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

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended                                 Commission file number
   December 31, 1996                                            O-15204         

                        NATIONAL BANKSHARES, INCORPORATED
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

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

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

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

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

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

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

Indicate by  a check  mark  whether the  Registrant (1)  has  filed all  reports
required  to be filed by  Section 13 or 15(d) of  the Securities Exchange Act of
1934 during  the  preceding 12  months  (or for  such  shorter period  that  the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.   
    Yes   X        No     
        -----        -----

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

The  aggregate  market  value  of  voting stock  held  by  nonaffiliates  of the
Registrant as of March 14, 1997 was $87,477,875.  The aggregate market value was
computed based on  a price determined from  transactions known to management  of
the Registrant  since  its  stock  is not  extensively  traded,  listed  on  any
exchange, or  quoted by  NASDAQ.  (In  determining this  amount, the  registrant
assumes that all of its  Directors and principal Officers are affiliates.   Such
assumption shall not be deemed conclusive for any other purposes.)<PAGE>

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

           Class                                  Outstanding at March 14, 1997 
------------------------------                   -------------------------------
COMMON STOCK, $2.50 PAR VALUE                              3,792,833            



                       DOCUMENTS INCORPORATED BY REFERENCE

Selected information from the Registrants' Annual Report to Stockholders for the
year ended December 31, 1996,  is incorporated by reference into Parts I  and II
of this report.

Selected  information from  the  Registrant's  Proxy  Statement for  the  Annual
Meeting  to be held  April 8,  1997 and filed  with the Securities  and Exchange
Commission  pursuant to Regulation 14A,  is incorporated by  reference into Part
III of this report.







































                        (This report contains 40 pages.)
                   (The Index of Exhibits are on pages 39-40.)<PAGE>

                        NATIONAL BANKSHARES, INCORPORATED

                       ANNUAL REPORT FOR 1996 ON FORM 10-K


                                TABLE OF CONTENTS



                                                              PAGE
                                                              ----

            PART I

            Item 1.   Business                                4-31
            Item 2.   Properties                               31
            Item 3.   Legal Proceedings                        31
            Item 4.   Submission of Matters to a Vote of
                       Security Holders                        31
            Executive Officers of the Registrant               32

            PART II

            Item 5.   Market for Registrant's Common
                       Equity and Related Stockholder 
                       Matters                                 33
            Item 6.   Selected Financial Data                  33
            Item 7.   Management's Discussion and Analysis
                       of Financial Condition and Results
                       of Operations                           33
            Item 8.   Financial Statements and 
                       Supplementary Data                      33
            Item 9.   Changes in and Disagreements with
                       Accountants on Accounting and
                       Financial Disclosure                    34

            PART III

            Item 10.  Directors and Executive Officers of
                        the Registrant                         34
            Item 11.  Executive Compensation                   34
            Item 12.  Security Ownership of Certain
                        Beneficial Owners and Management       34
            Item 13.  Certain Relationships and Related
                        Transactions                           34
            PART IV

            Item 14.  Exhibits, Financial Statement 
                        Schedules, and Reports on Form 8-K    35-37












                                       -3-<PAGE>

                                     PART I
                                     ------

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

History and Business

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

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

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

The National Bank of Blacksburg

 The  National  Bank  of Blacksburg  was  originally  chartered  in 1891.    NBB
operates  a full-service banking  business from its  headquarters in Blacksburg,
Virginia, and its six area branch offices.  A seventh branch is expected to open
in the second quarter of 1997.  NBB offers general retail and commercial banking
services to individuals,  businesses, local government  units and  institutional
customers.  These  products and services include accepting deposits  in the form
of  checking accounts,  money market  deposit accounts,  interest-bearing demand
deposit  accounts,  savings accounts  and  time  deposits;  making real  estate,
commercial, revolving,  consumer and  agricultural  loans; offering  letters  of
credit; providing  other consumer  financial services,  such as  automatic funds
transfer, collections, night depository, safe deposit, travelers checks, savings
bond  sales  and utility  payment  services; and  providing  other miscellaneous
services normally  offered by commercial  banks.   NBB also  conducts a  general
trust business in Blacksburg near its headquarters location.  Through its  trust
operation, NBB offers a variety of personal and corporate trust services.

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

Bank of Tazewell County

 The  antecedents of  BTC are  in a  charter issued  on September  28, 1889  for
Clinch  Valley Bank.   On  December  22, 1893,  a second  charter was  issued in
substantially the same  form for Bank of Clinch Valley.  In 1929, Bank of Clinch
Valley merged with Farmers Bank under the charter of the former, and the name of
the  resulting institution  became  Farmers  Bank of  Clinch  Valley.   Bank  of
Tazewell County  resulted from  the 1964  merger of  Bank of Graham,  Bluefield,


                                       -4-<PAGE>

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

 BTC makes commercial, residential real estate and consumer loans.

Commercial Loans

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

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

Residential Real Estate Loans

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

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

Construction Loans

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



                                       -5-<PAGE>

 In addition to the  risks associated with  all real estate loans,  construction
loans  bear  the risks  that  the  project will  not  be  finished according  to
schedule, the project will  not be finished according to budget and the value of
the collateral may be at any point in time less than the principal amount of the
loan.

 Construction loans also  bear the risk that the  general contractor, who may or
may  not be  the bank's  loan  customer, is  unable to  finish the  construction
project  as planned  because of  financial pressures  unrelated to  the project.
Loans  to customers  that  are permanent  financing  of construction  loans  may
likewise under certain circumstances be affected by external financial pressures
on those customers.

Consumer Loans

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

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

Sales and Purchases of Loans

 NBB and BTC will occasionally  buy or sell all or a  portion of a loan.   These
purchases  and sales are in addition to  the secondary market mortgage loans and
student loans regularly sold by NBB.  Because the demand for loans, particularly
for commercial loans, is greater in NBB's market area than in BTC's market area,
NBB  regularly sells loans and  participations in loans  to BTC.   BTC's loan to
deposit ratio is at a level where additional loans are desirable, and NBB's loan
to deposit ratio  is at  a level which  its management  considers to be  optimal
without the loans sold to BTC.

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

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






                                       -6-<PAGE>

 The following table  sets forth, for the three  fiscal years ended December 31,
1996,  1995 and  1994 the percentage  of total operating  revenue contributed by
each class  of similar services which contributed 15% or more of total operating
revenues of the Company during such periods.
                                                            Percentage of
      Period             Class of Service                   Total Revenues
      ------             ----------------                   --------------
      December 31, 1996  Interest and Fees on Loans             54.98%
                         Interest on Investments                34.61%
      December 31, 1995  Interest and Fees on Loans             51.72%
                         Interest on Investments                38.16%
      December 31, 1994  Interest and Fees on Loans             48.97%
                         Interest on Investments                42.15%

Market Area

The National Bank of Blacksburg Market Area 

 NBB's primary  market  area consists  of  the  northern portion  of  Montgomery
County  and all  of Giles County,  Virginia.   This area  includes the  towns of
Blacksburg and Christiansburg in  Montgomery County and the towns  of Pearisburg
and Pembroke in  Giles County.   The local  economy is diverse  and is  oriented
toward   higher  education,   retail  and   service,  light   manufacturing  and
agriculture.   For  the years  1996,  1995 and  1994  the unemployment  rate  in
Montgomery  County was 3.3%, 3.0% and 3.2%,  respectively, and the rate in Giles
County during  those years was  8.4%, 8.4%  and 7.4%, respectively.   Montgomery
County's largest employer is Virginia Polytechnic Institute and State University
(VPI &  SU) located in Blacksburg.   VPI &  SU is the Commonwealth's  land grant
college and also its  largest university.  Employment  at VPI & SU has  remained
stable over the past three years, and it is not expected to change materially in
the next few years.  A second state supported university, Radford University, is
located in the western edge of  NBB's service area.  It too has  provided stable
employment opportunities in the region.

