
depository institutions in any state.

   Virginia has, by  statute, elected  to opt-in fully  to interstate  branching
under the Interstate Act, effective  July 1, 1995.  Under the  Virginia statute,
Virginia state  banks may, with  the approval of the  Virginia State Corporation
Commission,  establish and  maintain a  de novo  branch or  acquire one  or more
branches in  a state  other than  Virginia, either separately  or as  part of  a
merger.  Procedures also  are established to allow out-of-state  domiciled banks


                                      -12-<PAGE>

to  establish or acquire branches in Virginia,  provided the "home" state of the
bank permits Virginia banks to establish or acquire branches within its borders.
The activities of these  branches will be subject  to the same laws as  Virginia
domiciled  banks, unless such activities are prohibited  by the law of the state
where the bank is organized.   The Virginia State Corporation Commission has the
authority to  examine and supervise out-of-state state  banks to ensure that the
branch is operating in  a safe and sound manner and in  compliance with the laws
of   Virginia.    The  Virginia  statute  authorizes  the  Bureau  of  Financial
Institutions to enter into  cooperative agreements with other state  and federal
regulators  for the examination and supervision of out-of-state state banks with
Virginia operations,  or  Virginia  domiciled  banks with  operations  in  other
states.  Likewise, national banks, with the approval of the OCC, may branch into
and out  of the  state of  Virginia.   Any  Virginia branch  of an  out-of-state
national bank is subject  to Virginia law (enforced by the  OCC) with respect to
intrastate  branching,   consumer  protection,   fair   lending  and   community
reinvestment  as if it  were a branch  of a  Virginia bank, unless  preempted by
federal law.

   The Interstate Act permits  banks and bank holding companies  from throughout
the United States to enter Virginia  markets through the acquisition of Virginia
institutions  and  makes  it easier  for  Virginia  bank  holding companies  and
Virginia  state  and national  banks to  acquire  institutions and  to establish
branches in other states.  Competition in market areas served by the Company has
increased as  a result of the Interstate Act and the Virginia interstate banking
statutes.

   Deposit Insurance.  The FDIC establishes rates for the payment of premiums by
federally insured financial  institutions.  A  Bank Insurance Fund (the  BIF) is
maintained  for commercial banks, with insurance premiums from the industry used
to  offset losses from  insurance payouts when  banks fail.   Beginning in 1993,
insured  depository institutions  like NBB  and BTC  paid for  deposit insurance
under a risk-based premium  system.  Both NBB and BTC  qualified for the minimum
annual premium rate  of $2,000 per year in 1996.   Beginning in 1997, all banks,
including  NBB and  BTC, were subject  to a  higher FDIC  assessment which funds
interest  payments for  bank  issues to  resolve  problems associated  with  the
savings and  loan industry.  This assessment will continue until 2018-2019.  The
assessment will vary over the  period from 1.29 cents to 2.43 cents  per $100 of
deposits.

   Government Policies.  The operations of NBB  and BTC are affected not only by
general  economic conditions,  but also  by the  policies of  various regulatory
authorities.    In particular,  the Federal  Reserve  Board regulates  money and
credit and interest  rates in  order to influence  general economic  conditions.
These policies have a  significant influence on overall growth  and distribution
of loans, investments and deposits and affect interest rates charged on loans or
paid  for time  and savings deposits.   Federal Reserve  Board monetary policies
have had  a significant effect on  the operating results of  commercial banks in
the past and are expected to continue to do so in the future.

   Limits on Dividends and Other Payments.  As a national bank, NBB, may not pay
dividends from its capital; all dividends must  be paid out of net profits  then
on  hand,  after deducting  expenses, losses,  bad  debts, accrued  dividends on
preferred stock, if any, and taxes.   In addition, a national bank is prohibited
from declaring a dividend on its shares of common stock until its surplus equals
its stated  capital, unless there has  been transferred to surplus  no less than
one-tenth of the  bank's net profits of (i) the  preceding two consecutive half-
year periods (in the case of an annual dividend) or (ii) the preceding half-year
period (in the  case of a quarterly  or semi-annual dividend).   The approval of


                                      -13-<PAGE>

the OCC is required if the total of all dividends declared by a national bank in
any calendar year  exceeds the total of its  net profits for that  year combined
with  its retained net  profits for the  preceding two years,  less any required
transfers to surplus or to fund the retirement of preferred stock.  

   The OCC has  promulgated regulations  that became effective  on December  13,
1990,  which significantly affect the  level of allowable  dividend payments for
national  banks.   The effect  is  to make  the calculation  of national  banks'
dividend-paying  capacity   consistent   with  generally   accepted   accounting
principles.  The  allowance for loan and lease losses will  not be considered an
element of "undivided profits then on  hand" and provisions to the allowance are
treated  as expenses and  therefore not part  of "net profits."   Accordingly, a
national bank with  an allowance greater  than its statutory  bad debts may  not
include  the excess  in  calculating undivided  profits  for dividend  purposes.
Further, a national  bank may be  able to use  a portion  of its earned  capital
surplus   account  as  "undivided  profits  then  on  hand,"  depending  on  the
composition of that account.

   As  a state  member bank subject  to the  regulations of  the Federal Reserve
Board,  BTC must  obtain  the approval  of  the Federal  Reserve  Board for  any
dividend  if the  total of  all dividends  declared in  any calendar  year would
exceed the total of  its net profits, as  defined by the Federal  Reserve Board,
for that  year, combined  with its  retained net profits  for the  preceding two
years.   In addition, a state  member bank may not  pay a dividend  in an amount
greater  than its undivided profits then on  hand after deducting its losses and
bad debts.  For  this purpose, bad  debts are generally  defined to include  the
principal amount of loans  which are in arrears with respect  to interest by six
months  or more,  unless such  loans  are fully  secured and  in the  process of
collection.  Moreover,  for purposes of this limitation, a  state member bank is
not permitted to add the balance in its allowance for loan losses account to its
undivided profits then on hand; however, it may net  the sum of its bad debts as
so defined  against the  balance in  its allowance for  loan losses  account and
deduct from undivided  profits only bad  debts as so  defined in excess of  that
account.

   In  addition, the  Federal Reserve  Board is  authorized to  determine, under
certain  circumstances relating  to the  financial condition  of a  state member
bank, that the payment of dividends would  be an unsafe or unsound practice  and
to prohibit  payment thereof.  The  payment of dividends that  depletes a bank's
capital  base could be deemed to constitute  such an unsafe or unsound practice.
The  Federal  Reserve Board  has  indicated  that banking  organizations  should
generally pay dividends only out of current operating earnings.

   Virginia  law  also  imposes  restrictions  on  the  ability  of BTC  to  pay
dividends.  A Virginia state  bank is permitted to declare a dividend out of its
"net  undivided profits", after providing for all expenses, losses, interest and
taxes accrued or due by the bank.  In addition, a deficit in  capital originally
paid in must be restored to its initial level, and no dividend can be paid which
could  impair the bank's paid in capital.   The Bureau of Financial Institutions
further has authority to limit the payment of dividends by a Virginia bank if it
determines the limitation is in  the public interest and is necessary  to ensure
the bank's financial soundness.

   The Federal  Deposit Insurance Corporation  Improvement Act of  1991 (FDICIA)
provides  that  no   insured  depository  institution   may  make  any   capital
distribution  (which would  include  a  cash  dividend)  if,  after  making  the
distribution,  the institution  would not  satisfy one  or  more of  its minimum
capital requirements.  


                                      -14-<PAGE>

   Capital  Requirements.   The  Federal  Reserve Board  has  adopted risk-based
capital guidelines  which are  applicable to  Bankshares and BTC.   The  Federal
Reserve Board guidelines  redefine the components of capital,  categorize assets
into different risk  classes and include certain off-balance sheet  items in the
calculation  of  risk-weighted assets.   The  minimum  ratio of  qualified total
capital to risk-weighted assets (including certain off-balance sheet items, such
as standby letters of credit) is 8.0%.  At  least half of the total capital must
be comprised of Tier  1 capital for a minimum  ratio of Tier 1 Capital  to risk-
weighted assets of  4.0%.   The remainder  may consist  of a  limited amount  of
subordinated  debt,  other  preferred stock,  certain  other  instruments and  a
limited amount of  loan and lease loss  reserves.  The  OCC has adopted  similar
regulations applicable to NBB.

