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, 2000                                              O-15204

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

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

      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 7, 2001 was $63,550,526. (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 7, 2001
------------------------------                    ------------------------------
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, 2000, 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 March 14, 2001 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.)


<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                                                        33
Item 6.      Selected Financial Data                                         33
Item 7.      Management's Discussion and Analysis
              of Financial Condition and Results
              of Operations                                                  33
Item 7A.     Quantitative and Qualitative
              Disclosures About Market Risk                                  33
Item 8.      Financial Statements and
              Supplementary Data                                             36
Item 9.      Changes in and Disagreements with
              Accountants on Accounting and
              Financial Disclosure                                           36
Part III

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

Part IV

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

Signatures                                                                   41

Index to Exhibits                                                          42-43

                                       2
<PAGE>



                                     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). Except for a separate investment portfolio, Bankshares conducts all
of its business operations through its two wholly-owned subsidiaries, The
National Bank of Blacksburg (NBB) and Bank of Tazewell County (BTC),
collectively referred to as "the Company". There are future plans to enter the
insurance and investments sales business through a separate subsidiary.

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 twelve
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, 2000, NBB had total assets of $339,357. Total deposits at this
date were $306,827. NBB's net income for 2000 was $4,562 which produced a return
on average assets of 1.55% and a return on average stockholders' equity of
16.02%. Refer to footnote 11 of the Company's 2000 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
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.

                                       3
<PAGE>

  At December 31, 2000 BTC had total assets of $251,786. Total deposits at this
same date were $223,911. BTC's net income for 2000 was $2,721 which produced a
return on average assets of 1.32% and a return on average stockholders' equity
of 10.92%. Refer to footnote 11 of the Company's 2000 Annual Report to
Stockholders for BTC's risk-based capital ratios.

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

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

Construction Loans

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

                                       4
<PAGE>

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

Consumer Loans

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

  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. Because the demand for loans, particularly for
commercial loans, is greater in NBB's market area than in BTC's market area, NBB
regularly sells loans and participations in loans to BTC.

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

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

                                       5
<PAGE>

  The following table sets forth, for the three fiscal years ended December 31,
2000, 1999 and 1998 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, 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%
December 31, 1998            Interest and Fees on Loans           61.97%
                             Interest on Investments              25.99%

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. In late 1997 temporary
employee furloughs were announced, and a small number of these temporary layoffs
have become permanent.

  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.

  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 is often affected early in an
economic downturn.

                                       6
<PAGE>
  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 two 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 several small high tech companies to Blacksburg, and further
expansion is planned.

  Montgomery County, with an approximate population of 77,000, has experienced
moderate population growth and this trend is predicted to continue. Neighboring
Giles County is more rural, with a total population of approximately 16,500. The
population of Giles County is expected to slowly decline over the next few
years. It is not anticipated that this decline will materially impact NBB's
business in Giles County. Pulaski County has a total population of 34,000 and is
relatively stable. The City of Galax has a population of approximately 7,000,
and the neighboring, mostly rural, counties of Carroll and Grayson have a total
of approximately 50,000 inhabitants. The area's population is stable, and no
dramatic changes are predicted.

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

Bank of Tazewell County Market Area

  Most of BTC's business originates from Tazewell County, Virginia and Mercer
County, West Virginia. This includes the towns of Tazewell, Richlands and
Bluefield, Virginia and Bluefield, West Virginia. BTC also 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 begun to emerge
as a regional medical center. Unemployment has stabilized, and 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 with these other financial service providers,
NBB and BTC rely upon service-based business philosophies, personal
relationships with customers, specialized services tailored to meet customers'
needs and the convenience of office locations. In addition, the banks are
generally competitive with other financial institutions in their market areas
with respect to interest rates paid on deposit accounts, interest rates charged
on loans and other service charges on loans and deposit accounts.

Registrant's Organization and Employment

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

  At December 31, 2000, NBB employed 138 full time equivalent employees at its
main office, operations center and branch offices. BTC at December 31, 2000
employed 81 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.


                                       9
<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, was a broad rewrite of 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 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 will be able to offer a much broader array
of financial services; however, there will be 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
comply with significant data collection requirements. The regulatory agency's
assessment of the bank's record is made available to the public. Further, this
assessment is required for any bank which has applied to, among other things,
establish a new branch office that will accept deposits, relocate an existing
office, or merge, consolidate with or acquire the assets or assume the
liabilities of a federally regulated financial institution. It is likely that
banks' compliance with the CRA, as well as other so-called fair lending laws,
will face ongoing government scrutiny and that costs associated with compliance
will continue to increase.

                                       11
<PAGE>
  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
one or more of the OCC, NBB will be able to 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
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

                                       15
<PAGE>
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 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 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.

                                       16
<PAGE>
  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.

