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, 2001                                   O-15204

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

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

      101 Hubbard Street
      Blacksburg, Virginia                                  24060
----------------------------------------             --------------------
(Address of principal executive offices)                  Zip Code

Registrant's telephone number, including area code      (540) 951-6300
                                                     --------------------

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 5, 2002 was $74,094,317. (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.)

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 5, 2002
------------------------------                   ------------------------------
Common Stock, $2.50 Par Value                              3,511,377


                       DOCUMENTS INCORPORATED BY REFERENCE

Selected information from the Registrants' Annual Report to Stockholders for the
year ended December 31, 2001, 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 9, 2002 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 43 pages.)
                                (The Index of Exhibits are on pages 42 & 43.)



                                       1
<PAGE>



                                Table of Contents


                                                                            Page
Part I                                                                      ----

Item 1.      Business                                                        3
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                                                        34
Item 6.      Selected Financial Data                                         34
Item 7.      Management's Discussion and Analysis
              of Financial Condition and Results
              of Operations                                                  34
Item 7A.     Quantitative and Qualitative
              Disclosures About Market Risk                                  34
Item 8.      Financial Statements and
              Supplementary Data                                             36
Item 9.      Changes in and Disagreements with
              Accountants on Accounting and
              Financial Disclosure                                           37
Part III

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

Item 14.     Exhibits, Financial Statement
               Schedules, and Reports on Form 8-K                            38

Signatures                                                                   41

Index to Exhibits                                                          42-43

                                       2
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                                     Part I


($ In Thousands Except Per Share Data)


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 a good deal of its business operations through
its wholly-owned bank subsidiaries, The National Bank of Blacksburg (NBB), Bank
of Tazewell County (BTC) and through National Bankshares Financial Services,
Inc. (NBFS) doing business as National Bankshares Investment Services and
National Bankshares Financial Services, collectively referred to as "The
Company".

The National Bank of Blacksburg

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

  At December 31, 2001, NBB had total assets of $358,009. Total deposits at this
date were $322,711. NBB's net income for 2001 was $4,765 which produced a return
on average assets of 1.36% and a return on average stockholders' equity of
14.62%. Refer to footnote 11 of the Company's 2001 Annual Report to Stockholders
for NBB's risk-based capital ratios.

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 new institution became Farmers Bank of Clinch Valley. Bank of Tazewell
County resulted from the 1964 merger of Bank of Graham, Bluefield, Virginia with


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<PAGE>


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 services normally offered by
commercial banks. BTC also conducts a general trust business.

  At December 31, 2001 BTC had total assets of $283,425. Total deposits at this
same date were $254,060. BTC's net income for 2001 was $2,550 which produced a
return on average assets of 0.90% and a return on average stockholders' equity
of 9.21%. Refer to footnote 11 of the Company's 2001 Annual Report to
Stockholders for BTC's risk-based capital ratios.

National Bankshares Financial Services

  On April 9, 2001 National Bankshares Financial Services Inc., a wholly-owned
subsidiary began offering non-deposit investment products and insurance products
for sale to the public. NBFS is working with Bankers Insurance, LLC, a joint
effort of Virginia banks originally sponsored by the Virginia Bankers
Association. In another cooperative effort, NBFS is working with UVEST Financial
Services Group, Inc. to offer investment services.

Commercial Loans

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

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

Residential Real Estate Loans

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

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<PAGE>


Urban Development, the Veterans Administration and the Virginia Housing
Development Authority.

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

Construction Loans

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

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

Consumer Loans

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

  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 residential mortgage
loans regularly sold by NBB.

  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.


                                       5
<PAGE>


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

  The following table sets forth, for the three fiscal years ended December 31,
2001, 2000 and 1999 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, 2001       Interest and Fees on Loans               55.84%
                        Interest on Investments                  21.37%
December 31, 2000       Interest and Fees on Loans               66.74%
                        Interest on Investments                  21.22%
December 31, 1999       Interest and Fees on Loans               64.95%
                        Interest on Investments                  24.41%

Market Area

The National Bank of Blacksburg Market Area

  NBB's primary market area consists of the northern portion of Montgomery
County, all of Giles County, all of Pulaski County, the City of Radford, the
City of Galax and adjacent portions of Carroll and Grayson Counties, Virginia.
This area includes the towns of Blacksburg and Christiansburg in Montgomery
County, the towns of Pearisburg, Pembroke and Rich Creek, in Giles County, and
the towns of Dublin and Pulaski in Pulaski County. The local economy is diverse
and is oriented toward higher education, retail and service, light manufacturing
and agriculture.

  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 NBB's service area. It too has provided stable
employment opportunities in the region.

  Giles County's primary employer is the Celanese Corp. plant, a manufacturer of
the material from which cigarette filters are made. Employment at this plant has
remained relatively stable over the past several years.

  Pulaski County's major employer is the Volvo Heavy Trucks production facility.
During 2000, the Volvo company laid off a significant number of workers, and the
trend is likely to continue in the near term as the demand for heavy trucks
nationwide is very low. The county also has several large furniture plants, most
notably Pulaski Furniture and Ethan Allen. Pulaski Furniture recently announced
a small work force reduction.


                                       6
<PAGE>


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

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

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

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

Bank of Tazewell County Market Area

  Most of BTC's business originates from Tazewell County, Virginia and Mercer
County, West Virginia. This includes the towns of Tazewell, Richlands and
Bluefield, Virginia and Bluefield, West Virginia. BTC has also recently added
offices located in the Towns of Wytheville, Marion and Abingdon located in
Wythe, Smyth and Washington Counties, Virginia, respectively. 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 reducing the
number of individuals required for the production of coal. However, 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 emerged as a
regional medical center. Real estate values remain stable and comparable to
other areas in southwest Virginia. BTC's expanded market areas in Wythe, Smyth
and Washington Counties have a diverse economic base, with manufacturing,
agriculture, education and service industries all represented.


                                       7
<PAGE>


Competition

  The banking and financial service business in Virginia, generally, and in
NBB's and BTC's market areas specifically, is highly competitive. The
increasingly competitive environment is a result of changes in regulation,
changes in technology and product delivery systems and new competition from
non-traditional financial services. 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, 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, BTC and NBFS are organized in a holding company/subsidiary
structure. Until January 1, 2002, Bankshares had no employees, except for
officers, and it conducted substantially all of its operations through its
subsidiaries. Until January 1, 2002, all compensation paid to Bankshares
officers was paid by the subsidiary banks, except for fees paid to Chairman,
President and Chief Executive Officer James G. Rakes and to Corporate Officer
Cameron L. Forrester for their service as directors of the Company. On January
1, 2002, several administrative functions that serve multiple subsidiaries were
moved to the holding company level. These functions include audit, compliance,
loan review and human resources. Employees performing these functions who were
formerly employed at the bank level will now be employed at the holding company
level.