   In addition, the Federal Reserve Board has established minimum leverage ratio
(Tier 1 capital to total assets less intangibles) guidelines that are applicable
to Bankshares  and BTC.  The  OCC has adopted similar  regulations applicable to
NBB.   These guidelines provide for a minimum ratio  of 4.0% for banks that meet
certain  specified criteria,  including that  they have  the highest  regulatory
CAMEL rating and  are not  anticipating or experiencing  significant growth  and
have well-diversified  risk.  All  other banks will  be required to  maintain an
additional cushion  of  at least  100  to 200  basis  points, based  upon  their
particular  circumstances and risk profiles.   The guidelines  also provide that
banks  experiencing internal growth or  making acquisitions will  be expected to
maintain strong capital  positions substantially above  the minimum  supervisory
levels, without significant reliance on intangible assets.

   Bank regulators  from time to time  have indicated a desire  to raise capital
requirements  applicable  to banking  organizations beyond  current levels.   In
addition,  the number  of  risks which  may  be included  in  risk-based capital
restrictions, as  well as the measurement  of these risks, is  likely to change,
resulting in increased capital requirements for  banks.  Bankshares, NBB and BTC
are unable to predict whether higher capital ratios would be imposed and, if so,
at what levels and on what schedule.

Legislative Developments

   As of September 29, 1996, "The Depository Insurance Fund Act  of 1996" became
law.   This legislation provided  for a  one time assessment  on banks that  had
previously  acquired  certain  deposits  from  savings  and  loan  institutions.
Neither NBB or BTC were subject to  that special assessment.  Beginning in 1997,
all banks  were subject  to increased assessments  that are designed  to finally
resolve problems associated with the savings and loan industry.

Other Legislative and Regulatory Concerns

   Other legislative and regulatory  proposals regarding changes in  banking and
the   regulation  of  banks,  thrifts  and   other  financial  institutions  are
periodically considered  by  the executive  branch  of the  federal  government,
Congress and various state governments, including Virginia.  New proposals could
significantly  change  the  regulation  of  banks  and  the  financial  services
industry.  It cannot be predicted what might be proposed or adopted or how these
proposals would affect the Company. 








                                      -15-<PAGE>

Other Business Concerns

   The banking industry is particularly sensitive to interest rate fluctuations,
as the spread between the rates  which must be paid on deposits and  those which
may be charged  on loans is an important component of  profit.  In addition, the
interest which can be earned on a bank's invested funds has a significant effect
on profits.   Rising interest rates  typically reduce the demand  for new loans,
particularly  the real  estate loans  which represent  a significant  portion of
NBB's  and  BTC's  loan demand,  as  well  as certain  NBB  loans  in which  BTC
participates.


















































                                      -16-<PAGE>

               Statistical Disclosure by National Bankshares, Inc.
                         and Subsidiaries (The Company)

  I.    Distribution  of Assets, Liabilities  and Stockholders' Equity; Interest
        Rates and Interest Differential
        ------------------------------------------------------------------------

        A.   Average Balance Sheets

             The following table  presents, for the  years indicated,  condensed
             daily average balance sheet information.

                 ($ in thousands)
                                                           December 31,
                                                           ------------
                Assets                               1998      1997      1996
                ------                               ----      ----      ----

                Cash and due from banks             $ 10,281    9,954      9,842
                Interest bearing deposits             12,889    4,165      1,651
                Federal funds sold                     6,389    8,181      8,903
                Securities available for sale:
                   Taxable                            94,247   54,213     65,992
                   Nontaxable                         29,284    6,312      6,679

                Securities held to maturity:
                   Taxable                             9,972   67,046     79,599
                   Nontaxable                         18,929   29,608     25,133
                Mortgage loans held for sale           1,017      413        850
                Loans, net                           225,613  204,540    177,419
                Other assets                          12,367   11,500     11,977
                                                    --------  -------    -------
                     Total assets                   $420,988  395,932    388,045
                                                    ========  =======    =======

                Liabilities and Stockholders' Equity
                ------------------------------------

                Noninterest-bearing demand
                 deposits                           $ 49,552   44,193     41,997
                Interest-bearing demand deposits      77,842   75,519     76,017
                Savings deposits                      47,475   47,781     49,783
                Time deposits                        185,101  171,946    168,141
                                                    --------  -------    -------
                     Total deposits                  359,970  339,439    335,938

                Short-term borrowings                    216      319        433
                Other liabilities                      2,520    2,462      2,215
                                                    --------  -------    -------
                   Total liabilities                 362,706  342,220    338,586

                Stockholders' equity                  58,282   53,712     49,459
                                                    --------  -------    -------
                   Total liabilities and
                    stockholders' equity            $420,988  395,932    388,045
                                                    ========  =======    =======



                                      -17-<PAGE>
<TABLE>
B.      Analysis of Net Interest Earnings

        The following  table shows  the major  categories  of interest-earning  assets and  interest-bearing
        liabilities, the  interest earned or paid,  the average yield or  rate on the  daily average balance
        outstanding, net  interest income and  net yield  on average interest-earning  assets for  the years
        indicated.
<CAPTION>
                         December 31, 1998           December 31, 1997           December 31, 1996
                         -----------------           -----------------           -----------------
                                        Average                     Average                     Average
                     Average            Yield/   Average            Yield/   Average            Yield/
($ in thousands)     Balance  Interest   Rate    Balance  Interest   Rate    Balance  Interest   Rate
                     -------  --------  -------  -------  --------  -------  -------  --------  -------
<S>                  <C>      <C>       <C>      <C>      <C>       <C>      <C>      <C>       <C>
Interest-earning
 assets:
Loans, net (1)(2)(3) $226,630   21,726    9.59%  $204,953   19,667   9.60%    178,269  17,339    9.73%  
Taxable securities    104,219    7,201    6.91%   121,259    7,776   6.41%    145,591   8,877    6.10%  
Nontaxable
 securities (1)        48,213    2,899    6.01%    35,920    2,708   7.54%     31,812   2,971    9.34%  
Federal funds sold      6,389      345    5.40%     8,181      470   5.75%      8,903     567    6.37%  
Interest bearing
 deposits              12,889      696    5.40%     4,165      230   5.52%      1,651      91    5.51%  
                     --------  -------   -----   --------   ------  -----     -------  ------   -----   
Total interest- 
 earning assets      $398,340   32,867    8.25%  $374,478   30,851   8.24%    366,226  29,845    8.15%  
                     ========  =======   =====   ========   ======  =====     =======  ======   =====   
Interest-bearing
 liabilities:
Interest-bearing
 demand deposits     $ 77,842    2,203    2.83%  $ 75,519    2,161   2.86%     76,017   2,182    2.87%  
Savings deposits       47,475    1,511    3.18%    47,781    1,571   3.29%     49,783   1,646    3.31%  
Time deposits         185,101   10,203    5.51%   171,946    9,357   5.44%    168,141   9,181    5.46%  
Short-term
 borrowings               216       11    5.09%       319       17   5.33%        433      27    6.24%  
Long-term debt            ---      ---     ---        ---      ---    ---         ---     ---     ---   
                     --------  -------   -----   --------   ------  -----     -------  ------   -----   
Total interest-
 bearing liabilities $310,634   13,928    4.48%   295,565   13,106   4.43%    294,374  13,036    4.43%  
                     ========  =======   =====   ========   ======  =====     =======  ======   =====   
Net interest income
 and interest rate
 spread                        $18,939    3.77%             17,745   3.81%             16,809    3.72%  
                               =======   =====              ======  =====              ======   =====   
Net yield on average
 interest-earning
 assets                                   4.75%                      4.74%                       4.59%  
                                         =====                      =====                       =====   

(1)     Interest on nontaxable loans and  securities is computed on a fully taxable equivalent  basis using
        a Federal income tax rate of 34%.
(2)     Loan fees of $414 in 1998, $339 in 1997 and $374 in 1996 are included in total interest income.
(3)     Nonaccrual loans are included in average balances for yield computations.
</TABLE>
                                                    -18-<PAGE>
<TABLE>
C.      Analysis of Changes in Interest Income and Interest Expense

        The Company's primary source of  revenue is net interest income, which is the difference between the
        interest  and fees  earned on  loans and  investments and  the interest  paid on  deposits and other
        funds.  The Company's net interest income is affected by changes  in the amount and mix of interest-
        earning assets and  interest-bearing liabilities and by changes in yields earned on interest-earning
        assets and  rates paid on  interest-bearing liabilities.   The following table  sets forth, for  the
        years indicated,  a summary of  the changes in interest  income and interest  expense resulting from
        changes in  average asset  and liability balances  (volume) and  changes in  average interest  rates
        (rate).