 ($ in thousands)
===============================================================================
                                                  December 31,
                                     ------------------------------------------
Assets                                  2000          1999           1998
===============================================================================
Cash and due from banks                   $11,355        12,820         10,281
Interest bearing deposits                  10,683         5,263         12,889
Federal funds sold                          6,149         2,926          6,389
Securities available for sale:
   Taxable                                 87,813        95,979         94,247
   Nontaxable                              31,302        29,286         29,284
Securities held to maturity:
   Taxable                                  9,029         8,940          9,972
   Nontaxable                              14,542        17,219         18,929
Mortgage loans held for sale                  519           709          1,017
Loans, net                                310,624       266,431        225,613
Other assets                               18,365        14,616         12,367
                                     ------------------------------------------
     Total assets                        $500,381       454,189        420,988
===============================================================================
-------------------------------------------------------------------------------

Liabilities and Stockholders' Equity
===============================================================================
-------------------------------------------------------------------------------
Noninterest-bearing demand
 Deposits                                 $56,709        55,700         49,552
Interest-bearing demand deposits           85,713        85,284         77,842
Savings deposits                           43,138        46,792         47,475
Time deposits                             248,113       203,807        185,101
                                     ------------------------------------------
     Total deposits                       433,673       391,583        359,970
Short-term borrowings                       1,727         4,228            216
Long-term borrowings                        7,284           ---            ---
                                     ------------------------------------------
Other liabilities                           2,015         2,182          2,520
                                     ------------------------------------------
   Total liabilities                      444,699       397,993        362,706
Stockholders' equity                       55,682        56,196         58,282
                                     ------------------------------------------
   Total liabilities and
    Stockholders' equity                 $500,381       454,189        420,988
===============================================================================


                                       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, 2000                        December 31, 1999                     December 31, 1998
                     ---------------------------------------------------------------------------------------------------------------
                                              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)  $314,685      28,454      9.04%        267,140      24,244         9.08%       226,630      21,726      9.59%
Taxable securities      96,842       6,760      6.98%        104,919       6,820         6.50%       104,219       7,201      6.91%
Nontaxable
 Securities (1)         45,844       3,420      7.46%         46,505       3,414         7.34%        48,213       2,899      6.01%
Federal funds sold       6,149         338      5.50%          2,926         170         5.81%         6,389         345      5.40%
Interest bearing
 Deposits               10,683         689      6.45%          5,263         269         5.11%        12,889         696      5.40%
                     ---------------------------------------------------------------------------------------------------------------
Total interest-
 Earning assets        474,203      39,661      8.36%        426,753      34,917         8.18%       398,340      32,867      8.25%
                     ===============================================================================================================
Interest-bearing
 Liabilities:
Interest-bearing
 Demand deposits       $85,713       2,243      2.62%         85,284       2,129         2.50%        77,842       2,203      2.83%
Savings deposits        43,138       1,135      2.63%         46,792       1,212         2.59%        47,475       1,511      3.18%
Time deposits          248,113      14,157      5.71%        203,807      10,630         5.22%       185,101      10,203      5.51%
Short-term
 Borrowings              1,727         118      6.83%          4,228         232         5.49%           216          11      5.09%
Long-term debt           7,284         510      7.00%            ---         ---           ---           ---         ---        ---
                     ---------------------------------------------------------------------------------------------------------------
Total interest-
 Bearing liabilities  $385,975      18,163      4.71%        340,111      14,203         4.18%       310,634      13,928      4.48%
                     ===============================================================================================================
Net interest income
 and interest rate
 spread                             21,498      3.65%                     20,714         4.00%                    18,939      3.77%
                     ===============================================================================================================
Net yield on average
 Interest-earning
 Assets                                         4.53%                                    4.85%                                4.75%
                     ===============================================================================================================
</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 $381 in 2000,  $680 in 1999 and $414 in 1998 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>
                               ==============================================================================================
                                               2000 Over 1999                                 1999 Over 1998
                               ----------------------------------------------------------------------------------------------
                                       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                           $  (89)         4,299            4,210          (1,206)         3,724           2,518
  Taxable securities                 485           (545)             (60)           (429)            48            (381)
  Nontaxable securities               55            (49)               6             621           (106)            515
  Federal funds sold                 (10)           178              168              24           (199)           (175)
  Interest bearing deposits           85            335              420             (35)          (392)           (427)
-------------------------------------------------------------------------------------------------------------------------
Increase(decrease) in
 income on interest-
 earning assets                      526          4,218            4,744          (1,025)         3,075           2,050
-------------------------------------------------------------------------------------------------------------------------
Interest expense:
  Interest-bearing demand
   deposits                       $  103             11              114            (273)           199             (74)
  Savings deposits                    19            (96)             (77)           (278)           (21)           (299)
  Time deposits                    1,065          2,462            3,527            (568)           995             427
  Short-term borrowings               47           (161)            (114)              1            220             221
  Long-Term Borrowings               ---            510              510             ---            ---             ---
-------------------------------------------------------------------------------------------------------------------------
Increase(decrease) in
 expense of interest-
 bearing liabilities              $1,234          2,726            3,960          (1,118)         1,393             275
-------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
 interest income                  $ (708)         1,492              784              93          1,682           1,775
=========================================================================================================================

</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, 2000, 1999 and 1998 were as follows:

<TABLE>

<CAPTION>
                                              ==============================================================================
                                                                              December 31,
                                              ------------------------------------------------------------------------------
                                              ------------------------------------------------------------------------------
                                                         2000                      1999                     1998
                                              ------------------------------------------------------------------------------
                                                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                                   $  6,246       6,331         6,244      6,164         9,253       9,671
 U.S. Government agencies and
  corporations                                     54,815      54,034        50,373     47,498        59,365      59,595
 States and political subdivisions                 35,456      35,606        32,903     31,617        32,183      32,865
 Mortgage-backed securities (1)                    11,818      11,776        13,464     13,176        17,282      17,200
 Corporate debt securities                         14,341      14,058        14,349     13,646        14,528      14,824
 Federal Home Loan Bank stock                       1,329       1,329         1,329      1,329         1,214       1,214
 Federal Reserve Bank stock                           209         209           247        247           247         247
 Other securities                                     442         442           168        168           462         462
                                              ---------------------------------------------------------------------------
    Total securities available for sale          $124,656     123,785       119,077    113,845       134,534     136,078
=========================================================================================================================
</TABLE>

                The amortized costs of securities held to maturity as of
                December 31, 2000, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>

                                                             =========================================================
                                                                                   December 31,
                                                             ---------------------------------------------------------
                                                             ---------------------------------------------------------
($ in thousands)                                                    2000               1999               1998
======================================================================================================================
<S>                                                                 <C>                <C>                <C>

Held to maturity:
 U.S. Treasury                                                   $    ---                500              1,006
 U.S. Government agencies and corporations                          8,500              5,500              7,497
 States and political subdivisions                                 17,288             17,283             21,160
 Mortgage-backed securities (1)                                       288                364                513
 Corporate                                                          6,483                ---                500
                                                             ---------------------------------------------------------
    Total securities held to maturity                            $ 32,559             23,647             30,676
======================================================================================================================
</TABLE>
(1)  The majority of  mortgage-backed  securities  and  collateralized  mortgage
     obligations held at December 31, 2000 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, 2000 and
         weighted average yield for each range of maturities.

<TABLE>
<CAPTION>
                                         =======================================================================================
                                                                         Maturities and Yields
                                                                           December 31, 2000
                                         ---------------------------------------------------------------------------------------
($ 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                         $   ---         5,312          1,018            ---          ---          6,330
------------------
U.S. Treasury                                  ---          6.02%          5.66%           ---          ---           5.96%
----------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies                       ---        14,496         24,199         15,338          ---         54,033
                                               ---          6.56%          6.76%          6.67%         ---           6.68%
----------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities                     ---           ---          2,155          9,621          ---         11,776
                                               ---           ---           6.32%          7.39%         ---           7.20%
----------------------------------------------------------------------------------------------------------------------------
States and Political                           ---         1,150            510          1,309          ---          2,969
 Subdivision - taxable                         ---          7.06%          7.40%          7.80%         ---           7.44%
----------------------------------------------------------------------------------------------------------------------------
States and Political Subdivision               211         7,175         10,745         14,507          ---         32,638
 - nontaxable(1)                              7.59%         6.89%          6.75%          6.60%         ---           6.72%
----------------------------------------------------------------------------------------------------------------------------
Corporate                                      987         3,498          4,440          5,133          ---         14,058
                                              5.57%         6.98%          6.64%          6.85%         ---           6.73%
----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank stock                   ---           ---            ---            ---        1,329          1,329
                                               ---           ---            ---            ---         7.75           7.75%
----------------------------------------------------------------------------------------------------------------------------
Federal Reserve Bank stock                     ---           ---            ---            ---          209            209
                                               ---           ---            ---            ---         6.00           6.00%
----------------------------------------------------------------------------------------------------------------------------
Other securities                                 3           ---            ---            ---          440            443
                                              6.51%          ---            ---            ---         7.75%          7.74%
----------------------------------------------------------------------------------------------------------------------------
Total                                        1,201        31,631         43,067         45,908        1,978        123,785
                                              5.93%         6.61%          6.71%          6.85%        7.57%          6.74%
----------------------------------------------------------------------------------------------------------------------------
Held to Maturity                               ---           ---            ---            ---          ---            ---
----------------
U.S. Treasury                                  ---           ---            ---            ---          ---            ---
----------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies                     2,500         5,000          1,000            ---          ---          8,500
                                              6.01%         5.37%          7.38%           ---          ---           5.79%
----------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities                     ---            35             61            192          ---            288
                                               ---          7.79%          7.84%          7.88%         ---           7.86%
----------------------------------------------------------------------------------------------------------------------------
States and Political                           205         1,224            ---            200          ---          1,629
 Subdivision - taxable                        6.65%         7.03%           ---           9.00%         ---           7.23%
----------------------------------------------------------------------------------------------------------------------------
States and Political                         4,009         7,737          2,194          1,720          ---         15,660
 Subdivision - nontaxable                     6.76%         7.00%          7.00%          6.91%         ---           6.93%
----------------------------------------------------------------------------------------------------------------------------
Corporate                                    3,746         2,736            ---            ---          ---          6,482
                                              7.01%         7.04%           ---            ---          ---           7.02%
----------------------------------------------------------------------------------------------------------------------------
Other securities                               ---           ---            ---            ---          ---            ---
                                               ---           ---            ---            ---          ---            ---
----------------------------------------------------------------------------------------------------------------------------
Total                                      $10,460        16,732          3,255          2,112          ---         32,559
                                              6.67%         6.52%          7.13%          7.20%         ---           6.67%
============================================================================================================================
</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, 2000.