  At December 31, 2001, NBB employed 140 full time equivalent employees at its
main office, operations center and branch offices. BTC at December 31, 2001
employed 102 full time equivalent employees 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.


                                       8
<PAGE>


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 Gramm-Leach-Bliley Act of
1999.

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

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

  Under the BHCA, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of more than 5% of the voting shares
of any company engaged in nonbanking activities, unless the Federal Reserve
Board, by order or regulation, has found those activities to be so closely
related to banking or managing or controlling banks as to be incident to
banking. Under recent amendments to the BHCA, included in the Gramm-Leach-Bliley
Act of 1999 (see below), any bank holding company, all the depository
institution subsidiaries of which are well-capitalized, well managed (as those
terms are defined in the BHCA) and have a satisfactory or better rating under
the Community Reinvestment Act as of their last examination, may file an
election with the Federal Reserve Board to become a Financial Holding Company. A
Financial Holding Company may engage in any activity that is (i) financial in
nature (ii) incidental to a financial activity or (iii) complementary to a
financial activity. The BHCA provides a long list of "financial activities",
including: insurance underwriting; securities dealing and underwriting;
providing financial, investment or economic arising services; and merchant
banking activities. Financial Holding Companies may also engage in other
activities that the Federal Reserve Board has determined are permissible under
the BHCA, by regulation or order.


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<PAGE>


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

  The Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act (the GLBA), enacted on
November 12, 1999, broadly rewrote financial services legislation. The GLBA
permits significant combinations among different sectors of the financial
services industry; allows for significant expansion of financial service
activities by Bank holding companies and provides for a regulatory framework by
various governmental authorities responsible for different financial activities;
and offers certain financial privacy protections to consumers. The GLBA repealed
affiliation and management interlock prohibitions of the Depression-era
Glass-Steagall Act and, by amending the Bank Holding Companies, the GLBA added
new substantive provisions to the non-banking activities permitted under the
BHCA with the creation of the financial holding company. The GLBA preempts most
state laws that prohibit financial holding companies from engaging in insurance
activities. The GLBA permits affiliations between banks and securities firms
within the same holding company structure, and the Act permits financial holding
companies to directly engage in a broad range of securities and merchant banking
activities.

  The Gramm-Leach-Bliley Act has and will lead to important changes in the
manner in which financial services are delivered in the United States. Bank
holding companies and their subsidiary banks are able to offer a much broader
array of financial services; however, there is greater competition in all
sectors of the financial services market.

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


                                       10
<PAGE>


NBB and BTC

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

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

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

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


                                       11
<PAGE>


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

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

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

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

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

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

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


                                       12
<PAGE>


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

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

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

  National banks, like NBB, are required by the National Bank Act to adhere to
branch banking laws applicable to state banks in the states in which they are
located. Under current Virginia law, NBB may open branch offices throughout
Virginia with the prior approval of the OCC. In addition, with prior approval of
the OCC, NBB can acquire existing banking operations in Virginia. As a state
bank, BTC is subject to Virginia state branching laws. With BFI and Federal
Reserve Bank approval, BTC is able to acquire existing banking operations in the
state.

  The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
Interstate Act) 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 also permits banks to acquire out-of-state branches through
interstate mergers, if the state has not opted out of interstate branching. De
novo branching, where an out-of-state bank holding company sets up a new branch
in another state, requires a state's specific approval. An acquisition or merger
is not permitted under the Interstate Act if the bank, including its insured
depository affiliates, will control more than 10% of the total amount of
deposits of insured depository institutions in the United States, or will
control 30% or more of the total amount of deposits of insured depository
institutions in any state.


                                       13
<PAGE>


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

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

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

  Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act of 1999 (the GLBA) allows
national banks, with OCC approval, to acquire financial subsidiaries to engage
in any activity that is financial in nature or incidental to a financial
activity, as defined in the Bank Holding Act, except (i) insurance underwriting,
(ii) merchant or insurance portfolio investments, and (iii) real estate
development or investment. Well-capitalized national banks are also given the
authority to engage in municipal bond underwriting.


                                       14
<PAGE>


  To establish or acquire a financial subsidiary, a national bank must be
well-managed, and the consolidated assets of its financial subsidiary must not
exceed the lesser of 45% of the consolidated total assets of the bank or $50
billion. The relationship between a national bank and a financial subsidiary are
subject to a variety of supervisory enhancements from regulators. The GLBA also
provides that state banks that establish or acquire financial subsidiaries are
required to comply with the same safeguards imposed on the financial
subsidiaries of national banks.

  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
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


                                       15
<PAGE>


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 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 average assets less intangibles) guidelines that are
applicable to Bankshares and BTC. The OCC has adopted similar regulations
applicable to NBB. These guidelines provide for a minimum ratio of 4.0% for
banks that meet certain specified criteria, including that they have the highest
regulatory CAMELS 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


                                       16
<PAGE>


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.

Other Legislative and Regulatory Concerns

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

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.


                                       17
<PAGE>


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

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

    A.     Average Balance Sheets

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

<TABLE>
<CAPTION>

($ in thousands)
                                                                  December 31,
                                                   --------------------------------------------
Assets                                                     2001          2000           1999
===============================================================================================
<S>                                                       <C>           <C>            <C>
Cash and due from banks                                   $10,221       $11,355        $12,820
Interest - bearing deposits                                10,986        10,683          5,263
Federal funds sold                                         18,419         6,149          2,926
Securities available for sale:
   Taxable                                                 69,486        87,813         95,979
   Nontaxable                                              40,196        31,302         29,286
Securities held to maturity:
   Taxable                                                 46,043         9,029          8,940
   Nontaxable                                              33,084        14,542         17,219
Mortgage loans held for sale                                  808           519            709
Loans, net                                                376,958       310,624        266,431
Other assets                                               29,491        18,365         14,616
                                                   --------------------------------------------
     Total assets                                        $635,692      $500,381       $454,189
===============================================================================================


Liabilities and Stockholders' Equity
===============================================================================================
Noninterest-bearing demand
 Deposits                                                 $66,793       $56,709        $55,700
Interest-bearing demand deposits                          116,529        85,713         85,284
Savings deposits                                           47,175        43,138         46,792
Time deposits                                             338,642       248,113        203,807
                                                   --------------------------------------------
     Total deposits                                      $569,139      $433,673       $391,583
Short-term borrowings                                         295         9,011          4,228
Other liabilities                                           2,798         2,015          2,182
                                                   --------------------------------------------
   Total liabilities                                     $572,232      $444,699       $397,993
Stockholders' equity                                       63,460        55,682         56,196
                                                   --------------------------------------------
   Total liabilities and
    Stockholders' equity                                 $635,692      $500,381       $454,189
===============================================================================================
</TABLE>


                                       18
<PAGE>



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.