<CAPTION>
                                                    1998 Over 1997                   1997 Over 1996
                                                    --------------                   --------------
                                              Changes Due To                   Changes Due To
                                              --------------                   --------------
                                                                 Net Dollar                      Net Dollar
        ($ in thousands)                    Rates(2)  Volume(2)    Change    Rates(2)  Volume(2)   Change
                                            --------  ---------  ----------  --------  --------- ----------
        <S>                                 <C>       <C>        <C>         <C>       <C>       <C>
        Interest income:(1)
          Loans                              $  (19)     2,078      2,059      (200)     2,528        2,328 
          Taxable securities                    572     (1,147)      (575)      441     (1,542)      (1,101)
          Nontaxable securities                (618)       809        191      (617)       354         (263)
          Federal funds sold                    (98)       (27)      (125)      (53)       (44)         (97)
          Interest bearing deposits             471         (5)       466       ---        139          139 
                                             ------      -----      -----     -----     ------       ------ 
           Increase(decrease) in
            income on interest-
            earning assets                   $  308      1,708      2,016      (429)     1,435        1,006 
                                             ------      -----      -----     -----     ------       ------ 
        Interest expense:
          Interest-bearing demand
           deposits                          $   66        (24)        42        (7)       (14)         (21)
          Savings deposits                      (50)       (10)       (60)       (9)       (66)         (75)
          Time deposits                         724        122        846       (31)       207          176 
          Short-term borrowings                  (1)        (5)        (6)       (4)        (6)         (10)
                                             ------      -----      -----     -----     ------       ------ 
           Increase(decrease) in
            expense of interest-
            bearing liabilities              $  739         83        822       (51)       121           70 
                                             ------      -----      -----     -----     ------       ------ 
        Increase (decrease) in net
         interest income                     $ (431)     1,625      1,194      (378)     1,314          936 
                                             ======      =====      =====     =====     ======       ====== 


(1)     Taxable equivalent basis using a Federal income tax rate of 34%.
(2)     Variances  caused by the change in  rate times the change in volume  have been allocated to rate and
        volume  changes proportional to  the relationship of  the absolute dollar  amounts of  the change in
        each.
</TABLE>
                                                    -19-<PAGE>
<TABLE>
II.     Investment Portfolio

        A.   Book Value of Investments
             The amortized costs and fair  values of securities available for sale as of  December 31, 1998,
             1997 and 1996 were as follows:
<CAPTION>
                                                                           December 31,
                                                                           ------------
                                                             1998              1997              1996
                                                             ----              ----              ----
                                                      Amortized   Fair  Amortized   Fair  Amortized   Fair
             ($ in thousands)                           Costs    Values   Costs    Values   Costs    Values
                                                      ---------  ------ ---------  ------ ---------  ------
             <S>                                      <C>        <C>    <C>        <C>    <C>        <C>
             Available for sale:
              U.S. Treasury                             $  9,253   9,671    6,742    6,862    8,740   8,790 
              U.S. Government agencies and
               corporations                               59,365  59,595   36,252   36,276   33,840  33,640 
              States and political subdivisions           32,183  32,865    9,540    9,639    8,688   8,619 
              Mortgage-backed securities (1)              17,282  17,200    4,172    4,119    4,568   4,452 
              Corporate debt securities                   14,528  14,824    7,780    7,824    6,810   6,762 
              Federal Home Loan Bank stock                 1,214   1,214      537      537      ---     --- 
              Other securities                               709     709      265      325      264     271 
                                                        -------- -------  -------  -------  -------  ------ 
                 Total securities available for sale    $134,534 136,078   65,288   65,582   62,910  62,534 
                                                        ======== =======  =======  =======  =======  ====== 

             The amortized costs of securities held to maturity as  of December 31, 1998, 1997 and 1996 were
             as follows:
<CAPTION>                                                                                  December 31,
                                                                                  ------------
             ($ in thousands)                                            1998         1997         1996
                                                                         ----         ----         ----
             <S>                                                         <C>          <C>          <C>
             Securities held to maturity:
              U.S. Treasury                                               $ 1,006      7,527         11,547 
              U.S. Government agencies and corporations                     7,497     36,853         54,804 
              States and political subdivisions                            21,160     32,949         34,144 
              Mortgage-backed securities (1)                                  513        630            767 
              Corporate                                                       500      6,433          7,448 
                                                                          -------     ------        ------- 
                 Total securities held to maturity                        $30,676     84,392        108,710 
                                                                          =======     ======        ======= 

             (1)  The  majority of mortgage-backed  securities and collateralized  mortgage obligations held
                  at December 31, 1998  were backed by U.S. agencies.   Certain holdings are required  to be
                  periodically  subjected to  the Financial Institution  Examination Council's  (FFIEC) high
                  risk  mortgage security test.   These tests  address possible fluctuations  in the average
                  life and  price sensitivity  which are  the primary  risks associated  with  this type  of
                  security.  Such tests are usually subject to regulatory review.

             Except for  U.S. Government  securities, the Company  has no  securities with  any issuer  that
             exceeds 10% of stockholders' equity.
</TABLE>
                                                    -20-<PAGE>
<TABLE>
B.      Maturities and Associated Yields

        The  following table presents  the maturities  for those securities  available for sale  and held to
        maturity as of December 31, 1998 and weighted average yield for each range of maturities.

<CAPTION>
                                                             Maturities and Yields
                                                               December 31, 1998
                                                             ---------------------
       ($ in thousands except for % data) < 1 Year  1-5 Years  5-10 Years > 10 Years   None      Total
                                          --------  ---------  ---------- ----------   ----      -----
       <S>                                <C>       <C>        <C>        <C>          <C>       <C>
       Available for Sale
       ------------------
          U.S. Treasury                    $ 2,302    6,311       1,058        ---      ---     $ 9,671 
                                              7.65%    5.99%       5.67%       ---%     ---%       6.35%
          U.S. Government agencies           3,504   15,572      25,682     14,837      ---      59,595 
                                              6.99%    6.29%       6.54%      6.70%     ---%       6.54%
          Mortgage-backed securities           ---      ---       2,436     14,764      ---      17,200 
                                               ---%     ---%       5.16%      7.42%     ---%       7.10%
          States and Political                 ---    1,737         509      1,316      ---       3,562 
           Subdivision - taxable               ---%    7.21%       7.40%      7.80%     ---%       7.46%
          States and Political                 680    5,914       7,343     15,366      ---      29,303 
          Subdivision                         7.82%    7.21%       7.43%      7.05%     ---%       7.20%
           - nontaxable
          Corporate                            509    3,606       3,578      7,131      ---      14,824 
                                              3.68%    6.62%       7.05%      6.80%     ---%       6.71%
          Federal Home Loan Bank stock         ---      ---         ---        ---    1,214       1,214 
                                               ---%     ---%        ---%       ---%    7.34%       7.34%
          Other securities                     464      ---         ---        ---      245         709 
                                              5.00%     ---%        ---%       ---%    6.00%       5.34%
               Total                         7,459   33,140      40,606     53,414    1,459     136,078 
                                              6.92%    6.48%       6.65%      7.04%    7.34%       6.78%
       Held to Maturity
       ----------------                            
          U.S. Treasury                        500      506         ---        ---      ---       1,006 
                                              4.84%    5.20%        ---%       ---%     ---%       5.02%
          U.S. Government agencies             ---    6,497       1,000        ---      ---       7,497 
                                               ---%    5.69%       2.61%       ---%     ---%       5.28%
          Mortgage-backed securities           ---       29         166        318      ---         513 
                                               ---%    9.00%       7.65%      7.74%     ---%       7.78%
          States and Political                 200    1,472         359        200      ---       2,231 
           Subdivision - taxable              6.50%    6.82%       7.19%      9.00%     ---%       7.05%
          States and Political               2,824   12,615       2,424      1,066      ---      18,929 
           Subdivision - nontaxable           4.72%    7.33%       7.90%      7.65%     ---%       7.03%
          Corporate                            500      ---         ---        ---      ---         500 
                                              6.75%     ---%        ---%       ---%     ---%       6.75%
          Other securities                     ---      ---         ---        ---      ---         --- 
                                               ---%     ---%        ---%       ---%     ---%        ---%
               Total                         4,024    21,119      3,949      1,584      ---      30,676 
                                              5.07%    6.74%       6.48%      7.84%     ---%       6.54%

(1)     Rates shown represent weighted average yield on a fully taxable basis.