        A.     Types of Loans

                           =====================================================
                                                December 31,
                           -----------------------------------------------------
($ in thousands)             2000        1999       1998       1997     1996
================================================================================
Commercial and industrial

 loans                      $163,929    149,386    110,509    101,379    87,519

Real estate mortgage

 loans                        71,163     58,829     48,724     42,969    43,917

Real estate construction

 loans                        16,726     14,669     12,827      8,510     6,295

Loans to individuals         110,176     73,825     69,493     66,635    60,991
                           -----------------------------------------------------
 Total loans                 361,994    296,709    241,553    219,493   198,722

Less unearned income and

 deferred fees                (2,313)    (1,916)    (2,296)    (2,503)   (2,549)
                           -----------------------------------------------------
 Total loans, net of

  unearned income            359,681    294,793    239,257    216,990   196,173

Less allowance for loans

 losses                       (3,886)    (3,231)    (2,679)    (2,438)   (2,575)
                           -----------------------------------------------------
 Total loans, net           $355,795    291,562    236,578    214,552   193,598
================================================================================

        B.     Maturities and Interest Rate Sensitivities

                          ======================================================
                                             December 31, 2000
                          ------------ --------------- ------------ ------------
                                                         After
($ in thousands)             <1 Year       1-5 Years      5 Years      Total
========================= ============ =============== ============ ============
Commercial and
 industrial                   $47,264          66,183       50,482      163,929
Real estate
 construction                  16,726             ---          ---       16,726
Less loans with
 predetermined interest        23,208          38,144       50,007      111,359
 rates
                          ------------ --------------- ------------ ------------
Loans with adjustable
 rates                        $40,782          28,039          475       69,296
========================= ============ =============== ============ ============


                                       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.

                                         =======================================
                                                       December 31,
                                         ---------------------------------------
($ in thousands)                           2000     1999    1998   1997     1996
--------------------------------------------------------------------------------
Nonaccrual loans:
  Commercial and industrial              $   65       65    ---       55     121
  Real estate mortgage                        5       33     28       32     495
  Real estate construction                  ---      ---    ---      ---     ---
  Loans to individuals                       18       53    ---      ---     ---
--------------------------------------------------------------------------------
                                         $   88      151     28       87     616
--------------------------------------------------------------------------------
Restructured loans:
  Commercial and industrial                 ---       40    ---      ---     ---
--------------------------------------------------------------------------------
Total nonperforming loans                            191     28       87     616
Other real estate owned, net                540      447    628      421     474
--------------------------------------------------------------------------------
Total nonperforming assets                  628      638    656      508   1,090
                                         =======================================
--------------------------------------------------------------------------------
Accruing loans past due 90 days or more:
  Commercial and industrial
  Real estate mortgage                   $  242       99    186       82      14
  Real estate construction                  664      704    160      358     252
  Loans to individuals                      ---      ---    ---      ---     ---
                                            415      274    204      232     192
--------------------------------------------------------------------------------
                                         $1,321    1,077    550      672     458
================================================================================

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

                                      =======================================
($ in thousands)                             2000        1999         1998
=============================================================================
Scheduled interest:
  Nonaccrual loans                            $11          13            4
  Restructured loans                          ---         ---          ---
                                      ---------------------------------------
     Total scheduled interest                 $11          13            4
                                      ---------------------------------------
Recorded interest:
  Nonaccrual loans                            ---         ---          ---
  Restructured loans                          ---         ---          ---
                                      ---------------------------------------
     Total recorded interest                  ---         ---          ---
=============================================================================

                    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, 2000, the recorded investment in loans which
                    have been identified as impaired loans totaled $456. Of this
                    amount,  $321 related to loans with no  valuation  allowance
                    and $135  related  to loans with a  corresponding  valuation
                    allowance of $135. For the year-ended December 31, 2000, the
                    average   recorded   investment   in   impaired   loans  was
                    approximately  $657 and the total interest income recognized
                    on impaired  loans was $43 of $0 which was  recognized  on a
                    cash basis.

                    At December 31, 1999, the recorded investment in loans which
                    have been identified as impaired loans totaled $317,000.  Of
                    this  amount,  $95,000  related to loans  with no  valuation
                    allowance and $222,000 related to loans with a corresponding
                    valuation allowance of $154,000. For the year ended December
                    31, 1999, the average recorded  investment in impaired loans
                    was  approximately  $292,000,  and the total interest income
                    recognized  on  impaired  loans was  $13,000 of which $0 was
                    recognized on a cash basis.

               3.   Foreign Outstandings

                    At December 31, 2000,  1999 and 1998,  there were no foreign
                    outstandings.

