10-K

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:
December 31, 2008

Commission File Number: 0-14773

National Bancshares Corporation
(Exact name of registrant as specified in its charter)

Ohio                             	34-1518564
(State or other jurisdiction		(IRS Employer
of incorporation or organization)	Identification No.)

112 West Market Street, Orrville, Ohio  44667
(330) 682-1010
(Address, including zip code, and telephone number,
including area code, of registrant`s principal executive offices)

Securities registered pursuant to section 12(b) of the Act:
none

Securities registered pursuant to section 12(g) of the Act:
common stock, without par value

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities act.
Yes [ ]  No [X]

Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes [ ]  No [X]

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by sections 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 (section 229.405 of this chapter) 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.
[ ]

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a smaller reporting company.
See definition of `large accelerated filer, accelerated filed and smaller
reporting company` in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]       Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]  No [X]

State the aggregate market value of the voting common equity held by
non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant`s most recently
completed second fiscal quarter: based on the average of the bid and
asked prices on June 30, 2008, the aggregate market value of
National Bancshares Corporation stock held by non-affiliates was
$27,578,991. Indicate the number of shares outstanding of each of
the registrant`s classes of common stock as of the latest practicable
date:
National Bancshares Corporation`s only class is common stock, without
par value, of which 2,202,368 shares were outstanding on March 13, 2009.

Documents Incorporated by Reference

	Portions of the registrant`s annual report to shareholders for
the fiscal year ended December 31, 2008 are incorporated by reference
in Part II.  Portions of the registrant`s definitive proxy statements
for the 2009 Annual Meeting of Shareholders are incorporated by reference
in Part III of this report.



Table of Contents
Part I						Page
Item 1		Business			2
Item 1B		Unresolved Staff Comments	15
Item 2		Properties			16
Item 3		Legal Proceedings		17
Item 4		Submission of Matters to a
		Vote of Security Holders	17
Part II
Item 5		Market for Registrant`s
		Common Equity, Related
		Stockholder Matters and
		Issuer Purchases of Equity
		Securities			19
Item 6		Selected Financial Data		19
Item 7		Management`s Discussion
		and Analysis of Financial
		Condition and Results of
		Operations			19
Item 7A		Quantitative and Qualitative
		Disclosures About Market Risk	19
Item 8		Financial Statements and
		Supplementary Data		19
Item 9		Changes in and Disagreements
		with Accountants on Accounting
		and Financial Disclosure	19
Item 9A		Controls and Procedures		19
Item 9B		Other Information		20
Part III
Item 10		Directors, Executive Officers
		and Corporate Governance	21
Item 11		Executive Compensation		22
Item 12		Security Ownership of Certain
		Beneficial Owners and
		Management and Related
		Stockholder Matters		22
Item 13		Certain Relationships and
		Related Transactions, and
		Director Independence		22
Item 14		Principal Accountant Fees
		and Services			22
Part IV
Item 15		Exhibits and Financial
		Statement Schedules		23
Signatures					25



ITEM 1  BUSINESS

	Forward-looking Statements.  This document contains forward-looking
statements `as that term is defined in the Private Securities Litigation
Reform Act of 1995` about National Bancshares Corporation (`National
Bancshares`) and its subsidiary First National Bank. Information incorporated
in this document by reference, future filings by National Bancshares on Form
10-Q and Form 8-K, and future oral and written statements by National
Bancshares and its management may also contain forward-looking statements.
Forward-looking statements include statements about anticipated operating
and financial performance, such as loan originations, operating efficiencies,
loan sales, charge-offs and loan loss provisions, growth opportunities,
interest rates and deposit growth. Words such as `may,``could,``should,`
`would,``believe,``anticipate,``estimate,``expect,``intend,``project,``plan,`
and similar expressions are intended to identify these forward-looking
statements.

	Forward-looking statements are necessarily subject to many risks and
uncertainties. A number of things could cause actual results to differ
materially from those indicated by the forward-looking statements. These
include the factors we discuss immediately below, those addressed under
the caption `Financial Review,` other factors discussed elsewhere in
this document or identified in our filings with the Securities and
Exchange Commission, and those presented elsewhere by our management
from time to time.  Many of the risks and uncertainties are beyond
our control. The following factors could cause our operating and
financial performance to differ materially from the plans, objectives,
assumptions, expectations, estimates, and intentions expressed in
the forward-looking statements:

~ the strength of the United States economy in general and the strength
of the local economies in which we conduct our operations; general
economic conditions, either nationally or regionally, may be less favorable
than we expect, resulting in a deterioration in the credit quality of our
loan assets, among other things
~ the effects of, and changes in, trade, monetary and fiscal policies and
laws, including interest-rate policies of the Federal Reserve Board
~ inflation, interest rate, market, and monetary fluctuations
~ the development and acceptance of new products and services of National
Bancshares and its subsidiary and the perceived overall value of these
products and services by users, including the features, pricing, and
quality compared to competitors` products and services
~ the willingness of users to substitute our products and services for
those of competitors
~ the impact of changes in financial services laws and regulations
(including laws concerning taxes, banking, securities, and insurance)
~ changes in consumer spending and saving habits

	Forward-looking statements are based on our beliefs, plans,
objectives, goals, assumptions, expectations, estimates, and intentions
as of the date the statements are made. Investors should exercise caution
because we cannot give any assurance that our beliefs, plans, objectives,
goals, assumptions, expectations, estimates, and intentions will be realized.
We disclaim any obligation to update or revise any forward-looking statements
based on the occurrence of future events, the receipt of new information, or
otherwise.

	Company Milestones. National Bancshares and First National Bank`s
history spans more than 125 years. Some of the milestones are:

1881	First National Bank is chartered under the name `Orrville Banking
	Company`
1902	the Bank`s name is changed to `Orrville National Bank`
1933	the Bank is reorganized and renamed once again,
	the `National Bank of Orrville`
1965	on May 12 the Bank opens its first branch, on West High Street
1968	on February 1 the Bank merges with the First National Bank of
	Dalton, becoming the `First National Bank Orrville-Dalton`
1969	on November 1 the Bank merges with the Bank of Mt. Eaton Company
1972	on January 1 the Farmers and Merchants Bank Company of Smithville
	merges with the Bank, and changes its name to `First National Bank`
1975	on July 5 the Bank opens its Midway office in Apple Creek
1986	National Bancshares Corporation becomes the holding company
	for First National Bank on June 2
1989	the Bank enters Medina County with the purchase of its Lodi office
	on April 14
1994	on December 16 the Bank establishes its second Medina County office
	with the purchase of the Seville branch
1999	the Bank opens its Cleveland Road office in the city of Wooster
	on April 19
2002	the acquisition of Peoples Financial Corporation and its subsidiary,
	Peoples Federal Savings and Loan Association of Massillon, is completed
	on April 3, adding three more banking offices, our first offices
	in Stark County
2005	the Bank closes its MarketPlace office in the city of Massillon on
	May 31 and opens its Burbank Road office in the city of Wooster
	on June 30
2006	First National Bank celebrates its 125 year anniversary
	Market Area.  National Bancshares` sole banking subsidiary is First
National Bank (`Bank`). The Bank operates 13 offices in Wayne, Medina, and
Stark Counties. Wayne County generally, and more specifically the city of
Orrville and its other municipalities in the northeastern quadrant of Wayne
County, constitutes the center of the Bank`s market, extending from there
to most of Wayne County, the southern portion of Medina County to the north,
western Stark County to the east, and the northeastern portion of Holmes
County to the south. With their dense urban populations and wide-ranging
industries, including many service, manufacturing, retail and other
establishments of all sizes, the cities of Cleveland in Cuyahoga County,
Akron in Summit County, and Canton in Stark County lie in a crescent just
beyond the northern and eastern ends of the Bank`s market area. The Bank
occupies a much more rural area with a significantly lower population density
and less industrial diversity, and with a significantly higher proportion of
small farm and related agricultural enterprises. Wayne County is largely
rural. Holmes County is virtually entirely rural, with a large percentage of
Amish and Mennonite inhabitants. The portions of Stark and Medina Counties
occupied by the Bank are somewhat less urban than the remainder of the
historically urban and industrial Stark County and the remainder of Medina
County, which has been growing very rapidly for many years because of its
increasingly close association with urban centers in Cleveland and Akron.

	The April 2002 merger with Peoples Federal Savings and Loan Association
of Massillon added three offices in western Stark County ~ all located in
Massillon ~ to the Bank`s 11 offices in Wayne and Medina Counties.  First
National Bank had already been serving western Stark County, but without
a branch presence. Massillon is the largest urban center in the Bank`s
market, with a population of slightly more than 32,100 according to the
2004 estimate by Ohio Department of Development
(www.odod.state.oh.us/research) data, followed by Wooster in Wayne County,
with a population of approximately 25,600, and the city of Orrville in
Wayne County, with a population just under 9,000. The total population of the
Bank`s market area is estimated to be between 175,000 and 225,000, but a more
precise figure is difficult to determine because the Bank`s market area does
not necessarily correspond with the geographic and political boundaries
employed when population data are compiled and reported. Of the counties that
make up the Bank`s market area, Holmes, Medina and Wayne benefit from an
unemployment rate that is less than the state average, which was 7.8%
according to 2008 Ohio Department of Job and Family Services (available
at lmi.state.oh.us). The unemployment rates at December 2008 are 7.1% in
Wayne County, 6.6% in Medina County, and 5.9% in Holmes County. Meanwhile,
Stark County had an unemployment rate of 8.0% at December 2008.Major
employers in the four counties include various hospitals, the College of
Wooster, JM Smucker Company, and LuK USA, LLC in Wayne County, Diebold Inc.,
Timken, and various hospitals in Stark and Wayne Counties, as well as local
and county government employers throughout the four counties. According to
the Ohio Department of Development, manufacturing industries are the dominant
employers in Wayne and Holmes Counties, dominated only slightly by the
services and trade industries in Stark and Medina Counties. (Ohio County
Profiles, Ohio Department of Development, Office of Strategic Research,
available at www.odod.state.oh.us/research).