</TABLE>
                                                    -21-<PAGE>

III.    Loan Portfolio
        --------------

        The Company  concentrates  its  lending  activities  in  commercial  and
        industrial loans,  real  estate  mortgage  loans  both  residential  and
        business, and loans to individuals.  The following tables set  forth (i)
        a  comparison of the Company's loan portfolio by major category of loans
        as  of the  dates indicated  and (ii)  the maturities and  interest rate
        sensitivity of the loan portfolio at December 31, 1998.

        A.   Types of Loans


                                                    December 31,
                                                    ------------
           ($ in thousands)            1998     1997     1996    1995     1994
                                       ----     ----     ----    ----     ----
           Commercial and industrial
            loans                    $110,509 101,379   87,519  59,609   59,213 
           Real estate mortgage
            loans                      48,724  42,969   43,917  45,589   44,447 
           Real estate construction
            loans                      12,827   8,510    6,295   6,007    5,643 
           Loans to individuals        69,493  66,635   60,991  56,920   52,031 
                                     -------- -------  ------- -------  ------- 
            Total loans               241,553 219,493  198,722 168,125  161,334 

           Less unearned income and
            deferred fees              (2,296) (2,503)  (2,549) (2,307)  (2,494)
                                     -------- -------  ------- -------  ------- 
            Total loans, net of
             unearned income          239,257 216,990  196,173 165,818  158,840 

           Less allowance for loans
            losses                     (2,679) (2,438)  (2,575) (2,625)  (2,551)
                                     -------- -------  ------- -------  ------- 
            Total loans, net         $236,578 214,552  193,598  163,193 156,289 
                                     ======== =======  =======  ======= ======= 

        B.   Maturities and Interest Rate Sensitivities


                                                  December 31, 1998
                                                  -----------------
                                                             After
            ($ in thousands)           <1 Year   1-5 Years  5 Years     Total
                                       -------   ---------  -------     -----
            Commercial and
             industrial               $ 28,858     31,927    49,724    110,509 
            Real estate
             construction               10,638      2,189       ---     12,827 
            Less loans with
             predetermined interest
             rates                     (28,272)   (23,555)  (24,507)   (76,334)
                                      --------    -------   -------    ------- 

            Loans with adjustable
             rates                    $ 11,224     10,561    25,217     47,002 
                                      ========    =======   =======    ======= 

                                      -22-<PAGE>

        C.   Risk Elements

             1.   Nonaccrual, Past Due and Restructured Loans

                  The following table presents  aggregate amounts for nonaccrual
                  loans, restructured loans,  other real estate  owned, net  and
                  accruing loans which are contractually past due ninety days or
                  more as to interest or principal payments.

                                                       December 31,
                                                       ------------
            ($ in thousands)                1998    1997   1996    1995   1994
                                            ----    ----   ----    ----   ----
            Nonaccrual loans:
              Commercial and industrial     $ ---      55    121     270    ---
              Real estate mortgage             28      32    495     418    390
              Real estate construction        ---     ---    ---     ---    ---
              Loans to individuals            ---     ---    ---      30     30
                                            -----   -----  -----   -----  -----
                                            $  28      87    616     718    420
                                            -----   -----  -----   -----  -----
            Restructured loans:
              Commercial and industrial       ---     ---    ---     ---    229
                                            -----   -----  -----   -----  -----
               Total nonperforming loans    $  28      87    616     718    649
            Other real estate owned, net      628     421    474     762  1,150
                                            -----   -----  -----   -----  -----
               Total nonperforming assets   $ 656     508  1,090   1,480  1,799
                                            =====   =====  =====   =====  =====
            Accruing loans past due 90
            days or more:
              Commercial and industrial     $ 186      82     14      11      4
              Real estate mortgage            160     358    252     250    219
              Real estate construction        ---     ---    ---     ---     87
              Loans to individuals            204     232    192     313    180
                                            -----   -----  -----   -----  -----
                                            $ 550     672    458     574    490
                                            =====   =====  =====   =====  =====

                  The effect of  nonaccrual and restructured  loans on  interest
                  income is presented below:

             ($ in thousands)                            1998    1997     1996
                                                         ----    ----     ----
             Scheduled interest:
               Nonaccrual loans                          $   4       8      68 
               Restructured loans                          ---     ---     --- 
                                                         -----   -----   ----- 
                Total scheduled interest                 $   4       8      68 
                                                         -----   -----   ----- 
             Recorded interest:
               Nonaccrual loans                          $ ---       1      24 
               Restructured loans                          ---     ---     --- 
                                                         -----   -----   ----- 
                Total recorded interest                  $ ---       1      24 
                                                         =====   =====   ===== 




                                      -23-<PAGE>

                  Interest is recognized on the cash basis for all loans carried
                  in  nonaccrual   status.    Loans  generally   are  placed  in
                  nonaccrual status when the collection of principal or interest
                  is ninety days or more past due, unless the obligation is both
                  well-secured and in the process of collection.

             2.   Potential Problem Loans

                  At December 31,  1998, the recorded investment  in loans which
                  have been identified as  impaired loans totaled $373,000.   Of
                  this  amount,  $228,000 related  to  loans  with no  valuation
                  allowance and  $145,000 related to loans  with a corresponding
                  valuation allowance of $145,000.  For the year-ended  December
                  31, 1998, the  average recorded investment  in impaired  loans
                  was approximately  $387,000  and  the  total  interest  income
                  recognized  on  impaired loans  was  $32,000 of  which  $0 was
                  recognized on a cash basis.

                  At December 31, 1997,  the recorded investment in  loans which
                  have  been identified as impaired loans  totaled $177,000.  Of
                  this  amount,  $124,000 related  to  loans  with no  valuation
                  allowance and $53,000  related to loans  with a  corresponding
                  valuation allowance of  $53,000.  For the  year ended December
                  31, 1997, the  average recorded investment  in impaired  loans
                  was approximately  $458,000,  and the  total  interest  income
                  recognized on  impaired loans was $23,000 of which $12,000 was
                  recognized on a cash basis.

                  Subsequent to  December 31, 1998, two  loans collateralized by
                  commercial  real estate,  totaling approximately  $1.7 million
                  became 90 days past due.  It is reasonably possible that these
                  loans will be placed in nonaccrual status in the first quarter
                  of  1999, thereby increasing the level of impaired loans.  Due
                  to the  circumstances surrounding  these  credits, it  is  not
                  possible to estimate a loss, if any, that will be incurred.

             3.   Foreign Outstandings

                  At December 31,  1998, 1997  and 1996, there  were no  foreign
                  outstandings.