<TABLE>
<CAPTION>

                         -------------------------------   -----------------------------    -------------------------------
                               December 31, 2001                  December 31, 2000                 December 31, 1999
                         -------------------------------   -----------------------------    -------------------------------
                                                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)     $381,778    $33,584      8.80%     $314,685   $28,454     9.04%     $267,140    $24,244     9.08%
Taxable securities        115,529      7,501      6.56%       96,842     6,760     6.98%      104,919      6,820     6.50%
Nontaxable
 Securities (1)            73,280      5,091      6.49%       45,844     3,420     7.46%       46,505      3,414     7.34%
Federal funds sold         18,419        652      3.54%        6,149       338     5.50%        2,926        170     5.81%
Interest bearing
 Deposits                  10,986        577      5.25%       10,683       689     6.45%        5,263        269     5.11%
                         -------------------------------   ------------------------------   -------------------------------
Total interest-
 Earning assets          $599,992    $47,405      7.90%     $474,203   $39,661     8.36%     $426,753    $34,917     8.18%
                         ===============================   ==============================   ===============================
Interest-bearing
 Liabilities:
Interest-bearing
 Demand deposits         $116,529     $2,518      2.16%      $85,713    $2,243     2.62%      $85,284     $2,129     2.50%
Savings deposits           47,175        919      1.95%       43,138     1,135     2.63%       46,792      1,212     2.59%
Time deposits             338,642     19,326      5.71%      248,113    14,157     5.71%      203,807     10,630     5.22%
Short-term
 Borrowings                   295          8      2.71%        1,727       118     6.83%        4,228        232     5.49%
Long-term debt                ---        ---        ---        7,284       510     7.00%          ---        ---       ---
                         -------------------------------   ------------------------------   -------------------------------
Total interest-
 Bearing liabilities     $502,641    $22,771      4.53%     $385,975   $18,163     4.71%     $340,111    $14,203     4.18%
                         ===============================   ==============================   ===============================
Net interest income
 and interest rate
 spread                              $24,634      3.37%                $21,498     3.66%                 $20,714     4.00%
                         ================================================================   ===============================
Net yield on average
 Interest-earning
 Assets                                           4.11%                            4.53%                             4.85%
                         ==================================================================================================
</TABLE>

(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 $608 in 2001, $381 in 2000 and $680 in 1999 are included
         in total interest income.
(3)      Nonaccrual loans are included in average balances for yield
         computations.


                                       19
<PAGE>



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).
<TABLE>
<CAPTION>


                                    ==============================================================================================
                                                    2001 Over 2000                                 2000 Over 1999
                                    ----------------------------------------------------------------------------------------------
                                            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                                 $(791)         $5,921          $5,130           $(89)         $4,299          $4,210
  Taxable securities                     (430)          1,171             741            485            (545)            (60)
  Nontaxable securities                  (249)          1,920           1,671             55             (49)              6
  Federal funds sold                     (157)            471             314            (10)            178             168
  Interest bearing deposits              (131)             19            (112)            85             335             420

-----------------------------------------------------------------------------------------------------------------------------------
Increase(decrease) in
 income on interest-
 earning assets                       $(1,758)         $9,502          $7,744           $526          $4,218          $4,744
-----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
  Interest-bearing demand
   deposits                             $(437)           $712            $275           $103             $11            $114
  Savings deposits                       (315)             99            (216)            19             (96)            (77)
  Time deposits                             3           5,166           5,169          1,065           2,462           3,527
  Short-term borrowings                   (46)            (64)           (110)            47            (161)           (114)
  Long-Term Borrowings                    ---            (510)           (510)           ---             510             510

-----------------------------------------------------------------------------------------------------------------------------------
Increase(decrease) in
 expense of interest-
 bearing liabilities                    $(795)         $5,403          $4,608         $1,234          $2,726          $3,960
-----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
 interest income                        $(963)         $4,099          $3,136          $(708)         $1,492            $784
===================================================================================================================================

</TABLE>


(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.


                                       20
<PAGE>


 II.     Investment Portfolio

         A.     Book Value of Investments
                The amortized costs and fair values of securities available for
                sale as of December 31, 2001, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>

                                                  =============================================================
                                                                              December 31,
                                                  --------------------------------------------------------------------------------
                                                  --------------------------------------------------------------------------------
                                                              2001                      2000                       1999
                                                  --------------------------------------------------------------------------------
                                                     Amortized       Fair      Amortized      Fair      Amortized       Fair
($ in thousands)                                       Costs        Values       Costs       Values       Costs        Values
==================================================================================================================================
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>         <C>           <C>         <C>         <C>           <C>
Available for sale:
 U.S. Treasury                                         $6,248     $ 6,490        $6,246     $ 6,331      $ 6,244       $ 6,164
 U.S. Government agencies and
  corporations                                          5,340       5,375        54,815      54,034       50,373        47,498
 States and political subdivisions                     51,030      51,189        35,456      35,606       32,903        31,617
 Mortgage-backed securities (1)                        13,178      13,415        11,818      11,776       13,464        13,176
 Corporate debt securities                              9,066       9,093        14,341      14,058       14,349        13,646
 Federal Home Loan Bank stock                           1,411       1,411         1,329       1,329        1,329         1,329
 Federal Reserve Bank stock                               209         209           209         209          247           247
 Other securities                                       1,328       1,485           442         442          168           168
                                                     -----------------------------------------------------------------------------
    Total securities available for sale               $87,810     $88,667      $124,656    $123,785     $119,077      $113,845
==================================================================================================================================
</TABLE>

                The amortized costs of securities held to maturity as of
                December 31, 2001, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>

                                                     ================================================
                                                                         December 31,
                                                     ------------------------------------------------
                                                     ------------------------------------------------
($ in thousands)                                         2001               2000            1999
=====================================================================================================
-----------------------------------------------------------------------------------------------------
<S>                                                  <C>                 <C>              <C>
Held to maturity:
 U.S. Treasury                                           $ ---              $ ---           $ 500
 U.S. Government agencies and corporations              17,025              8,500           5,500
 States and political subdivisions                      49,230             17,288          17,283
 Mortgage-backed securities (1)                         13,723                288             364
 Corporate                                              22,831              6,483             ---
                                                     ------------------------------------------------
    Total securities held to maturity                $ 102,809           $ 32,559         $ 3,647
=====================================================================================================
</TABLE>

                (1)    The majority of mortgage-backed securities and
                       collateralized mortgage obligations held at December 31,
                       2001 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.