	In summary, First National Bank believes the market area it has defined
as its own generates economic activity and has demographic trends that should
sustain the Bank for the indefinite future. The Bank is open to the prospect
of expansion beyond its current market area, particularly if a suitable
opportunity arises for expansion either by acquisition or by internal growth.
For purposes of potential expansion either by acquisition or by internal
growth, the more urban and industrial crescent at the northern and eastern
edge of the Bank`s market area offers more competitive resistance. The
Bank`s immediate goal is to achieve a broader and deeper penetration of
its existing market area. We believe that the banking needs within our
market have not been exhausted and that opportunities exist for a local
community bank to achieve market-share gains at the expense of more
distant and larger institutions whose organization-wide profit goals
and credit standards leave less room for flexibility to adjust to local
borrowers and other customers` circumstances.

	Competition. The market in which we operate is intensely competitive.
Offering checking and savings accounts, certificates of deposit, personal
loans, loans to businesses and professionals, installment loans, safety
deposit boxes, and credit cards, we compete with other banks and savings
institutions, many of which are significantly larger than First National Bank
and have greater financial, staff, and other resources and higher lending
limits. Insurance companies, consumer finance companies, credit unions,
mortgage banking companies, commercial finance and leasing companies, money
market mutual funds, and securities firms also provide many of the financial
services we offer. We face competition both in making loans and in attracting
deposits. Competition generally is based on interest rates and other credit
and service charges, the quality of services rendered, the ability to react
and respond to customer requirements, the convenience of banking hours and
branch locations, the range and type of products offered and, in the case
of loans to larger commercial borrowers, lending limits, among
other factors.  We do not have trust powers and therefore do not offer trust
services. We seek to take competitive advantage of First National Bank`s
local orientation and community banking profile, competing for loans
principally through our responsiveness to customers, our ability to
communicate effectively with them, and our ability to understand and
address their needs. We compete for deposits principally by offering
customers personal attention, a variety of banking services, attractive
rates, and strategically located banking facilities. Our goal is to provide
high quality banking service to professionals, small and mid-sized businesses
and individuals, emphasizing quick and flexible responses to customer
demands, while providing a personalized touch.

	The dominant institutions in Wayne, Stark, and Medina Counties are
offices of significantly larger banking institutions, some of which have a
statewide, multi-state, and even national presence. These competitors are
more geographically diversified than First National Bank, meaning they are
less vulnerable to adverse changes in our local economy. And many of these
institutions offer services that we do not or cannot provide in a
cost-effective manner. Likewise, some competitors are not subject to
the same kind and amount of regulatory restrictions and supervision to
which a national bank is subject. Because First National Bank is smaller
than many commercial lenders in its market, occasionally, we are prevented
from making commercial loans in amounts competitors can offer. First National
Bank accommodates loan volumes in excess of its lending limits from time to
time through the sale of loan participations to other banks.

	The share of deposits held by a particular banking institution relative
to all other banking institutions in a particular market is not the only, but
it is perhaps the most readily identifiable, indicator of a bank`s market
share.As a percent of all deposits held by FDIC-insured banks and savings
associations in the county, according to FDIC data available on the FDIC`s
website (www.fdic.gov) one institution had a market share exceeding 18% in
all three counties as of June 30, 2008. Based on the FDIC`s June 30, 2008
deposit data, First National Bank had a 11.84% share of deposits in Wayne
County (ranking 4th of 12 FDIC-insured institutions), 0.84% in Stark County
(11th of 16), and 1.19% in Medina County (13th of 18). We have no offices in
Holmes County.

	The banking industry has been changing for many reasons, including
continued consolidation within the banking industry, legislative and
regulatory changes, and advances in technology. Congress` elimination in
1994 of many restrictions on interstate branching could increase competition
from large banks headquartered outside of our market. Congress` repeal in
late 1999 of much of the Glass-Steagall Act (which had separated the
commercial and investment banking industries) and elimination of the
barriers between the banking and insurance industries could make competition
even more intense. Because of our smaller size, we may have less opportunity
to take advantage of the flexibility offered by that new legislation. With
frequent introductions of new technology-driven products and services, the
banking industry is undergoing rapid technological changes. To deliver
banking products and services more effectively and efficiently, banking
institutions are opening in-store branches, installing more automated
teller machines (ATMs), and investing in technology to permit telephone,
personal computer, and internet banking. In addition to enhancing customer
service, the effective use of technology increases efficiency and enables
financial institutions to reduce costs. A financial institution`s success
is increasingly dependent upon use of technology to provide products and
services that satisfy customer demands and to create additional operating
efficiencies. Many of our competitors have substantially greater resources
to invest in technological improvements, which could enable them to perform
various banking functions at lower costs than First National Bank, or to
provide products and services that we are not able to provide economically.
Although all banks are experiencing the effects of the changing competitive
and technological environment, the manner in which banks choose to compete
is increasing the gap between large national and super-regional banks, on
one hand, and community banks on the other. Large institutions are committed
to becoming national or regional `brand names,` providing a broad selection
of products at low cost and with advanced technology, while community banks
provide most of the same products but with a commitment to personal service
and with local ties to the customers and communities they serve.

	Because of the demand for technology-driven products, banks rely
increasingly on unaffiliated vendors to provide data processing services and
other core banking functions. The use of technology-related products,
services, delivery channels, and processes exposes banks to various risks,
particularly transaction, strategic, reputation, and compliance risk.

	Lending. Lending practices are governed by the Bank`s Credit Policy,
which is approved annually by the board of directors, and by regulations and
policies of the Office of the Comptroller of the Currency (`OCC`), the
principal federal regulator of national banks. The Credit Policy delegates
lending authority to the President & Chief Executive Officer, Senior Vice
President & Senior Loan Officer, and all loan officers. The Credit Policy
also establishes guidelines for credit types, loan mix, concentration of
credit, and credit standards.

	First National Bank makes commercial loans, commercial real estate loans,
construction loans, residential mortgage and home equity loans, and secured and
unsecured consumer installment loans. A substantial portion of our commercial
loans is designated as real estate loans for regulatory reporting purposes
because they are secured by mortgages on real property. Loans of that type
may be made for the purpose of financing commercial activities, such as
accounts receivable, equipment purchases and leasing, but they are secured
by real estate to provide the Bank with an extra measure of security.
Although these loans might be secured in whole or in part by real estate,
they are treated in the discussions to follow as commercial loans. Our
consumer installment loans include secured and unsecured loans to
individual borrowers for a variety of purposes, including personal, home
improvements, and revolving credit lines.

	A significant portion of the Bank`s lending consists of origination of
conventional loans secured by 1-4 family real estate located in Wayne, Medina,
Stark, and Holmes Counties.  The Bank`s residential mortgage loans generally
are originated with loan documentation permitting sale to Freddie Mac.

	The Bank`s commercial loan services include ~

~ accounts receivable, inventory and working capital loans
~ renewable operating lines of credit
~ loans to finance capital equipment
~ term business loans
~ short-term notes
~ selected guaranteed or subsidized loan programs for small businesses
~ loans to professionals
~ commercial real estate loans, including agricultural loans secured by
  farmland
~ loans for agricultural production and other loans to farmers


	Commercial real estate loans include commercial properties occupied by
the proprietor of the business conducted on the premises and income-producing
or farm properties. Agricultural loans secured by farmland are a subset of our
commercial real estate loan products, whereas we also categorize loans for
agricultural production and other loans to farmers as commercial loans (not
secured by real estate). The primary risk of commercial real estate loans is
loss of income of the owner or occupier of the property or the inability of
the market to sustain rent levels. Although commercial and commercial real
estate loans generally bear somewhat more credit risk than single-family
residential mortgage loans, commercial and commercial real estate loans tend
to be higher yielding, tend to have shorter terms, and commonly provide for
interest-rate adjustments as prevailing rates change. Accordingly, commercial
and commercial real estate loans enhance a lender`s interest rate risk
management and, in management`s opinion, promote more rapid asset and income
growth than a loan portfolio comprised strictly of residential real estate
mortgage loans.

	Although a risk of nonpayment exists for all loans, certain specific
types of risks are associated with various kinds of loans. One of the primary
risks associated with commercial loans is the possibility that the commercial
borrower will not generate income sufficient to repay the loan. The Bank`s
loan policy provides that commercial loan applications must be supported by
documentation indicating that there will be cash flow sufficient for the
borrower to service the proposed loan. Financial statements or tax returns
must be submitted, and annual reviews are undertaken. The fair market value
of collateral for collateralized commercial loans must exceed the Bank`s
loan exposure. For this purpose fair market value is determined by
independent appraisal.

	Real estate is commonly a material component of collateral for our
loans, including commercial loans. Although the expected source of repayment
of these loans is generally the operations of the borrower`s business or
personal income, real estate collateral provides an additional measure of
security. Risks associated with loans secured by real estate include
fluctuating land values, changing local economic conditions, changes in
tax policies, and a concentration of loans within a limited geographic area.