               4.   Loan Concentrations

                    The Company  does a general  banking  business,  serving the
                    commercial,  agricultural  and personal banking needs of its
                    customers. NBB's trade territory, consists of Montgomery and
                    Giles Counties, and the City of Galax, Virginia and portions
                    of adjacent  counties.  NBB's operating  results are closely
                    correlated  with the economic  trends within this area which
                    are,  in  turn,  influenced  by  the  area's  three  largest
                    employers,   Virginia   Polytechnic   Institute   and  State
                    University,  Montgomery  County  Schools  and  Celco.  Other
                    industries  include a wide variety of manufacturing,  retail
                    and service concerns. Most of BTC's business originates from
                    the   communities   of  Tazewell  and  Bluefield  and  other
                    communities  in  Tazewell  County,  Virginia  and in  Mercer
                    County,  West  Virginia.  BTC's  service  area  has  largely
                    depended  on the coal  mining  industry  and farming for its
                    economic   base.  In  recent  years,   coal  companies  have
                    mechanized and reduced the number of persons  engaged in the
                    production  of coal.  There are  still a number  of  support
                    industries  for the coal mining  business  that  continue to
                    provide  employment in the area.  Additionally,  several new
                    businesses have been  established in the area and Bluefield,
                    West  Virginia  has begun to emerge  as a  regional  medical

                                       25
<PAGE>
                    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, 2000 and 1999,  approximately  $151 million
                    and $130 million,  respectively,  of the loan portfolio were
                    concentrated  in  commercial  real estate.  This  represents
                    approximately  42% and 44% of the loan portfolio at December
                    31, 2000 and 1999, respectively. Included in commercial real
                    estate at December 31, 2000 and 1999 was  approximately  $84
                    million and $85 million,  respectively, in loans for college
                    housing and professional office buildings.  Loans secured by
                    residential real estate were  approximately $110 million and
                    $74  million at December  31,  2000 and 1999,  respectively.
                    This  represents  approximately  31%  and  25% of  the  loan
                    portfolio at December 31, 2000 and 1999, respectively. Loans
                    secured by automobiles  were  approximately  $36 million and
                    $33  million at December  31,  2000 and 1999,  respectively.
                    This represents  approximately  10% of the loan portfolio at
                    December 31, 2000 and 11% at December 31, 1999.

                    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)                                          2000           1999            1998           1997           1996
==============================================================================================================================
<S>                                                     <C>              <C>            <C>            <C>            <C>

Average loans outstanding                               $310,624         266,431        225,613        204,540        177,419
                                                  ============================================================================
------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year                               3,231           2,679          2,438          2,575          2,625

Charge-offs:
 Commercial and industrial loans                              55             185             32            257             95
 Real estate mortgage loans                                  ---              33             80            ---             11
 Real estate construction loans                              ---             ---            ---            ---            ---
 Loans to individuals                                        715             760            526            422            400
                                                  ----------------------------------------------------------------------------
 Total loans charged off                                     770             978            638            679            506
                                                  ----------------------------------------------------------------------------
Recoveries:
 Commercial and industrial loans                               3              51            ---             70              4
 Real estate mortgage loans                                  ---               1              2            ---             64
 Real estate construction loans                              ---             ---            190            ---            ---
 Loans to individuals                                         93              78             63             37             57
                                                  ----------------------------------------------------------------------------
 Total recoveries                                             96             130            255            107            125
                                                  ----------------------------------------------------------------------------
Net loans charged off                                        674             848            383            572            381
                                                  ----------------------------------------------------------------------------
Additions charged to operations                            1,329           1,400            624            435            331
                                                  ----------------------------------------------------------------------------
Balance at end of year                                  $  3,886           3,231          2,679          2,438          2,575
                                                  ============================================================================
------------------------------------------------------------------------------------------------------------------------------
Net charge-offs to average net loans
 Outstanding                                               0.21%           0.32%          0.17%          0.28%          0.21%
==============================================================================================================================

</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,
             -----------------------------------------------------------------------------------------------------------------------
                      2000                     1999                     1998                      1997                   1996
             -----------------------------------------------------------------------------------------------------------------------
                           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          $  255     45.29%         555      50.35%          222       45.75%        213       46.18%       403       44.04%
------------------------------------------------------------------------------------------------------------------------------------
Real estate
 mortgage
 loans             120     19.66%         119      19.83%           73       20.17%         67       19.58%       305       22.10%
------------------------------------------------------------------------------------------------------------------------------------
Real estate
 construction
 loans             ---      4.62%         ---       4.94%          ---        5.31%        ---        3.88%        51        3.17%
------------------------------------------------------------------------------------------------------------------------------------
Loans to
 individuals     1,709     30.43%         978      24.88%          497       28.77%        416       30.36%       504       30.69%
------------------------------------------------------------------------------------------------------------------------------------
Unallocated      1,802                  1,579                    1,887                   1,742                  1,312
------------------------------------------------------------------------------------------------------------------------------------
                $3,886    100.00%       3,231     100.00%        2,679      100.00%      2,438      100.00%     2,575      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 and other
documentation.  In  addition,  an estimate  is made for losses  inherent to this
portfolio.