                                       21
<PAGE>


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, 2001 and
         weighted average yield for each range of maturities.
<TABLE>
<CAPTION>

                                            ====================================================================================
                                                                            Maturities and Yields
                                                                              December 31, 2001
                                            ------------------------------------------------------------------------------------
($ 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                                  $2,553        $3,937           ---            ---          ---         $6,490
                                                 6.23%         5.73%          ---            ---          ---           5.93%
--------------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies                          ---         1,534         2,949            892          ---          5,375
                                                  ---          7.43%         7.01%          6.52%         ---           7.05%
--------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities                        ---           ---         2,133         11,282          ---         13,415
                                                  ---           ---          3.92%          6.68%         ---           6.24%
--------------------------------------------------------------------------------------------------------------------------------
States and Political                              ---         1,684           ---          1,285          ---          2,969
 Subdivision - taxable                            ---          7.15%          ---           7.77%         ---           7.42%
--------------------------------------------------------------------------------------------------------------------------------
States and Political Subdivision                  921         8,706        17,981         20,612          ---         48,220
 - nontaxable(1)                                 7.12%         6.82%         6.32%          6.50%         ---           6.50%
--------------------------------------------------------------------------------------------------------------------------------
Corporate                                         ---         4,168         2,931          1,994          ---          9,093
                                                  ---          6.74%         6.55%          6.59%         ---           6.65%
--------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank stock                      ---           ---           ---            ---        1,411          1,411
                                                  ---           ---           ---            ---         5.75%          5.75%
--------------------------------------------------------------------------------------------------------------------------------
Federal Reserve Bank stock                        ---           ---           ---            ---          209            209
                                                  ---           ---           ---            ---         6.00%          6.00%
--------------------------------------------------------------------------------------------------------------------------------
Other securities                                   18           ---           ---            ---        1,467          1,485
                                                 2.03%          ---           ---            ---         6.00%          5.95%
--------------------------------------------------------------------------------------------------------------------------------
Total                                           3,492        20,029        25,994         36,065        3,087         88,667
                                                 6.44%         6.66%         6.23%          6.61%        3.04%          6.38%
--------------------------------------------------------------------------------------------------------------------------------
Held to Maturity
----------------
U.S. Treasury                                     ---           ---           ---            ---          ---            ---
                                                  ---           ---           ---            ---          ---            ---
--------------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies                          ---         3,000        10,030          3,995          ---         17,025
                                                  ---          5.84%         5.17%          6.90%         ---           5.69%
--------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities                          1            28            52         13,642          ---         13,723
                                                 9.00%         7.80%         7.98%          6.00%         ---           6.01%
--------------------------------------------------------------------------------------------------------------------------------
States and Political                              165         1,057           690            ---          ---          1,912
 Subdivision - taxable                           6.88%         7.05%         5.99%           ---          ---           6.65%
--------------------------------------------------------------------------------------------------------------------------------
States and Political                            2,426         5,308        18,625         20,959          ---         47,318
 Subdivision - nontaxable                        6.78%         7.08%         6.17%          6.34%         ---           6.38%
--------------------------------------------------------------------------------------------------------------------------------
Corporate                                         ---        11,488        11,343            ---          ---         22,831
                                                  ---          6.83%         6.80%           ---          ---           6.82%
--------------------------------------------------------------------------------------------------------------------------------
Other securities                                  ---           ---           ---            ---          ---            ---
                                                  ---           ---           ---            ---          ---            ---
--------------------------------------------------------------------------------------------------------------------------------
Total                                          $2,592       $20,881       $40,740        $38,596          ---       $102,809
                                                 6.78%         6.77%         6.10%          6.28%         ---           6.32%
================================================================================================================================
</TABLE>

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


                                       22
<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, 2001.

        A.     Types of Loans
<TABLE>
<CAPTION>

                                     ==============================================================
                                                              December 31,
                                     --------------------------------------------------------------
($ in thousands)                         2001        2000        1999        1998        1997
===================================================================================================
<S>                                   <C>        <C>          <C>        <C>           <C>
Commercial and industrial
  loans                                $189,764    $163,929    $149,386    $110,509     $101,379

Real estate mortgage
  loans                                  77,339      71,163      58,829      48,724       42,969

Real estate construction
  loans                                  19,573      16,726      14,669      12,827        8,510

Loans to individuals                    113,413     110,176      73,825      69,493       66,635
                                     --------------------------------------------------------------
 Total loans                           $400,089    $361,994    $296,709    $241,553     $219,493

Less unearned income and
  deferred fees                          (1,775)     (2,313)     (1,916)     (2,296)      (2,503)
                                     --------------------------------------------------------------
 Total loans, net of
  unearned income                      $398,314    $359,681    $294,793    $239,257     $216,990

Less allowance for loans
  losses                                 (4,272)     (3,886)     (3,231)     (2,679)      (2,438)
                                     --------------------------------------------------------------
 Total loans, net                      $394,042    $355,795    $291,562    $236,578     $214,552
===================================================================================================
</TABLE>

        B.     Maturities and Interest Rate Sensitivities
<TABLE>
<CAPTION>

                                        =============================================================
                                                             December 31, 2001
                                        -------------- --------------- -------------- ---------------
                                                                            After
($ in thousands)                            <1 Year       1-5 Years        5 Years         Total
======================================= ============== =============== ============== ===============
<S>                                     <C>             <C>             <C>            <C>
Commercial and
 industrial                                   $50,286         $83,466        $56,012        $189,764
Real estate
 construction                                  19,573             ---            ---          19,573
Less loans with
 predetermined interest                        28,219          39,407         55,544         123,170
 rates
                                        -------------- --------------- -------------- ---------------
Loans with adjustable
 rates                                        $41,640         $44,059           $468         $86,167
======================================= ============== =============== ============== ===============
</TABLE>


                                       23
<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.
<TABLE>
<CAPTION>

                                               ======================================================
                                                                   December 31,
                                               ------------------------------------------------------
($ in thousands)                                 2001       2000      1999       1998       1997
-----------------------------------------------------------------------------------------------------
<S>                                            <C>        <C>        <C>       <C>        <C>
Nonaccrual loans:
  Commercial and industrial                    $  175     $   65     $  65     $  ---      $   55
  Real estate mortgage                             11          5        33         28          32
  Real estate construction                        ---        ---       ---        ---         ---
  Loans to individuals                            168         18        53        ---         ---
-----------------------------------------------------------------------------------------------------
                                               $  354     $   88     $ 151     $   28      $   87
-----------------------------------------------------------------------------------------------------
Restructured loans:
  Commercial and industrial                       ---        ---        40        ---         ---
-----------------------------------------------------------------------------------------------------
Total nonperforming loans                      $  354     $   88     $ 191     $   28      $   87
Other real estate owned, net                      211        540       447        628         421
-----------------------------------------------------------------------------------------------------
Total nonperforming assets                     $  565     $  628     $ 638     $  656      $  508
                                               ======================================================
-----------------------------------------------------------------------------------------------------
Accruing loans past due 90 days or more:
  Commercial and industrial
  Real estate mortgage                         $  303     $  242     $  99     $  186      $   82
  Real estate construction                        277        664       704        160         358
  Loans to individuals                            ---        ---       ---        ---         ---
                                                  400        415       274        204         232
-----------------------------------------------------------------------------------------------------
                                               $  980     $1,321    $1,077     $  550      $  672
=====================================================================================================
</TABLE>