 Giles   County's   primary  employer   is   a  Hoechst-Celanese   plant,  which
manufactures the material from  which cigarette filters are made.  Employment at
that location has remained steady or declined slightly in the  past three years.
Several other small manufacturing  concerns are located in Montgomery  and Giles
Counties.  These  concerns manufacture  diverse products and  are not  dependent
upon one sector of the economy.

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

 Montgomery  County has  experienced  good growth,  with  the total  fair market
value of  real estate, measured in constant dollars, increasing 49% in the years
between 1980 and 1992.   Growth is predicted to continue through the  year 2000;
however, the  rate may be somewhat  slower, as the predicted  rate of population
growth in Montgomery County  is expected to moderate.  Neighboring  Giles County
is more rural and  had only 22% of Montgomery County's total population in 1990.
Giles  County has  experienced a  slight  decline in  population since  the 1990
census.   Total  fair market  value of  real estate,  measured in  real dollars,
increased  in Giles County by 54% between 1980 and 1992, but declined by 9% over


                                       -7-<PAGE>

that twelve-year period, as  measured in constant  dollars.  The continued  slow
decline of Giles County's population  is predicted to continue through  the year
2000.  However, since  the total population of  the County reported in the  1990
census was only 16,366, and the  population projected by the Virginia Employment
Commission  for Giles in the  year 2000 is 16,121, the  predicted decline of 245
individuals is not expected to materially impact NBB's business in Giles County.

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

Bank of Tazewell County Market Area

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

 For 1996,  1995 and 1994  the unemployment rate  for Tazewell County was  9.5%,
10.2%  and  13.9%, respectively.    In  the  same  years,  Mercer  County,  West
Virginia's unemployment rate was 5.2%, 5.7% and 7.2%, respectively.

Competition

 The banking and financial  service business in Virginia generally, and in NBB's
and  BTC's market areas specifically,  is highly competitive.   The increasingly
competitive  environment  is  a result  of  changes  in  regulation, changes  in
technology  and   product  delivery  systems   and  the  accelerating   pace  of
consolidation   among  financial   service  providers.     The   Company's  bank
subsidiaries compete for loans and deposits with other commercial banks, savings
and loan  associations, securities and brokerage  companies, mortgage companies,
money market funds, credit unions and other nonbank financial service providers.
Many of these  competitors are much larger  in total assets and  capitalization,
have greater  access to capital markets  and offer a broader  array of financial
services than  NBB and  BTC.   In order  to compete  with these  other financial
service providers, NBB  and BTC rely  upon service-based business  philosophies,
personal  relationships with  customers, specialized  services tailored  to meet
customers' needs  and the  convenience of  office locations.   In  addition, the
banks  are  generally competitive  with  other financial  institutions  in their
market areas  with respect to interest rates  paid on deposit accounts, interest
rates charged on loans and other service charges on loans and deposit accounts.

Registrant's Organization and Employment

 Bankshares, NBB  and BTC  are organized  in a  holding company/subsidiary  bank
structure.   Bankshares  has no  employees, except  for executive  officers, and
conducts  substantially all  of its  operations through  its subsidiaries.   All
compensation paid to officers and employees is paid by NBB, except for fees paid


                                       -8-<PAGE>

by Bankshares  to President and Chief  Executive Officer James G.  Rakes for his
service as a director of the Company.  

 At December 31,  1996, NBB employed 103  full time equivalent employees  at its
main office,  operations center and  branch offices.   BTC at December  31, 1996
employed 67 in its various offices and operational areas.

Certain Regulatory Considerations

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

National Bankshares, Inc.

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

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

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

 Under the BHCA, a  bank holding company  is generally prohibited from  engaging
in, or acquiring direct or indirect control of more than 5% of the voting shares
of  any company  engaged in  nonbanking activities,  unless the  Federal Reserve


                                       -9-<PAGE>

Board,  by order  or regulation,  has found  those activities  to be  so closely
related to  banking or managing or controlling banks as  to be a proper incident
thereto.  Some of the  activities that the Federal Reserve Board  has determined
by regulation to be proper incidents  to the business of a bank  holding company
include making  or  servicing loans  and certain  types of  leases, engaging  in
certain  insurance and  discount brokerage  activities, performing  certain data
processing  services,  acting  in  certain  circumstances  as  a  fiduciary   or
investment  or  financial  adviser,  owning  savings  associations  and   making
investments in  certain corporations or  projects designed primarily  to promote
community welfare.

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

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

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

 Glass-Steagall  Act.   Bankshares is also  restricted in its  activities by the
provisions of  the Glass-Steagall  Act, which  prohibit  Bankshares from  owning
subsidiaries that are engaged principally in the issue, flotation, underwriting,
public  sale or  distribution  of securities.    The interpretation,  scope  and
application  of the  provisions of  the Glass-Steagall  Act currently  are being
considered  and reviewed by  regulators and legislators,  and the interpretation
and application of those provisions have been challenged  in the federal courts.
Bankshares does  not presently  engage in  securities-related activities  in any
material respect.

NBB and BTC

 General.  NBB is a national banking association incorporated under the laws  of
the United States and is subject to examination by the Office of the Comptroller
of the Currency  (the OCC).   Deposits in NBB  are insured by  the FDIC up to  a
maximum amount (generally $100,000 per depositor, subject to aggregation rules).


                                      -10-<PAGE>

The  OCC  and the  FDIC  regulate  or monitor  all  areas  of NBB's  operations,
including  security devices and procedures, adequacy  of capitalization and loss
reserves,  loans,  investments,  borrowings,  deposits,  mergers,  issuances  of
securities,  payment of dividends, interest  rates payable on deposits, interest
rates  or  fees  chargeable  on  loans,  establishment  of  branches,  corporate
reorganizations and maintenance of books  and records.  The OCC requires  NBB to
maintain  certain  capital ratios.    NBB  is required  by  the  OCC to  prepare
quarterly reports on NBB's financial condition and to conduct an annual audit of
its  financial  affairs in  compliance  with  minimum standards  and  procedures
prescribed  by the  OCC.   NBB also  is required  by the  OCC to  adopt internal
control  structures and procedures in order  to safeguard assets and monitor and
reduce risk  exposure.   While appropriate for  safety and  soundness of  banks,
these requirements impact banking overhead costs.

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

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

 Community Reinvestment Act.  NBB  and BTC are subject to  the provisions of the
Community Reinvestment Act  of 1977  (the CRA), which  requires the  appropriate
federal bank regulatory agency, in connection with its  regular examination of a
bank, to assess the bank's  record in meeting the credit needs of  the community
served  by the  bank,  including low  and  moderate-income neighborhoods.    The
banking regulators  recently have  substantially  revised the  implementing  CRA
regulations.  Under the new regulations, banks have the option of being assessed
for  CRA compliance  under one of  several methods.   Small  banks are evaluated
differently  than larger  banks  and technically  are not  subject to  some data
collection requirements.  The focus of the  new regulations is on the volume and
distribution of  a bank's loans, with particular emphasis on lending activity in
low and moderate-income  areas and to low and moderate-income  persons.  The new
regulations  place  added  importance  on  a  bank's  product  delivery  system,
particularly branch localities.   The new regulations require banks,  other than
small  banks,   to  comply   with   significantly  increased   data   collection
requirements.  The regulatory  agency's assessment of the bank's  record is made
available  to the  public.  Further,  such assessment  is required  for any bank
which has  applied to, among  other things, establish  a new branch  office that
will accept deposits, relocate an existing office, or merge, consolidate with or
acquire the assets or assume the liabilities of a  federally regulated financial
institution.  It is likely that banks' compliance with the CRA, as well as other
so-called fair lending laws,  will face heightened government scrutiny  and that
costs associated with compliance will increase.  


                                      -11-<PAGE>

 NBB  and  BTC  received   CRA  ratings  of  "Outstanding"  and   "Satisfactory"
respectively,  in  their  last  examinations  by  their  primary   federal  bank
regulators.

