National Bankshares, Inc.
     1995 Annual Report










































                                      -41-<PAGE>





 Financial Highlights         $ In thousands, except per share data.

                                        1995       1994       1993
                                      --------   --------   --------
 Net income per share                 $   1.90      1.70       1.56 

 Book value per share                    13.16     11.75      10.68 

 Cash dividends declared per share         .63       .58        .50 

 Total assets                          203,389   199,727    186,694 

 Total securities                       66,737    69,503     62,518 

 Loans, net                            122,973   113,718    110,217 

 Total deposits                        179,673   178,636    167,702 

 Stockholders' equity                   22,554    20,137     18,254 












                                    Contents
           ----------------------------------------------------------
          Community Connections                                     2

          To Our Stockholders                                       3

          Selected Consolidated Financial Data                      4

          Management's Discussion and Analysis                      5

          Statement of Management's Responsibility                 15

          Independent Auditors' Report                             16

          Consolidated Financial Statements                        17

          Comparative Statements of Trust Assets                   42

          Corporate Information                                    46







                                      -1-<PAGE>

Community Connections


                  PHOTOGRAPH OF 1995 VALENTINE SOCIAL FOR OUR
                              PRIMELINE CUSTOMERS


PHOTOGRAPH OF 1995 TOUR DUPONT


            PHOTOGRAPH OF NBB'S MARKET PLACE BRANCH MANAGER MAKING A
                DONATION TO MONTGOMERY COUNTY PARKS & RECREATION

     The National Bank has been a part of life in the New River Valley for over
a  century.  We have financed homes  that are now historic and automobiles that
have  become  antiques.   We  have been  there  to assist  generations  of area
residents when they opened their first savings accounts as children, bought new
homes  as  young  adults,  established  and  expanded  businesses  and  enjoyed
financial  security in  retirement.   While NBB  has grown  and kept  pace with
changing  technology, our  bankers  have  never  forgotten  the  importance  of
building and maintaining personal relationships with their customers.






                     PHOTOGRAPH OF BANK DAY AT MAIN OFFICE
         CUSTOMER SERVICE REPRESENTATIVE DEMONSTRATES HOW TO USE AN ATM


PHOTOGRAPH OF NBB'S HETHWOOD OFFICE MANAGER
HOSTING VISIT BY ELEMENTARY SCHOOL CHILDREN


         PHOTOGRAPH OF NBB EMPLOYEES CAROLING AT SHOWALTER NURSING HOME


     As  an  involved  corporate citizen,  The  National  Bank  has helped  our
communities meet diverse educational  and civic goals.  We have  placed banking
professionals  in local  classrooms,  and we  have  brought students  into  our
offices.    NBB and  its  employees  have  helped build  hospitals  and  public
recreation facilities, and through the years we have contributed volunteers and
resources to  support countless worthwhile artistic  and charitable activities.
Even though life in the New River Valley and banking at NBB have undergone many
changes since 1891,  The National  Bank's connections to  the community  remain
solid and strong.













                                      -2-<PAGE>

National Bankshares, Inc.


     To Our Stockholders:

     During 1995 National Bankshares,  Inc. continued its profitable tradition,
once  again  achieving  record earnings.    Net  income  for  the year  reached
$3,256,000, an increase of 11.7%  over 1994.  Growth in the  loan portfolio and
improved  asset quality were  important components  of this  solid performance.
Already strong  capital levels  rose through  the year, and  dividends paid  to
stockholders were $0.63 per share  in 1995, up from $0.58 per share paid in the
previous year.

     Customers,  stockholders,  employees  and   the  Board  of  Directors  all
contribute to  Bankshares' consistently positive operating  results.  Customers
and  stockholders  have been  loyal  and  have offered  us  long term  support.
Employees regularly strive to provide  friendly, high quality customer service.
Knowledgeable  individuals  serve on  the Boards  of  Directors of  the holding
company  and the bank, and the  companies regularly benefit from their business
expertise.   Several  directors have  been with  National Bankshares  since its
formation in 1986 and have even longer tenure on The National Bank's board.  We
miss the  contributions of  our most  senior director,  John M. Barringer,  who
retired in September after more than forty years of distinguished service.

     Good progress continues to be made toward completion of the pending merger
with Bank  of Tazewell County.   Certain unanticipated  developments, including
government  closings  and  severe  winter weather,  have  delayed  the proposed
consummation of  the transaction.  Assuming  all merger conditions are  met and
regulatory approvals granted, we now hope  to finalize the merger in the second
quarter  of 1996.  Despite the delays, the Board of Directors and management of
National Bankshares remain enthusiastic about the prospects of the affiliation.
The Board is especially positive about the expanded opportunities and potential
benefits which this merger offers to our stockholders.

     As we begin our 105th year, new projects and exciting changes are planned.
We expect  to build our future  with a focus  on the same principles  that have
guided National Bankshares and The National Bank since 1891.   We are committed
to continuing  the tradition of offering quality community banking, emphasizing
state of the art financial services with a personal touch.



PHOTOGRAPH OF
JAMES G. RAKES

                                   James G. Rakes
                                   President and
                                   Chief Executive Officer












                                      -3-<PAGE>

                      Selected Consolidated Financial Data




               $ In thousands, except per share data.  Years ended December 31,
 ------------------------------------------------------------------------------
                                     1995      1994     1993     1992     1991
                                    ------    ------   ------   ------   ------

 Selected   Interest income        $ 16,071   14,562   14,428   16,047   17,732
 Income     Interest expense          6,696    5,655    5,823    8,048   10,886
 Statement  Net interest income       9,375    8,907    8,605    7,999    6,846
 Data:      Provision for loan
             losses                     275      540      930    1,060      615
            Noninterest income        1,777    1,607    1,541    1,287      967
            Noninterest expense       6,587    6,158    5,855    5,400    4,738
            Income taxes              1,034      900      689      498      416
            Net income                3,256    2,916    2,672    2,328    2,044
 Per Share  Net income             $   1.90     1.70     1.56     1.37     1.21
 Data:      Cash dividends
             declared                   .63      .58      .50      .43      .39
            Book value per share      13.16    11.75    10.68     9.61     8.67

 Selected   Loans, net             $122,973  113,718  110,217  106,040  114,214
 Balance    Total securities         66,737   69,503   62,518   60,442   59,054
 Sheet Data Total assets            203,389  199,727  186,694  182,595  185,829
 at End     Total deposits          179,673  178,636  167,702  165,633  170,354
 of Year:   Stockholders' equity     22,554   20,137   18,254   16,375   14,714

 Selected   Return on average
 Ratios:     assets                    1.62     1.51     1.45     1.26     1.12
            Return on average
             equity                   15.09    15.19    15.43    14.98    14.63
            Dividend payout ratio     33.17    34.05    32.00    31.49    32.14
            Average equity to
             average assets           10.59     9.94     9.38     8.44     7.66


                     Average Equity to Average Assets Graph

              1991        1992        1993        1994        1995
             ------      ------      ------      ------      ------

             7.66%       8.44%       9.38%       9.94%       10.59%


                         Cash Dividends Per Share Graph

              1991        1992        1993        1994        1995
             ------      ------      ------      ------      ------

             $0.39        0.43        0.50        0.58        0.63







                                      -4-<PAGE>
                      Management's Discussion and Analysis

($ In millions)

Net Income Graph


              1991        1992        1993        1994        1995
             ------      ------      ------      ------      ------

             $  2.0        2.3         2.7        2.9          3.3   

Net Interest Income Graph

              1991        1992        1993        1994        1995
             ------      ------      ------      ------      ------

             $  6.8        8.0         8.6        8.9          9.4   

Total Assets Graph

              1991        1992        1993        1994        1995
             ------      ------      ------      ------      ------

             $185.8      182.6       186.7      199.7        203.4   


($ In thousands)

PERFORMANCE SUMMARY
     Bankshares' net income  for 1995 was $3,256, an increase  of $340 or 11.7%
over  1994.  This  produced a  return on average  assets and  average equity of
1.62% and 15.09%, respectively.  This increase was primarily due to improvement
in  the net yield on interest-earning assets which  was 5.39% in 1995 and 5.22%
in 1994.  Net  interest income for 1995 was $9,375, an increase of $468 or 5.3%
over 1994.
     Net income for 1994 was $2,916, an increase of $244 or 9.1% over 1993. The
return on  average assets and  average equity  for 1994 was  1.51% and  15.19%,
respectively.  The increase over 1993 resulted primarily from a decrease in the
loan loss provision which declined $390  or 41.9% and net interest income which
increased by $302 or 3.5% over 1993.

NET INTEREST INCOME
1995 vs. 1994
     Net interest income was $9,375 and $8,907 for 1995 and 1994, respectively.
This  increase was attributable in part to  rising asset yields which increased
to 8.94% in 1995  from 8.28% in 1994.  This increase also resulted in part from
an internal shift in funds from  investments to higher yielding loans.  At  the
same time the cost to  fund interest-earning assets rose from 3.06%  in 1994 to
3.55% in 1995.   This increase was primarily due  to general rate increases  in
the marketplace  as overall  deposit  growth was  nominal.   The  net yield  on
interest-earning assets which factors in both  capital and demand deposits as a
funding source was 5.39% in 1995 and 5.22% in 1994.
     In April 1994, Bankshares acquired the deposits of the  Pembroke Office of
First  Union  National   Bank  of  Virginia  which   increased  total  deposits
approximately $14,514.    This addition  produced  excess liquidity  which  was
initially absorbed by the investment portfolio.  In 1995, NBB was able to shift
a portion of  these funds to the loan  portfolio and in doing so  increased the
yield  on  interest-earning  assets.   These  changes  combined  to produce  an
improvement in the  net yield  on interest-earning assets.   Average  interest-
earning assets for  1995 were $188,772, an increase of $3,976 or 2.2% over 1994


                                      -5-<PAGE>
due in part to the  Pembroke deposits obtained in  the second quarter of  1994,
nominal deposit  growth and internally  generated capital.   Average  interest-
bearing  liabilities were $156,957  for 1995, an  increase of $337  or .2% over
1994.    Deposit growth  in  1995 was  a  nominal  .6% and  was  the result  of
Bankshares'  excess  liquidity  position  which  allowed  it  to  take  a  less
aggressive stance in the procurement of external funds.  The full absorption of
excess liquidity created by the acquisition of the Pembroke Office deposits and
nominal deposit growth is expected to continue.

1994 vs. 1993
     Net interest income for 1994 was $8,907,  an increase of $302 or 3.5% over
the previous year.   The acquisition  of deposits  totaling $14,514 from  First
Union National Bank of Virginia significantly impacted Bankshares' net interest
income for 1994.  The influx  of deposits from the deposit acquisition produced
a  positive  volume  related  change in  interest-earning  assets;  however, it
created a negative rate change as these assets were invested  in lower yielding
investments  because insufficient  loan  demand existed  to  absorb the  funds.
Asset  yields were 8.28% in 1994 and 8.83%  in 1993.  Loan yields declined from
9.65% in 1993 to 9.22%  in 1994 in part due to the increasing  prime rate which
caused  a substantial  decline  in commercial  loan  volume.   The  decrease in
commercial  loan volume  was offset  in part  by an  increase in  consumer loan
volume  caused  by an  aggressive pricing  strategy  primarily at  the Pembroke
Office formerly a branch of First Union National Bank of Virginia.  The federal
funds rate was up slightly in 1994 as it reacted to market changes more quickly
than other  interest-earning assets.   Average interest-earning  assets totaled
$184,796 in 1994 compared to $171,150 in 1993.
     Interest  expense  was higher  in 1994  due  to the  volume  increase that
resulted from  the acquisition  of the  First Union  deposits.   However, these
deposits were generally lower rate deposits than Bankshares' which lessened the
impact  on interest expense.  Average rates paid  on deposits was 3.61% in 1994
compared to  3.95% in  1993.   With  the additional  liquidity, Bankshares  was
positioned to take a less aggressive position in obtaining external funds which
offset  to some  extent the  impact of  the rising  rate environment.   Average
interest-bearing liabilities  totaled $156,620 in 1994 compared  to $147,507 in
1993.    The  growth  in  interest-earning  assets  and  in  deposits  was  due
principally to the acquisition  of deposits from  First Union National Bank  of
Virginia.

INTEREST RATE SENSITIVITY
     Bankshares  has systems and procedures  in place to  monitor interest rate
sensitivity  and modifies  its  asset and  liability  management strategies  in
response  to changing economic conditions.   Bankshares is  sensitive to rising
interest rate changes as  liabilities generally reprice or mature  more quickly
than interest-earning assets.
     Bankshares' future earnings may be adversely affected by a sharp upturn in
interest  rates as  Bankshares is  liability sensitive  for a  period extending
beyond one year.  In  a falling rate environment earnings would benefit to some
extent  from this  position as  assets at  higher  rate levels  would generally
reprice downward at a slower rate than interest sensitive liabilities.
     Beyond  one  year,  Bankshares'  cumulative  interest  sensitive  position
reflects  a slightly liability  sensitive position indicating  that the adverse
effect of rising rates or benefit from falling rates would dissipate in the one
to five year time period.
     The impact of  rising rates is dependent, however, upon the magnitude, the
length of the rising or  falling rate trend and the period of time rates remain
stable  at a  given level.   Management  typically adjusts  its asset/liability
strategies during times of rising and falling rates to minimize or maximize the
impact of changing rate scenarios.