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

                                =====================================
($ in thousands)                   2001        2000         1999
=====================================================================
Scheduled interest:
  Nonaccrual loans              $    37     $    11     $    13
  Restructured loans                ---         ---         ---
                                -------------------------------------
     Total scheduled interest   $    37     $    11     $    13
                                -------------------------------------
Recorded interest:
  Nonaccrual loans              $     7     $   ---     $   ---
  Restructured loans                ---         ---         ---
                                -------------------------------------
     Total recorded interest    $     7     $   ---     $   ---
=====================================================================

                      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.

                                       24
<PAGE>



               2.     Potential Problem Loans

                      At December 31, 2001, management was unaware of any
                      potential problem loans other than those presented in the
                      table above.

               3.     Foreign Outstandings

                      At December 31, 2001, 2000 and 1999, there were no foreign
                      outstandings.

               4.     Loan Concentrations

                      The Company does a general banking business, serving the
                      commercial, agricultural and personal banking needs of its
                      customers. NBB's trade territory consists of the northern
                      portion of Montgomery County, all of Giles County, all of
                      Pulaski County, the City of Radford, the City of Galax and
                      adjacent portions of Carroll and Grayson Counties,
                      Virginia. NBB's operating results are closely correlated
                      with the economic trends within this area which are, in
                      turn, influenced by the area's three largest employers,
                      Virginia Polytechnic Institute and State University,
                      Montgomery County Schools and Celco. Other industries
                      include a wide variety of manufacturing, retail and
                      service concerns. Much 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 also serves the counties of
                      Wythe, Smyth and Washington in Virginia. BTC's primary
                      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 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
                      emerged 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, 2001 and 2000, approximately $177 million
                      and $151 million, respectively, of the loan portfolio were
                      concentrated in commercial real estate. This represents
                      approximately 44% and 42% of the loan portfolio at
                      December 31, 2001 and 2000, respectively. Included in
                      commercial real estate at December 31, 2001 and 2000 was
                      approximately $101 million and $84 million, respectively,
                      in loans for college housing and professional office


                                       25
<PAGE>


                      buildings. Loans secured by residential real estate were
                      approximately $119 million and $110 million at December
                      31, 2001 and 2000, respectively. This represents
                      approximately 30% and 31% of the loan portfolio at
                      December 31, 2001 and 2000, respectively. Loans secured by
                      automobiles were approximately $32 million and $36 million
                      at December 31, 2001 and 2000, respectively. This
                      represents approximately 8% of the loan portfolio at
                      December 31, 2001 and 10% at December 31, 2000.

                      The Company has established operating policies relating to
                      the credit process and collateral requirements 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.

                                       26
<PAGE>


 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:
<TABLE>
<CAPTION>

                                            ============================================================================
                                                                           December 31,
                                            ----------------------------------------------------------------------------
($ in thousands)                               2001           2000            1999           1998           1997
========================================================================================================================
<S>                                         <C>            <C>             <C>            <C>            <C>
Average net loans outstanding               $ 376,958      $ 310,624       $ 266,431      $ 225,613      $ 204,540
                                            ============================================================================
------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year                $   3,886      $   3,231       $   2,679      $     438      $   2,575

Charge-offs:
 Commercial and industrial loans                  141             55             185             32            257
 Real estate mortgage loans                        32            ---              33             80            ---
 Real estate construction loans                   ---            ---             ---            ---            ---
 Loans to individuals                             955            715             760            526            422
                                            ----------------------------------------------------------------------------
 Total loans charged off                    $   1,128      $     770       $     978      $     638      $     679
                                            ----------------------------------------------------------------------------
Recoveries:
 Commercial and industrial loans                    8              3              51            ---             70
 Real estate mortgage loans                       ---            ---               1              2            ---
 Real estate construction loans                   ---            ---             ---            190            ---
 Loans to individuals                              98             93              78             63             37
                                            ----------------------------------------------------------------------------
 Total recoveries                           $     106      $      96       $     130      $     255      $     107
                                            ----------------------------------------------------------------------------
Net loans charged off                           1,022            674             848            383            572
                                            ----------------------------------------------------------------------------
Additions charged to operations                 1,408          1,329           1,400            624            435
                                            ----------------------------------------------------------------------------
Balance at end of year                      $   4,272      $   3,886       $   3,231      $   2,679      $   2,438
                                            ============================================================================
------------------------------------------------------------------------------------------------------------------------
Net charge-offs to average net loans
 Outstanding                                     0.27%          0.21%           0.32%          0.17%          0.28%
=========================================================================================================================
</TABLE>


                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.

                                       27
<PAGE>



 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:
<TABLE>
<CAPTION>

            ========================================================================================================================
                                                                                December 31,
            ------------------------------------------------------------------------------------------------------------------------
                     2001                     2000                    1999                    1998                   1997
            ------------------------------------------------------------------------------------------------------------------------

                           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
 ($ in        Allowance  Category to  Allowance  Category to  Allowance  Category to  Allowance  Category to  Allowance  Category to
  thousands)   Amount    Total Loans    Amount   Total Loans   Amount    Total Loans   Amount    Total Loans   Amount    Total Loans
====================================================================================================================================
<S>          <C>        <C>          <C>        <C>          <C>        <C>          <C>        <C>          <C>        <C>
Commercial
 and
 industrial
 loans          $557       47.43%       $ 255       45.29%     $ 555       50.35%      $ 222        45.75%      $ 213       46.18%
------------------------------------------------------------------------------------------------------------------------------------
Real estate
 mortgage
 loans            50       19.33%         120       19.66%       119       19.83%         73        20.17%         67       19.58%
------------------------------------------------------------------------------------------------------------------------------------
Real estate
 construction
 loans           ---        4.89%         ---        4.62%       ---        4.94%        ---         5.31%        ---        3.88%
------------------------------------------------------------------------------------------------------------------------------------
Loans to
 individuals   2,909       28.35%       1,709       30.43%       978       24.88%        497        28.77%        416       30.36%
------------------------------------------------------------------------------------------------------------------------------------
Unallocated      756                    1,802                  1,579                   1,887                    1,742
------------------------------------------------------------------------------------------------------------------------------------
              $4,272      100.00%     $ 3,886      100.00%   $ 3,231      100.00%    $ 2,679       100.00%    $ 2,438      100.00%
            ========================================================================================================================
</TABLE>

                                       28
<PAGE>


Loan Loss Allowance

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

  The evaluation of the allowance for loan losses is performed by the internal
credit review department.