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

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

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

 Virginia  has, by  statute,  elected to  opt-in  fully to  interstate branching
under the Interstate Act, effective  July 1, 1995.  Under the  Virginia statute,
Virginia  state banks may, with  the approval of  the Virginia State Corporation
Commission,  establish and  maintain a  de novo  branch or  acquire one  or more
branches  in a  state other  than Virginia,  either separately  or as part  of a
merger.  Procedures also  are established to allow out-of-state  domiciled banks
to establish or  acquire branches in Virginia, provided the  "home" state of the
bank permits Virginia banks to establish or acquire branches within its borders.
The activities  of such branches would be  subject to the same  laws as Virginia
domiciled banks, unless  such activities are prohibited by the  law of the state
where the  bank is organized.   The Virginia State Corporation  Commission would
have the authority to examine  and supervise out-of-state state banks to  ensure
that  the branch is operating in a safe  and sound manner and in compliance with
the laws of Virginia.   The Virginia statute authorizes the Bureau  of Financial
Institutions to enter into  cooperative agreements with other state  and federal
regulators  for the examination and supervision of out-of-state state banks with
Virginia  operations,  or Virginia  domiciled  banks  with operations  in  other
states.  Likewise, national banks, with the approval of the OCC, may branch into
and out  of  the state  of Virginia.   Any  Virginia branch  of an  out-of-state
national bank is subject  to Virginia law (enforced by the OCC)  with respect to
intrastate   branching,   consumer  protection,   fair  lending   and  community


                                      -12-<PAGE>

reinvestment as  if it  were a branch  of a Virginia  bank, unless  preempted by
federal law.

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

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

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

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

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

                                      -13-<PAGE>

composition of that account.

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

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

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

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

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

 In addition, the Federal Reserve  Board has established minimum  leverage ratio
(Tier 1 capital to total assets less intangibles) guidelines that are applicable
to Bankshares  and BTC.  The  OCC has adopted similar  regulations applicable to

                                      -14-<PAGE>

NBB.   These guidelines provide for a minimum  ratio of 3.0% for banks that meet
certain  specified criteria,  including  that they  have the  highest regulatory
CAMEL rating and  are not  anticipating or experiencing  significant  growth and
have  well-diversified risk.   All other banks will  be required to  maintain an
additional  cushion of at  least 100  to  200 basis  points,  based  upon  their
particular circumstances and risk profiles.   The guidelines  also  provide that
banks  experiencing  internal growth or  making acquisitions will be expected to
maintain  strong capital positions  substantially above the  minimum supervisory
levels, without significant reliance on intangible assets.

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

Legislative Developments

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

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

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

 If a  bank does  not meet  all of the  minimum capital  ratios necessary  to be
considered  adequately  capitalized,  it will  be  considered  undercapitalized,
significantly undercapitalized or critically undercapitalized, depending on  the
amount of the shortfall in its capital.

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

 Among other  possible sanctions, an undercapitalized depository institution may
not pay dividends and  is required to submit  a capital restoration plan to  its
principal federal regulator.   In addition, its holding  company may be required
to  guarantee  compliance  with  the  capital  restoration  plan  under  certain
circumstances.  If an undercapitalized depository institution fails to submit or


                                      -15-<PAGE>

implement an  acceptable capital  restoration plan, it  can be  subject to  more
severe sanctions, including an order  to sell sufficient voting stock  to become
adequately  capitalized.   More  severe sanctions  and  remedial actions  can be
mandated  by the  regulators if  an institution  is considered  significantly or
critically undercapitalized.

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

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

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

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

Other Business Concerns

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









                                      -16-<PAGE>

               STATISTICAL DISCLOSURE BY NATIONAL BANKSHARES, INC.
                           AND SUBSIDIARY (BANKSHARES)

  I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
     ----------------------------------------------------------------------
     RATES AND INTEREST DIFFERENTIAL
     -------------------------------

     A.   AVERAGE BALANCE SHEETS

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

                 ($ in thousands)
                                                           December 31,
                ASSETS                               1996      1995      1994
                ------                               ----      ----      ----

                Cash and due from banks             $ 11,493    10,189    9,108 
                Federal funds sold                     8,903    12,105   11,245 
                Securities available for sale:                        
                   Taxable                            65,992    41,695   40,023 
                   Nontaxable                          6,679       930      --- 
                Securities held to maturity:
                   Taxable                            79,599   105,701  111,091 
                   Nontaxable                         25,133    35,668   34,251 
                Mortgage loans held for sale             850       723      995 
                Loans, net                           177,419   159,920  152,976 
                Other assets                          11,977    11,475   10,273 
                                                    --------   -------  ------- 
                     Total assets                   $388,045   378,406  369,962 
                                                    ========   =======  ======= 

                LIABILITIES AND STOCKHOLDERS' EQUITY
                ------------------------------------
                Noninterest-bearing demand
                 deposits                           $ 41,997    38,833   36,724 
                Interest-bearing demand deposits      76,017    77,545   77,182 
                Savings deposits                      49,783    54,698   67,905 
                Time deposits                        168,141   159,185  143,356 
                                                    --------   -------  ------- 
                     Total deposits                  335,938   330,261  325,167

                Short-term borrowings                    433       593      891 
                Other liabilities                      2,215     1,826    1,502 
                                                    --------   -------  ------- 
                   Total liabilities                 335,586   332,680  327,560

                Stockholders' equity                  49,459    45,726   42,402 
                                                    --------   -------  ------- 
                   Total liabilities and
                    stockholders' equity            $388,045   378,406  369,962 
                                                    ========   =======  ======= 



                                      -17-<PAGE>
<TABLE>
B.   ANALYSIS OF NET INTEREST EARNINGS

     The  following  table  shows  the major  categories  of  interest-earning  assets  and interest-bearing
     liabilities,  the interest  earned or  paid, the  average yield  or rate  on the  daily average balance
     outstanding,  net interest  income and  net  yield on  average interest-earning  assets  for the  years
     indicated.

 <CAPTION>
                             December 31, 1996          December 31, 1995           December 31, 1994

                                           Average                     Average                     Average
                         Average           Yield/   Average            Yield/   Average            Yield/
 ($ in thousands)        Balance Interest   Rate    Balance  Interest   Rate    Balance  Interest   Rate
                         ------- --------  -------  -------  --------  -------  -------  --------  -------
 <S>                     <C>     <C>       <C>      <C>      <C>       <C>      <C>      <C>       <C>    
 Interest-earning
  assets:

 Loans, net (1)(2)(3)    $178,269  17,339   9.73%    160,643   15,897   9.90%    153,971   13,857   9.00%  
 Taxable securities       145,591   8,877   6.10%    147,396    9,723   6.60%    151,114    9,966   6.60%  
 Nontaxable
  securities (1)           31,812   2,971   9.34%     36,598    2,856   7.80%     34,251    2,910   8.50%  
 Federal funds sold         8,903     567   6.37%     12,105      704   5.82%     11,245      450   4.00%  
                         -------- -------            -------  -------            -------  ------- 
 Total interest- 
  earning assets         $364,575  29,754   8.16%    356,742   29,180   8.18%    350,581   27,183   7.75%  
                         ======== =======            =======  =======            =======  ======= 
 Interest-bearing
  liabilities:

 Interest-bearing
  demand deposits        $ 76,017   2,182   2.87%     77,545    2,353   3.03%     77,182    1,975   2.56%  
 Savings deposits          49,783   1,646   3.31%     54,698    1,798   3.29%     67,905    2,613   3.85%  
 Time deposits            168,141   9,181   5.46%    159,185    8,517   5.35%    143,356    6,060   4.23%  
 Short-term borrowings        433      27   6.24%        593       35   5.90%        891       36   4.04%  
 Long-term debt              ---      ---    ---         ---      ---    ---         ---      ---    ---   
                         -------- -------            -------  -------            -------  ------- 
 Total interest-
  bearing liabilities    $294,374  13,036   4.43%    292,021   12,703   4.35%    289,334   10,684   3.69%  
                         ======== =======            =======  =======            =======  ======= 
 Net interest income
  and interest rate
  spread                           16,718   3.73%              16,477   3.83%              16,499   4.06%  
                                  =======                     =======                     ======= 
 Net yield on average
  interest-earning
  assets                                    4.59%                       4.62%                       4.71%  