                                      -6-<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES 
     The adequacy  of the allowance  for loan losses  is based  on management's
judgement  and  analysis  of  current  and  historical  loss  experience,  risk
characteristics  of the portfolio, concentrations  of credit and asset quality,
as  well  as  other internal  and  external  factors such  as  general economic
conditions.
     An internal credit review department performs pre-credit reviews of  large
credits and on an  ongoing basis, conducts analyses to  systematically evaluate
loan  quality  and  provides   management  with  an  early  warning   of  asset
deterioration.    Changing trends  in  the  loan  mix  are  also  evaluated  in
determining the adequacy of the allowance.


                                 Loan Loss Data
                         ($ In thousands except for %)

                                                1995      1994     1993
                                               ------    ------   ------

     Provision for loan losses                $    275       540       930
     Net charge-offs to average net loans         .17%       .51       .63
     Allowance for loan losses to                               
      loans, net of unearned interest            1.66%      1.73      1.82
     Allowance for loan losses to
      nonperforming loans                      495.24%    309.09     82.79
     Allowance for loan losses to                               
      nonperforming assets                     179.47%    115.82     75.85
     Nonperforming assets to loans, net of
      unearned income, plus other real
      estate owned                                .92%      1.48      2.39
     Nonaccrual loans                         $    420       420     1,864
     Restructured loans                            ---       229       598
     Other real estate owned, net                  739     1,083       225
                                              --------   -------   -------
        Total nonperforming assets            $  1,159     1,732     2,687

     Accruing loans past due 90 days or more  $    210       219       326
                                              ========   =======   =======


     Nonperforming   loans   include   nonaccrual   and   restructured   loans.
Nonperforming loans and nonperforming assets do not include accruing loans past
due 90 days or more.  Nonperforming assets totaled $1,159 at December 31, 1995,
and represents a $573 or 33.1% decrease from December 31, 1994.  In 1994, other
real estate owned increased by $858  as nonaccrual real estate loans moved into
foreclosure.   Nonaccrual loans, which totaled $1,864 in 1993, declined to $420
in  1994.  The ratios in the above  table reflect an overall trend of improving
asset quality  that has allowed management  to decrease the provision  for loan
losses and at the same time maintain an adequate loan loss allowance.
     While  continual  efforts  are  made  to improve  overall  asset  quality,
management is unable to estimate when and under what exact terms problem assets
will be resolved.
     Effective January 1,  1995, Bankshares adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 114,  "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
Impairment  of a Loan  - Income Recognition  and Disclosures." At  December 31,
1995, the recorded investment in  loans which have been identified  as impaired
loans,  in accordance with  SFAS No.  114, totaled $539.   Of  this amount, $90
related to loans with no valuation allowance,  and $449 related to loans with a


                                      -7-<PAGE>
corresponding valuation allowance  of $319.   For the  year ended December  31,
1995, the average recorded  investment in the impaired loans  was approximately
$757, and  the total interest income  recognized on impaired loans  was $47, of
which $5 was  recognized on a  cash basis.   The balance  of impaired loans  at
January 1, 1995  totaled approximately $812.  The initial  adoption of SFAS No.
114 did not require an increase to Bankshares'  allowance for loan losses.  The
impact  of  SFAS  No. 114,  as  amended  by  SFAS No.  118,  was  immaterial to
Bankshares'  consolidated financial  statements as  of and  for the  year ended
December 31, 1995.

NONINTEREST INCOME
1995 vs. 1994
     Noninterest  income  totaled  $1,777 in  1995  and  $1,607  in 1994  which
represents an increase  of $170 or 10.6%.  Service  charges on deposit accounts
increased by $52 or 7.8% due to an increase in levels of demand  deposits which
on an average daily basis increased $2,063  or 10.2%.  Trust income declined by
$12  or 2.9%,  while  credit  card  fees increased  by  $95  or 26.8%.    Other
categories in the noninterest  income area fluctuated slightly.   The variances
were  attributable  to general  business  conditions  and business  development
efforts.

1994 vs. 1993
     Noninterest  income for 1994 and 1993 was $1,607 and $1,541, respectively,
which represents an increase  of $66 or 4.3%.  Service  charges on deposits for
1994 were $667 and  $594 in 1993, an increase  of $73 or 12.3%.   This increase
was  due in part  to the revision  of fee schedules  in mid-1993 which  were in
effect for all of 1994 and a general increase in business levels.  Trust income
was $417 for 1994  and $373 for 1993, an increase of $44  or 11.8% and a result
of an increase in trust assets which grew $7,049 or 14.5% from 1993 to 1994.
     Credit card fees showed  a continuing trend of improvement  increasing $38
or  12.0%.  The remainder of the  categories fluctuated due to general business
conditions,  with  the exception  of securities  gains  and losses,  which show
nominal amounts in both years.

NONINTEREST EXPENSE
1995 vs. 1994
     Noninterest expense for 1995 was $6,587, an increase of $429  or 7.0% over
1994.  In 1995, salaries and employee  benefits increased by $83 or 2.8% due to
normal salary increases, staff  additions and certain benefits linked  with the
increased profitability of NBB.
     The cost of  Federal Deposit Insurance  declined sharply by $181  or 46.8%
from  1994.  With  the Bank Insurance  Fund reaching mandated  levels, banks in
general became eligible for refunds on premiums previously paid and for reduced
premiums  in  future  periods.    Bankshares  received  a  refund  in  1995  of
approximately $110 and expects  future premiums to be nominal in  amount, based
on information currently available.
     Net costs  related to  the liquidation and  holding of  other real  estate
owned rose $158  in 1995  and was the  result of higher  than normal levels  of
properties  owned.   Resolution of  these problem  assets continues  to receive
strong emphasis.
     The other operating expense category increased by $298  or 19.9% from 1994
and was due primarily to expenses associated with the proposed merger discussed
below and a contribution to a community development corporation.  A substantial
portion  of Bankshares'  involvement in  the community  development corporation
will be recovered through future tax deductions and tax credits over a ten year
period.   The  remaining  components of  the  increase in  noninterest  expense
reflected higher costs associated with general business conditions.





                                      -8-<PAGE>
1994 vs. 1993
     Noninterest  expense  was  $6,158 in  1994  compared  to  $5,855 in  1993,
resulting in  an increase of 5.2%  in 1994.   In late 1993, the  acquisition of
NBB's credit  card processor,  Atlantic States  Bankcard Association, by  First
Data  Resources (FDR), necessitated a conversion to  FDR's computer system.  An
increase  in credit  card expense  of $69  in 1994  reflected FDR's  higher fee
structure.  The  1994 noninterest  expense figure also  includes certain  costs
associated with NBB's purchase in April, 1994 of the Pembroke,  Virginia office
of First  Union National Bank  of Virginia.   Deposit intangibles  of $908  are
being amortized over a ten-year period, and goodwill of $447 is being amortized
on a straight-line basis  over a fifteen-year period.  Net  costs of other real
estate owned  were $37  in 1994, compared  to $287  in 1993,  due to  decreased
losses  and  write-downs  and  lower maintenance  and  administrative  carrying
expenses  on the  properties.   The  timing of  acquisition and  liquidation of
foreclosed  assets, as  well  as  the nature  of  the properties,  affects  the
expenses incurred.  

INCOME TAXES
     Higher  taxable income  in 1995 resulted  in a  $134 or  14.9% increase in
federal income tax expense when compared to 1994.  A comparison of 1994 to 1993
also reflects an increase of $183 or 25.5%.   Tax exempt income continues to be
the primary difference in the "expected" and effective federal income tax rate.
Bankshares' effective  tax rate for  1995, 1994 and  1993 was 24.1%,  23.6% and
21.3%, respectively.
     Bankshares  has  determined  that  a  valuation  allowance  for  the gross
deferred tax assets is  not necessary due to  the fact that the realization  of
the entire gross deferred tax  assets can be supported  by the amount of  taxes
paid during the carryback period under current tax laws.

EFFECTS OF INFLATION
     Bankshares' consolidated  income statements generally reflect  the effects
of inflation.  Since interest rates, loan demand and deposit levels are related
to  inflation, the  resulting changes  are included  in net  income.   The most
significant  item  which  does   not  reflect  the  effects  of   inflation  is
depreciation expense, because historical  dollar values used to determine  this
expense  do  not  reflect  the  effect of  inflation  on  the  market  value of
depreciable assets after their acquisition.

BALANCE SHEET
1995 vs. 1994
     Total assets  at year-end 1995 totaled $203,389,  an increase of 1.8% over
1994.  Average assets  for 1995 totaled $201,906 an increase  of $4,725 or 2.4%
over 1994.   Loans, net of  unearned income, outstanding at  year-end 1995 were
$125,053, an increase of 8.1% from the same point in time in 1994.  This growth
was funded by a shift from investments to loans, increased internally generated
capital and a nominal growth in deposits.
     The  use  of  excess  internal  liquidity  to  fund  loan  growth  allowed
Bankshares to place less emphasis  on the procurement of external funds  in the
market place and avoid the associated cost of such activities.

1994 vs. 1993
     Total assets at year-end  1994 were $199,727 which represents  an increase
of $13,033  or  7.0% from  1993.   Average  assets were  $197,181  in 1994  and
$182,499 in 1993, an  increase of $14,682 or 8.0%.  The  growth reflected above
was  principally due to the acquisition of  the deposits of the Pembroke Office
from First  Union National Bank  of Virginia.   The influx of  deposits created
excess liquidity which was  initially placed in the investment  portfolio until
the  funds  could be  absorbed  into  the loan  portfolio.    Given the  excess
liquidity,  Bankshares  took a  less aggressive  stance  in the  procurement of
external funds which reduced interest expense.


                                      -9-<PAGE>
LOANS
1995 vs. 1994
     Loans, net of unearned income, at year-end 1995 and 1994 were $125,053 and
$115,724, respectively, which represents an  increase of $9,329 or 8.1%.   Real
estate construction loans increased  by $464 or 8.4% while real estate mortgage
loans increased by  $1,586 or 5.2%.  Commercial and  industrial loans increased
by $4,765  or 13.2%  in  1995.   Loans to  individuals  also reflected  growth,
increasing by $2,365 or 5.2%.
     Average  total loans  for  1995  were  $118,760  and  $111,708  for  1994.
Management  continues to  place emphasis on  loan growth  as a  means to absorb
excess liquidity and improve profitability.

1994 vs. 1993
     Total loans, net of  unearned income, at  year-end 1994 were $115,724,  an
increase  of $3,469  or  3.1%.   During  1994  real estate  construction  loans
increased by $1,597 or 40.4%.
     Real  estate mortgage loans increased by $3,574 or  13.4% in 1994.  Due to
the  rising rates experienced  in 1994, commercial loans  declined by $9,634 or
21.1%.  At the same time consumer loans increased by $8,522 or 22.9%.  This was
due to an aggressive  pricing strategy primarily focused at  the newly acquired
Pembroke Office, formerly  a branch of First  Union National Bank  of Virginia.
As previously discussed,  this action had the effect of  increasing volume, but
reducing the  overall yield on loans due to the lower rates on these extensions
of credit.
     Average loans  for  1994 were  $111,708  and $107,583  in  1994 and  1993,
respectively.

SECURITIES
1995 vs. 1994
     In late 1995,  the Financial Accounting Standards Board  granted financial
institutions  a  one  time opportunity  to  transfer  securities  from held  to
maturity  to available  for sale.   Conditions  of this transfer  provided that
institutions  opting to  make  this shift  could do  so  without bringing  into
question their ability and positive intent to  hold to maturity their remaining
held to maturity securities.  Bankshares utilized this one  time opportunity to
shift approximately $8,199 in securities held to maturity to the available  for
sale category on December 1, 1995.
     The average balances for securities available for sale were $13,528 during
1995  and $14,967 in 1994.  Year-end  balances were $26,571 and $12,114 in 1995
and 1994, respectively.
     The  average balances  for securities  held to  maturity were  $52,226 and
$54,293 in  1995 and 1994, respectively.   Year-end balances for  1995 and 1994
were $40,166 and $57,389.
     Year-end balances reflect more clearly the shift of investments associated
with the one time transfer of $8,199 described above and the general decline in
securities held to maturity due to calls and maturities.
     Bankshares' investment policy stresses safety with a program of purchasing
high  quality securities  such  as U.S.  Treasury  and U.S.  Government  agency
issues, state,  county, and  municipal bonds, corporate  bonds, mortgage-backed
securities and other bank qualified investments.  Bankshares has classified all
of its  investment securities as either held to maturity or available for sale,
as Bankshares does not engage in trading activities.  Investment strategies are
adjusted in response to market conditions and available investment vehicles.
     At December 31, 1995, NBB had  no investment concentrations in any  single
issues that (excluding U.S. Government) exceeded ten percent of capital.







                                      -10-<PAGE>
1994 vs. 1993
     Effective January 1, 1994,  Bankshares adopted the provisions of  SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities."   Upon
adoption of SFAS No.  115, certain investment securities totaling  $17,451 were
reclassified from securities held to maturity to securities available for sale.
At December 31, 1994, there  were $12,114 in securities available for  sale and
$57,389 in securities held to maturity.