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

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

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

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

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

                                       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:
<TABLE>
<CAPTION>

                     =======================================================================
                                                  December 31,
                     -----------------------------------------------------------------------
                              2001                    2000                   1999
                     -----------------------------------------------------------------------
                                   Average                Average                 Average
                       Average      Rates      Average     Rates      Average      Rates
 ($ in thousands)      Amounts       Paid      Amounts      Paid      Amounts       Paid
--------------------------------------------------------------------------------------------
<S>                  <C>         <C>         <C>        <C>         <C>         <C>
Noninterest-bearing
 demand deposits      $ 66,793       ---     $ 56,709       ---      $55,700        ---

Interest-bearing
 demand deposits       116,529      2.16%      85,713      2.62%      85,284       2.50%

Savings deposits        47,175      1.95%      43,138      2.63%      46,792       2.59%

Time deposits          338,642      5.71%     248,113      5.71%     203,807       5.22%

--------------------------------------------------------------------------------------------
Average total
 deposits             $569,139      4.53%    $433,673      4.64%    $391,583       4.16%
============================================================================================
</TABLE>


        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:
<TABLE>
<CAPTION>

                                =====================================================================
                                                         December 31, 2001
                                =====================================================================
                                                 Over 3 Months   Over 6 Months
                                   3 Months        Through 6      Through 12    Over 12
($ in thousands)                   or Less          Months          Months      Months       Total
=====================================================================================================
<S>                               <C>            <C>              <C>         <C>          <C>
Certificates of
 deposit                            $65,246         $81,198         $90,281     $85,085     $321,810
-----------------------------------------------------------------------------------------------------
Other time deposits                  49,764          59,665          69,060      66,107      244,596
-----------------------------------------------------------------------------------------------------
  Total time
   deposits of
   $100,000 or more                 $15,482         $21,533         $21,221     $18,978      $77,214
=====================================================================================================
</TABLE>

                                       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,
                                    ----------------------------------------
                                           2001         2000          1999
============================================================================
Return on average assets                   1.15%         1.46%        1.56%
----------------------------------------------------------------------------
Return on average equity(1)               11.53%        13.13%       12.61%
----------------------------------------------------------------------------
Dividend payout ratio                     41.29%        40.87%       39.70%
----------------------------------------------------------------------------
Average equity to average assets(1)        9.98%        11.13%       12.37%
============================================================================

        (1)    Includes amount related to common stock subject to ESOP put
               option excluded from stockholders' equity on the Consolidated
               Balance Sheet for 1999.


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

  Bankshares' headquarters and one branch office of NBB is located at 101
Hubbard Street, Blacksburg, Virginia. NBB's Main Office is at 100 South Main
Street, Blacksburg, Virginia. In addition to the Bank's Main Office location and
the Hubbard Street branch office, NBB owns eleven branch offices in Virginia:
four in the Town of Blacksburg; one in the Town of Christiansburg; and three in
the County of Giles, two in Pulaski County, one in the City of Radford and one
in the City of Galax. An additional tract of land has been acquired for the
construction of a fourteenth branch.

  Bank of Tazewell County owns the land and building of nine of its eleven
offices. The bank leases the land and building for two offices. The Main Office
is located at 309 East Main Street, Tazewell, Virginia. Three additional
branches are located in Tazewell, one in Richlands and three are located in
Bluefield, Virginia. The bank also has one branch in Wytheville, Virginia, one
branch in Abingdon, Virginia and one branch in Marion, Virginia. Management
believes that its existing facilities are adequate to meet present needs and any
anticipated growth.

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


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

  Bankshares, NBB, BTC, and NBFS are not currently involved in any material
pending legal proceedings, other than routine litigation incidental to NBB's and
BTC's banking business.


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

  None

                                       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 9, 2002.

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        57  Chairman, President and Chief              1986
                          Executive Officer, National
                          Bankshares, Inc.; and President and
                          Chief Executive Officer of The
                          National Bank of Blacksburg since
                          1983. President and Treasurer of
                          National Bankshares Financial
                          Services, Inc. since 2001.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
J. Robert Buchanan    50  Treasurer, National Bankshares, Inc.;      1998
                          Cashier and Senior Vice
                          President/Chief Financial Officer of
                          The National Bank of Blacksburg, since
                          January 1, 1998; prior thereto Senior
                          Vice President, Treasurer and Chief
                          Financial Officer, Premier Bankshares
                          Corporation.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Marilyn B. Buhyoff    53  Secretary & Counsel, National              1989
                          Bankshares, Inc.; and Secretary &
                          Counsel since 1989 and Senior Vice
                          President/ Administration, since 1992,
                          of The National Bank of Blacksburg.
                          Secretary of National Bankshares
                          Financial Services, Inc. since 2001.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
F. Brad Denardo       49  Corporate Officer, National                1989
                          Bankshares, Inc.; and Executive Vice
                          President/ Loans since 1989 of The
                          National Bank of Blacksburg.
--------------------------------------------------------------------------------

                                       32
<PAGE>

--------------------------------------------------------------------------------
Cameron L. Forrester  53  Corporate Officer, National                2001
                          Bankshares, Inc.; and President and
                          Chief Executive Officer of Bank of
                          Tazewell County since 1998; prior
                          thereto Vice President of First
                          Virginia Bank, Clinch Valley (formerly
                          Premier Bank, N. A.)
================================================================================

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

                                       33
<PAGE>


                                     Part II
                                     -------

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

  Effective December 1, 1999, National Bankshares, Inc.'s common stock began
trading on the Nasdaq SmallCap Market under the symbol "NKSH". Prior to December
1, 1999, National Bankshares, Inc.'s common stock was traded on a limited basis
in the over-the-counter market and was not listed on any exchange or quoted on
Nasdaq. As of December 31, 2001 there were 1,045 stockholders of Bankshares
common stock.

  Information concerning Market Price and Dividend Data is set forth under
"Common Stock Information and Dividends" on page 11 of Bankshares' 2001 Annual
Report to Stockholders and is incorporated herein by reference. Prices prior to
December 1, 1999 do not necessarily reflect the prices which would have
prevailed had there been an active trading market, nor do they reflect
unreported trades, which may have been at lower or higher prices.


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

  The table entitled "Selected Consolidated Financial Data" on page 4 of
Bankshares' 2001 Annual Report to Stockholders is incorporated herein by
reference.


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

  The information contained under "Management's Discussion and Analysis" on
pages 5 through 11 of Bankshares' 2001 Annual Report to Stockholders is
incorporated herein by reference.