             4.   Loan Concentrations

                  The  Company  does a  general  banking  business, serving  the
                  commercial,  agricultural and  personal banking  needs  of its
                  customers.  NBB's trade territory, consists of Montgomery  and
                  Giles  Counties, and the City of  Galax, Virginia and portions
                  of  adjacent counties.   NBB's  operating results  are closely
                  correlated  with the  economic trends  within this  area which
                  are,  in   turn,  influenced  by  the   area's  three  largest
                  employers,   Virginia   Polytechnic   Institute    and   State
                  University,  Montgomery  County  Schools  and  Celco.    Other
                  industries include a wide variety of manufacturing, retail and
                  service concerns.  Most of  BTC's business originates from the
                  communities of Tazewell and Bluefield and other communities in
                  Tazewell County, Virginia and in Mercer County, West Virginia.
                  BTC's service  area has  largely depended on  the coal  mining
                  industry  and farming for its economic base.  In recent years,


                                      -24-<PAGE>

                  coal  companies  have mechanized  and  reduced  the number  of
                  persons engaged  in the production of coal.  There are still a
                  number of support industries for the coal mining business that
                  continue  to provide  employment in  the area.   Additionally,
                  several new businesses  have been established in  the area and
                  Bluefield,  West Virginia has  begun to  emerge as  a regional
                  medical  center.   The  ultimate  collectibility  of the  loan
                  portfolios  and  the  recovery  of  the  carrying  amounts  of
                  repossessed property are susceptible to changes in the  market
                  conditions of these areas.

                  At December 31,  1998 and 1997, approximately $94  million and
                  $80  million,   respectively,  of  the   loan  portfolio  were
                  concentrated  in  commercial  real estate.    This  represents
                  approximately  39% and 37%  of the loan  portfolio at December
                  31, 1998 and 1997, respectively.  Included in commercial  real
                  estate  at December  31, 1998  and 1997 was  approximately $64
                  million and $50  million, respectively, in  loans for  college
                  housing and  professional office buildings.   Loans secured by
                  residential real estate were approximately $67 million and $65
                  million at  December 31,  1998 and 1997,  respectively.   This
                  represents approximately 28%  and 30% of the loan portfolio at
                  December  31, 1998  and 1997,  respectively. Loans  secured by
                  automobiles were approximately $32 million and $34 million  at
                  December  31, 1998  and 1997,  respectively.   This represents
                  approximately 13% of the  loan portfolio at December 31,  1998
                  and 16% at December 31, 1997.

                  The Company has established operating policies relating to the
                  credit  process and collateral in loan originations.  Loans to
                  purchase    real   and   personal   property   are   generally
                  collateralized by  the related property and  with loan amounts
                  established  based on  certain percentage  limitations of  the
                  property's total  stated or appraised value.   Credit approval
                  is primarily  a function of  collateral and the  evaluation of
                  the creditworthiness  of the  individual  borrower or  project
                  based on available financial information.























                                      -25-<PAGE>
<TABLE>
 IV.    Summary of Loan Loss Experience
        -------------------------------

        A.   Analysis of the Allowance for Loan Losses

             The following tabulation shows average  loan balances at the end of each period; changes in the
             allowance for  loan losses arising from  loans charged off  and recoveries on  loans previously
             charged  off by  loan  category; and  additions to  the allowance  which  have been  charged to
             operating expense:
<CAPTION>
                                                                            December 31,
                                                                            ------------
            ($ in thousands)                              1998       1997      1996       1995      1994
                                                          ----       ----      ----       ----      ----
            <S>                                         <C>         <C>       <C>        <C>       <C>
            Average loans outstanding                   $225,613    204,540   177,419    160,643   152,976
                                                        ========    =======   =======    =======   ======= 
            Balance at beginning of year                   2,438      2,575     2,625      2,551     2,583 

            Charge-offs:
             Commercial and industrial loans                  32        257        95         23        72 
             Real estate mortgage loans                       80        ---        11          9       192 
             Real estate construction loans                  ---        ---       ---        ---        53 
             Loans to individuals                            526        422       400        259       322 
                                                        --------    -------   -------    -------   ------- 
               Total loans charged off                       638        679       506        291       639 
                                                        --------    -------   -------    -------   ------- 
            Recoveries:
             Commercial and industrial loans                 ---         70         4         10         7 
             Real estate mortgage loans                        2        ---        64         16         4 
             Real estate construction loans                  190        ---       ---        ---       --- 
             Loans to individuals                             63         37        57         57        43 
                                                        --------    -------   -------    -------   ------- 
               Total recoveries                              255        107       125         83        54 
                                                        --------    -------   -------    -------   ------- 
            Net loans charged off                            383        572       381        208       585 
                                                        --------    -------   -------    -------   ------- 
            Additions charged to operations                  624        435       331        282       553 
                                                        --------    -------   -------    -------   ------- 
            Balance at end of year                      $  2,679      2,438     2,575      2,625     2,551 
                                                        ========    =======   =======    =======   ======= 
            Net charge-offs to average net loans
             outstanding                                    0.17%      0.28%     0.21%      0.13%     0.38%
                                                        ========    =======   =======    =======   ======= 

             Factors  influencing  management's  judgment  in  determining  the amount  of  the  loan  loss
             provision charged  to  operating  expense  include  the  quality  of  the  loan  portfolio  as
             determined by management,  the historical loan loss experience,  diversification as to type of
             loans in the portfolio, the  amount of secured as compared with  unsecured loans and the value
             of underlying  collateral,  banking industry  standards  and  averages, and  general  economic
             conditions.
</TABLE>
                                                    -26-<PAGE>
<TABLE>
        B.   Allocation of the Allowance for Loan Losses

             The allowance for  loan losses has been  allocated according to the amount  deemed necessary to
             provide for  anticipated losses  within the  categories of  loans  for the  years indicated  as
             follows:

<CAPTION>
                                                            December 31,
                                                            ------------

                       1998                 1997               1996                 1995                  1994
                       ----                 ----               ----                 ----                  ----
                           Percent              Percent             Percent              Percent               Percent
                             of                   of                   of                   of                   of
                          Loans in             Loans in             Loans in             Loans in             Loans in
                            Each                 Each                 Each                 Each                 Each
                          Category             Category             Category             Category             Category
  ($ in        Allowance  to Total  Allowance  to Total  Allowance  to Total  Allowance  to Total  Allowance  to Total
   thousands)    Amount     Loans    Amount      Loans    Amount     Loans     Amount    Loans      Amount     Loans
               ---------  --------  ---------  --------  ---------  --------  ---------  --------  ---------  --------
 <S>           <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
 Commercial
  and
  industrial                                 
  loans         $  222      45.75%      213      46.18%     403      44.04%       411     35.46%      679      36.70% 
 Real estate
  mortgage                  
  loans             73      20.17%       67      19.58%     305      22.10%       363     27.12%      364      27.55% 
 Real estate
  construction
  loans            ---       5.31%      ---       3.88%      51       3.17%       100      3.57%       37       3.50% 
 Loans to                                                                      
  individuals      497      28.77%      416      30.36%     504      30.69%       271     33.85%      569      32.25% 
 Unallocated     1,887                1,742               1,312                 1,480                 902  
                ------               ------              ------                ------              ======  

                $2,679     100.00%    2,438     100.00%   2,575     100.00%     2,625    100.00%    2,551     100.00% 
                =======    ======    ======     ======   ======     ======     ======    ======    ======     ======  







</TABLE>



                                                    -27-<PAGE>

Loan Loss Allowance
-------------------

   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 as well as other
internal and external factors such as general economic conditions.

   The evaluation  of the allowance for loan losses is performed by the internal
credit review department at NBB and by senior management at BTC.

   Guidance  for the  evaluations performed  are  established by  the regulatory
authorities who periodically review the results for compliance.

   As a  part of this process,  loans are grouped into  principally two classes.
The first involves loans  that are individually reviewed and  direct allocations
made based on collateral values, financial statements of the borrower  and other
documentation.   In addition,  an estimate is  made for losses  inherent to this
portfolio.

   The second class includes pools of loans.  Allocations from this analysis are
derived and based on historical loss averages.

   The unallocated  portion of  the allowance  for loan losses  is the  residual
amount after allocation to the above classes. 

   As previously stated, adequacy of the allowance for loan losses is subject to
periodic  regulatory review.   These  reviews cover  the allocation  process and
overall  adequacy of the allowance  for loan losses.   Regulatory authorities at
their discretion  may set  minimum levels for  the allowance and/or  require the
charge-off of loans as a result of their examination.   This independent grading
process by  regulators serves  as a  standard to gage  the effectiveness  of the
internal credit review.



