	First National Bank originates several different types of loans that
it categorizes as construction loans, including ~

~ residential construction loans to borrowers who will occupy the premises
  upon completion of construction,
~ residential construction loans to builders,
~ commercial construction loans, and
~ real estate acquisition and development loans.

	Because of the complex nature of construction lending, these loans
are generally recognized as having a higher degree of risk than other forms
of real estate lending, including credit risk. The Bank`s fixed-rate and
adjustable-rate construction loans may not provide for the same interest
rate terms on the construction loan and on the permanent mortgage loan that
follows completion of the construction phase of the loan. It is the norm for
the Bank to make residential construction loans with an existing written
commitment for permanent financing.

	Our consumer loans include secured and unsecured loans to individual
borrowers for a variety of purposes, including personal, home improvement,
revolving credit lines, autos, boats, and recreational vehicles. Historically,
we have had minimal indirect lending activity, however over the past two
years we have become more involved and are looking to increase our involvement
in the indirect lending line of business. Unsecured consumer loans
generally carry significantly higher interest rates than secured loans.

	Loans and extensions of credit to a single borrower may not exceed 15%
of capital, often referred to as the `legal lending limit` or
`loans-to-one-borrower limit.` But an additional margin of 10% of capital
is permitted for loans fully secured by readily marketable collateral. The
Bank can accommodate loan volumes exceeding the legal lending limit by
selling participation interests in loans to other banks.  As of
December 31, 2008, the Bank`s legal lending limit for loans to a single
borrower was approximately $4.0 million.

	Loan Solicitation and Processing. Loan originations are developed
from a number of sources, including continuing business with depositors,
other borrowers and real estate builders, solicitations by bank personnel
and walk-in customers.

	When a loan request is made, the Bank reviews the application,
credit bureau reports, property appraisals or evaluations, financial
information, verifications of income, and other documentation concerning
the creditworthiness of the borrower, as applicable to each loan type. The
Bank`s underwriting guidelines are set by senior management and approved
by the board. The loan policy specifies officers` loan approval authority,
requiring approval by the board`s Executive Committee or the full board
for any aggregate borrowing to one customer or related customers of
$3.0 million or more or if a loan is rated substandard or below.

	Income from Lending Activities. The Bank earns interest and
fee income from its lending activities. Net of origination costs,
loan origination fees are amortized over the life of a loan. The Bank
also receives loan fees related to existing loans, including late charges.
Income from loan origination and commitment fees and discounts varies with
the volume and type of loans and commitments made and with competitive and
economic conditions. Note 1 to the Consolidated Financial Statements included
herein contains a discussion of the manner in which loan fees and income
are recognized for financial reporting purposes.

	Delinquent Loans ~ Late charges on residential mortgages and consumer
loans are assessed if a payment is not received by the due date plus a grace
period. When an advanced stage of delinquency appears on a single-family loan
and if repayment cannot be expected within a reasonable time or a repayment
agreement is not entered into, a required notice of foreclosure or
repossession proceedings may be prepared by the Bank`s attorney and
delivered to the borrower so that foreclosure proceedings may be
initiated promptly, if necessary. The Bank also collects late charges on
commercial loans.

	When the Bank acquires real estate through foreclosure, voluntary
deed, or similar means, it is classified as `other real estate owned` until
it is sold. When property is acquired in this manner, it is recorded at
the lower of cost (the unpaid principal balance at the date of acquisition)
or fair value. Any subsequent write-down is charged to expense. All
costs incurred from the date of acquisition to maintain the property
are expensed. `Other real estate owned` is appraised during the
foreclosure process, before acquisition. Losses are recognized for
the amount by which the book value of the related mortgage loan exceeds
the estimated net realizable value of the property.

	Investments ~ Investment securities provide a return on residual
funds after lending activities. Investments may be in corporate securities,
U.S. Government and agency obligations, state and local government
obligations and mortgage-backed securities. The Bank generally does not
invest in securities that are rated less than investment grade by a
nationally recognized statistical rating organization. All securities-related
activity is reported to the Bank`s board of directors. General changes in
investment strategy are required to be reviewed and approved by the board.
The President & Chief Executive Officer and the Senior Vice President & Chief
Financial Officer can purchase and sell securities in accordance with the
Bank`s stated investment policy.

	Sources of Funds ~ Deposit Accounts. Deposit accounts are a major
source of funds for the Bank. The Bank offers a number of deposit products
to attract both commercial and regular consumer checking and savings
customers, including regular and money market savings accounts, NOW accounts,
and a variety of fixed-maturity, fixed-rate certificates with maturities
ranging from seven days to 60 months. These accounts earn interest at rates
established by management based on competitive market factors and management`s
desire to increase certain types or maturities of deposit liabilities. The
Bank also provides debit cards, gift cards, travel cards, travelers` checks,
official checks, money orders, ATM services, and IRA accounts.

	Borrowings. Deposits and repayment of loan principal are the Bank`s
primary sources of funds for lending activities and other general business
purposes. However, when the supply of lendable funds or funds available for
general business purposes cannot satisfy the demand for loans or general
business purposes, the Bank can obtain funds from the Cincinnati Federal
Home Loan Bank (FHLB). In addition to borrowing from the FHLB on a
term-loan basis, the Bank has a line of credit with the FHLB that allows
the Bank to borrow in an amount based on a percentage of the Bank`s pledged
eligible mortgages. All or substantially all of the Bank`s entire mortgage
loans are pledged to the FHLB. As of December 31, 2008, the Bank had
additional borrowing capacity of approximately $20 million from the FHLB.
Interest is payable monthly, and the line of credit is secured by a blanket
pledge collateral agreement. First National Bank also has access to credit
through the Federal Reserve Bank of Cleveland and other funding sources.

	Personnel ~ As of December 31, 2008, First National Bank had 108
full-time equivalent employees. A collective bargaining group represents
none of the employees. Management considers its relations with employees
to be excellent.

	Minority Ownership of a Title Insurance Agency ~ First National
Bank owns 49% of the stock of First Kropf Title, L.L.C., a title insurance
agency whose majority owner is Kropf, Wagner, Lutz & VanSickle L.L.P., a
law firm in which a director and Chairman of the Board of Directors
of National Bancshares and the Bank ~ Mr. John W. Kropf ~ is an owner.
In many mortgage transactions, the Bank selects the firm that will
provide title insurance services, but the mortgage borrower ordinarily
pays the costs. First Kropf Title, L.L.C. is not the only title insurance
agency used by the Bank, but First Kropf Title, L.L.C. derives all or
substantially all of its business through referrals from the Bank.

	Available Information ~ The Company makes available, free of charge,
through the Investor Relations section of its Internet website at
www.fnborrville.com, its annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act
as soon as reasonably practicable after the Company electronically
files such reports with or furnishes them to the Securities and Exchange
Commission. Also the Company`s Corporate Governance and Nominating Committee
Charter and Audit Committee Charter are available under the Investor
Relations section on its website.

Supervision and Regulation

	The following discussion of bank supervision and regulation is
qualified in its entirety by reference to the statutory and regulatory
provisions discussed. Changes in applicable law or in the policies of
various regulatory authorities could affect materially the business and
prospects of National Bancshares and the Bank.

	National Bancshares Corporation is a bank holding company within
the meaning of the Bank Holding Company Act of 1956. As such, National
Bancshares is subject to regulation, supervision, and examination by the
Board of Governors of the Federal Reserve System, acting primarily
through the Federal Reserve Bank of Cleveland. National Bancshares is
required to file annual reports and other information with the Federal
Reserve. First National Bank is a national bank, regulated primarily
by the Office of the Comptroller of the Currency (`OCC`) and secondarily
by the FDIC.

	National Bancshares and the Bank are subject to federal banking
laws intended to protect depositors, not shareholders. Federal and state
laws applicable to holding companies and their financial institution
subsidiaries regulate the range of permissible business activities,
investments, reserves against deposits, capital levels, lending activities
and practices, the nature and amount of collateral for loans,
establishment of branches, mergers, dividends, and a variety of other
important matters. The Bank is subject to detailed, complex, and
sometimes overlapping federal and state statutes and regulations
affecting routine banking operations. These statutes and regulations
include but are not limited to state consumer credit laws, the
Truth-in-Lending Act and Regulation Z, the Equal Credit Opportunity
Act and Regulation B, the Fair Credit Reporting Act, the Truth in
Savings Act, and the Community Reinvestment Act. The Bank must comply
with Federal Reserve Board regulations requiring depository institutions
to maintain reserves against their transaction accounts (principally NOW
and regular checking accounts). Because required reserves are commonly
maintained in the form of vault cash or in a noninterest-bearing account
(or pass-through account) at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce an institution`s earning assets.

	The Federal Deposit Insurance Corporation Improvement Act of 1991
expanded significantly the authority of federal agencies to regulate the
activities of federally chartered and state-chartered financial
institutions and their holding companies. The Federal Reserve Board
and the FDIC have extensive authority to prevent and to remedy
unsafe and unsound practices and violations of applicable laws and
regulations by institutions and holding companies. The agencies may
assess civil money penalties, issue cease-and-desist or removal orders,
seek injunctions, and publicly disclose those actions.