(1)  Interest on nontaxable loans  and securities is computed on a fully taxable  equivalent basis using   a
     Federal income tax rate of 34%.
(2)  Loan fees of $374 in 1996, $305 in 1995 and $274 in 1994 are included in total interest income.
(3)  Nonaccrual loans are included in average balances for yield computations.
</TABLE>
                                                    -18-<PAGE>
<TABLE>
C.   ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE

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

     <CAPTION>
                                             1996 Over 1995                   1995 Over 1994
                                       Changes Due To                   Changes Due To

                                                          Net Dollar                       Net Dollar
      ($ in thousands)               Rates(2)  Volume(2)    Change    Rates(2)  Volume(2)    Change
                                     --------  ---------  ----------  --------  ---------  ----------
      <S>                            <C>       <C>        <C>         <C>       <C>        <C>    
      Interest income:(1)
        Loans                       $ (276)      1,718       1,442      1,421       619        2,040  
        Taxable securities            (728)       (118)       (846)         2      (245)        (243) 
        Nontaxable securities          518        (403)        115       (246)      192          (54) 
        Federal funds sold              62        (199)       (137)       217        37          254  
                                    ------      ------      ------     ------    ------       ------  
        Increase(decrease) in
         income on interest-
         earning assets             $ (424)        998         574      1,394       603        1,997  
                                    ------      ------      ------     ------    ------       ------  
      Interest expense:
        Interest-bearing demand
         deposits                   $ (125)        (46)       (171)       369         9          378  
        Savings deposits                10        (162)       (152)      (349)     (466)        (815) 
        Time deposits                  178         486         664      1,736       721        2,457  
        Short-term borrowings            2         (10)         (8)        13       (14)          (1) 
                                    ------      ------      ------     ------    ------       ------  

        Increase(decrease) in
         expense of interest-
         bearing liabilities        $   65         268         333      1,769       250        2,019  
                                    ------      ------      ------     ------    ------       ------  
      Increase (decrease) in net
       interest income              $ (489)        730         241       (375)      353          (22) 
                                    ======      ======      ======     ======    ======       ======  


(1)  Taxable equivalent basis using a Federal income tax rate of 34%.
(2)  Variances caused  by the change  in rate times  the change in  volume have been  allocated to rate  and
     volume changes proportional to the relationship of the absolute dollar amounts of the change in each.


</TABLE>

                                                    -19-<PAGE>

ANALYSIS OF INTEREST RATE SENSITIVITY

The table  below sets forth,  as of  December 31, 1996,  the distribution  of
repricing   opportunities  of  the   Company's  interest-earning  assets  and
interest-bearing  liabilities,  the  interest  rate  sensitivity  gap  (i.e.,
interest rate sensitive assets less interest rate sensitive liabilities), the
cumulative  interest   rate  sensitivity  gap  ratio   (i.e.,  interest  rate
sensitivity gap  divided by total interest-earning assets) and the cumulative
interest rate sensitivity gap ratio.   The table sets forth the  time periods
during which  interest-earning assets  and interest-bearing liabilities  will
mature or may reprice in accordance with their contracted terms.

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

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




















                                     -20-<PAGE>
<TABLE>
An interest-sensitivity table showing all  major interest sensitive asset  and liability categories for  the
time intervals indicated and cumulative "gaps" for each interval is set forth on the following table.

   <CAPTION>

                 INTEREST RATE                                      December 31, 1996
              SENSITIVITY TABLE (1)              Interest-sensitive (days)
                                                                                1-5       >5
    ($ in thousands)                              1-90     91-180   181-365    Years    Years     Total
                                                  ----     ------   -------    -----    -----     -----
   <S>                                            <C>      <C>      <C>        <C>      <C>       <C> 
   Interest-earning assets:
    Commercial and industrial loans             $ 20,528     5,928   14,293     29,064  17,585     87,398
    Real estate mortgage loans                     1,475     4,407    9,481     14,625  13,434     43,422
    Real estate construction loans                 6,295       ---      ---        ---     ---      6,295
    Loans to individuals                          19,367     2,828    5,242     29,150   1,855     58,442
                                                --------   -------  -------    ------- -------    -------
      Total loans, net of unearned income (2)   $ 47,665    13,163   29,016     72,839  32,874    195,557
                                                --------   -------  -------    ------- -------    -------

   Federal funds sold                           $  1,910       ---      ---        ---     ---      1,910
   Securities available for sale                  24,587     9,250    2,750     13,300  12,647     62,534
   Securities held to maturity                    21,265    16,800    7,175     38,548  24,922    108,710
   Mortgage loans held for sale                      516       ---      ---        ---     ---        516
                                                --------   -------  -------    ------- -------    -------
      Total interest-earning assets             $ 95,943    39,213   38,941    124,687  70,443    369,227
                                                ========   =======  =======    ======= =======    =======

   Interest-bearing liabilities:
    Interest-bearing demand deposits            $ 73,804       ---      ---        ---     ---     73,804
    Savings deposits                              48,164       ---      ---        ---     ---     48,164
    Time deposits                                 42,042    26,977   52,905     46,455     141    168,520
    Other borrowings                                 627       ---      ---        ---     ---        627
                                                --------   -------  -------    ------- -------        ---
                                                                                                  -------
      Total interest-bearing liabilities        $164,637    26,977   52,905     46,455     141    291,115
                                                ========   =======  =======    ======= =======    =======
   Cumulative ratio of interest-
    sensitive assets to interest-
    sensitive liabilities                           0.58      0.71     0.71       1.03    1.27       1.27
                                                ========   =======  =======    ======= =======    =======

   Cumulative interest-sensitivity gap          $(68,694)  (56,458) (70,422)     7,810  78,112     78,112
                                                ========   =======  =======    ======= =======    =======

(1)  The Company  is sensitive to  interest rate changes,  as liabilities  generally reprice or  mature
     before interest-earning  assets.  The  above  gap  table  reflects  the  Company's  rate-sensitive
     position at December 31,  1996, and is not necessarily  reflective of its position  throughout the
     year.   The carrying amounts  of interest-rate sensitive assets  and liabilities are  presented in
     the  periods in  which  they  reprice to  market  rates  or mature  and  are  summed to  show  the
     interest-rate sensitivity gap.
(2)  Excludes nonaccrual loans.

</TABLE>

                                                    -21-<PAGE>
<TABLE>
 II. INVESTMENT PORTFOLIO

     A.   BOOK VALUE OF INVESTMENTS

          The amortized  costs and fair  values of securities  available for sale  as of December  31, 1996,
          1995 and 1994 were as follows:

          <CAPTION>
                                                                           December 31,
                                                             1996              1995              1994

                                                      AMORTIZED   FAIR  AMORTIZED   FAIR  AMORTIZED   FAIR
             ($ in thousands)                           COSTS    VALUES   COSTS    VALUES   COSTS    VALUES
                                                      ---------  ------ ---------  ------ ---------  ------
             <S>                                      <C>        <C>    <C>        <C>    <C>        <C>
             Securities available for sale:
              U.S. Treasury                             $ 8,740   8,790    14,991  15,322     5,497   5,237 
              U.S. Government agencies and                                                
               corporations                              33,840  33,640    42,586  42,809    26,887  24,942 
              States and political subdivisions           8,868   8,619     7,613   7,567       ---     --- 
              Mortgage-backed securities (1)              4,568   4,452     4,748   4,645     4,802   4,402 
              Other securities                            7,074   7,033     5,505   5,527     1,686   1,638 
                                                        -------  ------    ------  ------    ------  ------ 
                 Total securities available for sale    $62,910  62,534    75,443  75,870    38,872  36,219 
                                                        =======  ======    ======  ======    ======  ====== 