                                      -28-<PAGE>

V.      Deposits

        A.   Average Amounts of Deposits and Average Rates Paid

             Average amounts  and average  rates paid  on deposit  categories in
             excess of 10% of average total deposits are presented below:


                                                 December 31,
                                                 ------------

                                     1998             1997            1996
                                     ----             ----            ----
                                        Average         Average          Average
                                Average  Rates  Average  Rates  Average   Rates
            ($ in thousands)    Amounts   Paid  Amounts   Paid  Amounts   Paid
                                ------- ------- ------- ------- -------  -------

           Noninterest-bearing
            demand deposits    $ 49,552    ---    44,193   ---    41,997   ---  

           Interest-bearing
            demand deposits      77,842   2.83%   75,519  2.86%   76,017  2.87% 

           Savings deposits      47,475   3.18%   47,781  3.29%   49,783  3.31% 

           Time deposits        185,101   5.51%  171,946  5.44%  168,141  5.46% 
                               --------          -------         -------
              Average total
               deposits        $359,970   4.48%  339,439  4.43%  335,938  4.43% 
                               ========  =====   ======= =====   ======= =====  


        B.   Time Deposits of $100,000 or More

             The following  table sets  forth time  certificates of  deposit and
             other time deposits of $100,000 or more:



                                                December 31, 1998
                                                -----------------

                                           Over 3     Over 6
                                    3      Months     Months
                                  Months  Through 6 Through 12  Over 12
            ($ in thousands)     or Less   Months     Months    Months   Total
                                 -------  --------- ----------  -------  -----
            Certificates of
             deposit             $44,406    34,275     65,376   52,454  196,511

            Other time deposits   33,515    24,225     49,156   43,358  150,254
                                 -------    ------     ------   ------  -------
              Total time
               deposits of
               $100,000 or more  $10,891    10,050     16,220    9,096   46,257
                                 =======    ======     ======   ======  =======


                                      -29-<PAGE>

 VI.    Return on Equity and Assets
        ---------------------------

        The ratio of  net income to average stockholders' equity  and to average
        total assets, and certain other ratios are presented below:


                                                           December 31,
                                                           ------------
                                                     1998      1997      1996
                                                     ----      ----      ----
        Return on average assets                      1.61%    1.66%      1.58%
        Return on average equity(1)                  11.66%   12.21%     12.37%
        Dividend payout ratio                        41.29%   39.31%     37.55%
        Average equity to average assets(1)          13.84%   13.57%     12.75%

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

Item 2.  Properties
-------------------

   Bankshares' headquarters,  including the Main  Office of NBB, are  located at
100  South Main Street,  Blacksburg, Virginia.   In addition to  the Main Office
location,  NBB owns eight branch offices: two in  the Town of Blacksburg; one in
the Town of Christiansburg; one in Montgomery County; and three in the County of
Giles and  one in  the City of  Galax.   NBB leases office  space near  the Main
Office which is occupied by NBB's trust, marketing, audit, compliance and credit
review departments.  An additional property  was acquired in 1996 to provide for
additional office  space.  Construction of an office building on this site began
in  late 1998 and,  when complete, in 1999,  it will reduce  the future need for
leased properties.

   Bank of  Tazewell County  owns the  land and  building of  six  of its  seven
offices.  The  bank leases the  land and building for  its seventh office.   The
Main Office  is located at  Main Street,  Tazewell, Virginia.   Three additional
branches are located in  Tazewell, one in North Tazewell and  two are located in
Bluefield,  Virginia.   Management  believes that  its  existing facilities  are
adequate to meet present needs and any anticipated growth.

   NBB owns all  its computer and data processing hardware and  is a licensee of
the software it utilizes.  BTC utilizes this same system for data processing.

Item 3.  Legal Proceedings
--------------------------

   Bankshares, NBB  nor BTC are not  currently involved in any  material pending
legal proceedings, other  than routine litigation incidental to  NBB's and BTC's
banking business.

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

   None





                                      -30-<PAGE>

                      Executive Officers of the Registrant
                      ------------------------------------

Pursuant  to General  Instruction  G(3)  of Form  10-K,  the  following list  is
included as  an unnumbered  item in  Part  I of  this report  in lieu  of  being
included  in the Proxy  Statement for the  Annual Meeting of  Stockholders to be
held on April 13, 1999.

The  following  is  a list  of  names  and ages  of  all  executive officers  of
Bankshares; their terms of office as officers;  the positions and offices within
Bankshares  held  by each  officer; and  each  person's principal  occupation or
employment during the past five years.


                                                           Year Elected an
             Name        Age  Offices and Positions Held  Officer/Director
             ----        ---  --------------------------  ----------------
      James G. Rakes     54  Chairman, President and            1986
                             Chief Executive Officer,
                             National Bankshares, Inc.;
                             and President and Chief
                             Executive Officer of The
                             National Bank of Blacksburg
                             since 1983.
      J. Robert Buchanan 47  Treasurer, National                1998
                             Bankshares, Inc.; Senior
                             Vice President/Chief
                             Financial Officer of The
                             National Bank of Blacksburg,
                             since January 1, 1998; prior
                             thereto Senior Vice
                             President, Treasurer and
                             Chief Financial Officer,
                             Premier Bankshares Corporate
                             since 1991.
      Marilyn B. Buhyoff 50  Secretary & Counsel,               1989
                             National Bankshares, Inc.;
                             and Senior Vice President/
                             Administration since 1992, 
                             of The National Bank of
                             Blacksburg.
      F. Brad Denardo    46  Corporate Officer, National        1989
                             Bankshares, Inc.; and
                             Executive Vice President/
                             Loans since 1989 of The
                             National Bank of Blacksburg.
      Joan C. Nelson     48  Corporate Officer since            1993
                             1998; prior thereto
                             Treasurer since 1993,
                             National Bankshares, Inc.;
                             Cashier since 1993 and
                             Senior Vice President/
                             Operations since 1989 of The
                             National Bank of Blacksburg.

Except for J. Robert Buchanan and Joan C. Nelson, each of the executive officers
listed   above  have   served   Bankshares  and/or   its  subsidiaries   in  the
aforementioned executive capacity for the past five years.


                                      -31-<PAGE>

                                     Part II
                                     -------


Item 5.  Market for Registrant's Common Equity and Related
Stockholder Matters
----------------------------------------------------------

   There is no established trading market  for the stock of National Bankshares,
Inc.   As of February  8, 1999, the total number  of holders of the Registrant's
common stock was 1,151.

   Information  concerning Market  Price and  Dividend Data  is set  forth under
"Common  Stock Information and Dividends" on page  12 of Bankshares' 1998 Annual
Report to Stockholders and is incorporated herein by reference.


Item 6.  Selected Financial Data
--------------------------------

   The  table entitled  "Selected  Consolidated Financial  Data"  on page  4  of
Bankshares'  1998  Annual Report  to  Stockholders  is  incorporated  herein  by
reference.


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------

   The  information contained  under "Management's  Discussion and  Analysis" on
pages  5  through 12  of  Bankshares'  1998  Annual  Report to  Stockholders  is
incorporated herein by reference.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------

   See  "Analysis of  Interest Rate  Sensitivity" set  forth below.   Additional
information is set forth under the section "Interest Rate Sensitivity" on page 5
and  6 and  the section  "Derivatives and  Market Risk  Exposure" on  page 9  of
Bankshares' 1998 Annual  Report to  Stockholders and is  incorporated herein  by
reference.


















                                      -32-<PAGE>

Analysis of Interest Rate Sensitivity

The following  discussion of interest rate  sensitivity 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.

The table  below  sets forth,  as  of December  31,  1998, the  distribution  of
repricing opportunities  of the Company's interest-earning  assets and interest-
bearing  liabilities, the  interest  rate sensitivity  gap (i.e.,  interest rate
sensitive  assets  less interest  rate  sensitive  liabilities), the  cumulative
interest rate sensitivity gap ratio (i.e., interest rate sensitivity gap divided
by total interest-earning  assets) and the cumulative  interest rate sensitivity
gap ratio.   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.


Certain shortcomings  are inherent in  the method  of analysis presented  in the
following table.  For example, although certain  assets and liabilities may have
similar maturities or periods of repricing, they may react  in different degrees
and  at  different times  to  changes  in market  interest  rates.   Also,  loan
prepayments and early  withdrawals of  certificates of deposit  could cause  the
interest sensitivities to vary from those which appear in the table.