	Temporary Liquidity Guarantee Program. On October 14, 2008,
the FDIC announced a new program ~ the Temporary Liquidity Guarantee Program
(`TLGP`) that provides unlimited deposit insurance on funds in non-interest
bearing transaction deposit accounts not otherwise covered by the existing
deposit insurance limit of $250,000. Such non-interest bearing transaction
deposit accounts are initially insured at no cost to the institution for
30 days, with coverage continuing through December 31, 2009 at a 10 bps fee
on deposit amounts in excess of $250,000. Eligible institutions were able
to opt-out on or before December 5, 2008. The Bank did not elect to
opt-out of the unlimited deposit insurance provided under the TLGP. Also
under TLGP, newly issued senior unsecured debt issued on or before
June 30, 2009 will be fully insured in the event the issuing institution
subsequently fails, or its holding company files for bankruptcy. The Bank
has elected not to participate in the debt guarantee portion of this
program.

	Regulation of Bank Holding Companies ~ Bank and Bank Holding Company
Acquisitions. The Bank Holding Company Act requires every bank holding
company to obtain approval of the Federal Reserve before ~

~ directly or indirectly acquiring ownership or control of any voting
  shares of another bank or bank holding company, if after the
  acquisition the acquiring company would own or control more than 5%
  of the shares of the other bank or bank holding company (unless
  the acquiring company already owns or controls a majority of the
  shares),
~ acquiring all or substantially all of the assets of another bank, or
~ merging or consolidating with another bank holding company.

	The Federal Reserve will not approve an acquisition, merger, or
consolidation that would have a substantially anticompetitive result
unless the anticompetitive effects of the proposed transaction are
clearly outweighed by a greater public interest in satisfying the
convenience and needs of the community to be served. The Federal
Reserve also considers capital adequacy and other financial and
managerial factors in its review of acquisitions and mergers.

	Additionally, the Bank Holding Company Act, the Change in
Bank Control Act and the Federal Reserve Board`s Regulation Y require
advance approval of the Federal Reserve to acquire `control` of a
bank holding company. Control is conclusively presumed to exist
if an individual or company acquires 25% or more of a class of
voting securities of the bank holding company. If the holding
company has securities registered under Section 12 of the Securities
Exchange Act of 1934, as National Bancshares does, or if no other
person owns a greater percentage of the class of voting securities,
control is rebuttably presumed to exist if a person acquires 10% or
more, but less than 25%, of any class of voting securities.

	Nonbanking Activities. With some exceptions, the Bank
Holding Company Act has for many years also prohibited a bank
holding company from acquiring or retaining direct or indirect
ownership or control of more than 5% of the voting shares of any
company that is not a bank or bank holding company, or from
engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for
its subsidiaries. The principal exceptions to these prohibitions
involve non-bank activities that, by statute or by Federal
Reserve Board regulation or order, are held to be closely related
to the business of banking or of managing or controlling banks. In
making its determination that a particular activity is closely
related to the business of banking, the Federal Reserve considers
whether the performance of the activities by a bank holding company
can be expected to produce benefits to the public ~ such as greater
convenience, increased competition, or gains in efficiency in
resources ~ that will outweigh the risks of possible adverse
effects such as decreased or unfair competition, conflicts of
interest, or unsound banking practices. Some of the activities
determined by Federal Reserve Board regulation to be closely
related to the business of banking are: making or servicing loans
or leases; engaging in insurance and discount brokerage activities;
owning thrift institutions; performing data processing services;
acting as a fiduciary or investment or financial advisor; and
making investments in corporations or projects designed primarily
to promote community welfare.

	Financial Holding Companies. On November 12, 1999 the
Gramm Leach Bliley Act became law, repealing much of the 1933
Glass-Steagall Act`s separation of the commercial and investment
banking industries and permitting bank holding companies to become
financial holding companies and affiliate with securities firms and
insurance companies, as well as engage in other activities that are
financial in nature. The Gramm Leach Bliley Act expands the range of
nonbanking activities a bank holding company may engage in, while
preserving existing authority for bank holding companies to engage
in activities that are closely related to banking. The new legislation
creates a new category of holding company called a `financial holding
company.` If each of a bank holding company`s subsidiary banks is
well capitalized under regulatory prompt corrective action provisions,
is well managed, and has at least a satisfactory rating under the
Community Reinvestment Act, the bank holding company may become a
financial holding company by filing a declaration that the bank
holding company wishes to become a financial holding company.
No regulatory approval is necessary for a financial holding company
to acquire a company ~ other than a bank or savings association ~ engaged
in activities that are financial in nature or incidental to activities
that are financial in nature, as determined by the Federal Reserve Board.
Financial holding companies may engage in any activity that is ~

~ financial in nature or incidental to that financial activity, or
~ complementary to a financial activity and that does not pose a
  substantial risk to the safety and soundness of depository
  institutions or the financial system generally.

       Activities that are financial in nature include ~

~ acting as principal, agent, or broker for insurance,
~ underwriting, dealing in, or making a market in securities, and
~ providing financial and investment advice.

	The Federal Reserve Board and the Secretary of the Treasury
have authority to decide that other activities are also financial in
nature or incidental to financial activity, taking into account changes
in technology, changes in the banking marketplace, competition for
banking services, and so on. The Federal Reserve Board has authority
under Rule 225.83 (12 CFR 225.83) to prohibit a company from
exercising the enhanced powers of a financial holding company if the
Federal Reserve Board determines that the company`s bank subsidiary
is not well capitalized or well managed.  National Bancshares
Corporation is and has been engaged solely in activities that were
permissible for a bank holding company before enactment of the
Gramm Leach Bliley Act.

	Holding Company Capital and Source of Strength. The Federal
Reserve considers the adequacy of a bank holding company`s capital on
essentially the same risk-adjusted basis as capital adequacy is
determined by the FDIC at the bank subsidiary level. It is also
Federal Reserve Board policy that bank holding companies serve as
a source of strength for their subsidiary banking institutions,
committing resources to subsidiary banks when necessary. A holding
company might be compelled to provide support to a subsidiary bank
when the holding company does not have the resources to provide it.
Additionally, the National Bank Act gives the OCC authority to
assess a national bank`s stockholders (or the bank`s holding company)
if the bank`s capital becomes impaired. 12 U.S.C. 55. If the stockholders
(or holding company) fail to pay the assessment within three months,
the OCC could order the sale of the bank`s stock to cover the deficiency.

	Under Bank Holding Company Act section 5(e), the Federal Reserve
Board may require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary if the Federal Reserve Board
determines that the activity or control constitutes a serious risk to
the financial safety, soundness, or stability of a subsidiary bank. And with
the Federal Deposit Insurance Corporation Improvement Act of 1991`s addition
of the prompt corrective action provisions to the Federal Deposit Insurance
Act, section 38(f)(2)(I) of the Federal Deposit Insurance Act now provides
that a federal bank regulatory authority may require a bank holding company
to divest itself of an undercapitalized bank subsidiary if the agency
determines that divestiture will improve the bank`s financial condition
and prospects.

	Deposit Insurance. The FDIC insures the deposits of the Bank to
the extent provided by law. Prior to 2007, under the FDIC`s risk-based
insurance system, depository institutions were assessed premiums based
upon the institution`s capital position and other supervisory factors.
Effective January 1, 2007, the FDIC began using a new approach to assess
premiums. The FDIC places each depository institution in one of four risk
categories using a two-step process based first on capital ratios (the
capital group assignment) and then on other relevant information (the
supervisory group assignment). Within the lowest risk category, known
as Risk Category I, rates will vary based on each institution`s CAMELS
component ratings, certain financial ratios (for most institutions),
and long-term debt issuer ratings (for large institutions that have such
a rating). In 2008, rates ranged between 5 and 43 cents per $100 in
assessable deposits depending on the risk category to which an insured
depository institution was assigned. Institutions in Risk Category I were
charged a rate between 5 and 7 cents per $100 in assessable deposits.
However, as discussed below, rates have dramatically increased for the
first quarter of 2009 and are anticipated to remain at increased levels
for the next several years. On February 8, 2006, the Federal Deposit
Insurance Reform Act of 2005 (the `Reform Act`) was signed into law
as part of the Deficit Reduction Act of 2005. Among other provisions,
the Reform Act provided for the merger of the two insurance funds, BIF
and SAIF, into a new single deposit insurance fund, DIF. Prior to the
merger of BIF and SAIF, the Bank`s primary insurance fund for deposits
was BIF. Among other things, the Reform Act provides for the (i) modification
of assessments under the risk-based assessment system, (ii) replacement
of a fixed designated reserve ratio with a reserve range between 1.15% of
estimated insured deposits and 1.5% of estimated insured deposits, and
(iii) payment by the FDIC of dividends when certain reserve ratios exceed
certain thresholds. Because of recent depository institution failures, the
DIF reserve ratio fell significantly below 1.15%. The Reform Act requires
that the FDIC create and implement a plan to restore the reserve ratio to
at least 1.15% within five years.

	On October 16, 2008, the FDIC published a notice in the Federal Register
concerning its establishment of the Federal Deposit Insurance Corporation
Restoration Plan (the `Restoration Plan`). The Restoration Plan is a
five year recapitalization plan for the DIF (subsequently amended
to cover a seven-year time frame, as discussed below) based, in part,
on significantly higher assessed DIF rates. Concurrent with the
publication of the Restoration Plan, the FDIC issued a proposed rule
to increase the DIF assessed rates for the first quarter of 2009 by 7 bps
and, effective April 1, 2009, to make certain other changes regarding
risk-based assessment and to set new deposit insurance rates. On
December 22, 2008, the FDIC issued a final rule in which it invoked
the `good cause` exception of the Administrative Procedures Act to
waive the requirement that once finalized a rule must have a delayed
effective date of 30 days from the publication date and, effective
January 1, 2009, raised the first quarter 2009 DIF assessed rates by 7 bps.
Under the final rule, for the first quarter of 2009, the new rates were
expressed to range between 12 and 50 cents per $100 in assessable deposits
depending on the risk category to which an insured depository institution
was assigned. Institutions in Risk Category I were charged a rate between
12 and 14 cents per $100 in assessable deposits for the first quarter of 2009.
Such an increase in the DIF assessed rates more than doubles the previous
applicable rates for Tier I institutions.