DEPOSITS
1995 vs. 1994
     Average  total deposits at December 31, 1995, totaled $179,141 compared to
$176,413 in 1994, an  increase of $2,728 or 1.5%.   The low growth rate  was in
part  due to Bankshares' excess liquidity position  and its ability to meet the
funding needs internally.   The deposit mix  shifted toward time deposits  away
from  interest-bearing demand deposits and  savings accounts due  to the higher
rates paid on time deposits.
     Average time deposits increased by $10,403, while average interest-bearing
demand deposits  and savings accounts declined by $6,149 and $3,589 in 1995 and
1994, respectively.

1994 vs. 1993
     Average total  deposits for the  year 1994  were $176,413, an  increase of
$12,011 or  7.3% from  1993.   The principal  source  of the  increase was  the
acquisition of  the deposits of the Pembroke Office, formerly a branch of First
Union  National  Bank of  Virginia, which  added  approximately $14,514  to the
deposit base.

LIQUIDITY
1995 vs. 1994
     Liquidity is the ability to provide sufficient cash flow to meet financial
commitments  and to  fund  additional loan  demand  or withdrawal  of  existing
deposits.  Sources of  liquidity include deposits, loan principal  and interest
repayments,  sales,   calls  and   maturities  of  securities   and  short-term
borrowings.  NBB maintained  an adequate liquidity level during 1995  and 1994.
Management is not  aware of any trends, commitments or  events that will result
in or that are reasonably  likely to result in a material increase  or decrease
in liquidity other than the effects of the proposed merger discussed below.
     Net cash from operating activities of $3,964 in 1995 decreased $1,333 from
1994  and was primarily attributable to a  change in the real estate loans held
for sale category  which fluctuates based  upon loan demand  and the timing  of
loan sales in the secondary market.
     Cash flows from investing  activities continue to reflect the  shifting of
investments to the  loan portfolio and securities held to maturity to available
for  sale.   Net cash  flows  from securities,  fed funds  sold, and  operating
activities for 1995  of $3,065, $1,400  and $3,964,  respectively, and cash  on
hand were used to fund the net increase in loans of $9,598.  

1994 vs. 1993
     Net cash  provided  by  operations, which  consisted  principally  of  net
income, amounted to $5,297 and $4,078 in  1994 and 1993 respectively.  Net cash
flows from financing activities, which consists principally of net increases in
deposits,  amounted to  $8,672 in  1994 and  $1,215 in  1993.  Cash  flows from
operations  and financing activities were  invested in loans  and securities in
1994 and 1993.

CAPITAL RESOURCES
1995 vs. 1994
     Total  stockholders' equity increased $2,417  from 1994 to  1995, with net
income, less cash dividends on common stock of $1,080, accounting primarily for
the increase.  Net unrealized gains or losses on securities available for sale,


                                      -11-<PAGE>
net of income taxes, were $115 at December 31, 1995 and ($126) at  December 31,
1994.   These  unrealized  net gains  and  losses are  recorded  as a  separate
component of  stockholders' equity and will continue to be subject to change in
future years due to  fluctuations in fair values, sales,  purchases, maturities
and  calls of  securities  classified as  available  for sale.    There are  no
material commitments  for capital  expenditures as  of December  31, 1995.   In
addition, there are no expected material changes in the mix or relative cost of
capital  resources  other than  the effects  of  the proposed  merger discussed
below.
     Bankshares  has operated from a consistently strong capital position.  The
ratio of total stockholders' equity to total assets was 11.09% at year-end 1995
compared to 10.08% at year-end  1994.  Banks are required to  apply percentages
to  various  assets, including  off-balance  sheet  assets,  to  reflect  their
perceived  risk.  Regulatory defined capital is divided by risk-weighted assets
in  determining the bank's risk-based capital ratio.  No regulatory authorities
have  advised  Bankshares  or The  National  Bank  of Blacksburg  (NBB)  of any
specific  leverage ratios  applicable  to them.    Both Bankshares'  and  NBB's
capital adequacy ratios  exceed regulatory requirements and  they provide added
flexibility to take advantage of business opportunities as they arise.

                                Capital Analysis

     ($ In thousands)                                        1995
                                                            -------

     Capital Components                             Consolidated    NBB
     ------------------                             ------------   -----
        Tier 1 capital                               $ 20,637      20,550 
        Risk-adjusted tier 2 capital                    1,723       1,722 
                                                     --------     ------- 
          Total risk-adjusted capital                  22,360      22,272 
                                                     ========     ======= 

     Asset Components                               Consolidated    NBB
     ----------------                               ------------   -----
        Adjusted risk-weighted assets                 137,462     137,391 
        Year-to-date adjusted average assets          200,095     200,173 

     Capital Ratios                       Required  Consolidated    NBB
     --------------                       --------  ------------   -----

        Common stockholders' equity                     11.09%      11.06%
        Regulatory capital                   6%         11.16%      11.14%
        Risk-weighted capital:                                  
          Tier 1                             4%         15.01%      14.96%
          Tier 1 + Tier 2                    8%         16.27%      16.21%
        Leverage ratio                    3% - 5%       10.31%      10.27%

1994 vs. 1993
     Total stockholders' equity increased $1,883 from 1993 to 1994.  Net income
less  cash dividends on  common stock of  $993 and the  issuance of Bankshares'
common stock to  Bankshares' Employee Stock Ownership Plan  for $86 account for
this increase.  The $126 decrease in stockholders' equity at December 31, 1994,
represents the excess  of amortized  costs over the  fair values of  securities
available for sale, net of income taxes, at year-end as  prescribed by SFAS No.
115.  Net unrealized gains  or losses on securities available for sale,  net of
income  taxes, which  is  recorded  as a  separate  component of  stockholders'
equity,  will  continue  to  be  subject  to  change  in  future  years due  to
fluctuations  in  fair  values,  sales,  purchases,  maturities  and  calls  of
securities classified as available for sale.
     The ratio of  total stockholders'  equity to  total assets  was 10.08%  at
year-end 1994 compared to 9.78% at year-end 1993.


                                      -12-<PAGE>
FUTURE ACCOUNTING CONSIDERATIONS
     In  March 1995, the Financial  Accounting Standards Board  issued SFAS No.
121, "Accounting for  the Impairment  of Long-lived Assets  and for  Long-lived
Assets to be  Disposed of."   SFAS No. 121  requires companies to review  long-
lived assets and certain  identifiable intangibles to be held, used or disposed
of for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  Bankshares is required  to
adopt this statement in 1996, and  believes the adoption of this statement will
not have a significant effect on its consolidated financial statements.

PROPOSED MERGER
     In  August  of 1995,  Bankshares  and the  Bank of  Tazewell  County (BTC)
entered into an affiliation  agreement whereby Bankshares and BTC  would merge.
Stockholders of Bankshares would  receive an additional .11129 share  of common
stock for each of their shares, and stockholders of BTC would receive one share
of Bankshares' common stock for each of their shares.  The agreement is subject
to approval of stockholders of BTC and regulatory authorities.
     The merger of Bankshares and  BTC will have a combination of  positive and
negative  effects on  Bankshares'  financial position,  results of  operations,
liquidity and capital.   While both entities have strong  earnings, Bankshares'
return on assets and equity can be expected to  decline due to the lower ratios
exhibited by BTC.  BTC's lower ratios are due to its excess liquidity  which is
presently invested in  the securities portfolio due to the  lack of loan demand
in BTC's trade area.   It is expected that BTC's ratios  could be enhanced over
time by purchasing  loans from NBB, as NBB's  trade area is more  developed and
loan demand is  higher.  Both Bankshares and BTC  have strong capital positions
which have generally trended upward, the result of earnings growth coupled with
a generally moderate dividend payout.
     The overall impact of the merger is expected to be positive with regard to
liquidity and capital; however, excess liquidity will have to be  absorbed into
BTC's loan  portfolio to increase net  interest income.  The  minimal levels of
noninterest  income at  BTC are  also  viewed as  a  potential opportunity  for
increased income in the future.
     At December 31, 1995, BTC had assets of approximately $178 million and net
income  of approximately  $2.3 million.  The affiliation  is anticipated  to be
accounted for as  a pooling-of-interests and to become  effective in the second
quarter of 1996.

COMMON STOCK INFORMATION AND DIVIDENDS
     National Bankshares, Inc.'s common stock is traded on a very limited basis
in the over-the-counter market  and is not listed on any exchange  or quoted on
NASDAQ.  Local brokerage  firms are familiar with and active  in trading in the
common stock of National Bankshares, Inc.  As of December 31,  1995, there were
688 stockholders  of Bankshares' common stock.   The following is  a summary of
the market price per  share and cash dividend per share of  the common stock of
National Bankshares, Inc. for 1995 and 1994.  Prices do not necessarily reflect
the prices which would have prevailed  had there been an active trading market,
nor do they reflect unreported trades, which  may have been at lower or  higher
prices.

                           Common Stock Market Prices
                        --------------------------------
                                                              Dividend
                              1995             1994          Per Share
                         High     Low     High     Low     1995     1994
                        ------   -----   ------   -----    ----     ----

     First Quarter      $23.50   21.50    18.50   15.00      --      --  
     Second Quarter      25.00   22.00    20.50   18.25     .30     .27  
     Third Quarter       25.00   23.00    21.50   20.00      --      --  
     Fourth Quarter      25.50   24.00    25.50   22.50     .33     .31  

                                      -13-<PAGE>
     Bankshares' primary source  of funds  for dividend  payments is  dividends
from  NBB.   Under  applicable federal  laws, the  Comptroller of  the Currency
restricts the total dividend payments of NBB as more fully disclosed in note 12
of the Notes to Consolidated Financial Statements.


                           Stockholders' Equity Graph
(Millions)

              1991        1992        1993        1994        1995
             ------      ------      ------      ------      ------

             $14.7        16.4        18.3        20.1        22.6   


                                Book Value Graph
(Dollars)
              1991        1992        1993        1994        1995
             ------      ------      ------      ------      ------

             $ 8.67        9.61       10.68       11.75       13.16  









































                                      -14-<PAGE>
                    Statement of Management's Responsibility








     Management is responsible  for the preparation,  content and integrity  of
the consolidated financial statements, related notes and all  other information
included  in  this annual  report.   The financial  data  has been  prepared in
accordance  with  generally  accepted  accounting  principles  and,  management
believes, fairly  and consistently presents Bankshares'  financial position and
results of operations.

     Bankshares  maintains  a  system   of  internal  controls  which  provides
reasonable assurances that assets are protected and that accounting records are
reliable for the preparation of consolidated financial statements.

     The Audit  Committee of  the Board of  Directors is comprised  entirely of
outside directors.  Bankshares' internal auditors  report to the committee.  On
a periodic basis, the  committee meets with the internal  auditors, independent
auditors and management to discuss matters relating to the  quality of internal
control,  financial  reporting and  audit scope.    Both internal  auditors and
independent  auditors have  access to  the audit committee,  without management
present if desired, to freely discuss their evaluation of Bankshares' system of
internal controls and any other matters.





          JAMES G. RAKES                     JOAN C. NELSON
          President and                      Treasurer
          Chief Executive Officer


























                                      -15-<PAGE>
                          Independent Auditors' Report





The Board of Directors and Stockholders
National Bankshares, Inc.:

     We have audited the  accompanying consolidated balance sheets  of National
Bankshares,  Inc. and  subsidiary as  of December  31, 1995  and 1994,  and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each  of the years in  the three-year period ended December  31,
1995.    These consolidated  financial  statements  are the  responsibility  of
Bankshares' management.  Our responsibility  is to express an opinion  on these
consolidated financial statements based on our audits.

     We conducted  our audits  in accordance  with generally  accepted auditing
standards.   Those  standards require  that we  plan and  perform the  audit to
obtain  reasonable assurance about whether the financial statements are free of
material misstatement.   An audit includes examining, on a test basis, evidence
supporting the amounts  and disclosures in the financial statements.   An audit
also  includes  assessing  the   accounting  principles  used  and  significant
estimates  made  by management,  as well  as  evaluating the  overall financial
statement presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the consolidated financial  statements referred to  above
present fairly, in all material  respects, the  financial position of  National
Bankshares,  Inc. and  subsidiary as  of December  31, 1995  and 1994,  and the
results of their operations  and their cash flows for each of  the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.

     As discussed in notes 1(D) and 5 to the consolidated financial statements,
Bankshares  adopted  the  provisions   of  Statement  of  Financial  Accounting
Standards  No. 114,  "Accounting by  Creditors for  Impairment  of a  Loan," as
amended  by Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures," as of
January 1,  1995.   As  discussed  in notes  1(C)  and  3 to  the  consolidated
financial  statements,  Bankshares  adopted  the  provisions  of  Statement  of
Financial Accounting Standards No. 115, "Accounting for  Certain Investments in
Debt and Equity Securities," as of January 1, 1994.  As discussed in notes 1(J)
and  9  to  the  consolidated  financial  statements,  Bankshares  adopted  the
provisions of Statement of Financial  Accounting Standards No. 109, "Accounting
for Income Taxes," as of January 1, 1993.