An interest  rate  sensitivity gap  is considered  positive when  the amount  of
interest rate sensitive  assets exceeds  the amount of  interest rate  sensitive
liabilities.   A gap  is considered  negative when the  amount of  interest rate
sensitive  liabilities exceeds  the amount  of  interest rate  sensitive assets.
During a period of rising interest rates, a negative gap would generally tend to
affect adversely net interest  income while a positive gap would  generally tend
to result in  an increase in net interest income.   During a period of declining
interest  rates, a negative gap would generally  tend to result in increased net
interest income, while a positive  gap would generally tend to  affect adversely
net interest income.  The Company's future earnings may be adversely affected by
a sharp upturn  in interest rates as  the Company is  liability sensitive for  a
period extending beyond one year.  In a falling rate environment, earnings might
benefit to  a certain degree from  this position, because assets  at higher rate
levels  would  reprice  downward  at  a  slower  rate  than  interest  sensitive
liabilities.    Over the  one  to  five year  period,  the Company's  cumulative
interest-sensitivity position reflects an asset sensitive position.   This would
mean  the  Company would  benefit  initially  from falling  rates  but  would be
adversely affected by  rising rates.  This would depend,  however, on the length
of time  rates were  rising or  falling and  the length  of time  rates remained
stable at the level ultimately reached.














                                      -33-<PAGE>
<TABLE>
An interest-sensitivity table showing all  major interest sensitive asset  and liability categories for  the
time intervals indicated and cumulative "gaps" for each interval is set forth on the following table.

<CAPTION>
                 Interest Rate                                     December 31, 1998
                                                                   -----------------
              Sensitivity Table (1)              Interest-sensitive (days)
                                                 -------------------------      1-5       >5
    ($ in thousands)                             1-90      91-180   181-365    Years     Years    Total
                                                 ----      ------   -------    -----     -----    -----
   <S>                                         <C>         <C>      <C>        <C>       <C>     <C>
   Interest-earning assets:
    Commercial and industrial loans            $   9,696     8,437    18,993   46,195    27,188  110,509 
    Real estate mortgage loans                     1,948     3,602     8,946   21,520    12,708   48,724 
    Real estate construction loans                 8,556     2,184     1,301      692        94   12,827 
    Loans to individuals                          17,504     3,825     7,867   32,478     5,523   67,197 
                                               ---------  --------   -------  -------   -------  ------- 
      Total loans, net of unearned income (2)  $  37,704    18,048    37,107  100,885    45,513  239,257 
                                               ---------  --------   -------  -------   -------  ------- 
    Federal funds sold                             5,090       ---       ---      ---       ---    5,090 
    Interest bearing deposits                      7,027       ---       ---      ---       ---    7,027 
    Securities available for sale (3)              1,276     2,579     4,047   19,052   109,124  136,078 
    Securities held to maturity (3)                2,895     2,116     3,191   15,741     6,733   30,676 
    Mortgage loans held for sale                   2,180       ---       ---      ---       ---    2,180 
                                               ---------  --------   -------  -------   -------  ------- 
      Total interest-earning assets            $  56,172    22,743    44,345  135,678   161,370  420,308 
                                               =========  ========   =======  =======   =======  ======= 

   Interest-bearing liabilities:
    Interest-bearing demand deposits           $  84,319       ---       ---      ---       ---   84,319 
    Savings deposits                              46,387       ---       ---      ---       ---   46,387 
    Time deposits                                 44,406    34,275    65,376   52,454       ---  196,511 
    Other borrowings                                 214       ---       ---      ---       ---      214 
                                               ---------  ========   -------  -------   -------  ------- 
      Total interest-bearing liabilities       $ 175,326    34,275    65,376   52,454       ---  327,431 
                                               =========  ========   =======  =======   =======  ======= 
   Cumulative ratio of interest-
    sensitive assets to interest-
    sensitive liabilities                            .32       .38       .45      .79      1.28     1.28 
                                               =========  ========   =======  =======   =======  ======= 
   Cumulative interest-sensitivity gap         $(119,154) (130,686) (151,717) (68,493)   92,877   92,877 
                                               =========  ========  ========  =======   =======  ======= 

(1)     The Company  is sensitive  to interest  rate changes,  as liabilities  generally reprice  or
        mature  before   interest-earning  assets.  The  above  gap  table  reflects  the  Company's
        rate-sensitive position  at December  31, 1998,  and is  not necessarily  reflective of  its
        position throughout the  year.  The carrying  amounts of interest-rate sensitive  assets and
        liabilities are  presented in the periods  in which they  reprice to market rates  or mature
        and are summed to show the interest-rate sensitivity gap.
(2)     Excludes nonaccrual loans.
(3)     Call  features on certain  securities, if exercised  could have the effect  of materially shortening
        the average life of the investment portfolio.  The exercise  of a call feature is dependent upon the
        rate environment.  The call decision is at the issuers discretion and ultimate benefit.
</TABLE>
                                                    -34-<PAGE>

   The Company also  uses simulation analysis to forecast  its balance sheet and
monitor interest rate sensitivity.  One test used by NBI 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 December 31, 1998.


          ($ in thousands, except for percent data)

             Rate       Net          Return on           Return on
            Shift      Income     Average Equity      Average Assets
            -----      ------     --------------      --------------
              300     $(101)          10.88%               1.49%

              200       (67)          11.52%               1.58%
              100       (33)          12.16%               1.67%

           (-)100        33           13.44%               1.84%

           (-)200        67           14.08%               1.93%
           (-)300        90           14.51%               1.99%


   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,
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.























                                      -35-<PAGE>

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

   The following  consolidated financial  statements of  the Registrant and  the
Independent  Auditors' Report set  forth on pages  13 through  37 of Bankshares'
1998 Annual Report to Stockholders are incorporated herein by reference:

   1.   Independent Auditors' Report

   2.   Consolidated Balance Sheets - December 31, 1998 and 1997

   3.   Consolidated Statements of Income and Comprehensive Income - Years ended
        December 31, 1998, 1997 and 1996

   4.   Consolidated Statements of Changes in Stockholders' Equity - Years ended
        December 31, 1998, 1997 and 1996

   5.   Consolidated Statements of Cash  Flows - Years ended December  31, 1998,
        1997 and 1996

   6.   Notes to Consolidated Financial Statements - December 31, 1998, 1997 and
        1996

Item  9.   Changes  In  and Disagreements  With  Accountants on  Accounting  and
Financial Disclosure
--------------------------------------------------------------------------------

   None.

                                    Part III
                                    --------

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

   Executive Officers of Bankshares as  of December 31, 1998 are listed  on page
30 herein.

   Information with  respect to the directors of Bankshares is set out under the
caption  "Election of  Directors"  on pages  2  through 4  of  Bankshares' Proxy
Statement  dated March  17, 1999,  which information  is incorporated  herein by
reference.

Item 11.  Executive Compensation
--------------------------------

   The information set forth  under "Executive Compensation" on pages  8 through
13 of Bankshares' Proxy Statement dated March 17, 1999 is incorporated herein by
reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

   The  information set forth under  "Voting Securities and  Stock Ownership" on
page  1 and  under  "Stock Ownership  of Certain  Beneficial Owners"  and "Stock
Ownership of Directors  and Executive Officers" on pages 1  and 2 of Bankshares'
Proxy Statement dated March 17, 1999 is incorporated herein by reference.



                                      -36-<PAGE>


Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

   The  information  contained under  "Certain  Transactions  With Officers  and
Directors"  on page 14  of Bankshares' Proxy  Statement dated March  17, 1999 is
incorporated herein by reference.


                                     Part IV
                                     -------

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
-------------------------------------------------------------------------

   (a)  The following documents are filed as part of this report:

                                                           1998 Annual Report   
                                                        To Stockholders Page(s)*
                                                        ------------------------

        1.   Financial Statements:
             --------------------

             Independent Auditors' Report                           13          

             Consolidated Balance Sheets -
               December 31, 1998 and 1997                           14          

             Consolidated Statements of
               Income and Comprehensive
               Income - Years ended December 
               31, 1998, 1997 and 1996                              15          

             Consolidated Statements of Changes
               in Stockholders' Equity - Years 
               ended December 31, 1998, 1997 and
               1996                                                 16          

             Consolidated Statements of Cash
               Flows - Years ended December 31,
               1998, 1997 and 1996                                  17          

             Notes to Consolidated 
               Financial Statements - December
               31, 1998, 1997 and 1996                             18-37        

        2.   Financial Statement Schedules:
             -----------------------------

             None






*  Incorporated by reference from the indicated pages of the 1998 Annual  Report
   to Stockholders.