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

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

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

                                       29
<PAGE>


V.      Deposits

        A.     Average Amounts of Deposits and Average Rates Paid

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

                      ==========================================================
                                               December 31,
                      ----------------------------------------------------------
                            2000                 1999                  1998
                      ----------------------------------------------------------
                                 Average            Average             Average
                       Average    Rates    Average   Rates    Average    Rates
 ($ in thousands)      Amounts     Paid    Amounts    Paid    Amounts     Paid
--------------------------------------------------------------------------------
Noninterest-bearing
 demand deposits       $ 56,709     ---     55,700     ---     49,552      ---

Interest-bearing
 demand deposits         85,713    2.62%    85,284    2.50%    77,842     2.83%

Savings deposits         43,138    2.63%    46,792    2.59%    47,475     3.18%

Time deposits           248,113    5.71%   203,807    5.22%   185,101     5.51%

--------------------------------------------------------------------------------
Average total
 deposits              $433,673    4.64%   391,583    4.16%   359,970     4.48%
================================================================================


        B.     Time Deposits of $100,000 or More

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

                     ===========================================================
                                            December 31, 2000
                     ===========================================================
                                 Over 3 Months  Over 6 Months
                      3 Months     Through 6     Through 12    Over 12
($ in thousands)       or Less      Months         Months      Months     Total
================================================================================
Certificates of
 deposit              $68,699        45,294        101,249     111,424   326,666
--------------------------------------------------------------------------------
Other time deposits    48,526        35,941         78,595      91,297   254,359
--------------------------------------------------------------------------------
  Total time
   deposits of
   $100,000 or more   $20,173         9,353         22,654      20,127    72,307
================================================================================

                                       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,
                                      ----------------------------------------
                                            2000         1999          1998
==============================================================================
Return on average assets                     1.46%         1.56%        1.61%
------------------------------------------------------------------------------
Return on average equity(1)                 13.13%        12.61%       11.66%
------------------------------------------------------------------------------
Dividend payout ratio                       40.87%        39.70%       41.29%
------------------------------------------------------------------------------
Average equity to average assets(1)         11.13%        12.37%       13.84%
==============================================================================

        (1)    Includes amount related to common stock subject to ESOP put
               option excluded from stockholders' equity on the Consolidated
               Balance Sheets 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: three in the
Town of Blacksburg; one in the Town of Christiansburg; one in Montgomery County;
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 eight of its ten
offices. The bank leases the land and building for two offices. The Main Office
is located at Main Street, Tazewell, Virginia. Three additional branches are
located in Tazewell, one is located in Richlands, two are located in Bluefield,
Virginia, one is in Wytheville, Virginia, one in Marion, Virginia, and one in
Abingdon, Virginia. Management believes that its existing facilities are
adequate to meet present needs and any anticipated growth.

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

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

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

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

  None

                                       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.

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     56   Chairman, President and Chief Executive       1986
                        Officer, National Bankshares, Inc.; and
                        President and Chief Executive Officer of
                        The National Bank of Blacksburg since
                        1983.
--------------------------------------------------------------------------------
J. Robert Buchanan 49   Treasurer, National Bankshares, Inc.;         1998
                        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 since 1991.
--------------------------------------------------------------------------------
Marilyn B. Buhyoff 52   Secretary & Counsel, National                 1989
                        Bankshares, Inc.; and Senior Vice
                        President/ Administration since 1992,
                        of The National Bank of Blacksburg.
--------------------------------------------------------------------------------
F. Brad Denardo    48   Corporate Officer, National Bankshares,       1989
                        Inc.; and Executive Vice President/
                        Loans since 1989 of The National Bank of
                        Blacksburg.
================================================================================

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

                                       32
<PAGE>


                                     Part II


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

  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, 2000 there were 1,076 stockholders of Bankshares
common stock. The following is a summary of the market price per share and cash
dividend per share of the common stock of National Bankshares, Inc. for 2000 and
1999. 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.

  Information concerning Market Price and Dividend Data is set forth under
"Common Stock Information and Dividends" on page 11 of Bankshares' 2000 Annual
Report to Stockholders and is incorporated herein by reference.


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

  The table entitled "Selected Consolidated Financial Data" on page 4 of
Bankshares' 2000 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' 2000 Annual Report to Stockholders is
incorporated herein by reference.


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

  See "Analysis of Interest Rate Sensitivity" set forth below. Additional
information is set forth under the section "Interest Rate Sensitivity" on page 6
and the section "Derivatives and Market Risk Exposure" on page 10 of Bankshares'
2000 Annual Report to Stockholders and is incorporated herein by reference.

                                       33
<PAGE>


Analysis of Interest Rate Sensitivity

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

The table below sets forth, as of December 31, 2000, the distribution of
repricing opportunities of the Company's interest-earning assets and
interest-bearing liabilities, the interest rate sensitivity gap (i.e., interest
rate sensitive assets less interest rate sensitive liabilities), and the
cumulative interest rate sensitivity gap ratio. The table sets forth the time
periods during which interest-earning assets and interest-bearing liabilities
will mature or may reprice in accordance with their contracted terms.