	On February 27, 2009 the FDIC amended the Restoration Plan for the DIF.
Under the amended Restoration Plan, the FDIC extended the horizon from five
years to seven years to raise the DIF reserve ratio to 1.15 percent, in
recognition of the current significant strains on banks and the financial
system and the likelihood of a severe recession. The amended Restoration Plan
was accompanied by a final rule that sets assessment rates and makes
adjustments to recognize how the assessment system differentiates for risk.
Currently, most banks are in the best risk category and pay anywhere from
12 cents per $100 of deposits to 14 cents per $100 for insurance. Under the
final rule, banks in this category will pay initial base rates ranging from
12 cents per $100 to 16 cents per $100 on an annual basis, beginning on
April 1, 2009. Changes to the assessment system include higher rates for
institutions that rely significantly on secured liabilities, which would
increase the FDIC`s loss in the event of institutional failure, without
providing additional assessment revenue. Under the final rule, assessments
will be higher for institutions that rely significantly on brokered deposits
but, for well-managed and well-capitalized institutions, only when accompanied
by rapid asset growth. The final rule also provides incentives in the form of
a reduction in assessment rates for institutions to hold long-term unsecured
debt and, for smaller institutions, high levels of Tier 1 capital.

	On February 27, 2009 the FDIC adopted an interim rule imposing a
20 basis point emergency special assessment on the industry on June 30, 2009.
The assessment is to be collected on September 30, 2009. The interim rule
would also permit the FDIC to impose an emergency special assessment after
June 30, 2009, of up to 10 basis points if necessary to maintain public
confidence in federal deposit insurance. However, the status of this
emergency assessment is not currently clear. On March 5, 2009, FDIC Chairman
Shelia Bair indicated that if Congress significantly expands the FDIC`s
borrowing authority with Treasury, the FDIC would have flexibility to
reduce the size of the emergency special assessment. Legislation has also
been introduced and is pending in Congress to increase the FDIC`s borrowing
authority from $30 billion to $100 billion. Chairman Bair has indicated in
recent news reports that if this pending legislation is adopted, it would
relieve the FDIC from imposing the full emergency special assessment and
would allow a lowering of the assessment from the proposed 20 basis points
to 10 basis points. At this time, however, the Company is unable to predict
whether the proposed one time special assessment will be decreased or when
any further developments concerning such assessment might occur.

	On February 27, 2009 the FDIC also modified the debt guarantee component
of the TLGP to allow participating entities, with the FDIC`s permission, to
issue mandatory convertible debt. This change would provide institutions
additional options for raising capital and reduce the concentration of
FDIC-guaranteed debt maturing in mid-2012.

	Insured depository institutions are further assessed premiums for Financing
Corporation (`FICO`) bond debt service. The FICO assessment rate for DIF
ranged between a high of 1.14 bps for the first quarter of 2008 to a low of
1.10 for the fourth quarter of 2008. For the first quarter of 2009, the FICO
assessment rate for DIF is 1.14 bps resulting in a premium of $0.0114 per
$100 of DIF-eligible deposits.


	Interstate Banking and Branching. In 1994 the Riegle-Neal Interstate
Banking and Branching Efficiency Act eased restrictions on interstate banking.
The Riegle-Neal Act allows the Federal Reserve to approve an application by an
adequately capitalized and adequately managed bank holding company to acquire
a bank located in a state other than the acquiring company`s home state,
without regard to whether the transaction is prohibited by the laws of any
state. The Federal Reserve may not approve the acquisition of a bank that
has not been in existence for the minimum time period (up to five years)
specified by the statutory law of the acquired, or `target,` bank`s state.
The Riegle-Neal Act also prohibits the Federal Reserve from approving an
application if the applicant (and its depository institution affiliates)
controls or would control more than 10% of the insured deposits in the
United States or 30% or more of the deposits in the target bank`s home
state or in any state in which the target bank maintains a branch.
The Riegle-Neal Act does not affect the authority of states to limit the
percentage of total insured deposits in the state that may be held or
controlled by a bank or bank holding company if the limitation does not
discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% statewide concentration limit
contained in the Riegle-Neal Act.

	Branching between states may be accomplished by merging commonly controlled
banks located in different states into one legal entity. Branching may also be
accomplished by establishing de novo branches or acquiring branches in another
state. Under section 24(j) of the Federal Deposit Insurance Act, a branch of a
bank operating out-of-state ~ in a `host state` in other words ~ is subject
to the law of the host state regarding community reinvestment, fair lending,
consumer protection, and establishment of branches. The Riegle-Neal Act
authorizes the FDIC to approve interstate branching de novo by state-chartered
banks solely in states that specifically allow it.  Ohio bank law allows de
novo branching in Ohio by an out-of-state bank. The FDIC has adopted
regulations under the Riegle-Neal Act to prohibit an out-of-state bank from
using the new interstate branching authority primarily for the purpose of
deposit production. These regulations include guidelines to ensure that
interstate branches operated by an out-of-state bank in a host state are
reasonably helping to satisfy the credit needs of the communities served
by the out-of-state bank.

	Capital ~ Risk-Based Capital Requirements. The Federal Reserve Board
and the OCC employ similar risk-based capital guidelines in their examination
and regulation of bank holding companies and national banks. If capital falls
below the minimum levels established by the guidelines, the bank holding
company or bank may be denied approval to acquire or establish additional
banks or non-bank businesses or to open new facilities. Failure to satisfy
capital guidelines could subject a banking institution to a variety of
enforcement actions by federal bank regulatory authorities, including
the termination of deposit insurance by the FDIC and a prohibition on
the acceptance of `brokered deposits.`

	In the calculation of risk-based capital, assets and off-balance sheet
items are assigned to broad risk categories, each with an assigned weighting
(0%, 20%, 50% and 100%). Most loans are assigned to the 100% risk category,
except for first mortgage loans fully secured by residential property, which
carry a 50% rating. Direct obligations of or obligations guaranteed by the
United States Treasury or United States Government agencies have a 0%
risk-weight. Off-balance sheet items are also taken into account in the
calculation of risk-based capital, with each class of off-balance sheet
item being converted to a balance sheet equivalent according to established
`conversion factors.` From these computations, the total of risk-weighted
assets is derived. Risk-based capital ratios therefore state capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The ratios established by guideline are minimums only.

	Current risk-based capital guidelines require bank holding companies and
banks to maintain a minimum risk-based total capital ratio equal to 8% and a
Tier 1 capital ratio of 4%. Intangibles other than readily marketable mortgage
servicing rights are generally deducted from capital. Tier 1 capital includes
stockholders` equity, qualifying perpetual preferred stock (within limits and
subject to conditions, particularly if the preferred stock is cumulative
preferred stock), and minority interests in equity accounts of consolidated
subsidiaries, less intangibles, identified losses, investments in securities
subsidiaries, and certain other assets. Tier 2 capital includes the allowance
for loan losses, up to a maximum of 1.25% of risk-weighted assets, any
qualifying perpetual preferred stock exceeding the amount includable in
Tier 1 capital, mandatory convertible securities, and subordinated debt
and intermediate term preferred stock, up to 50% of Tier 1 capital. The OCC`s
evaluation of an institution`s capital adequacy takes into account a variety
of other factors as well, including interest rate risks to which the
institution is subject, the level and quality of an institution`s earnings,
loan and investment portfolio characteristics and risks, risks arising from
the conduct of nontraditional activities, and a variety of other factors.

	Accordingly, the OCC`s final supervisory judgment concerning an
institution`s capital adequacy could differ significantly from the conclusions
that might be derived from the absolute level of an institution`s risk-based
capital ratios. Therefore, institutions generally are expected to maintain
risk-based capital ratios that exceed the minimum ratios discussed above.
This is particularly true for institutions contemplating significant
expansion plans and institutions that are subject to high or inordinate
levels of risk.

	The banking agencies have also established a minimum leverage ratio of
3%, which represents Tier 1 capital as a percentage of total assets, less
intangibles.  However, for all but the most highly rated banks and bank
holding companies, the banking agencies expect an additional margin of at
least 100 to 200 basis points. At December 31, 2008, the bank was in
compliance with all regulatory capital requirements. Actual and required
capital amounts and ratios are presented elsewhere, specifically in Note 14
of National Bancshares Corporation`s audited financial statements for the
year ended December 31, 2008.