                                   KPMG PEAT MARWICK LLP

Roanoke, Virginia
February 16, 1996










                                      -16-<PAGE>
                          Consolidated Balance Sheets



 $ In thousands, December 31, 1995 and 1994                   1995     1994
                                                            -------- --------
 Assets        Cash and due from banks (notes 2 and 17)    $  5,405     6,648 
               Federal funds sold (note 17)                     ---     1,400 
               Securities available for sale (notes 3 and
                17)                                          26,571    12,114 
               Securities held to maturity (fair value                        
                $40,866 in 1995 and $55,816 in 1994)(notes
                3 and 17)                                    40,166    57,389 
               Mortgage loans held for sale (notes 15, 16
                and 17)                                         880       392 
               Loans (notes 4, 5, 16 and 17):                                 
                Real estate construction loans                6,007     5,543 
                Real estate mortgage loans                   31,798    30,212 
                Commercial and industrial loans              40,749    35,984 
                Loans to individuals                         48,132    45,767 
                                                           --------   ------- 
                 Total loans                                126,686   117,506 

                Less unearned income on loans                (1,633)   (1,782)
                                                           --------   ------- 
                 Loans, net of unearned income              125,053   115,724 

                Less allowance for loan losses (note 5)      (2,080)   (2,006)
                                                           --------   ------- 
                 Loans, net                                 122,973   113,718 
                                                           --------   ------- 
               Bank premises and equipment, net (note 6)      2,685     2,762 
               Accrued interest receivable                    1,667     1,698 
               Other real estate owned, net (note 5)            739     1,083 
               Other assets (notes 9 and 18)                  2,303     2,523 
                                                           --------   ------- 
                 Total assets                              $203,389   199,727 
                                                           ========   ======= 

 Liabilities   Noninterest-bearing demand deposits           22,861    23,816 
 and           Interest-bearing demand deposits              54,143    59,794 
 Stockholders' Savings deposits                              15,153    19,257 
 Equity        Time deposits (note 7)                        87,516    75,769 
                                                           --------   ------- 
                 Total deposits (note 17)                   179,673   178,636 
                                                           --------   ------- 
               Accrued interest payable                         258       225 
               Other liabilities (note 8)                       904       729 
                                                           --------   ------- 
                 Total liabilities                          180,835   179,590 








                                      -17-<PAGE>

               Stockholders' equity (notes 9, 11 and 12):           
                Preferred stock of no par value.
                 Authorized 5,000,000 shares;
                 none issued and outstanding                    ---       --- 
                Common stock of $2.50 par value.
                 Authorized 5,000,000 shares; issued
                 and outstanding 1,714,152 shares             4,285     4,285 
                Surplus                                       1,187     1,187 
                Undivided profits                            16,967    14,791 
                Net unrealized gains (losses) on                              
                 securities available for sale                  115      (126)
                                                           --------   ------- 
                 Total stockholders' equity                  22,554    20,137 

               Commitments and contingent liabilities               
                (notes 8, 15 and 18)
                                                           --------   ------- 
                 Total liabilities and stockholders'
                  equity                                   $203,389   199,727 
                                                           ========   ======= 






































               See accompanying notes to consolidated financial statements.


                                      -18-<PAGE>
                       Consolidated Statements of Income




 $ In thousands, except per share data. Years ended
 December 31, 1995, 1994 and 1993                     1995     1994     1993
                                                    -------- -------- --------
 Interest    Interest and fees on loans             $11,831   10,207   10,265 
 Income      Interest on federal funds sold             250      155      122 
             Interest on securities - taxable         2,656    2,961    2,930 
             Interest on securities - nontaxable      1,334    1,239    1,111 
                                                    -------   ------   ------ 
              Total interest income                  16,071   14,562   14,428 
                                                    -------   ------   ------ 
 Interest    Interest on time deposits of                                     
 Expense      $100,000 or more (note 7)                 745      586      557 
             Interest on other deposits               5,947    5,053    5,264 
             Interest on federal funds purchased          4       16      --- 
             Interest on long-term debt (note 10)       ---      ---        2 
                                                    -------   ------   ------ 
              Total interest expense                  6,696    5,655    5,823 
                                                    -------   ------   ------ 
              Net interest income                     9,375    8,907    8,605 

             Provision for loan losses (note 5)         275      540      930 
                                                    -------   ------   ------ 
              Net interest income after                                       
               provision for loan losses              9,100    8,367    7,675 
                                                    -------   ------   ------ 

 Noninterest Service charges on deposit accounts        719      667      594 
 Income      Other service charges and fees             163      169      120 
             Credit card fees                           450      355      317 
             Trust income                               405      417      373 
             Other income                                39       19      112 
             Realized securities gains (losses),
              net (note 3)                                1      (20)      25 
                                                    -------   ------   ------ 
              Total noninterest income                1,777    1,607    1,541 
                                                    -------   ------   ------ 
 Noninterest Salaries and employee benefits
 Expense      (note 8)                                3,074    2,991    2,730 
             Occupancy and furniture and fixtures       530      558      526 
             Data processing and ATM                    349      331      331 
             FDIC assessment                            206      387      369 
             Credit card processing                     411      340      271 
             Goodwill amortization (note 18)             30       20      --- 
             Net costs of other real estate owned       195       37      287 
             Other operating expense                  1,792    1,494    1,341 
                                                    -------   ------   ------ 
              Total noninterest expense               6,587    6,158    5,855 

             Income before income tax expense and                             
              cumulative effect of change in
              accounting principle                    4,290    3,816    3,361 
             Income tax expense (note 9)              1,034      900      717 
                                                    -------   ------   ------ 






                                      -19-<PAGE>

             Income before cumulative effect of                               
              change in accounting principle          3,256    2,916    2,644 
             Cumulative effect at January 1,                                  
              1993 of change in accounting for                                
              income taxes (note 9)                     ---      ---       28 
                                                    -------   ------   ------ 
              Net income                            $ 3,256    2,916    2,672 
                                                    =======   ======   ====== 
             Per share amounts (note 11):                                     
              Income before cumulative effect of
               change in accounting principle       $  1.90     1.70     1.54 
             Cumulative effect at January 1,                         
              1993 of change in accounting for
               income taxes (note 9)                    ---      ---      .02 
                                                    -------   ------   ------ 
              Net income per share                  $  1.90     1.70     1.56 
                                                    =======   ======   ====== 
  







































             See accompanying notes to consolidated financial statements.



                                      -20-<PAGE>
<TABLE>
                        Consolidated Statements of Changes in Stockholders' Equity

<CAPTION>
                                                                               Net Unrealized
                                                                               Gains (Losses)
                                                                                on Securities
   $ In thousands, except per share data.           Common           Undivided  Available For
   Years ended December 31, 1995, 1994 and 1993      Stock   Surplus   Profits      Sale        Total
                                                    -------  ------- --------- --------------  -------
   <S>                                              <C>      <C>     <C>       <C>             <C>
   Balances, December 31, 1992                      $4,260    1,064    11,051        ---        16,375  
   Net income                                          ---      ---     2,672        ---         2,672  
   Net proceeds from issuance of common stock                                                          
    (5,528 shares) (note 11)                            14       48       ---        ---            62  
   Cash dividends ($.50 per share)                     ---      ---      (855)       ---          (855) 
                                                    ------    -----    ------      -----        ------  
   Balances, December 31, 1993                       4,274    1,112    12,868        ---        18,254  

   Cumulative effect of change in accounting for
    securities available for sale at January 1,
    1994, net of income taxes of $141                  ---      ---       ---        273           273  
   Net income                                          ---      ---     2,916        ---         2,916  
   Net proceeds from issuance of common stock                                                          
    (4,480 shares) (note 11)                            11       75       ---        ---            86  
   Cash dividends ($.58 per share)                     ---      ---      (993)       ---          (993) 
   Change in net unrealized gains (losses) on
    securities available for sale, net of income
    tax benefit of $206                                ---      ---       ---       (399)         (399) 
                                                    ------    -----    ------      -----        ------  
   Balances, December 31, 1994                       4,285    1,187    14,791       (126)       20,137  
   Net income                                          ---      ---     3,256        ---         3,256  
   Cash dividends ($.63 per share)                     ---      ---    (1,080)       ---        (1,080) 
   Change in net unrealized gains (losses) on
    securities available for sale, net of income
    taxes of $124                                      ---      ---       ---        241           241  
                                                    ------    -----    ------      -----        ------  
   Balances, December 31, 1995                      $4,285    1,187    16,967        115        22,554  
                                                    ======    =====    ======      =====        ======  






   See accompanying notes to consolidated financial statements.
   </TABLE>

                                                   -21-<PAGE>
                      Consolidated Statements of Cash Flows

 $ In thousands. Years ended December 31, 1995,         1995     1994     1993
  1994 and 1993                                        ------   ------   ------
 Cash Flows Net income                                $ 3,256    2,916    2,672 
 from       Adjustments to reconcile net income to
 Operating   net cash provided by operating
 Activities  activities: 
 (Note 14)   Provision for loan losses                    275      540      930 
             Provision for deferred income taxes         (132)     (59)     (61)
             Depreciation of bank premises and
              equipment                                   361      400      370 
             Amortization of intangibles                  145      123       44 
             Amortization of premiums and accretion
              of discounts, net                            67      158      149 
             Gains on bank premises and equipment
              disposals                                    (9)     ---       (1)
             Losses on calls of securities
              available for sale, net                       3       27      --- 
             Gains on calls of securities held to
              maturity, net                                (4)      (7)     (25)
             Net (increase) decrease in mortgage
              loans held for sale                        (488)   1,360     (850)
             Losses and write-downs on other real
              estate owned                                168        8      233 
             (Increase) decrease in:                                            
              Accrued interest receivable                  31     (150)     225 
              Other assets                                 83     (235)     180 
             Increase in:                                                       
              Accrued interest payable                     33       34       46 
              Other liabilities                           175      182      166 
                                                      -------  -------  ------- 
              Net cash provided by operating 
               activities                               3,964    5,297    4,078 
                                                      -------  -------  ------- 
 Cash       Net decrease in federal funds sold          1,400    1,220    2,395 
 Flows      Proceeds from sales of securities held
 from        to maturity                                  ---      ---      981 
 Investing  Proceeds from calls and maturities of                               
 Activities  securities available for sale              6,528    8,804      --- 
 (Notes 3   Proceeds from calls and maturities of
 and 14)     securities held to maturity               16,408    6,260   14,334 
            Purchases of securities available for
             sale                                     (12,442)  (3,725)     --- 
            Purchases of securities held to maturity   (7,429) (18,693) (17,515)
            Net increase in loans made to customers    (9,598)  (5,030)  (5,343)
            Proceeds from disposal of other real
             estate owned                                 176       91      555 
            Recoveries on loans charged off                68       52       60 
            Bank premises and equipment expenditures     (284)    (478)    (406)
            Proceeds from sale of bank premises and                    
             equipment                                      9        1        6 
                                                      -------  -------  ------- 
              Net cash used in investing activities   (5,164)  (11,498)  (4,933)
                                                      -------  -------  ------- 







                                       -22-<PAGE>
 Cash Flows Deposits assumed, net of premium paid         ---   13,159      --- 
 from       Net increase in time deposits              11,747    3,871    1,968 
 Financing  Net increase (decrease) in other deposits (10,710)  (7,451)     101 
 Activities Net proceeds from issuance of common
 (Note 14)   stock                                        ---       86       62 
            Principal payments on long-term debt          ---      ---      (61)
            Cash dividends paid                        (1,080)    (993)    (855)
                                                      -------  -------  ------- 
              Net cash provided by (used in)
               financing activities                       (43)   8,672    1,215 
                                                      -------  -------  ------- 
            Net increase (decrease) in cash and due
             from banks                                (1,243)   2,471      360 
            Cash and due from banks at beginning of
             year                                       6,648    4,177    3,817 
                                                      -------  -------  ------- 
            Cash and due from banks at end of year    $ 5,405    6,648    4,177 
                                                      =======  =======  ======= 








































            See accompanying notes to consolidated financial statements.



                                       -23-<PAGE>
                   Notes to Consolidated Financial Statements

$ In thousands, except per share data.         December 31, 1995, 1994 and 1993

Note 1: Summary of Significant Accounting Policies
   The  accounting   and  reporting  policies  of   National  Bankshares,  Inc.
(Bankshares) and  its wholly-owned subsidiary, The National  Bank of Blacksburg
(NBB),  conform  to  generally   accepted  accounting  principles  and  general
practices within the banking industry.  In preparing the consolidated financial
statements, management is required  to make certain estimates,  assumptions and
loan  evaluations that  affect  its consolidated  financial statements  for the
period.  Actual results could vary significantly from those estimates.
   Changing  economic   conditions,  adverse   economic  prospects  for   NBB's
borrowers, as well  as regulatory agency action as a  result of an examination,
could cause NBB to recognize additions to the allowance for loan losses and may
also   affect  the  valuation  of  real  estate  acquired  in  connection  with
foreclosures or in satisfaction of loans.
   The following is a summary of the more significant accounting policies.

   (A)  Consolidation
        The consolidated financial  statements include the accounts of  National
   Bankshares,   Inc.  and   its  wholly-owned   subsidiary.   All  significant
   intercompany balances and transactions have been eliminated.

   (B)  Cash and Cash Equivalents
        For purposes of reporting cash flows,  cash and cash equivalents include
   cash on hand and due from banks.