          The amortized costs  of securities held to maturity as of December 31, 1996, 1995 and 1994 were as
          follows:

          <CAPTION>
                                                                                  December 31,

             ($ in thousands)                                            1996         1995         1994
                                                                         ----         ----         ----
             <S>                                                         <C>          <C>          <C>
             Securities held to maturity:
              U.S. Treasury                                             $ 11,547       19,330        35,317 
              U.S. Government agencies and corporations                   54,804       49,938        66,192 
              States and political subdivisions                           34,144       36,428        38,482 
              Mortgage-backed securities (1)                                 767          961         1,147 
              Other securities                                             7,448        5,108         6,874 
                                                                        --------      -------       ------- 
                 Total securities held to maturity                      $108,710      111,765       148,012 
                                                                        ========      =======       ======= 

          (1)  The majority  of Mortgage-backed Securities  and Collateralized Mortgage  Obligations held at
               December  31, 1996  were  backed by  U.S.  agencies.   Certain  holdings are  required to  be
               periodically subjected to the  Financial Institution Examination Council's (FFIEC)  high risk
               mortgage security test.   These tests address  possible fluctuations in the average  life and
               price sensitivity which  are the primary risks  associated with this type of  security.  Such
               tests are usually subject to regulatory review.

          Except for U.S. Government securities, the Company has no securities  with any issuer that exceeds
          10% of stockholders' equity.
</TABLE>
                                                    -22-<PAGE>
<TABLE>
B.   MATURITIES AND ASSOCIATED YIELDS

     The following  table presents  the  maturities for  those securities  available for  sale  and held  to
     maturity as of December 31, 1996 and weighted average yield for each range of maturities.

     <CAPTION>
                                                              Maturities and Yields
                                                               December 31, 1996

       ($ in thousands except for % data) < 1 Year 1-5 Years 5-10 Years > 10 Years   None     Total
                                          -------- --------- ---------- ----------   ----     -----
       <S>                                <C>      <C>       <C>        <C>          <C>      <C>
       Available for Sale
       ------------------
        U.S. Treasury                      $ 2,006    3,339     3,445        ---      ---    $ 8,790 
                                              6.99%    6.87%     6.06%       ---      ---       6.58%
        U.S. Agencies                        3,442   16,344    13,363        491      ---     33,640 
                                              5.02%    5.99%     7.01%      7.41%     ---       6.32%
        Mortgage-backed securities             315       28     2,896      1,213      ---      4,452 
                                              6.06%    7.24%     5.99%      5.86%     ---       5.97%
        Taxable Securities                     ---      ---     1,557        806      ---      2,363 
                                               ---      ---      6.67%      7.63%     ---       6.98%
        Nontaxable Securities                  ---      351     4,906        999      ---      6,256 
                                               ---     6.15%     6.95%      7.20%     ---       6.95%
        Corporate                            1,001    2,214     1,487      1,523      ---      6,225 
                                              5.58%    6.39%     6.79%      7.07%     ---       6.53%
        Other securities                       ---      ---       ---        ---      808        808 
                                               ---      ---       ---        ---     7.03%      7.03%
                                            ------   ------    ------     ------   ------    ------- 
            Total                            6,764   22,276    27,654      5,032      808     62,534 
                                              5.73%    6.16%     6.74%      6.91%    7.03%      6.24%
                                            ======   ======    ======     ======   ======    ======= 
       Held To Maturity
       ----------------
        U.S. Treasury                        5,003    4,022     2,522        ---      ---     11,547 
                                              6.08%    4.91%     5.58%       ---      ---       5.56%
        U.S. Agencies                       10,598   32,732    10,974        500      ---     54,804 
                                              5.15%    6.02%     6.73%      8.07%     ---       6.02%
        Mortgage-backed securities             ---      394       373        ---      ---        767 
                                               ---     8.00%     7.97%       ---      ---       7.99%
        Taxable Securities                     210      605     1,329        495      ---      2,639 
                                              8.47%    6.48%     6.97%      7.45%     ---       7.07%
        Nontaxable Securities                2,571   13,519    13,110      2,305      ---     31,505 
                                              9.00%    7.67%     7.67%      8.30%     ---       7.79%
        Corporate                              251    3,527     1,961        460      ---      6,199 
                                              8.05%    6.49%     7.15%      7.45%     ---       6.83%
        Other securities                       148      694       210        197      ---      1,249 
                                              7.52%    5.87%     9.41%      8.99%     ---       7.16%
                                            ------   ------    ------     ------   ------    ------- 
            Total                           18,781   55,493    30,479      3,957      ---    108,710 
                                              6.02%    6.39%     7.08%      8.10%     ---       6.45%
                                            ======   ======    ======     ======   ======    =======

(1)  Rates shown represent weighted average yield on a fully taxable basis.  
</TABLE>
                                                    -23-<PAGE>

III. LOAN PORTFOLIO
     --------------

     The Company  concentrates  its  lending  activities  in  commercial  and
     industrial loans,  real  estate  mortgage  loans  both  residential  and
     business, and loans to individuals.  The following tables set  forth (i)
     a  comparison of the Company's loan portfolio by major category of loans
     as  of the  dates indicated  and (ii)  the maturities and  interest rate
     sensitivity of the loan portfolio at December 31, 1996.

     A.   TYPES OF LOANS

                                                 December 31,
        ($ in thousands)            1996     1995     1994    1993     1992
                                    ----     ----     ----    ----     ----
        Commercial and industrial
         loans                    $ 87,519  59,609   59,213  67,359   69,984 
        Real estate mortgage
         loans                      43,917  45,589   44,447  40,236   42,771 
        Real estate construction
         loans                       6,295   6,007    5,643   3,967    4,062 
        Loans to individuals        60,991  56,920   52,031  43,084   37,349 
                                  -------- -------  ------- -------  ------- 
         Total loans               198,722 168,125  161,334 154,646  154,166 

        Less unearned income        (2,549) (2,307)  (2,494) (1,907)  (1,284)
                                  -------- -------  ------- -------  ------- 
         Total loans, net of
          unearned income          196,173 165,818  158,840 152,739  152,882 
                                                                    
        Less allowance for loans
         losses                     (2,575) (2,625)  (2,551) (2,583)  (2,327)
                                  -------- -------  ------- -------  ------- 
         Total loans, net         $193,598 163,193  156,289 150,156  150,555 
                                  ======== =======  ======= =======  ======= 

     B.   MATURITIES AND INTEREST RATE SENSITIVITIES

                                               December 31, 1996

                                                          After
         ($ in thousands)           <1 Year   1-5 Years  5 Years     Total
                                    -------   ---------  -------     -----
         Commercial and
          industrial                $41,255     29,366    16,898     87,519 
         Real estate
          construction                6,295        ---       ---      6,295 
         Less loans with
          predetermined interest
          rates                      (8,640)    (9,616)  (14,443)   (32,699)
                                    -------    -------   -------    ------- 
         Loans with adjustable
          rates                     $38,910     19,750     2,455     61,115 
                                    =======    =======   =======    ======= 







                                     -24-<PAGE>

     C.   RISK ELEMENTS

          1.   Nonaccrual, Past Due and Restructured Loans

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

                                                    December 31,
         ($ in thousands)                1996    1995   1994    1993   1992
                                         ----    ----   ----    ----   ----
         Nonaccrual loans:
           Commercial and industrial    $  121     270    ---     710    483
           Real estate mortgage            495     418    390   1,123    884
           Real estate construction        ---     ---    ---     ---    ---
           Loans to individuals            ---      30     30      31     23
                                        ------   -----  -----   -----  -----
                                        $  616     718    420   1,864  1,390
                                        ------   -----  -----   -----  -----
         Restructured loans:
           Commercial and industrial       ---     ---    229     598    ---
                                        ------   -----  -----   -----  -----
          Total nonperforming loans     $  616     718    649   2,462  1,390
         Other real estate owned, net      474     762  1,150     225    837
                                        ------   -----  -----          -----
          Total nonperforming assets    $1,090   1,480  1,799   2,687  2,227
                                        ======   =====  =====   =====  =====
         Accruing loans past due 90
         days or more:
           Commercial and industrial    $   14      11      4      45    144
           Real estate mortgage            252     250    219     198    377
           Real estate construction        ---     ---     87     243    237
           Loans to individuals            192     313    180     128    144
                                        ------   -----  -----   -----  -----
                                        $  458     574    490     614    902
                                        ======   =====  =====   =====  =====