                                      -37-<PAGE>

        3.   Exhibits:
             --------

                                                         Page No. in
        Exhibit No.           Description             Sequential System
        -----------           -----------             -----------------
            3(i)    Articles of Incorporation, as   (incorporated
                    amended, of National            herein by
                    Bankshares, Inc.                reference to
                                                    Exhibit 3(a) of
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1993)
            4(i)    Specimen copy of certificate    (incorporated 
                    for National Bankshares, Inc.   herein by 
                    common stock, $2.50 par value   reference to
                                                    Exhibit 4(a) of 
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1993)

            4(i)    Article Four of the Articles of (incorporated 
                    Incorporation of National       herein by 
                    Bankshares, Inc. included in    reference to
                    Exhibit No. 3(a))               Exhibit 4(b) of 
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1993)
         10(ii)(B)  Computer software license       (incorporated 
                    agreement dated June 18, 1990,  herein by 
                    by and between Information      reference to
                    Technology, Inc. and The        Exhibit 10(e) of 
                    National Bank of Blacksburg     the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1992)
        *10(iii)(A) Employment Agreement dated      (incorporated 
                    January 1, 1992, by and between herein by 
                    National Bankshares, Inc. and   reference to
                    James G. Rakes                  Exhibit 10(a) of 
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1992)
        *10(iii)(A) Capital Accumulation Plan       (incorporated 
                    (included in Exhibit No. 10(a)) herein by 
                                                    reference to
                                                    Exhibit 10(b) of 
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1992)


                                      -38-<PAGE>


                                                         Page No. in
        Exhibit No.           Description             Sequential System
        -----------           -----------             -----------------
        *10(iii)(A) Employee Lease Agreement dated  (incorporated 
                    May 7, 1992, by and between     herein by 
                    National Bankshares, Inc. and   reference to
                    The National Bank of Blacksburg Exhibit 10(c) of 
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1992)
           13(i)    1998 Annual Report to
                    Stockholders (such Report,
                    except to the extent
                    incorporated herein by
                    reference, is being furnished
                    for the information of the
                    Commission only and is not
                    deemed to be filed as part of
                    this Report on Form 10-K)

           21(i)    Subsidiaries of National
                    Bankshares, Inc.
             27     Financial Data Schedule

*  Indicates a management  contract or  compensatory plan required  to be  filed
   herein.

   (b)  Reports on Form 8-K filed during the last quarter of  the period covered
        by this report:
        ------------------------------------------------------------------------

        None.

   (c)  Exhibits required by Item 601 of Regulation S-K:
        -----------------------------------------------

        See Item 14(a)3 above.

   (d)  Financial Statement Schedules required by Regulation S-X:
        --------------------------------------------------------

        See Item 14(a)2 above.
















                                      -39-<PAGE>

                                   Signatures
                                   ----------

   Pursuant  to the  requirements  of  Section 13  or  15(d)  of the  Securities
Exchange Act of  1934, National Bankshares, Inc. has duly  caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                               National Bankshares, Inc.

                         BY:   /s/JAMES G. RAKES             
                               -------------------------------------
                               James G. Rakes, Chairman,
                               President and Chief Executive Officer

                         DATE: MARCH 12, 1999    
                               -------------------------------------

                         BY:   /s/J. ROBERT BUCHANAN
                               -------------------------------------
                               J. Robert Buchanan        
                               Treasurer (Principal Financial Officer)

                         DATE: MARCH 12, 1999
                               -------------------------------------

 Pursuant  to the  requirements of  the Securities  Exchange Act  of 1934,  this
report has been signed by the following  persons on behalf of the Registrant and
in the capacities and on the date indicated.

       Name                      Date           Title
       ----                      ----           -----
       /s/C. L. BOATWRIGHT                      Director and Vice
       ------------------------- -------------- Chairman of the Board
       C. L. Boatwright
       /s/L. A. BOWMAN                          Director
       ------------------------- --------------
       L. A. Bowman
       /s/A. A. CROUSE                          Director
       ------------------------- --------------
       A. A. Crouse          
       /s/J. A. DESKINS SR                      Director
       ------------------------- --------------
       J. A. Deskins, Sr.
       /s/P. A. DUNCAN                          Director
       ------------------------- --------------
       P. A. Duncan
       /s/C. L. FORRESTER                       Director
       ------------------------- --------------
       C. L. Forrester
       /s/W. T. PEERY                           Director
       ------------------------- --------------
       W. T. Peery
       /s/J. G. RAKES                           Chairman of the Board
       ------------------------- -------------- President and Chief
       J. G. Rakes                              Executive Officer -
                                                National Bankshares, Inc.
       /s/J. R. STEWART                                 Director
       ------------------------- --------------
       J. R. Stewart


                                      -40-<PAGE>

                                Index to Exhibits
                                -----------------


                                                          Page No. in
        Exhibit No.            Description             Sequential System
        -----------            -----------             -----------------
           3(i)     Articles of Incorporation, as    (incorporated
                    amended, of National Bankshares, herein by
                    Inc.                             reference to
                                                     Exhibit 3(a) of
                                                     the Annual Report on
                                                     Form 10K for 
                                                     fiscal year ended
                                                     December 31, 1993)
           4(i)     Specimen copy of certificate for (incorporated 
                    National Bankshares, Inc. common herein by 
                    stock, $2.50 par value           reference to
                                                     Exhibit 4(a) of 
                                                     the Annual Report on
                                                     Form 10K for 
                                                     fiscal year ended
                                                     December 31, 1993)

           4(i)     Article Fourth of the Articles   (incorporated 
                    of Incorporation of National     herein by 
                    Bankshares, Inc. included in     reference to
                    Exhibit No. 3(a))                Exhibit 4(b) of 
                                                     the Annual Report on
                                                     Form 10K for 
                                                     fiscal year ended
                                                     December 31, 1993)
         10(ii)(B)  Computer software license        (incorporated 
                    agreement dated June 18, 1990,   herein by 
                    by and between Information       reference to
                    Technology, Inc. and The         Exhibit 10(e) of 
                    National Bank of Blacksburg      the Annual Report on
                                                     Form 10K for 
                                                     fiscal year ended
                                                     December 31, 1992)

        *10(iii)(A) Employment Agreement dated       (incorporated 
                    January 1, 1992, by and between  herein by 
                    National Bankshares, Inc. and    reference to
                    James G. Rakes                   Exhibit 10(a) of 
                                                     the Annual Report on
                                                     Form 10K for 
                                                     fiscal year ended
                                                     December 31, 1992)
        *10(iii)(A) Capital Accumulation Plan        (incorporated 
                    (included in Exhibit No. 10(a))  herein by 
                                                     reference to
                                                     Exhibit 10(b) of 
                                                     the Annual Report on
                                                     Form 10K for 
                                                     fiscal year ended
                                                     December 31, 1992)



                                      -41-<PAGE>


                                                          Page No. in
        Exhibit No.            Description             Sequential System
        -----------            -----------             -----------------
        *10(iii)(A) Employee Lease Agreement dated   (incorporated 
                    May 7, 1992, by and between      herein by 
                    National Bankshares, Inc. and    reference to
                    The National Bank of Blacksburg  Exhibit 10(c) of 
                                                     the Annual Report on
                                                     Form 10K for 
                                                     fiscal year ended
                                                     December 31, 1992)
           13(i)    1998 Annual Report to
                    Stockholders (such Report,
                    except to the extent
                    incorporated herein by
                    reference, is being furnished
                    for the information of the
                    Commission only and is not
                    deemed to be filed as part of
                    this Report on Form 10-K)

           21(i)    Subsidiaries of National
                    Bankshares, Inc.
            27      Financial Data Schedule

*    Indicates a management contract  or compensatory plan required to  be filed
     herein.
































                                      -42-<PAGE>