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

An interest rate sensitivity gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would generally tend to
affect adversely net interest income while a positive gap would generally tend
to result in an increase in net interest income. During a period of declining
interest rates, a negative gap would generally tend to result in increased net
interest income, while a positive gap would generally tend to affect adversely
net interest income. The Company's future earnings may be adversely affected by
a sharp upturn in interest rates as the Company is liability sensitive for a
period extending through five years. In a falling rate environment, earnings
might benefit to a certain degree from this position, because assets at higher
rate levels would reprice downward at a slower rate than interest sensitive
liabilities.

In prior years, the Company has used its securities available for sale as a
primary means to counter movements in interest rates. At December 31, 2000, this
portfolio contained a substantial amount of longer term securities with call
features. Due to overall increases in interest rate levels these securities have
not been called as originally anticipated. The rising interest rate levels also
resulted in a substantial increase in net unrealized losses making the sale of
these securities impractical. At present and for an indeterminate amount of time
in the future, the Company will not be able to use the securities available for
sale portfolio to respond to interest rate movements to the extent possible in
recent years. This risk can be mitigated, however, by funds management,
specifically through use of credit instruments offered by the Federal Home Loan
Bank. Accordingly, the Company's vulnerability to upward movements of interest
rates has increased.

                                       34
<PAGE>


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

<TABLE>

<CAPTION>

                                                 ===================================================================================
                         Interest Rate                                            December 31, 2000
                                                 -----------------------------------------------------------------------------------
                     Sensitivity Table (1)               Interest-sensitive (days)


                                                 -------------------------------------------     1-5            >5
 ($ in thousands)                                    1-90          91-180        181-365        Years         Years       Total
====================================================================================================================================
<S>                                                  <C>           <C>           <C>            <C>           <C>         <C>
Interest-earning assets:
 Commercial and industrial loans                   $ 23,206          5,191         8,542        74,384        52,541       163,864
 Real estate mortgage loans                          11,486          1,399         3,128        37,519        17,329        70,861
 Real estate construction loans                      13,534            106         1,566           622           883        16,711
 Loans to individuals                                22,390          6,262        11,095        51,325        17,085       108,157
                                                 -----------------------------------------------------------------------------------
   Total loans, net of unearned income (2)           70,616         12,958        24,331       163,850        87,838       359,593
                                                 -----------------------------------------------------------------------------------
 Federal funds sold                                  29,090            ---           ---           ---           ---        29,090
 Interest bearing deposits                           13,579            ---           ---           ---           ---        13,579
 Securities available for sale (3)                    9,475          1,958        11,202        42,128        59,892       124,655
 Securities held to maturity (3)                      6,141          1,348         4,767        17,149         3,154        32,559
 Mortgage loans held for sale                           ---            ---           ---           ---           ---           ---
                                                 -----------------------------------------------------------------------------------
   Total interest-earning assets                    128,910         16,264        40,300       223,127       150,884       559,486
====================================================================================================================================

====================================================================================================================================
Interest-bearing liabilities:
 Interest-bearing demand deposits                   101,257            ---           ---           ---           ---       101,257
 Savings deposits                                    42,560            ---           ---           ---           ---        42,560
 Time deposits                                       67,577         45,294       101,250       111,833           712       326,666
 Other borrowings                                       270            ---           ---           ---           ---           270
                                                 -----------------------------------------------------------------------------------
   Total interest-bearing liabilities               211,664         45,294       101,250       111,833           712       470,753
-------------------------------------------------===================================================================================
Cumulative ratio of interest-
 sensitive assets to interest-
 sensitive liabilities                                  .61            .56           .52           .87          1.19          1.19
-------------------------------------------------===================================================================================
Cumulative interest-sensitivity gap                $(82,762)      (111,792)     (172,742)      (61,448)       88,724        88,724
====================================================================================================================================

</TABLE>

(1)  The Company is sensitive to interest rate changes, as liabilities generally
     reprice  or  mature  before  interest-earning  assets.  The above gap table
     reflects the Company's rate-sensitive position at December 31, 2000, and is
     not  necessarily  reflective  of its  position  throughout  the  year.  The
     carrying  amounts of  interest-rate  sensitive  assets and  liabilities are
     presented  in the periods in which they  reprice to market  rates or mature
     and are summed to show the interest-rate sensitivity gap.
(2)  Excludes  nonaccrual  loans.  Each category is shown net of unearned income
     and deferred fees.
(3)  Call features on certain securities, if exercised, could have the effect of
     materially  shortening  the average life of the investment  portfolio.  The
     exercise of a call feature is dependent upon the rate environment. The call
     decision is at the issuers discretion and ultimate benefit.
(4)  Available for sale securities and scheduled using amortized cost.

                                       35
<PAGE>


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

  The following consolidated financial statements of the Registrant and the
Independent Auditors' Report set forth on pages 12 through 35 of Bankshares'
2000 Annual Report to Stockholders are incorporated herein by reference:

     1.   Independent Auditors' Report

     2.   Consolidated Balance Sheets - December 31, 2000 and 1999

     3.   Consolidated  Statements  of Income and  Comprehensive  Income - Years
          ended December 31, 2000, 1999 and 1998

     4.   Consolidated  Statements  of Changes in  Stockholders'  Equity - Years
          ended December 31, 2000, 1999 and 1998

     5.   Consolidated Statements of Cash Flows - Years ended December 31, 2000,
          1999 and 1998

     6.   Notes to Consolidated  Financial  Statements - December 31, 2000, 1999
          and 1998

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

  Changes in and disagreement with Accountants on Accounting and Financial
Disclosure is set out under the caption "Change in Selection of Auditors" on
page 13 of Bankshares's Proxy Statement dated March 14, 2001 which information
is incorporated herein.