   (C)  Securities
        Effective  January  1,  1994,  Bankshares  adopted  the  provisions   of
   Statement of  Financial Accounting Standards (SFAS) No. 115, "Accounting for
   Certain Investments  in Debt  and Equity  Securities," and  accordingly, has
   recorded the  effect  of  this adoption  in  the  accompanying  consolidated
   financial statements for the year ended December 31, 1994.
        Securities  available  for  sale  are  reported   at  fair  value,  with
   unrealized gains and  losses excluded from net  income and reported, net  of
   income taxes, in  a separate component of stockholders' equity.   Securities
   held  to maturity are stated at  cost, adjusted for amortization of premiums
   and accretion  of discounts  on a basis  which approximates the  level yield
   method.  Bankshares does not engage in securities trading.  Gains and losses
   on securities  are accounted for on  the completed transaction basis  by the
   specific identification method.
        A  decline in  the  fair  value of  any available  for sale  or  held to
   maturity security below cost that  is deemed other than temporary is charged
   to income  resulting  in  the establishment  of  a new  cost basis  for  the
   security.

   (D)  Loans
        Loans  are stated at the  amount of funds disbursed  plus the applicable
   amount,  if  any,  of  unearned interest  and  other  charges less  payments
   received.  Income on installment loans, including impaired installment loans
   that have not  been placed in  nonaccrual status,  is recognized on  methods
   which  approximate the  level yield  method.  Interest  on all  other loans,
   including impaired  other loans  that  have not  been placed  in  nonaccrual
   status, is  accrued based on  the balance outstanding  times the  applicable
   interest rate.
        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 90 days or more past due,  unless the
   obligation is both well-secured and in the process of collection.


                                      -24-<PAGE>
        Loan origination and commitment fees and  certain direct costs are being
   deferred, and  the net  amount amortized  as an  adjustment to  the  related
   loan's yield.   These amounts are being amortized  over the contractual life
   of the related loans.
        Effective January  1, 1995,  Bankshares adopted the  provisions of  SFAS
   No. 114, "Accounting by  Creditors for Impairment of a Loan," as  amended by
   SFAS No.  118, "Accounting by Creditors  for Impairment of  a Loan -  Income
   Recognition and  Disclosures."  SFAS  No. 114, as  amended by  SFAS No. 118,
   requires that impaired loans within the scope of the statements be presented
   in  the financial statements  at the present  value of expected  future cash
   flows  or at the fair value of  the loan's collateral if  the loan is deemed
   "collateral dependent."   A valuation  allowance is required  to the  extent
   that the measure of the impaired loans is less than the recorded investment.
   SFAS  No. 114 does  not apply to  large groups  of small-balance homogeneous
   loans such as residential  real estate mortgage, consumer  installment, home
   equity and bank card loans, which are collectively evaluated for impairment.
   SFAS  No. 118  allows a  creditor to  use  existing methods  for recognizing
   interest income on an impaired loan.
        Mortgage  loans held for  sale are carried at the  lower of cost or fair
   value.

   (E)  Allowance for Loan Losses
        The  allowance for loan  losses is  a valuation  allowance consisting of
   the cumulative  effect of the  provision for  loan losses, plus  any amounts
   recovered  on loans previously  charged off, minus  loans charged  off.  The
   provision for  loan losses  charged to  expense is the  amount necessary  in
   management's judgement to  maintain the allowance for loan losses at a level
   it believes adequate to absorb losses in the collection of its loans.

   (F)  Bank Premises and Equipment
        Bank  premises and  equipment are  stated  at  cost, net  of accumulated
   depreciation.  Depreciation is charged to expense over the estimated  useful
   lives of the  assets on the straight-line basis.   Depreciable lives include
   40 years for premises  and 3-10 years for furniture and equipment.  Costs of
   maintenance and repairs are charged to expense as incurred and  improvements
   are capitalized.

   (G)  Other Real Estate Owned
        Other  real estate,  acquired through  foreclosure  or  deed in  lieu of
   foreclosure, is carried at the lower of the recorded  investment or its fair
   value, less  estimated  costs to  sell (net  realizable  value).   When  the
   property is  acquired, any excess  of the loan  balance over  net realizable
   value is charged to the allowance for  loan losses.  Increases or  decreases
   in the  net realizable value of  such properties are credited  or charged to
   income by  adjusting the valuation  allowance for other  real estate  owned.
   Net costs of maintaining or operating foreclosed properties are expensed  as
   incurred.  

   (H)  Intangible Assets
        Included in  other assets are  deposit intangibles of  $757 and $872  at
   December 31, 1995 and  1994, respectively, and goodwill of $397 and  $427 at
   December 31,  1995 and 1994,  respectively.  Deposit  intangibles are  being
   amortized  on a  straight-line basis  over either  a seven-year  or ten-year
   period and  goodwill is  being  amortized on  a straight-line  basis over  a
   fifteen-year period.







                                      -25-<PAGE>
   (I)  Pension Plan
        NBB has  a defined benefit pension  plan which  covers substantially all
   full-time  officers and employees.   The benefits  are based  upon length of
   service and  a percentage of  the employee's compensation  during the  final
   years  of employment.  Pension costs  are computed based upon the provisions
   of SFAS No. 87.  NBB contributes  to the pension plan amounts deductible for
   federal income tax purposes.

   (J)  Income Taxes
        Effective  January 1,  1993, Bankshares  adopted the provisions  of SFAS
   No.  109, "Accounting  for Income  Taxes," and  has reported  the cumulative
   effect of  that change in the method  of accounting for income  taxes in the
   1993 consolidated statement of income.  SFAS No. 109  requires the asset and
   liability  method  of  accounting  for income  taxes.    Under this  method,
   deferred  tax assets  and  liabilities  are recognized  for the  future  tax
   consequences  attributable  to differences  between the  financial statement
   carrying amounts of existing assets and liabilities and their respective tax
   bases and operating loss and tax credit  carryforwards.  Deferred tax assets
   and liabilities  are measured using enacted  tax rates expected to  apply to
   taxable  income  in  the  years in  which  those  temporary differences  are
   expected to be recovered  or settled.  The effect on deferred tax assets and
   liabilities of a change in tax  rates is recognized in income in  the period
   that includes the enactment date.

   (K)  Trust Assets and Income
        Assets (other than  cash deposits)  held by  the Trust  Department in  a
   fiduciary  or  agency  capacity  for  customers  are  not  included  in  the
   consolidated  financial statements since  such items are not  assets of NBB.
   Trust income is recognized on the accrual basis.

   (L)  Net Income Per Share
        Net income  per  share is  based upon  the  weighted  average number  of
   common  shares outstanding (1,714,152  shares in  1995, 1,710,310  shares in
   1994 and 1,707,764 shares in 1993).

   (M)  Off-Balance Sheet Financial Instruments
        In  the ordinary course  of business,  NBB has  entered into off-balance
   sheet financial instruments consisting of  commitments to extend credit  and
   standby  letters of credit.  Such financial instruments are  recorded in the
   financial statements when they become payable.

   (N)  Fair Value of Financial Instruments
        The  following methods and  assumptions were  used to  estimate the fair
   value of each  class of financial instrument for  which it is practicable to
   estimate that value:

        (1)  Cash and Due from Banks
             The carrying amount is a reasonable estimate of fair value.

        (2)  Federal Funds Sold
             The carrying amount is a reasonable estimate of fair value.

        (3)  Securities
             The  fair values  of securities  are  determined by  quoted  market
        prices or dealer quotes.   The fair value of certain state and municipal
        securities is not  readily available  through market sources other  than
        dealer quotations,  so fair value estimates  are based  on quoted market
        prices  of similar  instruments, adjusted  for differences  between  the
        quoted instruments and the instruments being valued.



                                      -26-<PAGE>
        (4)  Loans
             Fair  values are  estimated  for portfolios  of loans  with similar
        financial  characteristics.    Loans  are  segregated  by  type  such as
        mortgage  loans held  for sale,  commercial, real  estate  - commercial,
        real estate  - construction,  real estate  - mortgage,  credit card  and
        other consumer  loans.   Each loan  category is  further segmented  into
        fixed  and  adjustable  rate   interest  terms  and  by  performing  and
        nonperforming categories.
             The fair  value of  performing loans is  calculated by  discounting
        scheduled  cash flows  through the  estimated maturity  using  estimated
        market  discount rates that  reflect the  credit and  interest rate risk
        inherent  in the loan,  as well as estimates  for operating expenses and
        prepayments.    The  estimate  of  maturity  is   based  on  Bankshares'
        historical  experience  with  repayments for  each  loan classification,
        modified, as required, by an estimate of  the effect of current economic
        and lending conditions.
             Fair  value  for  significant  nonperforming  loans  is  based   on
        estimated  cash flows  which are  discounted using  a rate  commensurate
        with  the risk associated  with the  estimated cash  flows.  Assumptions
        regarding credit risk,  cash flows  and discount rates are  judgmentally
        determined  using  available  market information  and  specific borrower
        information.

        (5)  Deposits
             The  fair  value of  demand  and  savings  deposits  is the  amount
        payable on demand.   The fair value of fixed maturity time deposits  and
        certificates of deposit  is estimated using the rates currently  offered
        for deposits with similar remaining maturities.

        (6)  Commitments to Extend Credit and Standby Letters of Credit
             The  only  amounts  recorded  for  commitments  to  extend  credit,
        standby  letters of  credit and  financial  guarantees written  are  the
        deferred  fees  arising from  these unrecognized  financial instruments.
        These  deferred fees are not deemed significant at December 31, 1995 and
        1994, and as such, the related fair values have not been estimated.

   (O)  Reclassifications
        Certain reclassifications  have been made  to prior years'  consolidated
   financial  statements to  place them  on a  basis  comparable with  the 1995
   consolidated financial statements.

Note 2: Restrictions on Cash
   To  comply with  Federal Reserve  regulations, NBB  is required  to maintain
certain  average reserve balances.  The daily average reserve requirements were
$1,667  and  $1,567  for  the  weeks  including December  31,  1995  and  1994,
respectively.

Note 3: Securities 
   As discussed in note 1(C), effective January 1, 1994, Bankshares adopted the
provisions of  SFAS No. 115,  "Accounting for  Certain Investments in  Debt and
Equity  Securities."   Upon  adoption  of  SFAS  No.  115,  certain  investment
securities totaling $17,451 were reclassified from securities held to  maturity
to securities  available for  sale.   The cumulative effect  of this  change in
accounting at January 1, 1994, was to increase securities available for sale by
$414, decrease  the net deferred tax  asset by $141 and  increase stockholders'
equity by $273.
   The amortized  costs, gross  unrealized gains, gross  unrealized losses  and
fair  values for  securities available for  sale by  major security  type as of
December 31, 1995 and 1994 are as follows:



                                      -27-<PAGE>
                                                  December 31, 1995

                                                   Gross     Gross
                                      Amortized Unrealized Unrealized   Fair
   ($ In thousands)                     Costs      Gains     Losses    Values
                                      --------- ---------- ----------  ------
   Available for sale:
    U.S. Treasury                     $  4,002        9        (14)     3,997 
    U.S. Government agencies and
     corporations                       10,942      207         (4)    11,145 
    States and political subdivisions    6,384        3        (47)     6,340 
    Mortgage-backed securities             233        5        ---        238 
    Other securities                     4,836       35        (20)     4,851 
                                      --------    -----      -----     ------ 
      Total securities available
       for sale                       $ 26,397      259        (85)    26,571 
                                      ========    =====      =====     ====== 


                                                  December 31, 1994

                                                   Gross     Gross
                                      Amortized Unrealized Unrealized   Fair
   ($ In thousands)                     Costs      Gains     Losses    Values
                                      --------- ---------- ----------  ------
   Available for sale:
    U.S. Treasury                     $  3,516        1        (61)     3,456 
    U.S. Government agencies and
     corporations                        6,936        7        (68)     6,875 
    Mortgage-backed securities             261      ---        (15)       246 
    Other securities                     1,592      ---        (55)     1,537 
                                      --------    -----      -----     ------ 

      Total securities available
       for sale                       $ 12,305        8       (199)    12,114 
                                      ========    =====      =====     ====== 


   The amortized costs and  fair values of single maturity securities available
for  sale at  December  31, 1995,  by  contractual maturity,  are shown  below.
Expected maturities  may differ  from contractual maturities  because borrowers
may  have the  right to  call or  prepay obligations  with or  without call  or
prepayment penalties.  Mortgage-backed securities included in these totals  are
allocated based upon estimated cash flows at December 31, 1995.