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

  See "Analysis of Interest Rate Sensitivity" set forth below. Additional
information is set forth under the section "Interest Rate Sensitivity" on pages
5 through 6 and the section "Derivatives and Market Risk Exposures" on page 10
of Bankshares' 2001 Annual Report to Stockholders and is incorporated herein by
reference.


                                       34
<PAGE>


Analysis of Interest Rate Sensitivity

The following discussion of interest rate sensitivity contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company's actual results
could differ materially from those set forth in the forward-looking statements.




                                       35
<PAGE>



 The Company uses simulation analysis to forecast its balance sheet and monitor
interest rate sensitivity. One test used by Bankshares is shock analysis which
measures the effect of a hypothetical, immediate and parallel shifts in interest
rates. The following table shows the results of a rate shock of 100, 200, and
300 basis points and the effects on net income and return on average assets and
return on average equity at December 31, 2001.

<TABLE>
<CAPTION>

                         ($ in thousands, except for percent data)
---------------------------- ------------------------ -------------------------- --------------------------------
      Rate Shift                   Net Income          Return on Average Equity     Return on Average Assets
---------------------------- ------------------------ -------------------------- --------------------------------
---------------------------- ------------------------ -------------------------- --------------------------------
<S> <C>                      <C>                       <C>                       <C>
           300                      $8,501                    12.24%                         1.24%
---------------------------- ------------------------ -------------------------- --------------------------------
---------------------------- ------------------------ -------------------------- --------------------------------
           200                       9,766                    13.95%                         1.42%
---------------------------- ------------------------ -------------------------- --------------------------------
---------------------------- ------------------------ -------------------------- --------------------------------
           100                      10,904                    15.47%                         1.58%
---------------------------- ------------------------ -------------------------- --------------------------------
---------------------------- ------------------------ -------------------------- --------------------------------
       (-) 100                      13,263                    18.55%                         1.93%
---------------------------- ------------------------ -------------------------- --------------------------------
---------------------------- ------------------------ -------------------------- --------------------------------
       (-) 200                      13,616                    19.01%                         1.98%
---------------------------- ------------------------ -------------------------- --------------------------------
</TABLE>

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

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


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

  The following consolidated financial statements of the Registrant and the
Independent Auditor's Report set forth on pages 12 through 36 of Bankshares'
2001 Annual Report to Stockholders are incorporated herein by reference:


                                       36
<PAGE>


1. Independent Auditor's Report

2.  Consolidated Balance Sheets - December 31, 2001 and 2000

3.  Consolidated Statements of Income - Years ended December 31, 2001, 2000
    and 1999

4.  Consolidated  Statements of Changes in  Stockholders'  Equity - Years
    ended December 31, 2001, 2000 and 1999

5.  Consolidated Statements of Cash Flows - Years ended December 31, 2001,
    2000 and 1999

6.  Notes to Consolidated Financial Statements - December 31, 2001, 2000
    and 1999


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, 2001 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, 2002 which information is incorporated herein by
reference.


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

  The information set forth under "Executive Compensation" on pages 4 through 6
of Bankshares' Proxy Statement dated March 14, 2002 is incorporated herein by
reference.


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

  The information set forth under "Voting Securities and Stock Ownership" on
page 1 and under "Stock Ownership of Certain Beneficial Owners" and "Stock
Ownership of Directors and Executive Officers" on pages 1 and 2 of Bankshares'
Proxy Statement dated March 14, 2002 is incorporated herein by reference.


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

  The information contained under "Certain Transactions With Officers and
Directors" on page 13 of Bankshares' Proxy Statement dated March 14, 2002 is
incorporated herein by reference.

                                       37
<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:


                                                       2001 Annual Report
    1.     Financial Statements:                     To Stockholders Page(s)*
           --------------------                      ------------------------

           Independent Auditor's Report                         12
             Consolidated Balance Sheets -                      13
             December 31, 2001 and 2000

           Consolidated Statements of                           14
             Income - Years ended December
             31, 2001, 2000 and 1999


           Consolidated Statements of Changes                   15
             in Stockholders' Equity - Years
             ended December 31, 2001, 2000 and
             1999

           Consolidated Statements of Cash                      16
             Flows - Years ended December 31,
             2001, 2000 and 1999

           Notes to Consolidated                               17-35
             Financial Statements - December
             31, 2001, 2000 and 1999

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

           None

*Incorporated by reference from the indicated pages of the 2001 Annual Report to
 Stockholders.

    3.         Exhibits:
               --------
                                                               Page No. in
Exhibit No.                Description                      Sequential System
-----------                -----------                      -----------------
   3(i)       Articles of Incorporation, as amended, of    (incorporated
              National Bankshares, Inc.                    herein by
                                                           reference to
                                                           Exhibit 3(a) of
                                                           the Annual Report on
                                                           Form 10-K for
                                                           Fiscal year ended
                                                           December 31, 1993)

                                       38
<PAGE>

                                                               Page No. in
Exhibit No.                Description                      Sequential System
-----------                -----------                      -----------------

   4(i)      Specimen copy of certificate for National     (incorporated
             Bankshares, Inc. common stock, $2.50 par      herein by
             value                                         reference to
                                                           Exhibit 4(a) of
                                                           the Annual Report on
                                                           Form 10-K for
                                                           Fiscal year ended
                                                           December 31, 1993)
   4(i)      Article Four of the Articles of               (incorporated
             Incorporation of National Bankshares, Inc.    herein by
             included in Exhibit No. 3(a))                 reference to
                                                           Exhibit 4(b) of
                                                           the Annual Report on
                                                           Form 10-K for
                                                           Fiscal year ended
                                                           December 31, 1993)
 10(ii)(B)   Computer software license agreement dated     (incorporated
             June 18, 1990, by and between Information     herein by
             Technology, Inc. and The National Bank of     reference to
             Blacksburg                                    Exhibit 10(e) of
                                                           the Annual Report on
                                                           Form 10-K for
                                                           Fiscal year ended
                                                           December 31, 1992)
*10(iii)(A)  Employment Agreement dated January 1, 1992,   (incorporated
             by and between National Bankshares, Inc. and  herein by
             James G. Rakes                                reference to
                                                           Exhibit 10(a) of
                                                           the Annual Report on
                                                           Form 10-K for
                                                           Fiscal year ended
                                                           December 31, 1992)
*10(iii)(A)  Capital Accumulation Plan (included in        (incorporated
             Exhibit No. 10(a))                            herein by
                                                           reference to
                                                           Exhibit 10(b) of
                                                           the Annual Report on
                                                           Form 10-K for
                                                           Fiscal year ended
                                                           December 31, 1992)
*10(iii)(A)  Employee Lease Agreement dated May 7, 1992,   (incorporated
             by and between National Bankshares, Inc.      herein by
             and The National Bank of Blacksburg           reference to
                                                           Exhibit 10(c) of
                                                           the Annual Report on
                                                           Form 10-K for
                                                           Fiscal year ended
                                                           December 31, 1992)