	Prompt Corrective Action. To resolve the problems of undercapitalized
institutions and to prevent a recurrence of the banking crisis of the 1980s
and early 1990s, the Federal Deposit Insurance Corporation Improvement Act
of 1991 established a system known as `prompt corrective action.`
Under the prompt corrective action provisions and implementing regulations,
every institution is classified into one of five categories, depending on
its total risk-based capital ratio, its Tier 1 risk-based capital ratio,
its leverage ratio, and subjective factors. The categories are `well
capitalized,` `adequately capitalized,` `undercapitalized,` significantly
undercapitalized` and `critically undercapitalized.` A financial
institution`s operations can be significantly affected by its capital
classification. For example, an institution that is not `well capitalized`
generally is prohibited from accepting brokered deposits and offering
interest rates on deposits higher than the prevailing rate in its market,
and the holding company of any undercapitalized institution must guarantee,
in part, aspects of the institution`s capital plan. Financial institution
regulatory agencies generally are required to appoint a receiver or
conservator shortly after an institution enters the category of weakest
capitalization. The Federal Deposit Insurance Corporation Improvement Act
of 1991 also authorizes the regulatory agencies to reclassify an institution
from one category into a lower category if the institution is in an unsafe
or unsound condition or engaging in an unsafe or unsound practice.
Undercapitalized institutions are required to take specified actions to
increase their capital or otherwise decrease the risks to the federal deposit
insurance funds.

	Limits on Bank Dividends to the Holding Company. National Bancshares
Corporation`s ability to obtain funds for the payment of dividends and for
other cash requirements depends on the amount of dividends that may be paid
to it by the Bank. Under the National Bank Act and OCC Rule 5.64, without
OCC approval a national bank may not pay a cash dividend if the amount of
the dividend exceeds retained net income for the year and for the two
preceding years (after any required transfers to surplus). A national bank`s
ability to pay dividends may be affected also by the OCC`s capital
maintenance requirements. Moreover, regulatory authorities may prohibit
banks and bank holding companies from paying dividends if payment of
dividends would constitute an unsafe and unsound banking practice.

	A 1985 policy statement of the Federal Reserve Board declares that a
bank holding company should not pay cash dividends on common stock unless
the organization`s net income for the past year is sufficient to fully
fund the dividends and the prospective rate of earnings retention appears
consistent with the organization`s capital needs, asset quality, and overall
financial condition.

	Transactions with Affiliates. The Bank must comply with section 23A and
section 23B of the Federal Reserve Act, pertaining to transactions with
affiliates. These statutes are intended to protect banks from abuse in
financial transactions with affiliates, preventing federally insured
deposits from being diverted to support the activities of unregulated
entities engaged in nonbanking businesses. An affiliate of a bank includes
any company or entity that controls or is under common control with the bank.
Generally, section 23A and section 23B of the Federal Reserve Act ~

~ limit the extent to which a bank or its subsidiaries may lend to or
  engage in various other kinds of transactions with any one affiliate to
  an amount equal to 10% of the bank`s capital and surplus, limiting the
  aggregate of covered transactions with all affiliates to 20% of capital
  and surplus,
~ impose restrictions on investments by a subsidiary bank in the stock
  or securities of its holding company,
~ impose restrictions on the use of a holding company`s stock as
  collateral for loans by the subsidiary bank, and
~ require that affiliate transactions be on terms substantially the
  same or at least as favorable to the institution or subsidiary as
  those provided to a non-affiliate.

	The Bank`s authority to extend credit to insiders ~ meaning executive
officers, directors and greater than 10% stockholders ~ or to entities those
persons control, is subject to section 22(g) and section 22(h) of the Federal
Reserve Act and Regulation O of the Federal Reserve Board. Among other things,
these laws require insider loans to be made on terms substantially similar to
those offered to unaffiliated individuals, place limits on the amount of
loans a bank may make to insiders based in part on the Bank`s capital
position, and require that specified approval procedures be followed. Loans
to an individual insider may not exceed the legal limit on loans to any one
borrower, which in general terms is 15% of capital but can be higher in some
circumstances. And the aggregate of all loans to all insiders may not exceed
the Bank`s unimpaired capital and surplus. Insider loans exceeding the
greater of 5% of capital or $25,000 must be approved in advance by a majority
of the board, with any `interested` director not participating in the voting.
Lastly, loans to executive officers are subject to special limitations.
Executive officers may borrow in unlimited amounts to finance their children`s
education or to finance the purchase or improvement of their residence,
and they may borrow no more than $100,000 for most other purposes. But loans
to executive officers exceeding $100,000 may be allowed if the loan is fully
secured by government securities or a segregated deposit account.

	Community Reinvestment Act. Under the Community Reinvestment Act of 1977
(`CRA`) and implementing regulations of the banking agencies, a financial
institution has a continuing and affirmative obligation ~ consistent with safe
and sound operation ~ to respond to the credit needs of its entire community,
including low- and moderate-income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions, nor
does it limit an institution`s discretion to develop the types of products
and services it believes are best suited to its particular community. The CRA
requires that bank regulatory agencies conduct regular CRA examinations and
provide written evaluations of institutions` CRA performance. The CRA also
requires that an institution`s CRA performance rating be made public. CRA
performance evaluations are based on a four-tiered rating system: Outstanding,
Satisfactory, Needs to Improve and Substantial Noncompliance. Over the 27
years that the CRA has existed, banking institutions ~ particularly the
largest banks and savings associations ~ have faced increasingly difficult
regulatory obstacles and public interest group objections in connection with
their regulatory applications, including institutions that have received the
highest possible CRA ratings.

	Although CRA examinations occur on a regular basis, CRA performance
evaluations have been used principally in the evaluation of regulatory
applications submitted by an institution. CRA performance evaluations are
considered in evaluating applications for such things as mergers,
acquisitions, and applications to open branches. A bank holding company
cannot elect to be a `financial holding company` ~ with the expanded
securities, insurance and other powers that designation entails ~ unless
all of the depository institutions owned by the holding company have a
CRA rating of satisfactory or better. Following a CRA examination as of
December 31, 2006, the Bank`s most recent examination, the Bank received
a rating of `Satisfactory.`

	Monetary Policy. The earnings of financial institutions are affected
by the policies of regulatory authorities, including monetary policy of the
Federal Reserve Board. An important function of the Federal Reserve System
is regulation of aggregate national credit and money supply. The Federal
Reserve Board accomplishes these goals with measures such as open market
transactions in securities, establishment of the discount rate on bank
borrowings, and changes in reserve requirements against bank deposits.
These methods are used in varying combinations to influence overall growth
and distribution of financial institutions` loans, investments and deposits,
and they also affect interest rates charged on loans or paid on deposits.
Monetary policy is influenced by many factors, including inflation,
unemployment, short-term and long-term changes in the international trade
balance, and fiscal policies of the United States government. Federal Reserve
Board monetary policy has had a significant effect on the operating results
of financial institutions in the past, and it can be expected to influence
operating results in the future.

	Sarbanes-Oxley Act of 2002.The Sarbanes-Oxley Act of 2002 addresses
accounting oversight and corporate governance matters, and, among other
things: (a) required executive certification of financial presentations,
(b) increased requirements for board audit committees and their members,
(c) enhanced disclosure of controls and procedures and internal control
over financial reporting, (d) enhanced controls on, and reporting of,
insider trading and (e) increased penalties for financial crimes and
forfeiture of executive bonuses in certain circumstances.

	The legislation and its implementing regulations have resulted in
increased costs of compliance, including certain outside professional costs.
To date these costs have had a significant impact on our operations, which
have included costs to add regulatory support personnel and costs to ensure
effectiveness of internal controls and testing.

ITEM 1B ~ UNRESOLVED STAFF COMMENTS

	We have not received any comments from the staff of the Securities and
Exchange Commission about our periodic and current reports within the last 180
days and, accordingly, we do not have any unresolved comments from the staff.



ITEM 2 ~ PROPERTIES



	  First National Bank operates thirteen full service offices and one
limited service office in a market area comprising most of Wayne County,
western Stark County, northeastern Holmes County and southern Medina County.
The Bank`s offices, all of which are owned by First National Bank except as
indicated, are ~

					    		Net Book Value
Location		     		County		(Dollars in Thousands)

Main Office:						
112 West Market Street	     		Wayne		$335
Orrville, Ohio 44667

Other Offices:
12 West Main Street			Wayne		$151
Dalton, Ohio 44618

1320 West High Street			Wayne		$137
Orrville, Ohio 44667

4934 Kidron Road			Wayne		$835
Kidron, Ohio 44636

153 East Main Street			Wayne		$105
Smithville, Ohio 44677

15974 East Main Street			Wayne		$61
Mt. Eaton, Ohio 44659

U.S. Route 30 at County Road 44		Wayne		$134
7227 Lincoln Way East
Apple Creek, Ohio 44606

1720 North Main Street			Wayne		$49
Orrville, Ohio 44667
(cash ATM only)

1725 Cleveland Road			Wayne		$542
Wooster, Ohio 44691

4192 Burbank Road			Wayne		$1,251
Wooster, Ohio 44691

211 Lincoln Way East			Stark		$652
Massillon, Ohio 44646

2312 Lincoln Way N.W.			Stark		$394
Massillon, Ohio 44647

51 Massillon Marketplace Drive S.W.	Stark		$0
Massillon, Ohio 44646
(cash ATM only)
(leased location)

106 Ainsworth Street			Medina		$318
Lodi, Ohio 44254

121 Greenwich Road			Medina		$22
Seville, Ohio 44667
(leased facility)


	At December 31, 2008 the net book value of the Bank`s investment in
premises and equipment totaled $6.2 million. The Bank`s electronic data
processing functions are performed under contract with an electronic data
processing services firm that performs services for financial institutions
throughout the Midwest.

ITEM 3 ~ LEGAL PROCEEDINGS

	From time to time the Bank is involved in various legal proceedings that
are incidental to its business. In the opinion of management, based upon
information currently available to us, no current legal proceedings are
material to the financial condition of National Bancshares or the Bank,
either individually or in the aggregate and are not likely to have a material
adverse effect on our consolidated financial position, results of operations
or cash flows. This statement represents a forward-looking statement under
the Private Securities Litigation Reform Act of 1995. Actual results could
differ materially from management`s opinion based on a variety of factors,
including the uncertainties involved in the proof of legal and factual
matters in legal proceedings.