                                                December 31, 1995    

                                                Amortized     Fair
   ($ In thousands)                               Costs      Values
                                                ---------    ------
   Due in one year or less                       $ 8,025      8,041  
   Due after one year through five years           6,597      6,658  
   Due after five years through ten years          7,457      7,580  
   Due after ten years                             4,188      4,162  
   No maturity                                       130        130  
                                                 -------     ------  

                                                 $26,397     26,571  
                                                 =======     ======  


                                      -28-<PAGE>
   The amortized costs,  gross unrealized  gains, gross  unrealized losses  and
fair  values for  securities held  to  maturity by  major security  type as  of
December 31, 1995 and 1994 are as follows:


                                                  December 31, 1995

                                                   Gross     Gross 
                                      Amortized Unrealized Unrealized    Fair
   ($ In thousands)                     Costs      Gains     Losses     Values
                                      --------- ---------- ----------   ------
   Held to maturity:
    U.S. Treasury                      $ 2,755         49        (3)     2,801 
    U.S. Government agencies and
     corporations                        4,682        149       ---      4,831 
    States and political subdivisions   26,660        481       (82)    27,059 
    Mortgage-backed securities             961         31       ---        992 
    Other securities                     5,108         81        (6)     5,183 
                                       -------      -----     -----     ------ 
      Total securities held to
       maturity                        $40,166        791       (91)    40,866 
                                       =======      =====     =====     ====== 


                                                  December 31, 1994

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

   Held to maturity:
    U.S. Treasury                      $ 9,722         44      (219)     9,547 
    U.S. Government agencies and
     corporations                       14,073         20      (296)    13,797 
    States and political subdivisions   26,073        212    (1,091)    25,194 
    Mortgage-backed securities           1,147          8       (17)     1,138 
    Other securities                     6,374         14      (248)     6,140 
                                       -------      -----    ------     ------ 
      Total securities held to
       maturity                        $57,389        298    (1,871)    55,816 
                                       =======      =====    ======     ====== 

   The amortized  costs and fair values  of single maturity  securities held to
maturity  at December  31,  1995, by  contractual  maturity, are  shown  below.
Expected maturities  may differ  from contractual maturities  because borrowers
may have  the right  to call  or prepay  obligations with  or  without call  or
prepayment penalties.  Mortgage-backed securities included in these  totals are
allocated based upon estimated cash flows at December 31, 1995.

                                               December 31, 1995     

                                                Amortized     Fair
   ($ In thousands)                               Costs      Values
                                                ---------    ------
   Due in one year or less                       $  5,877     5,926  
   Due after one year through five years           17,881    18,242  
   Due after five years through ten years          14,012    14,264  
   Due after ten years                              2,396     2,434  
                                                 --------    ------  

                                                 $ 40,166    40,866  
                                                 ========    ======  

                                      -29-<PAGE>
   There were no  sales of securities  held to  maturity during  1995 or  1994.
Proceeds from  the sale of securities  held to maturity during  1993 were $981.
Gross gains  of $67 and  gross losses  of $42 were  realized on these  sales in
1993.
   The  carrying  value of  securities  pledged  to  secure  public  and  trust
deposits, and for other purposes as required or permitted by law, was $5,661 at
December 31, 1995 and $5,403 at December 31, 1994.  
   On  November 15,  1995, the  Financial Accounting  Standards Board  issued a
Special Report, "A Guide  to Implementation of Statement 115  on Accounting for
Certain  Investments in  Debt  and Equity  Securities."   This  Special  Report
contained  a unique  provision that  allowed entities  to, concurrent  with the
initial adoption of the implementation guidance but  no later than December 31,
1995, reassess  the appropriateness  of the  classifications of all  securities
held at the time.   In connection  with this one-time reassessment,  Bankshares
transferred securities classified as  held to maturity with amortized  costs of
approximately $8,199 to available for sale securities, increased by the related
unrealized  gain in  the  amount  of approximately  $11  on  December 1,  1995.
Entities  opting to  make such  a transfer  could do  so without  bringing into
question  their  ability and  positive  intent to  hold  the remaining  held to
maturity portfolio until maturity.

Note 4: Loans to Officers and Directors
   In  the normal  course  of business,  NBB  has  made loans  to  officers and
directors.   As  of December  31, 1995  and 1994,  there were  direct loans  to
officers and directors of $1,718 and $1,750, respectively.  In addition,  there
were loans  of $1,881 and $1,798  at December 31, 1995  and 1994, respectively,
which were  endorsed by directors and/or officers or had been made to companies
in which directors and/or officers had an equity interest.
   The following schedule summarizes amounts receivable from executive officers
and directors of Bankshares, and their immediate families or associates:

                                                    Year ended
                                                   December 31,
   ($ In thousands)                                    1995
                                                   ------------
   Aggregate balance, beginning of year             $  3,548    
   Additions                                           4,869    
   Collections                                        (4,818)   
                                                    --------    
   Aggregate balance, end of year                   $  3,599    
                                                    ========    


Note 5: Nonperforming Assets,  Past Due Loans, Impaired Loans and Allowance for
Loan Losses
   Nonperforming assets consist of the following:

                                                          December 31,

   ($ In thousands)                                   1995            1994
                                                     ------          ------
   Nonaccrual loans                                  $  420            420    
   Restructured loans                                   ---            229    
                                                     ------          -----    
      Total nonperforming loans                         420            649    
   Other real estate owned, net                         739          1,083    
                                                     ------          -----    
      Total nonperforming assets                      1,159          1,732    
                                                     ------          -----    
   Accruing loans past due 90 days or more              210            219    
                                                     ======          =====    

                                      -30-<PAGE>
   There were  no material commitments  to lend additional  funds to  customers
whose loans were classified as nonperforming at December 31, 1995.
   The  following table  shows  the interest  that would  have  been earned  on
nonaccrual and restructured loans if  they had been current in  accordance with
their original terms and the recorded  interest that was earned and included in
income on these loans:


                                                Years ended December 31,

   ($ In thousands)                         1995         1994         1993
                                           ------       ------       ------
   Scheduled interest:
    Nonaccrual loans                       $   42           38          194   
    Restructured loans                        ---           19           69   
                                           ------         ----         ----   
      Total scheduled interest             $   42           57          263   
                                           ======         ====         ====   
   Recorded interest:                                                         
    Nonaccrual loans                       $    5            1           25   
    Restructured loans                        ---            9           51   
                                           ------         ----         ----   
      Total recorded interest              $    5           10           76   
                                           ======         ====         ====   


   Changes  in the  valuation  allowance for  other real  estate  owned are  as
follows:

                                                Years ended December 31,

   ($ In thousands)                         1995         1994         1993
                                           ------       ------       ------
   Balances, beginning of year             $   49          409          220   
   Provision for other real estate
    owned                                     124          ---          200   
   Write-offs                                 (82)        (360)         (11)  
                                           ------        -----        -----   
      Balances, end of year                $   91           49          409   
                                           ======        =====        =====   

   As discussed in note 1(D), effective January 1, 1995, Bankshares adopted the
provisions of SFAS No. 114, as amended by SFAS No. 118.  At December  31, 1995,
the recorded investment in  loans which have been identified as impaired loans,
in accordance  with  SFAS No.  114, totaled  $539.   Of this  amount, $90  were
related to loans with  no valuation allowance and $449 related to  loans with a
corresponding valuation allowance of $319.
   For the  year ended December  31, 1995, the  average recorded  investment in
impaired loans was approximately $757, and the total interest income recognized
on  impaired loans was  $47 of which  $5 was recognized  on a cash  basis.  The
balance  of impaired loans at January 1,  1995 totaled approximately $812.  The
initial adoption  of SFAS No.  114 did not  require an increase  to Bankshares'
allowance for loan losses.   The impact of SFAS No. 114, as amended by SFAS No.
118,  was immaterial to Bankshares' consolidated financial statements as of and
for the year ended December 31, 1995.




                                      -31-<PAGE>
   Changes in the allowance for loan losses are as follows:

                                                Years ended December 31,

   ($ In thousands)                         1995         1994         1993
                                           ------       ------       ------

   Balances, beginning of year             $2,006        2,038        1,782   
   Provision for loan losses                  275          540          930   
   Recoveries                                  68           52           60   
   Loans charged off                         (269)        (624)        (734)  
                                           ------       ------       ------   
   Balances, end of year                   $2,080        2,006        2,038   
                                           ======       ======       ======   


Note 6: Bank Premises and Equipment
   Bank premises and equipment  stated at cost, less  accumulated depreciation,
are as follows:

                                                           December 31,

   ($ In thousands)                                    1995           1994
                                                      ------         ------
   Premises                                           $ 3,331         3,171   
   Furniture and equipment                              2,382         2,310   
   Construction-in-progress                                30            34   
                                                      -------        ------   
                                                        5,743         5,515   
   Less accumulated depreciation                       (3,058)       (2,753)  
                                                      -------        ------   
      Total bank premises and equipment               $ 2,685         2,762   
                                                      =======        ------   

Note 7: Time Deposits
   Included in  time  deposits  are certificates  of  deposit  and  other  time
deposits  of $100 or more  in the aggregate amounts  of $13,358 at December 31,
1995 and $10,726 at December 31, 1994.

Note 8: Employee Benefit Plans
   NBB  has a Retirement  Accumulation Plan  qualifying under  IRS Code Section
401(k).  Eligible participants  in the plan can  contribute up to 10% of  their
total annual compensation  to the plan.  Employee contributions  are matched by
NBB  based  on  a  percentage  of  an   employee's  total  annual  compensation
contributed to the plan.  For the years ended December 31, 1995, 1994 and 1993,
NBB contributed $78, $76 and $69, respectively, to the plan.
   National Bankshares,  Inc. has a nonleveraged  Employee Stock Ownership Plan
(ESOP)  which enables employees with one year  of service who have attained the
age of  21 prior to  the plan's January  1 and July  1 enrollment dates  to own
common stock in Bankshares.  Contributions to the ESOP  are determined annually
by the Board  of Directors.   Contribution expense amounted  to $163, $145  and
$134 for  the years  ended  December 31,  1995,  1994 and  1993,  respectively.
Dividends on ESOP shares are charged to  undivided profits.  As of December 31,
1995, the number of allocated shares held by the ESOP was 43,840 and the number
of unallocated shares  was 7,266.  All shares  held by the ESOP are  treated as
outstanding in  computing Bankshares' net income  per share.  The  ESOP has the
right of first refusal for any shares distributed to a participant in the event
the participant elects to sell the shares.  Upon reaching age 55 with ten years
of plan participation, a vested  participant has the right to diversify  50% of
his or her  allocated ESOP shares and  the ESOP would be obligated  to purchase
those shares.

                                      -32-<PAGE>
   NBB also has a noncontributory defined benefit pension plan which covers all
full-time officers and employees with one year of service who have attained the
age of 21  prior to  the plan's January  1 and  July 1 enrollment  dates.   The
pension plan's benefit  formulas generally base  payments to retired  employees
upon their length of service and a percentage of qualifying compensation during
their  final years  of  employment.   The pension  plan's  assets are  invested
principally in U.S. Government agency obligations and mutual funds.
   The plan's funded status at December 31, 1995 and 1994 is as follows:


                                                               December 31,

   ($ In thousands)                                           1995      1994
                                                             ------    ------
   Actuarial present value of benefit obligations:
    Accumulated benefit obligation, including vested
     benefits of $881 in 1995 and $546 in 1994               $   970      601 
                                                             =======   ====== 

   Projected benefit obligation for service rendered to
    date                                                      (1,745)  (1,068)
   Plan assets at fair value                                     992      924 
                                                             -------   ------ 
      Projected benefit obligation in excess of plan
       assets                                                   (753)    (144)
                                                                     
   Unrecognized net asset at January 1, 1987 being
    amortized over 15 years                                      (61)     (72)
   Unrecognized net loss from past experience
    different from that assumed                                  559      101 
   Prior service cost not yet recognized in net                               
    pension cost                                                 (21)     (53)
                                                             -------   ------ 
      Accrued pension cost included in other liabilities     $  (276)    (168)
                                                             =======   ====== 

   Net pension cost includes the following (income) expense components:


                                                       Years ended December 31,

   ($ In thousands)                                      1995    1994    1993
                                                        ------  ------  ------

   Service cost-benefits earned during the year         $  111    147     104  
   Interest cost on projected benefit obligation            92     89      68  
   Actual return on plan assets                           (124)     8     (35) 
   Net amortization and deferral                            29    (90)    (59) 
                                                        ------   ----   -----  

      Net pension cost                                  $  108    154      78  
                                                        ======   ====   =====  

   The  weighted average discount rate  was 7% in 1995,  8.5% in 1994 and 7% in
1993.  The rate of increase in future compensation  levels was 5% in 1995, 1994
and 1993.  These rates  were used in determining the actuarial present value of
the projected  benefit obligation.   The expected  long-term rate of  return on
assets was 9% in 1995, 1994 and 1993.