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

          ($ in thousands)                            1996    1995     1994
                                                      ----    ----     ----
          Scheduled interest:
            Nonaccrual loans                          $ 68      59      38  
            Restructured loans                         ---     ---      19  
                                                      ----    ----    ----  
           Total scheduled interest                   $ 68      59      57  
                                                      ----    ----    ----  
          Recorded interest:
            Nonaccrual loans                          $ 24       5       1  
            Restructured loans                         ---     ---       9  
                                                      ----    ----    ----  
           Total recorded interest                    $ 24       5      10  
                                                      ====    ====    ====  




                                     -25-<PAGE>

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

          2.   Potential Problem Loans

               At December 31,  1996, the recorded investment  in loans which
               have been identified as  impaired loans totaled $725,000.   Of
               this  amount,  $354,000 related  to  loans  with no  valuation
               allowance and  $371,000 related to loans  with a corresponding
               valuation allowance of $290,000.  For the year-ended  December
               31, 1996, the  average recorded investment  in impaired  loans
               was approximately  $800,000  and  the  total  interest  income
               recognized on impaired loans was $33,000 of which $23,000  was
               recognized on a cash basis.

               At December 31, 1995,  the recorded investment in  loans which
               have  been identified as impaired loans  totaled $837,000.  Of
               this  amount,  $133,000 related  to  loans  with no  valuation
               allowance and  $704,000 related to loans  with a corresponding
               valuation allowance of $419,000.   For the year ended December
               31, 1995, the  average recorded investment  in impaired  loans
               was approximately  $906,000,  and the  total  interest  income
               recognized on impaired loans  was $47,000 of which $5,000  was
               recognized on a cash basis.  The balance  of impaired loans at
               January 1,  1995 totaled approximately $812,000.   The initial
               adoption  of SFAS No. 114  did not require  an increase to the
               Company's allowance for loan  losses.  The impact of  SFAS No.
               114,  as  amended  by SFAS  No.  118,  was  immaterial to  the
               Company's consolidated financial statements as of and for  the
               year ended December 31, 1995.

          3.   Foreign Outstandings

               At December 31,  1996, 1995  and 1994, there  were no  foreign
               outstandings.

          4.   Loan Concentrations

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


                                     -26-<PAGE>

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

               At  December 31, 1996 and 1995,  approximately $71 million and
               $52  million,   respectively,  of  the  loan   portfolio  were
               concentrated  in  commercial  real  estate.    This represents
               approximately 36%  and 34% of  the loan portfolio  at December
               31, 1996 and 1995, respectively.  Included  in commercial real
               estate  at December  31, 1996 and  1995 was  approximately $49
               million and $25  million, respectively, in  loans for  college
               housing and  professional office  buildings.   Loans  for  the
               purpose    of   acquiring   residential   real   estate   were
               approximately $60 million and $56 million at December 31, 1996
               and 1995, respectively.  This represents approximately 31% and
               34%  of  the loan  portfolio at  December  31, 1996  and 1995,
               respectively. Loans primarily  for the  purpose of  purchasing
               automobiles were approximately $29 million and $25 million  at
               December  31, 1996  and 1995,  respectively.   This represents
               approximately 15% of the  loan portfolio at December 31,  1996
               and 1995.

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























                                     -27-<PAGE>
 <TABLE>
 IV. SUMMARY OF LOAN LOSS EXPERIENCE
     -------------------------------

     A.   ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

          The following  tabulation shows average loan  balances at the end  of each period;  changes in the
          allowance for  loan losses  arising from  loans charged  off and  recoveries  on loans  previously
          charged off by loan category; and additions to the allowance which have been charged to  operating
          expense:

          <CAPTION>
                                                                            December 31,
          ($ in thousands)                                1996       1995       1994      1993       1992
                                                          ----       ----       ----      ----       ----
          <S>                                             <C>        <C>        <C>       <C>        <C> 
          Average loans outstanding                     $177,419    159,920   152,976    149,027   153,487 
                                                        ========    =======   =======    =======   ======= 

          Balance at beginning of year                     2,625      2,551     2,583      2,327     2,121 

          Charge-offs:
           Commercial and industrial loans                    95         23        72        231       441 
           Real estate mortgage loans                         11          9       192        285       198 
           Real estate construction loans                    ---        ---        53        ---       --- 
           Loans to individuals                              400        259       322        246       406 
                                                        --------    -------   -------    -------   ------- 
           Total loans charged off                           506        291       639        762     1,045 
                                                        --------    -------   -------    -------   ------- 
          Recoveries:
           Commercial and industrial loans                     4         10         7         10        17 
           Real estate mortgage loans                         64         16         4          5       --- 
           Real estate construction loans                    ---        ---       ---        ---       --- 
           Loans to individuals                               57         57        43         50        26 
                                                        --------    -------   -------    -------   ------- 
           Total recoveries                                  125         83        54         65        43 
                                                        --------    -------   -------    -------   ------- 

          Net loans charged off                              381        208       585        697     1,002 
                                                        --------    -------   -------    -------   ------- 
          Additions charged to operations                    331        282       553        953     1,208 
                                                        --------    -------   -------    -------   ------- 
          Balance at end of year                           2,575      2,625     2,551      2,583     2,327 
                                                        ========    =======   =======    =======   ======= 
          Net charge-offs to average loans outstanding      0.21%      0.13%     0.38%      0.47%     0.65%
                                                        ========    =======   =======    =======   =======

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

                                                    -28-<PAGE>
<TABLE>
 B.  ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

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


 <CAPTION>
                                                         December 31,


                       1996                 1995                1994                1993                 1992

                          Percent               Percent             Percent              Percent               Percent
                             of                   of                   of                   of                   of
                          Loans in             Loans in             Loans in             Loans in             Loans in
                            Each                 Each                 Each                 Each                 Each
                          Category             Category             Category             Category             Category
  ($ in        Allowance  to Total  Allowance  to Total  Allowance  to Total  Allowance  to Total  Allowance  to Total
   thousands)    Amount    Loans     Amount     Loans    Amount      Loans      Amount    Loans     Amount      Loans
               ---------  --------  ---------  --------  ---------  --------  ---------  --------  ---------  --------
 <S>           <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C> 

 Commercial
  and
  industrial
  loans         $  403     44.04%       411     35.46%      679      36.70%      860      43.56%       873      45.40% 

 Real estate
  mortgage
  loans            305     22.10%       363     27.12%      364      27.55%      373      26.02%       416      27.74% 

 Real estate
  construction
  loans             51      3.17%       100      3.57%       37       3.50%       54       2.56%        50       2.63% 

 Loans to                                  
  individuals      504     30.69%       271     33.85%      569      32.25%      685      27.86%       567      24.23% 

 Unallocated     1,312                1,480                 902                  611                   421
                ------               ------              ------               ------                ------  

                $2,575    100.00%     2,625    100.00%    2,551     100.00%    2,583     100.00%     2,327     100.00% 
                =======              ======              ======               ======                ======  




 </TABLE>






                                                    -29-<PAGE>

V.   DEPOSITS
     --------

     A.   AVERAGE AMOUNTS OF DEPOSITS AND AVERAGE RATES PAID

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


                                             December 31,

                                1996             1995             1994

                                   Average          Average          Average
                          Average   Rates  Average   Rates   Average  Rates
       ($ in thousands)   Amounts   Paid   Amounts    Paid   Amounts   Paid
                          -------  ------- -------  -------  ------- -------