ITEM 4 ~ SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

	No matters were submitted to a vote of National Bancshares` shareholders
during the fourth quarter of 2008.



Part II

ITEM 5 ~ MARKET FOR REGISTRANT`S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
	 AND ISSUER PURCHASES OF EQUITY SECURITIES

	Incorporated by reference to `Price Range of Common Stock` appearing on
page 51 of National Bancshares Corporation`s Annual Report 2008. National
Bancshares had 888 shareholders of record as of March 13, 2009.

Because National Bancshares Corporation is dependent on its Bank subsidiary
for earnings and funds necessary to pay dividends, the ability of National
Bancshares to pay dividends to its shareholders is subject to bank regulatory
restrictions. See, `Supervision and Regulation ~ Limits on Bank Dividends to
the Holding Company.`

	Incorporated by reference to `Comparison of Five-Year Cumulative Total
Return Of National Bancshares Corporation, S&P 500 Stock Index, and S&P 500
Bank Index` appearing on page 50 of National Bancshares Corporation`s Annual
Report 2008.


EQUITY COMPENSATION PLAN INFORMATION



Plan Category		Number of securities to  	Weighted-average exercise  	Number of securities
                        be issued upon exercise 	price of outstanding 		remaining available for
			of outstanding options,		options, warrants		future issuance under
			warrants and rights		and rights			equity compensation plans
											
Equity compensation
plans approved by
the security holders	58,000				$18.03				165,448

Equity compensation
plans not approved
by the security
holders			-				-				-

Total			58,000				$18.03				165,448




	A description of the equity compensation plan is incorporated by
reference to `Note 13 ~ Stock-Based Compensation` appearing on page 41 of
National Bancshares Corporation`s Annual Report 2008.

Issuer Purchase and Sales of Equity Securities

	We repurchased 5,017 shares of our common stock during the year ended
December 31, 2008. No equity securities of National Bancshares were sold
by it during 2008.


ITEM 6 ~ SELECTED FINANCIAL DATA

	Incorporated by reference to `Selected Financial Data` appearing on pages
5 and 6 of National Bancshares Corporation`s Annual Report 2008.

ITEM 7 ~ MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
	 RESULTS OF OPERATIONS

	Incorporated by reference appearing on pages 7 through 24 of National
Bancshares Corporation`s Annual Report 2008.

ITEM 7A ~ QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

	Information concerning the interest-rate risks to which First National
Bank`s assets and liabilities are exposed is contained in `Management`s
Discussion and Analysis of Financial Condition and Results of Operations`
appearing on pages 19 and 20 of National Bancshares Corporation`s Annual
Report 2008.

ITEM 8 ~ FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

	The Consolidated Financial Statements and the Report of Independent Auditors
are incorporated by reference from pages 25 through 46 of National Bancshares
Corporation`s Annual Report 2008.

ITEM 9 ~ CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
	 FINANCIAL DISCLOSURE

	No changes in or disagreements with the independent accountants have
occurred in the two most recent fiscal years or since the end of
December 31, 2008.

ITEM 9AT ~ CONTROLS AND PROCEDURES

	With the participation of the President and the Chief Executive Officer,
and the Chief Financial Officer, management carried out an evaluation of the
effectiveness of the design and operation of National Bancshares Corporation`s
disclosure controls and procedures as of the end of 2008. Based upon that
evaluation, the President and Chief Executive Officer, and the Chief
Financial Officer concluded that as of December 31, 2008 National
Bancshares Corporation`s disclosure controls and procedures were effective
(1) to ensure that information required to be disclosed by National Bancshares
in reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and (2) in timely alerting them to
material information of National Bancshares (including First National Bank)
required to be included in this annual report on Form 10-K. During the
fourth quarter of 2008 there were no changes in National Bancshares
Corporation`s internal controls over financial reporting that have
materially affected or are reasonably likely to affect National Bancshares
Corporation`s internal controls over financial reporting.

The report of Management on the Company`s Internal Control Over Financial
Reporting is incorporated by reference on page 47 of National Bancshares
Corporation`s Annual Report 2008.

ITEM 9B ~ OTHER INFORMATION

None




Part III

ITEM 10 ~ DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

	Information concerning the directors of National Bancshares is
incorporated by reference from pages 4 and 5 of the definitive proxy
statement for the 2009 annual meeting of shareholders, filed or to be
filed with the Securities and Exchange Commission not later than 120
days after December 31, 2008. Disclosure by National Bancshares about
directors` and executive officers` compliance with Section 16(a) of
the Securities Exchange Act of 1934 appears on pages 14 and 15 of the proxy
statement for the 2009 annual meeting, and it is incorporated herein
by reference.



	The executive officers of National Bancshares are ~



Name			Age	Position
				
David C. Vernon		68	President and Chief Executive Officer of National
				Bancshares Corporation and First National Bank. He serves
				as Chairman Emeritus of Central Federal Corporation and
				its wholly owned subsidiary CFBank, a federally chartered
				savings association headquartered in Fairlawn in Summit County,
				Ohio since February 28, 2008. He served as a director and
				Vice-Chairman of Central Federal Corporation and CFBank from
				January 1, 2006 until February 28, 2008. He served as Chairman of
				Central Federal Corporation and CFBank from January 2003 until
				January 1, 2006. He also served as Central Federal Corporation`s
				and CFBank`s Chief Executive Officer in 2003 and 2004 and as
				President of both companies from March 2003 to January 2005.
				Before joining Central Federal and CFBank, he was Chairman,
				President and Chief Executive Officer of Founders Capital
				Corporation in Akron, Ohio from September 2002 to February 2003;
				a Strategic Planning Consultant to Westfield Bank in Westfield,
				Ohio from May 2000 to July 2002; a Consultant to Champaign National
				Bank in Urbana, Ohio from July 1999 to April 2002; and a Consultant
				to First Place Bank in Warren, Ohio from April 1999 to February 2001.
				In February 1999, Mr. Vernon retired as Chairman, President and Chief
				Executive Officer of Summit Bank, an Akron-area community bank he
				founded in January 1991.

James R. VanSickle	38	Senior Vice President and Chief Financial Officer of
				National Bancshares Corporation and Senior Vice President
				and Chief Financial Officer of First National Bank since June 2007.
				Mr. VanSickle is the principal financial and accounting officer.
				Prior to joining First National Bank, he worked with Crowe Chizek
				and Company LLC as and Executive in the firm`s Financial Institutions
				Group. He joined Crowe in 1992 and was promoted to Executive in 2003.

Thomas M. Fast		47	Senior Vice President and Senior Loan Officer of First National Bank
				since July 2007. Mr. Fast has worked for Wayne County National Bank,
				KeyBank and First Chicago National Bank. He has over 18 years
				experience in banking focusing on commercial and real estate lending.

Steven L. Riddick	60	Vice President and Senior Credit Officer of First
				National Bank since October 2006. Previously, Mr. Riddick served
				as Vice President, Commercial Banking and Branch Manager, Seville
				Office of First National Bank.

Paul G. Kubiak		48	Vice President of Client Services and Operations for First
				National Bank since April 2007. Prior to this, Mr. Kubiak was Vice
				President of Client Services and a business development officer for
				the Bank since March 2004. Prior to joining the Bank, he served as
				Manager of Customer Service for Bekaert Contours and Contours, Ltd.,
				a manufacturing firm in Orrville, Ohio.



	There are no family relationships among any of the executive officers.

	National Bancshares has adopted a Code of Business Conduct and Ethics
applicable to all of our directors and employees, including the principal
executive officer.  We have also adopted a Code of Ethical Conduct for the
Finance Officers and Finance Department Personnel applicable to all finance
department personnel, including our principal executive, financial and
accounting officers.

	National Bancshares Corporation`s board of directors has determined that it
has at least one `audit committee financial expert` serving on the Audit
Committee. National Bancshares considers Director John Cook, CPA, Ph.D. to be
an audit committee financial expert, based on his experience as partner in an
accounting firm. Information regarding the Audit Committee is incorporated by
reference to pages 8 through 10 of National Bancshares` Proxy Statement for
the 2009 annual meeting, under the caption `Audit Committee` and `Audit
Committee Report.`

ITEM 11 ~ EXECUTIVE COMPENSATION

	Incorporated by reference from pages 12 through 15 of the definitive Proxy
Statement for the 2009 annual meeting of shareholders, filed or to be filed
with the Securities and Exchange Commission not later than 120 days after
December 31, 2008.

ITEM 12 ~ SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
	  RELATED STOCKHOLDER MATTERS

	Incorporated by reference from page 3 of the definitive Proxy Statement for
the 2009 annual meeting of shareholders, filed or to be filed with the
Securities and Exchange Commission not later than 120 days after
December 31, 2008.

ITEM 13 ~ CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

	Incorporated by reference from page 15 of the definitive Proxy Statement
for the 2009 annual meeting of shareholders, filed or to be filed with the
Securities and Exchange Commission not later than 120 days after
December 31, 2008.

ITEM 14 ~ PRINCIPAL ACCOUNTANT FEES AND SERVICES

	Incorporated by reference from page 7 of the definitive Proxy Statement
for the 2009 annual meeting of shareholders, filed or to be filed with the
Securities and Exchange Commission not later than 120 days after
December 31, 2008.