                                      -33-<PAGE>
Note 9: Income Taxes
   As discussed in note 1(J), Bankshares adopted SFAS No. 109 as of January  1,
1993.  The cumulative  effect of this change in accounting  for income taxes of
$28 is reported separately in the 1993 consolidated statement of income.  
   Total income taxes were allocated as follows:


                                                       Years ended December 31,

   ($ In thousands)                                      1995    1994    1993
                                                        ------  ------  ------
   Income                                               $1,034     900     717 
   Stockholders' equity, for net unrealized gains
    (losses) on securities available for sale
    recognized for financial reporting purposes            124     (65)    --- 
                                                        ------    ----   ----- 
      Total income taxes                                $1,158     835     717 
                                                        ======    ====   ===== 

      The components  of  federal  income tax  expense  attributable to  income
before  income  tax expense  and  cumulative  effect  of change  in  accounting
principle are as follows:


                                                       Years ended December 31,

   ($ In thousands)                                      1995    1994    1993
                                                        ------  ------  ------

   Current                                              $1,166     959     750 
   Deferred                                               (132)    (59)    (33)
                                                        ------            ---- 
      Total income tax expense                          $1,034     900     717 
                                                        ======    ====    ==== 

   Taxes resulting from securities transactions amounted to a tax benefit of $7
for the year  ended December 31, 1994 and  an income tax expense of  $9 for the
year ended December 31, 1993.
   The following  is  a reconciliation  of the  "expected"  federal income  tax
expense on  income before income tax expense and cumulative effect of change in
accounting principle with the reported income tax expense:

                                                       Years ended December 31,

   ($ In thousands)                                      1995    1994    1993
                                                        ------  ------  ------

   Expected income tax expense (34%)                   $ 1,459   1,297   1,143 
   Tax-exempt interest income                             (551)   (521)   (490)
   Nondeductible interest expense                           67      55      47 
   Other, net                                               59      69      17 
                                                       -------   -----   ----- 
      Reported income tax expense                      $ 1,034     900     717 
                                                       =======   =====   ===== 

   The  tax  effects of  temporary differences  that  give rise  to significant
portions of the  deferred tax assets  and deferred tax liabilities  at December
31, 1995 and 1994 are presented below:


                                      -34-<PAGE>

                                                                 December 31,

   ($ In thousands)                                              1995    1994
                                                                ------  ------

   Deferred tax assets:
     Loans, principally due to allowance for loan losses and
      unearned fee income                                        $ 534     504 
     Other real estate owned, principally due to valuation
      allowance                                                     33       1 
     Deferred compensation and other liabilities, due to                       
      accrual for financial reporting purpose                      158     143 
     Net unrealized losses on securities available for sale        ---      65 
     Deposit intangibles and goodwill                               28      13 
     Nonaccrual interest on loans                                   19      30 
     Community development corporation related tax credit           34     --- 
                                                                 -----   ----- 
       Total gross deferred tax assets                             806     756 
       Less valuation allowance                                    ---     --- 
                                                                 -----   ----- 

       Net deferred tax assets                                     806     756 
                                                                 -----   ----- 
   Deferred tax liabilities:
     Bank premises and equipment, principally due to                           
      differences in depreciation                                  (20)    (39)
     Securities, due to differences in discount accretion          (30)    (26)
     Other assets                                                  (49)    (51)
     Net unrealized gains on securities available for sale         (59)    --- 
                                                                 -----   ----- 

       Total gross deferred liabilities                           (158)   (116)
                                                                 -----   ----- 
       Net deferred tax asset included in other assets           $ 648     640 
                                                                 =====   ===== 

   Bankshares has determined that a valuation allowance for the gross  deferred
tax assets is not necessary at December 31, 1995 and 1994 due to the  fact that
the realization of the entire gross deferred tax assets can be supported by the
amount  of taxes paid  during the carryback period  available under current tax
laws.

Note 10: Long-Term Debt
   Long-term  debt consisted  of an  unsecured equity commitment  note maturing
January 12, 1995 with  interest at the U.S.  Prime Rate plus .5%.  During 1993,
this indebtedness was paid in full.

Note 11: Common Stock Transactions
   During  1994 and  1993, the  ESOP purchased  4,480 and  5,528 shares  of the
common stock of National  Bankshares, Inc. at a price of  $19.35 and $11.00 per
share, respectively.  There was no stock  purchased in 1995 for the ESOP.   The
net proceeds from these stock issuances have been credited to  common stock and
surplus in the respective years.

Note 12: Restrictions on Payments of Dividends and Capital Requirements
   National Bankshares, Inc.'s principal source of funds  for dividend payments
is dividends  received from its subsidiary.   For the years  ended December 31,
1995, 1994 and 1993, dividends received from NBB were $1,055,  $1,133 and $993,
respectively.



                                      -35-<PAGE>
   Under applicable federal laws, the Comptroller of the Currency restricts the
total dividend payments  of NBB in any calendar year to the net profits of that
year  as defined,  combined with  retained  net profits  for the  preceding two
years.   At  December 31, 1995,  retained net  profits which were  free of such
restrictions amounted to approximately $4,256.
   NBB  is required  to  maintain minimum  amounts  of capital  to  total risk-
weighted  assets, as defined by the banking  regulators.  At December 31, 1995,
NBB is required  to have minimum Tier 1 and total  capital ratios of 4% and 8%,
respectively.   NBB's  actual  ratios at  that  date were  15.01%  and  16.27%,
respectively.  NBB's leverage ratio at December 31, 1995 was 10.31%.

Note 13: Parent Company Financial Information
   Condensed  financial information  of National  Bankshares, Inc.  (Parent) is
presented below:

                           Condensed Balance Sheets  


                                                                December 31,

   ($ In thousands)                                           1995      1994
                                                              ------   ------
   Assets:
      Cash due from subsidiary                               $    14       71
      Investment in subsidiary, at equity                     22,467   19,837
      Other assets                                               ---        3
      Refundable income taxes due from subsidiary                113      275
                                                             -------   ------

         Total assets                                        $22,594   20,186
                                                             =======   ======

   Liabilities and stockholders' equity:                             
      Other liabilities                                           40       49
      Stockholders' equity (notes 9, 11 and 12):
      Preferred stock of no par value.
       Authorized 5,000,000 shares;
       none issued and outstanding                               ---      ---
      Common stock of $2.50 par value.
       Authorized 5,000,000 shares; issued
       and outstanding 1,714,152 shares                        4,285    4,285
      Surplus                                                  1,187    1,187
      Undivided profits                                       16,967   14,791
      Net unrealized gains (losses) on securities available
       for sale                                                  115    (126)
                                                             -------   ------
         Total stockholders' equity                           22,554   20,137

      Commitments and contingent liabilities (notes 8, 15
       and 18)
                                                             -------   ------
         Total liabilities and stockholders' equity          $22,594   20,186
                                                             =======   ======







                                      -36-<PAGE>
                         Condensed Statements of Income



                                                     Years ended December 31,

   ($ In thousands)                                  1995      1994     1993
                                                    ------    ------   ------
   Income:
      Dividends from subsidiary (note 12)          $ 1,055     1,133      993
                                                   -------    ------   ------
   Expenses:
      Interest on long-term debt                       ---       ---        2
      Other expenses                                   285       127      109
                                                   -------    ------   ------
         Total expenses                                285       127      111
                                                   -------    ------   ------
      Income before income tax benefit,
       cumulative effect of change in accounting
       principle and equity in undistributed net
       income of subsidiary                            770     1,006      882
      Applicable income tax benefit                     97        43       37
                                                   -------    ------   ------
      Income before cumulative effect of change
       in accounting principle and equity in
       undistributed net income of subsidiary          867     1,049      919
      Cumulative effect at January 1, 1993 of
       change in accounting for income taxes                                  
       (note 9)                                        ---       ---       19
                                                   -------    ------   ------
      Income before equity in undistributed
       net income of subsidiary                        867     1,049      938

      Equity in undistributed net income of
       subsidiary                                    2,389     1,867    1,734
                                                   -------    ------   ------
         Net income                                $ 3,256     2,916    2,672
                                                   =======    ======   ======




















                                      -37-<PAGE>
                       Condensed Statements of Cash Flows

                                                     Years ended December 31,

   ($ In thousands)                                  1995      1994     1993
                                                    ------    ------   ------
   Cash flows from operating activities:                             
      Net income                                   $ 3,256     2,916    2,672 
      Adjustments to reconcile net income to net
       cash provided by operating activities:
         Equity in undistributed net income of                       
          subsidiary                                (2,389)   (1,867)  (1,734)
         Provision for deferred income taxes           ---       ---      (19)
         (Increase) decrease in other assets             3        (2)      (1)
         (Increase) decrease in refundable                           
          income taxes due from subsidiary             162       (43)     (37)
         Increase (decrease) in other liabilities       (9)       20       (3)
                                                   -------    ------   ------ 
         Net cash provided by operating
          activities                                 1,023     1,024      878 
                                                   -------    ------   ------ 
   Cash flows from financing activities:
      Purchase of common stock of subsidiary           ---       (86)     --- 
      Principal payments on long-term debt             ---       ---      (61)
      Net proceeds from issuance of common stock       ---        86       62 
      Dividends paid                                (1,080)     (993)    (855)
                                                   -------    ------   ------ 

         Net cash used in financing activities      (1,080)     (993)    (854)
                                                   -------    ------   ------ 
   Net increase (decrease) in cash                     (57)       31       24 

   Cash due from subsidiary at beginning of year        71        40       16 
                                                   -------    ------   ------ 
   Cash due from subsidiary at end of year         $    14        71       40 
                                                   =======    ======   ====== 

Note 14: Supplemental Cash Flow Information
   Bankshares paid  $6,663, $5,621 and $5,775  for interest and  $1,086, $1,159
and  $706   for  income  taxes,  net  of  refunds,  in  1995,  1994  and  1993,
respectively.  Noncash investing activities consisted of $269, $624 and $734 of
loans charged  against the allowance  for loan losses  in 1995, 1994  and 1993,
respectively.   In addition,  for the years  ended December 31,  1995 and 1994,
noncash investing activities  included changes in net unrealized gains (losses)
on securities available  for sale of $365 and ($191),  respectively, changes in
deferred tax assets included in  other assets of ($124) and $65,  respectively,
and changes  in net unrealized gains (losses)  on securities available for sale
included in stockholders' equity of $241  and ($126), respectively.  See Note 3
for noncash transfers of securities.

Note 15: Financial Instruments with Off-Balance Sheet Risk
   NBB is a party  to financial instruments with off-balance sheet risk  in the
normal course of business to meet the financing needs  of its customers.  These
financial instruments include commitments to  extend credit and standby letters
of  credit.  Those instruments involve, to  varying degrees, elements of credit
risk in  excess of the  amount recognized  in the consolidated  balance sheets.
The contract amounts of those instruments reflect the extent of involvement NBB
has in particular classes of financial instruments.


                                      -38-<PAGE>
   NBB's exposure to credit loss, in the  event of nonperformance by the  other
party to the financial instrument for commitments to extend  credit and standby
letters   of  credit,  is  represented  by  the  contractual  amount  of  those
instruments.   NBB  uses the  same credit  policies  in making  commitments and
conditional obligations as it does for on-balance sheet instruments.
   NBB  may require  collateral  or  other security  to support  the  following
financial instruments with credit risk:


                                                               December 31,
   ($ In thousands)                                          1995       1994
                                                            ------     ------
   Financial instruments whose contract amounts represent
    credit risk:
           Commitments to extend credit                     $28,284    30,244 
           Standby letters of credit                          1,934     3,117 

   Commitments to extend credit are agreements to lend to a customer as long as
there  is  no  violation  of   any  condition  established  in  the   contract.
Commitments  generally have fixed expiration dates or other termination clauses
and may require payment of a  fee.  Since many of the commitments  are expected
to  expire without  being  drawn  upon, the  total  commitment  amounts do  not
necessarily represent future cash requirements.  NBB  evaluates each customer's
creditworthiness on a case-by-case basis.   The amount of collateral  obtained,
if required  by NBB upon extension  of credit, is based  on management's credit
evaluation of the  customer.  Collateral held  varies but may  include accounts
receivable,  inventory, property,  plant  and  equipment  and  income-producing
commercial properties.  Extensions of credit arising from these commitments are
predominantly  variable   rate  in   nature;  the  principal   exception  being
construction loans which are at fixed rates, but have terms generally less than
one year.
   Standby  letters of  credit are  conditional  commitments issued  by NBB  to
guarantee  the performance of  a customer to  a third  party.  The  credit risk
involved in issuing letters of credit  is essentially the same as that involved
in  extending  loans to  customers.   Collateral  held  varies but  may include
accounts  receivable,  inventory, property,  plant  and  equipment and  income-
producing commercial properties.
   NBB originates mortgage loans for sale to secondary market investors subject
to contractually  specified  and limited  recourse provisions.    In 1995,  NBB
originated  $15,515  and  sold  $15,027   to  investors,  compared  to  $15,084
originated  and  $16,444  sold in  1994.   Every  contract  with  each investor
contains  certain recourse  language.    In general,  NBB  may be  required  to
repurchase a previously sold mortgage loan if there is major noncompliance with
defined  loan   origination  or  documentation   standards,  including   fraud,
negligence or material misstatement in the loan documents.  Repurchase may also
be  required if necessary  governmental loan  guarantees are canceled  or never
issued, or if an investor is forced to buy back a loan after it has been resold
as  a  part of  a  loan pool.    In addition,  NBB  may have  an  obligation to
repurchase a loan if the mortgagor has defaulted early  in the loan term.  This
potential default period is approximately twelve months after sale of a loan to
the investor.  Sold loans with potential recourse totaled approximately $15,027
at December 31, 1995.