                                       39
<PAGE>


                                                               Page No. in
Exhibit No.                Description                      Sequential System
-----------                -----------                      -----------------

*10(iii)(A)  National Bankshares, Inc. 1999 Stock Option   (incorporated
             Plan                                          herein    by
                                                           reference  to Exhibit
                                                           4.3 of the   Form
                                                           S-8,   filed  as
                                                           Registration   No.
                                                           333-79979 with the
                                                           Commission  on June
                                                           4, 1999)

   13(i)     2001 Annual Report to Stockholders (such Report, except to the
             extent incorporated herein by reference, is being furnished
             for the information of the Commission only and is not deemed
             to be filed as part of this Report on Form 10-K)



   21(i)     Subsidiaries of National Bankshares, Inc.
   23.1      Consent of Yount, Hyde & Barbour, P.C. to
             incorporation by reference of independent auditor's report
             included in this Form 10-K, into registrant's registration
             statement on Form S-8.
   23.2      Consent of KPMG LLP to incorporation by
             reference of independent auditors' report
             included in this Form 10-K, into
             registrant's registration statement on Form
             S-8.
    99       Independent Auditors' Report of KPMG LLP on
             consolidated financial statements of
             National Bankshares, Inc. and subsidiaries
             for the year ended December 31, 1999.




*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.


                                       40
<PAGE>



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

    See Item 14(a)2 above.


                                       41
<PAGE>


                                   Signatures
                                   ----------

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

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

                             DATE:  March 28, 2002
                                    -------------------------------------


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

                             DATE:  March 28, 2002
                                    -------------------------------------

  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/ L.A. Bowman                  March 13, 2002     Director
------------------------         --------------
L. A. Bowman

/s/ A. A. Crouse                 March 13, 2002     Director
------------------------         --------------
A. A. Crouse

/s/ J. A. Deskins, Sr.           March 13, 2002     Director
------------------------         --------------
J. A. Deskins, Sr.

/s/ P. A. Duncan                 March 13, 2002     Director
------------------------         --------------
P. A. Duncan

/s/ C. L. Forrester              March 13, 2002     Director
------------------------         --------------
C. L. Forrester

/s/ W. T. Peery                  March 13, 2002     Director
------------------------         --------------
W. T. Peery

/s/ J. G. Rakes                  March 13, 2002     Chairman of the Board
------------------------         --------------     President and Chief
J. G. Rakes                                         Executive Officer -
                                                    National Bankshares, Inc.

/s/ J. M. Shuler                 March 13, 2002     Director
------------------------         --------------
J. M. Shuler

/s/ J. R. Stewart                March 13, 2002     Director
------------------------         --------------
J. R. Stewart


                                       43
<PAGE>



                                Index to Exhibits
                                -----------------
                                                               Page No. in
Exhibit No.                    Description                  Sequential System
-----------                    -----------                  -----------------
   3(i)       Articles of Incorporation, as amended, of      (incorporated
              National Bankshares, Inc.                      herein by
                                                             reference to
                                                             Exhibit 3(a) of
                                                             the Annual Report
                                                             on Form 10-K for
                                                             fiscal year ended
                                                             December 31, 1993)
   4(i)       Specimen copy of certificate for National      (incorporated
              Bankshares, Inc. common stock, $2.50 par       herein by
              value                                          reference to
                                                             Exhibit 4(a) of
                                                             the Annual Report
                                                             on Form 10-K for
                                                             fiscal year ended
                                                             December 31, 1993)
   4(i)       Article Fourth of the Articles of              (incorporated
              Incorporation of National Bankshares, Inc.     herein by
              included in Exhibit No. 3(a))                  reference to
                                                             Exhibit
                                                             4(b) of the
                                                             Annual
                                                             Report on
                                                             Form 10-K
                                                             for fiscal
                                                             year ended
                                                             December
                                                             31, 1993)
 10(ii)(B)    Computer software license agreement dated      (incorporated
              June 18, 1990, by and between Information      herein by
              Technology, Inc. and The National Bank of      reference to
              Blacksburg                                     Exhibit 10(e) of
                                                             the Annual Report
                                                             on Form 10-K for
                                                             fiscal year ended
                                                             December 31, 1992)
*10(iii)(A)   Employment Agreement dated January 1, 1992,    (incorporated
              by and between National Bankshares, Inc. and   herein by
              James G. Rakes                                 reference to
                                                             Exhibit
                                                             10(a) of
                                                             the Annual
                                                             Report on
                                                             Form 10-K
                                                             for fiscal
                                                             year ended
                                                             December
                                                             31, 1992)
*10(iii)(A)   Capital Accumulation Plan (included in         (incorporated
              Exhibit No. 10(a))                             herein by
                                                             reference to
                                                             Exhibit 10(b) of
                                                             the Annual Report
                                                             on Form 10-K for
                                                             fiscal year ended
                                                             December 31, 1992)


                                       44
<PAGE>


                                                               Page No. in
Exhibit No.                    Description                  Sequential System
-----------                    -----------                  -----------------
*10(iii)(A)   Employee Lease Agreement dated May 7, 1992,    (incorporated
              by and between National Bankshares, Inc. and   herein by
              The National Bank of Blacksburg                reference to
                                                             Exhibit 10(c) of
                                                             the Annual Report
                                                             on Form 10-K for
                                                             fiscal year ended
                                                             December 31, 1992)
*10(iii)(A)   National Bankshares, Inc. 1999 Stock Option    (incorporated
              Plan                                           herein by reference
                                                             to Exhibit  4.3 of
                                                             the   Form   S-8,
                                                             filed  as
                                                             Registration   No.
                                                             333-79979 with the
                                                             Commission  on June
                                                             4, 1999)
   13(i)      2001 Annual Report to Stockholders (such Report, except to
              the extent incorporated herein by reference, is being
              furnished for the information of the Commission only and
              is not deemed to be filed as part of this Report on Form
              10-K)



   21(i)      Subsidiaries of National Bankshares, Inc.
   23.1       Consent of Yount, Hyde & Barbour, P.C. to
              incorporation by reference of independent auditor's report
              included in this Form 10-K, into registrant's registration
              statement on Form S-8.
   23.2       Consent of KPMG LLP to incorporation by
              reference of independent auditors' report
              included in this Form 10-K, into registrant's
              registration statement on Form S-8.
    99        Independent Auditor's Report of KPMG LLP on
              consolidated financial statements of National
              Bankshares, Inc. and subsidiaries for the
              year ended December 31, 1999.

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

                                       45
<PAGE>