      Noninterest-bearing
       demand deposits    $ 41,997   ---     38,833    ---    36,724    ---  

      Interest-bearing
       demand deposits      76,017  2.87%    77,545   3.03%   77,182   2.56% 

      Savings deposits      49,783  3.31%    54,698   3.29%   67,905   3.85% 

      Time deposits        168,141  5.46%   159,185   5.35%  143,356   4.23% 
                          --------          -------          -------

       Average total
        deposits          $335,938  4.43%   330,261   4.35%  325,167   3.69% 
                          ========          =======          =======


     B.   TIME DEPOSITS OF $100,000 OR MORE

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


                                            DECEMBER 31, 1996

                                       Over 3      Over 6
                               3       Months      Months
                             Months   Through 6  Through 12  Over 12
      ($ in thousands)      or Less    Months      Months    Months   Total
                            -------   ---------  ----------  -------  -----
      Certificates of
       deposit              $11,314     3,431      12,682     6,322   33,749

      Other time deposits       292       105         ---     3,268    3,665
                            -------    ------     -------    ------   ------

        Total time
         deposits of
         $100,000 or more   $11,606     3,536      12,682     9,590   37,414
                            =======    ======     =======    ======   ======






                                     -30-<PAGE>

 VI. RETURN ON EQUITY AND ASSETS
     ---------------------------

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


                                                         December 31,

                                                   1996      1995     1994
                                                   ----      ----     ----

             Return on average assets               1.58%     1.46%    1.43%
             Return on average equity              12.37%    12.08%   12.51%
             Dividend payout ratio                 37.55%    37.32%   37.13%
             Average equity to average assets      12.75%    12.08%   11.46%


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

 Bankshares' headquarters, including  the Main Office of  NBB, are located at
100 South Main Street, Blacksburg, Virginia.   In addition to the Main Office
location, NBB owns six branch  offices: two in the Town of Blacksburg; one in
the  Town of  Christiansburg; one in  Montgomery County;  one in  the Town of
Pearisburg; and the sixth in  the Town of Pembroke.  An additional  branch in
the Rich Creek area of Giles County is expected to open in the second quarter
of 1997.  NBB leases office space  near the Main Office which is occupied  by
NBB's trust, marketing, audit, compliance and credit review departments.   An
additional  property was  acquired in 1996  to provide  for additional office
space, reducing the need for leased properties.  

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

 NBB owns all its computer and data processing hardware  and is a licensee of
the  software it  utilizes.   BTC  also owns  all of  its  computer and  data
processing hardware  and is a  licensee of  the software it  utilizes.   This
allows  each  bank   to  perform  its  data  processing  functions  in-house.
Management  anticipates  that  with  the  constantly  changing  technological
environment that significant future capital expenditures will be necessary.

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

 Bankshares,  NBB  nor BTC  are  currently involved  in any  material pending
legal  proceedings, other  than routine  litigation  incidental to  NBB's and
BTC's banking business.

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

 There  were no matters  submitted to a vote  of security  holders during the
fourth quarter of the year ended December 31, 1996.



                                     -31-<PAGE>

                     EXECUTIVE OFFICERS OF THE REGISTRANT
                     ------------------------------------


Pursuant  to General Instruction  G(3) of  Form 10-K,  the following  list is
included  as an  unnumbered item in  Part I of  this report in  lieu of being
included in the Proxy Statement for the Annual Meeting of  Stockholders to be
held on April 8, 1997.

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


                                                         YEAR ELECTED AN
         NAME          AGE  OFFICES AND POSITIONS HELD   OFFICER/DIRECTOR
    --------------     ---  --------------------------   ----------------

    James G. Rakes      52  President and Chief                 1986
                             Executive Officer, National
                             Bankshares, Inc.; and
                             President and Chief
                             Executive Officer of The
                             National Bank of Blacksburg
                             since 1983.

    F. Brad Denardo     44  Corporate Officer, National         1989
                             Bankshares, Inc.; and
                             Executive Vice President
                             since 1989 and Senior Vice
                             President - Loans since 1985
                             of The National Bank of
                             Blacksburg.

    Marilyn B. Buhyoff  48  Secretary & Counsel,                1989
                             National Bankshares, Inc.;
                             and Senior Vice President -
                             Administration since 1992,
                             Vice President/Administra-
                             tion since 1990 and
                             Personnel Officer since 1987
                             of The National Bank of
                             Blacksburg.

    Joan C. Nelson      46  Treasurer, National                 1993
                             Bankshares, Inc.; and
                             Cashier since 1993, Senior
                             Vice President/ Operations
                             since 1989 and Vice
                             President/Operations since
                             1986 of the National Bank of
                             Blacksburg.

The  executive officers  listed  above  have  served  Bankshares  and/or  its
subsidiaries  in the  aforementioned  executive capacity  for  the past  five
years.





                                     -32-<PAGE>

                                   PART II
                                   -------


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

 There  is  no  established  trading   market  for  the  stock   of  National
Bankshares,  Inc.  As of  March 14, 1997, the total  number of holders of the
Registrant's common stock was 1,184.

 Information concerning Market  Price and Dividend  Data is  set forth  under
"Common  Stock  Information and  Dividends" on  page  13 of  Bankshares' 1996
Annual Report to Stockholders and is incorporated herein by reference.


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

 The  table entitled  "Selected  Consolidated Financial  Data"  on page  7 of
Bankshares'  1996 Annual  Report to  Stockholders is  incorporated  herein by
reference.


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

 The  information contained under  "Management's Discussion  and Analysis" on
pages  8 through  17 of  Bankshares' 1996  Annual Report  to Stockholders  is
incorporated herein by reference.


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

 The following consolidated  financial statements  of the Registrant  and the
Independent Auditors' Report set forth on pages 19 through 43  of Bankshares'
1996 Annual Report to Stockholders are incorporated herein by reference:

 1.  Independent Auditors' Report

 2.  Consolidated Balance Sheets - December 31, 1996 and 1995

 3.  Consolidated  Statements of Income - Years Ended December 31, 1996, 1995
     and 1994

 4.  Consolidated Statements of Changes in Stockholders' Equity - Years Ended
     December 31, 1996, 1995 and 1994

 5.  Consolidated Statements of Cash  Flows - Years Ended December  31, 1996,
     1995 and 1994

 6.  Notes to Consolidated Financial Statements - December 31, 1996, 1995 and
     1994




                                     -33-<PAGE>

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

 None.


                                   PART III
                                   --------


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

 Executive Officers of Bankshares  as of December 31, 1996 are listed on page
32 herein.

 Information with respect  to the directors  of Bankshares  is set out  under
the caption "Election of Directors" on pages 2 through 4 of Bankshares' Proxy
Statement dated March 14,  1997, which information is incorporated  herein by
reference.


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

 The information set  forth under "Executive Compensation" on pages 5 through
9 of Bankshares' Proxy Statement dated March 14, 1997 is  incorporated herein
by reference.


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

 The information set forth under  "Voting Securities and Stock  Ownership" on
page 1 and under "Election of Directors" on pages 2 through 4 of  Bankshares'
Proxy Statement dated March 14, 1997 is incorporated herein by reference.


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

 The  information  contained under  "Certain  Transactions With  Officers and
Directors"  on page 11 through 12  of Bankshares' Proxy Statement dated March
14, 1997 is incorporated herein by reference.