Note 16: Concentrations of Credit Risk
   NBB  does a general banking  business, serving the  commercial, agricultural
and  personal banking needs  of its customers in  its trade territory, commonly
referred to as  the New River  Valley, which consists  of Montgomery and  Giles
Counties,  Virginia and portions  of adjacent counties.   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

                                      -39-<PAGE>
Institute  and State University, the Radford Army Ammunition Plant and Hoechst-
Celanese.  Other industries include a wide variety of  manufacturing and retail
and service concerns.   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  this area.  Real estate construction loans
are concentrated within  NBB's trade  territory.  The  commercial portfolio  is
diversified  with no  significant  concentrations  of  credit within  a  single
industry.  As of December  31, 1995 and 1994, approximately $31 million and $24
million,  respectively, of  the commercial  loan portfolio  consisted of  loans
secured by commercial real estate.  Loans to individuals included approximately
$22 million and $18 million, respectively, of loans secured by vehicles.  As of
December  31,  1995  and 1994,  the  real  estate  mortgage portfolio  included
approximately $21 million of  residential mortgage loans secured by  1-4 family
properties.
   NBB  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.

Note 17: Fair Value of Financial Instruments
   The estimated fair values  of Bankshares' financial instruments  at December
31, 1995 and 1994 are as follows:

                                                     December 31,
                                               1995                1994

                                                 Estimated           Estimated
   ($ In thousands)                    Carrying    Fair     Carrying    Fair
                                        Amount     Value     Amount    Value
                                       --------  ---------  -------- ---------
   Financial assets:
      Cash and due from banks          $  5,405     5,405     6,648     6,648
      Federal funds sold                    ---       ---     1,400     1,400
      Securities                         66,737    67,437    69,503    67,930
      Mortgage loans held for sale          880       880       392       392
      Loans, net                        122,973   123,447   113,718   113,019
                                       --------   -------   -------   -------
      Total financial assets            195,995   197,169   191,661   189,389
                                       ========   =======   =======   =======

   Financial liabilities:                                                     
      Deposits                          179,673   182,905   178,636   176,376
                                       --------   -------   -------   -------
      Total financial liabilities       179,673   182,905   178,636   176,376
                                       ========   =======   =======   =======

   Fair value estimates are made at a specific point in time, based on relevant
market  information and  information  about the  financial  instrument.   These
estimates do  not  reflect any  premium  or  discount that  could  result  from
offering for  sale at  one  time Bankshares'  entire holdings  of a  particular
financial  instrument.  Because no  market exists for  a significant portion of
Bankshares' financial instruments, fair value estimates are based on judgements
regarding future expected  loss experience, current  economic conditions,  risk
characteristics  of various  financial instruments  and other  factors.   These
estimates are  subjective in nature  and involve  uncertainties and matters  of
significant judgement  and  therefore  cannot  be  determined  with  precision.
Changes in assumptions could significantly affect these estimates.


                                      -40-<PAGE>
   Fair  value  estimates  are  based  on  existing  on-and  off-balance  sheet
financial  instruments without attempting to estimate  the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments.   Significant assets that  are not considered  financial
assets  include  deferred  tax assets  and  bank  premises and  equipment.   In
addition,  the tax ramifications related  to the realization  of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.

Note 18: Pending Affiliation and Purchase Transaction
   In August  1995, Bankshares  and the Bank  of Tazewell County  (BTC) entered
into  an  affiliation  agreement,  whereby  Bankshares  and  BTC  would  merge.
Stockholders of Bankshares would  receive an additional .11129 share  of common
stock for each of their shares and stockholders of  BTC would receive one share
of  Bankshares common stock for each of their shares.  The agreement is subject
to approval of stockholders of BTC and regulatory authorities.  At December 31,
1995,  BTC  had  assets  of  approximately  $178  million  and  net  income  of
approximately  $2.3  million  for  the  year  ended  December 31,  1995.    The
affiliation is anticipated to be accounted for as a pooling-of-interests and to
become effective in the second quarter of 1996.
   On November 23, 1993, NBB entered into an agreement to purchase the deposits
and certain fixed assets of the Pembroke Office of First Union National Bank of
Virginia.  Settlement  of this purchase agreement  occurred on April 16,  1994,
with the  assumption of $14,514 in  total deposits and $33  in accrued interest
payable.  In conjunction  with this purchase,  deposit intangibles of $908  are
being amortized on a straight-line basis over a ten-year period and goodwill of
$447 is being amortized on a straight-line basis over a fifteen-year period.

Note 19: Future Accounting Considerations
   In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment  of Long-lived Assets and for  Long-lived Assets
to  be Disposed  of."   SFAS No.  121 requires  companies to  review long-lived
assets and  certain identifiable intangibles to  be held, used or  disposed of,
for  impairment whenever events or  changes in circumstances  indicate that the
carrying amount of an asset may not be recoverable.   Bankshares is required to
adopt  this  statement  in 1996.    Bankshares believes  the  adoption  of this
statement  will not  have a  significant effect  on its  consolidated financial
statements.
























                                      -41-<PAGE>
                     Comparative Statements of Trust Assets
                                  (Unaudited)






                                    Market value, $ In thousands, December 31,

                                                   1995      1994       1993
                                                  ------    ------     ------
   Noninterest-bearing deposits - own bank       $    54       590        32 
   Interest-bearing deposits - own bank              248       540       445 
   Interest-bearing deposits - other banks         1,793     1,965       440 
   U.S. Government and agency obligations          5,362     7,119     6,418 
   State, county and municipal obligations         8,518     7,319     7,388 
   Money market mutual funds                       2,060     1,833     1,835 
   Other notes and bonds                           3,593     6,669     7,289 
   Common and preferred stock                     28,444    16,156    13,131 
   Real estate mortgages                           1,236       733       564 
   Real estate                                     1,336     1,539     1,495 
   Miscellaneous                                     579       383       431 
                                                 -------    ------    ------ 

      Total discretionary assets                  53,223    44,846    39,468 

      Nondiscretionary assets                     11,261    10,745     9,074 
                                                 -------    ------    ------ 
      Total assets                               $64,484    55,591    48,542 
                                                 =======    ======    ====== 




   Assets (other  than  cash deposits)  held by  the  Trust  Department in  a
   fiduciary  or agency  capacity are  not  included in  the consolidated    
   financial statements since such items are not assets of NBB.
























                                      -42-<PAGE>
                         National Bankshares, Inc. and
                     The National Bank Boards of Directors


         PHOTOGRAPH OF NATIONAL BANKSHARES, INC. AND THE NATIONAL BANK
                              BOARDS OF DIRECTORS


Seated Left to Right:                        Standing Left to Right:

Charles L. Boatwright                        Paul P. Wisman
Vice Chairman of the Board                   Grundy National Bank
Physician                                    Vice President of Investments
                                             Nicewonder Investments
Robert E. Christopher, Jr.                   Manager of Assets
Chairman of the Board
Retired                                      J. Lewis Webb, Jr.
                                             Dentist
Jeffrey R. Stewart
Educational Consultant                       Paul A. Duncan
                                             Holiday Motor Corp.
James G. Rakes                               President
National Bankshares, Inc.
The National Bank of Blacksburg              James M. Shuler
President and Chief Executive Officer        Companion Animal Clinic, Inc.
                                             President
                                             Virginia House of Delegates
                                             Delegate

                                             L. Allen Bowman
                                             Poly-Scientific
                                             President




On  September 21,  1995, the  Boards accepted  with  regret the  resignation of
Director John M.  Barringer after  more than forty  years of distinguished  and
dedicated service.  Through the years Mr. Barringer's contributions to the bank
have been  valuable and numerous, and  his fellow Directors very  much miss his
knowledge, experience and wry sense of humor.





















                                      -43-<PAGE>
                          Advisory Boards of Directors


             PHOTOGRAPH OF MONTGOMERY COUNTY ADVISORY BOARD MEMBERS

Seated Left to Right:                        Standing Left to Right:

James C. Stewart                             James L. Dowdy
Virginia Center for Innovative Technology    Blacksburg Floor Fashions
Regional Director
                                             Dan A. Dodson
Arlene A. Saari                              ERA Townside, Inc.
Partyrama and The Emporium                   Realtor and Broker
Owner
                                             W. Clinton Graves
T. Cooper Via                                Clinton's Transfer and Storage
L.L. Brown Agency, Inc.                      Owner
President
                                             James J. Owen
                                             Virginia Polytechnic Institute
                                              and State University
                                             Associate Professor Emeritus



                          Giles County Advisory Board


               PHOTOGRAPH OF GILES COUNTY ADVISORY BOARD MEMBERS


Seated Left to Right:                        Standing Left to Right:

Buford Steele                                Paul B. Collins
Retired                                      Patrick Enterprises, Inc.
                                             President
Scarlet B. Ratcliffe
Clerk of the Circuit Court of Giles County   John H. Givens, Jr.
                                             Givens Funeral Home, Inc.
Kenneth L. Rakes                             Owner
Virginian Leader Corp.
President and Publisher                      Ross E. Martin
                                             Retired
H.M. Scanland, Jr.
Mountain Lake Resort
General Manager



                                 Emeritus Board


J. Stephen Burrows*      William W. Dobyns        Robert F. Farrier
Ruth C. Horton*          Howard L. Price          Leo C. Scott
George A. Gray           Howard R. Hale           *Co-Chairmen of the Board







                                      -44-<PAGE>
                  Officers of The National Bank of Blacksburg

President and            Offices                   Operations
Chief Executive Officer  Hethwood                  Joan C. Nelson
James G. Rakes           --------                  Senior Vice President
                         Sharon W. Duncan          Operations and Cashier
Accounting and           Vice President
Financial Reporting      Office Manager            William E. Himes
Fred Jackson, III                                  Security Officer
Controller               Main Office
                         -----------               Personnel and
Audit                    Dana L. Sutphin           Administration
Shelby M. Evans          Assistant Vice President  Marilyn B. Buhyoff
Corporate Auditor        Office Manager            Senior Vice President
                                                   Administration
David K. Skeens          Market Place
Auditor                  ------------              Trust
                         Jeffery L. Tickle         Thomas M. Murphy
Credit Review            Assistant Vice President  Vice President
Paul B. Cassell, Jr.     Office Manager            Trust Officer
Vice President
Credit Review            North Main                H.W. Swink, Jr.
                         ----------                Assistant Trust Officer
Patrick L. Lamm          Phyllis P. Duncan
Credit Review Officer    Assistant Vice President  Connie T. Lovern
                         Office Manager            Trust Operations Officer
Information Systems
Larry K. Hayes           Pearisburg
Vice President           ----------
                         Rick A. Reed
Loans                    Senior Vice President
F. Brad Denardo          Office Manager
Executive Vice President
                         Pembroke
T.W. Johnson, Jr.        --------
Vice President           Jerry B. Smith
Commercial Loans         Vice President
                         Office Manager
James A. Mattox
Commercial Loan Officer  South Main
                         ----------
Bryce W. McCall          David A. Capwell
Assistant Vice President Assistant Cashier
Construction and         Office Manager
 Mortgage Loans

Ieda P. Sturgill
Assistant Vice President
Loans

Jerry H. Albert          The National Bank of Blacksburg is an equal
Assistant Cashier        opportunity employer committed to treating all
                         employees and applicants for employment equally
Terry T. Stafford        and fairly.
Loans Operations Officer

Karen A. Stoevener
Mortgage Loan Officer




                                      -45-<PAGE>
                             Corporate Information


National Bankshares, Inc. - Officers
   James G. Rakes                Marilyn B. Buhyoff    Joan C. Nelson
   President and                 Secretary             Treasurer
   Chief Executive Officer

   F. Brad Denardo               Shelby M. Evans
   Corporate Officer             Corporate Auditor


Annual Meeting
   The annual meeting  of stockholders will be held  on Tuesday, April 9, 1996,
   at 3 p.m. at the Best Western Red Lion Inn, 900 Plantation Road, Blacksburg,
   Virginia.


Requests for Information
   Analysts, investors and those seeking financial information should contact:
      James G. Rakes
      President and Chief Executive Officer
      540/552-2011 or
      800/552-4123

   Those seeking general stockholder information should contact:
      Marilyn B. Buhyoff
      Secretary
      540/552-2011 or
      800/552-4123


Form 10-K
   A Form 10-K  Report filed  with the  Securities and  Exchange Commission  is
   available  to  stockholders  without charge  upon  written  request  to  the
   Secretary  of National  Bankshares, Inc.,  100 South  Main Street,  P.O. Box
   90002, Blacksburg, VA 24062-9002.


Corporate Office                 Registered Agent
   National Bankshares, Inc.       James G. Rakes
   100 South Main Street           100 South Main Street
   Blacksburg, VA 24060            Blacksburg, VA 24060
   P.O. Box 90002                  P.O. Box 90002
   Blacksburg, VA 24062-9002       Blacksburg, VA 24062-9002


The National Bank - Office Locations
   Main Office                Hethwood Office            Pearisburg Office
   100 South Main Street      900 Hethwood Boulevard     201 Main Street
   Blacksburg, VA 24060       Blacksburg, VA 24060       Pearisburg, VA 24134

   North Main Office          Market Place Office        Pembroke Office
   901 North Main Street      120 Peppers Ferry Road     Snidow Street
   Blacksburg, VA 24060       Christiansburg, VA 24073   Pembroke, VA 24136

   South Main Office          Trust Department
   3600 South Main Street     201 Church Street
   Blacksburg, VA 24060       Blacksburg, VA 24060



                                      -46-<PAGE>























































                           National Bankshares, Inc.
                             100 South Main Street
                              Blacksburg, VA 24060
                                 P.O. Box 90002
                           Blacksburg, VA 24062-9002


                                      -47-<PAGE>