                                    Part III

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

  Executive Officers of Bankshares as of December 31, 2000 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, 2001 which information is incorporated herein by
reference.

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

  The information set forth under "Executive Compensation" on pages 5 through 6
of Bankshares' Proxy Statement dated March 14, 2001 is incorporated herein by
reference.


                                       36
<PAGE>


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, 2001 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, 2001 is
incorporated herein by reference.

                                     Part IV

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

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

                                                           2000 Annual Report
                                                        To Stockholders Page(s)*
                                                        ------------------------
        1.     Financial Statements:
               --------------------

               Independent Auditors' Report                       12
               Consolidated Balance Sheets -                      13
                 December 31, 2000 and 1999

               Consolidated Statements of                         14
                 Income and Comprehensive
                 Income - Years ended December
                 31, 2000, 1999 and 1998

               Consolidated Statements of Changes                 15
                 in Stockholders' Equity - Years
                 ended December 31, 2000, 1999 and
                 1998

               Consolidated Statements of Cash                    16
                 Flows - Years ended December 31,
                 2000, 1999 and 1998

               Notes to Consolidated                             17-35
                 Financial Statements - December
                 31, 2000, 1999 and 1998

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

               None

*Incorporated by reference from the indicated pages of the 2000 Annual Report to
Stockholders.

                                       37
<PAGE>


        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 10K 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 10K 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 10K 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 10K 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 10K 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 10K for
                                                            Fiscal year ended
                                                            December 31, 1992)
*10(iii)(A)   Employee Lease Agreement dated May 7, 1992,   (incorporated
              by and between National Bankshares, Inc. and  herein by

                                       38
<PAGE>
              The National Bank of Blacksburg               reference to
                                                            Exhibit 10(c) of
                                                            the Annual Report on
                                                            Form 10K for
                                                            Fiscal year ended
                                                            December 31, 1992)
*10(iii)(A)   National Bankshares, Inc. 1999 Stock Option   (incorporated herein
              Plan                                          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)       2000 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         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
              as of December 31, 1999 and for the years
              ended December 31, 1999 and 1998.







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


                                       39
<PAGE>


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

     1.   Form 8-K  dated  November  9, 2000  annoucing  the  acquistion  of six
          AmSouth of Birmingham, Alabama branches.
     2.   Form 8 K/A dated  November 9, 2000 provides  financial  statements for
          the Acquisition of six AmSouth of Birmingham branches.

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

     See Item 14(a)3 above.

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

     See Item 14(a)2 above.



                                       40
<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 14, 2001
                                    -------------------------------------


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

                             DATE:  March 14, 2001
                                    -------------------------------------

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

Name                             Date                  Title
----                             ----                  -----
/s/C. L. Boatwright              March 14, 2001        Director and Vice
------------------------         --------------        Chairman of the Board
C. L. Boatwright

/s/L.A. Bowman                   March 14, 2001        Director
-----------------------          --------------
L. A. Bowman

/s/A. A. Crouse                  March 14, 2001        Director
-----------------------          --------------
A. A. Crouse

/s/J. A. Deskins, Sr.            March 14, 2001        Director
-----------------------          --------------
J. A. Deskins, Sr.

                                                       Director
-----------------------          --------------
P. A. Duncan

/s/C. L. Forrester               March 14, 2001        Director
-----------------------          --------------
C. L. Forrester

/s/W. T. Peery                   March 14, 2001        Director
-----------------------          --------------
W. T. Peery

/s/J. G. Rakes                   March 14, 2001        Chairman of the Board
-----------------------          --------------        President and Chief
J. G. Rakes                                            Executive Officer -
                                                       National Bankshares,
                                                       Inc., Director
/s/J. R. Stewart                 March 14, 2001
-----------------------          --------------
J. R. Stewart

                                       41
<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 10K for
                                                            fiscal year ended
                                                            December 31, 1993)
   4(i)      Specimen copy of certificate for National      (incorporated
             Bankshares, Inc. common stock, $2.50 par value herein by
                                                            reference to
                                                            Exhibit 4(a) of
                                                            the Annual Report
                                                            on Form 10K for
                                                            fiscal year ended
                                                            December 31, 1993)
   4(i)      Article Fourth of the Articles 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 10K
                                                            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 10K 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 10K
                                                            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 10K for
                                                            fiscal year ended
                                                            December 31, 1992)

                                       42
<PAGE>
*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 10K for
                                                            fiscal year ended
                                                            December 31, 1992)
*10(iii)(A)  National Bankshares, Inc. 1999 Stock Option    (incorporated herein
             Plan                                           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)     2000 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       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 as of
             December 31, 1999, and for the years ended
             1999 and 1998

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

                                       43