                                     -34-<PAGE>

                                   PART IV
                                   -------


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

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


                                                        1996 Annual Report   
                                                     To Stockholders Page(s)*

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

          Independent Auditors' Report                          19           

          Consolidated Balance Sheets -
            December 31, 1996 and 1995                          20           

          Consolidated Statements of
            Income - Years ended December 
            31, 1996, 1995 and 1994                             21           

          Consolidated Statements of Changes
            in Stockholders' Equity - Years 
            ended December 31, 1996, 1995 and
            1994                                                22           

          Consolidated Statements of Cash
            Flows - Years ended December 31,
            1996, 1995 and 1994                                 23           

          Notes to Consolidated 
            Financial Statements - December
            31, 1996, 1995 and 1994                            24-43         


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

          Independent Auditor's Report of
            Cook & Associates, LLP covering
            the financial statements of Bank
            of Tazewell County as of and for
            the years ended December 31, 1995
            and 1994, is filed as an Exhibit 
            and is incorporated by reference
            herein.                                          Exhibit 99      





*    Incorporated  by reference from the  indicated pages of  the 1996 Annual
     Report to Stockholders.



                                     -35-<PAGE>

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

                                                             PAGE NO. IN
             EXHIBIT NO.           DESCRIPTION            SEQUENTIAL SYSTEM
             -----------           -----------            -----------------

                 3(i)    Articles of Incorporation, as   (incorporated
                         amended, of National            herein by
                         Bankshares, Inc.                reference to
                                                         Exhibit 3(a) of
                                                         the Annual Report on
                                                         Form 10K for 
                                                         fiscal year ended
                                                         December 31, 1993)

                3(ii)    Bylaws, as amended, of National        41
                         Bankshares, Inc.

                 4(i)    Specimen copy of certificate    (incorporated 
                         for National Bankshares, Inc.   herein by 
                         common stock, $2.50 par value   reference to
                                                         Exhibit 4(a) of 
                                                         the Annual Report on
                                                         Form 10K for 
                                                         fiscal year ended
                                                         December 31, 1993)

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

             *10(iii)(A) Employment Agreement dated      (incorporated 
                         January 1, 1992, by and between herein by 
                         National Bankshares, Inc. and   reference to
                         James G. Rakes                  Exhibit 10(a) of 
                                                         the Annual Report on
                                                         Form 10K for 
                                                         fiscal year ended
                                                         December 31, 1992)

             *10(iii)(A) Capital Accumulation Plan       (incorporated 
                         (included in Exhibit No. 10(a)) herein by 
                                                         reference to
                                                         Exhibit 10(b) of 
                                                         the Annual Report on
                                                         Form 10K for 
                                                         fiscal year ended
                                                         December 31, 1992)


                                     -36-<PAGE>


                                                             PAGE NO. IN
             EXHIBIT NO.           DESCRIPTION            SEQUENTIAL SYSTEM
             -----------           -----------            -----------------
             *10(iii)(A) Employee Lease Agreement dated  (incorporated 
                         May 7, 1992, by and between     herein by 
                         National Bankshares, Inc. and   reference to
                         The National Bank of Blacksburg Exhibit 10(c) of 
                                                         the Annual Report on
                                                         Form 10K for 
                                                         fiscal year ended
                                                         December 31, 1992)

                13(i)    1996 Annual Report to                  53
                         Stockholders (such Report,
                         except to the extent
                         incorporated herein by
                         reference, is being furnished
                         for the information of the
                         Commission only and is not
                         deemed to be filed as part of
                         this Report on Form 10-K)

                21(i)    Subsidiaries of National               107
                         Bankshares, Inc.

                  27     Financial Data Schedule                108

                  99     Independent Auditor's Report of        109
                         Cook & Associates, LLP on
                         financial statements of Bank of
                         Tazewell County as of and for
                         the years ended December 31,
                         1995 and 1994

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

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

     None.

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

     See Item 14(a)3 above.

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

     See Item 14(a)2 above.










                                     -37-<PAGE>

                                  SIGNATURES
                                  ----------

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

                                   NATIONAL BANKSHARES, INC.

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

                         DATE:     March 28, 1997
                                   ------------------------------

                           BY:     /s/Joan C. Nelson
                                   ------------------------------
                                   Joan C. Nelson            
                                   Treasurer

                         DATE:     March 28, 1997
                                   ------------------------------

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

      NAME                      DATE           TITLE
      ----                      ----           -----

      /s/C. L. Boatwright       March 28, 1997 Director and Vice
      ------------------------  -------------- Chairman of the Board
      C. L. BOATWRIGHT
      /s/T. C. Bowen, Jr.       March 28, 1997 Director
      ------------------------  --------------
      T. C. BOWEN, JR.      
      /s/A. A. Crouse           March 28, 1997 Director
      ------------------------  --------------
      A. A. CROUSE          
      /s/R. E. Christopher, Jr. March 27, 1997 Director and Chairman of
      ------------------------  -------------- the Board
      R. E. CHRISTOPHER, JR.
      /s/R. E. Dodson           March 28, 1997 Director
      ------------------------  --------------
      R. E. DODSON
                                               Director
      ------------------------  -------------- 
      P. A. DUNCAN                          
      /s/W. T. Peery            March 28, 1997 Director
      ------------------------  --------------
      W. T. PEERY
      /s/J. G. Rakes            March 28, 1997 President and Chief
      ------------------------  -------------- Executive Officer -
      J. G. RAKES                              National Bankshares, Inc.

      /s/J. R. Stewart          March 27, 1997 Director
      ------------------------  --------------
      J. R. STEWART


                                     -38-<PAGE>

                              INDEX TO EXHIBITS
                              -----------------


                                                         PAGE NO. IN
      EXHIBIT NO.             DESCRIPTION             SEQUENTIAL SYSTEM
      -----------             -----------             -----------------

          3(i)     Articles of Incorporation, as    (incorporated
                   amended, of National Bankshares, herein by
                   Inc.                             reference to
                                                    Exhibit 3(a) of
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1993)

         3(ii)     Bylaws, as amended of National            41
                   Bankshares, Inc.

          4(i)     Specimen copy of certificate for (incorporated 
                   National Bankshares, Inc. common herein by 
                   stock, $2.50 par value           reference to
                                                    Exhibit 4(a) of 
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1993)

          4(i)     Article Fourth of the Articles   (incorporated 
                   of Incorporation of National     herein by 
                   Bankshares, Inc. included in     reference to
                   Exhibit No. 3(a))                Exhibit 4(b) of 
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1993)

       10(ii)(B)   Computer software license        (incorporated 
                   agreement dated June 18, 1990,   herein by 
                   by and between Information       reference to
                   Technology, Inc. and The         Exhibit 10(e) of 
                   National Bank of Blacksburg      the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1992)

      *10(iii)(A)  Employment Agreement dated       (incorporated 
                   January 1, 1992, by and between  herein by 
                   National Bankshares, Inc. and    reference to
                   James G. Rakes                   Exhibit 10(a) of 
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1992)









                                     -39-<PAGE>


                                                         PAGE NO. IN
      EXHIBIT NO.             DESCRIPTION             SEQUENTIAL SYSTEM
      -----------             -----------             -----------------

      *10(iii)(A)  Capital Accumulation Plan        (incorporated 
                   (included in Exhibit No. 10(a))  herein by 
                                                    reference to
                                                    Exhibit 10(b) of 
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1992)

      *10(iii)(A)  Employee Lease Agreement dated   (incorporated 
                   May 7, 1992, by and between      herein by 
                   National Bankshares, Inc. and    reference to
                   The National Bank of Blacksburg  Exhibit 10(c) of 
                                                    the Annual Report on
                                                    Form 10K for 
                                                    fiscal year ended
                                                    December 31, 1992)

         13(i)     1996 Annual Report to                     53
                   Stockholders (such Report,
                   except to the extent
                   incorporated herein by
                   reference, is being furnished
                   for the information of the
                   Commission only and is not
                   deemed to be filed as part of
                   this Report on Form 10-K)

         21(i)     Subsidiaries of National                  107
                   Bankshares, Inc.

           27      Financial Data Schedule                   108

           99      Independent Auditor's Report of           109
                   Cook & Associates, LLP on
                   financial statements of Bank of
                   Tazewell County as of and for
                   the years ended December 31,
                   1995 and 1994

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

















                                     -40-<PAGE>