PART IV

ITEM 15 ~ EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)  	Financial Statements

	The following financial statements are included in this document in Item 8:
 	~ Report of Independent Registered Public Accounting Firm
 	~ Consolidated Balance Sheets at December 31, 2008 and 2007
 	~ Consolidated Statements of Income for the Years Ended December 31, 2008,
	  2007, and 2006
 	~ Consolidated Statements of Changes in Shareholders` Equity for the Years
	  Ended December 31, 2008, 2007, and 2006
 	~ Consolidated Statements of Cash Flows for the Years Ended
	  December 31, 2008, 2007, and 2006
 	~ Notes to Consolidated Financial Statements

(a)(2) 	Financial Statement Schedules

	Financial Statement Schedules have been omitted because they are not
applicable or the required information is shown elsewhere in the document in
the Financial Statements or Notes thereto, or in the Management`s Discussion
and Analysis of Financial Condition and Results of Operations section.

(a)(3) 	Exhibits

	See the list of exhibits below



(b) Exhibits Required by Item 601 of Regulation S-K



 Exhibit
  Number	Description					Location
								
3.1	        Amended Articles of Incorporation		Incorporated by reference to the identically numbered
								exhibit to the Annual Report on Form 10-K for the fiscal
								year ended December 31, 2003, filed on March 26, 2004

3.		Amended By-Laws					Incorporated by reference to the identically numbered
								exhibit to the Annual Report on Form 10-K for the fiscal
								year ended December 31, 2008, filed on March 28, 2008

10.1*	        Directors` Defined Benefit Plan Agreement	Incorporated by reference to the identically numbered
								exhibit to the Annual Report on Form 10-K for the fiscal
								year ended December 31, 2000, filed on March 29, 2001

10.2*		Employment Agreement entered into by		Incorporated by reference on Form 8-K dated
		David C. Vernon and National Bancshares		November 27, 2007.
		and First National Bank

10.3*		Employment Agreement entered into by		Incorporated by reference on Form 8-K dated
		James R. VanSickle and National Bancshares	June 19, 2007.
		and First National Bank

10.4*		Employment Agreement entered into by		Incorporated by reference to the identically numbered
		Thomas M. Fast and National Bancshares		exhibit to the Annual Report on 10-K for the fiscal
		and First National Bank				year ended December 31, 2007, filed on March 28, 2008.

13		2008 Annual Report to Security Holders		Filed herewith

14.1		Code of Business Conduct and Ethics		Incorporated by reference to the identically numbered
								exhibit to the Annual Report Form 10-K for the fiscal
								year ended December 31, 2006 filed on March 24, 2007

14.2		Code of Ethical Conduct for the Finance 	Incorporated by reference to the identically numbered
		Officers And Finance Department			exhibit to the Annual Report Form 10-K for the fiscal
		Personnel					year ended December 31, 2006 filed on March 24, 2007


21		Subsidiaries					Filed herewith

23		Consent of Crowe Horwath LLP 			Filed herewith

31.1		Certification of Chief Executive Officer under	Filed herewith
		Sarbanes-Oxley Act Section 302

31.2		Certification of Chief Financial Officer under	Filed herewith
		Sarbanes-Oxley Act Section 302

32		Certification pursuant to 18 U.S.C. 		Filed herewith
		Section 1350,as enacted pursuant to
		Section 906 of the Sarbanes-Oxley Act
		of 2002

*  Management contract or compensatory plan or arrangement



SIGNATURES

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

National Bancshares Corporation

By:/s/ David C. Vernon
David C. Vernon
President and Chief Executive Officer

Date: 	March 27, 2009



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


							
/s/ David C. Vernon                          		March 27, 2009
David C. Vernon
President, Chief Executive Officer, and Director

/s/ James R. VanSickle                                	March 27, 2009
James R. VanSickle, Sr. Vice President &
Chief Financial Officer
(Principal Accounting and Financial Officer)

/s/ Sara E Steinbrenner Balzarini            		March 27, 2009
Sara E. Steinbrenner Balzarini, Director

/s/ John Cook, CPA, Ph. D.                 		March 27, 2009
John Cook, CPA, Ph. D., Director

/s/ Bobbi E. Douglas                                	March 27, 2009
Bobbi E. Douglas, Director

/s/ John W. Kropf                                	March 27, 2009
John W. Kropf, Director

/s/ John L. Muhlbach, Jr                                March 27, 2009
John L. Muhlbach, Jr., Director

/s/ Victor B. Schantz                                	March 27, 2009
Victor B. Schantz, Director

/s/ Stephen W. Schmid                             	March 27, 2009
Stephen W. Schmid, Director

/s/ Howard J. Wenger                           		March 27, 2009
Howard J. Wenger, Director

/s/ Albert W. Yeagley                                  	March 27, 2009
Albert W. Yeagley, Director

EX-13

TABLE OF CONTENTS


3	Message to Shareholders

4	Financial Highlights

5	Selected Financial Data

7	Management`s Discussion and Analysis of Financial Condition and
	Results of Operations

25	Consolidated Balance Sheets

26	Consolidated Statements of Income

27	Consolidated Statements of Changes in Shareholders` Equity

28	Consolidated Statements of Cash Flows

29	Notes to Consolidated Financial Statements December 31, 2008, 2007 and 2006

47	Report of Management on the Company`s Internal Control Over Financial
	Reporting

48	Report of Independent Registered Public Accounting Firm

49	Comparison of Five-Year Cumulative Total Return of National Bancshares
	Corporation, S&P 500 Stock Index, and S&P 500 Bank Index

50	Price Range of Common Stock

50	Shareholder Information

51	Officers

52	Directors

52	First National Bank Offices




MESSAGE TO SHAREHOLDERS


Dear Shareholders:

We made significant progress in 2008 as we continued our efforts to move
National Bancshares Corporation to a higher level of profitability. Net
income this past year increased 28% to $2.194 million from $1.711 million
for 2007.Net interest income before the provision for loan losses increased
$422 thousand or 4%. Noninterest income increased $343 thousand or 17%.
Noninterest expense decreased $327 thousand or 3%. Over the past two years
since we began our efforts to achieve improved results, noninterest income
has increased $680 thousand and noninterest expense has decreased
$1.181 million. Earnings per basic and diluted common share have improved
from $.52 in 2006 to $.77 or 48% in 2007 and $1.00 or 30% in 2008. For more
details on our 2008 financial results, please review the financial statements
and footnotes contained in this Annual Report.

In addition to the improvement in our financial results, positive change has
taken place in other areas. All of the work required to comply with the
Sarbanes Oxley act was completed in 2008. Our Business Continuity Plan was
completely rewritten and implemented. All policies have been reviewed,
rewritten and updated. Credit quality has been maintained and problem loan
administration has been improved. Loans past due over 90 days still on accrual
and nonaccrual loans declined from $2.8 million at year-end 2007 to $2 million
at year-end 2008. Compliance and Audit has been significantly improved. Twenty
members of the Bank`s staff have completed a one year sales training course.
We added the following Bank services: Business Internet Banking and remote
capture, all bank clients can now apply for a loan 24 hours each day 7 days
each week. We introduced Platinum Checking, a high interest checking account
for clients with balances above $10,000. We introduced Bonus Checking, an
account that pays bonus interest to clients that use our Visa debit card, use
bill pay, receive their statement electronically and make at least one
electronic direct deposit. All of the bank`s ATMs have been replaced and
updated. The bank`s website www.fnborrville.com has been completely
redesigned. We installed a new Cisco internet based VOIP telephone system
which has made it possible for us to hold company wide meetings and conference
calls. We implemented branch capture which transforms checks to electronic
media and eliminates the need to move checks by messenger for central
processing. Our Burbank Road office in Wooster became the first office to be
remodeled to incorporate all of the design elements of our office rebranding
project.

The results for 2008 represent great progress and we continue to take
advantage of opportunities for improvement. We are a strong Bank because
we are blessed with loyal clients and friends. We are not burdened with any
sub-prime loans our asset quality is strong and our allowance for loan losses
is adequate. We are well-positioned.

Despite our positioning however, 2009 will not be an easy year. We have already
been notified that our 2009 cost for FDIC insurance is going to increase by
nearly $1 million. However painful, that`s how the system works. The healthy
banks like First National Bank are required to pay for the cost of working
out the issues that have been caused by the problem banks.

There will likely be more surprises in 2009 which we cannot predict since
we are currently in a horrific economic malaise. There are several reasons,
however, for believing that we will successfully navigate our way through
this turbulence.  First, we are well-capitalized and our asset quality is
strong.  Second, we have an outstanding Board of Directors.  Third, we have
a dedicated staff of banking professionals.  Fourth, we have loyal clients
and friends.  Fifth, we have the support of you, our shareholders.

Even though we are faced with a challenging economic environment we intend to
distinguish ourselves by making progress as we work to improve our community
financial services business. We are determined to make every effort to improve
this wonderful company. Thank you for your interest in National Bancshares
Corporation and First National Bank. We appreciate your support.


David C. Vernon
President and CEO



FINANCIAL HIGHLIGHTS


These financial highlights are excerpts of and are not a substitute for
National Bancshares Corporation`s consolidated financial statements,
including notes, and other detailed financial information we provide
elsewhere in this document. You should read the entire document, including
the Financial Review and the consolidated financial statements and notes
to the consolidated financial statements.

Financial Position
(Dollar amounts in thousands, except per share data)
								Percentage
At December 31,			2008		2007		Change
								
Total assets			$338,002	$306,651	10.2 %
Deposits		 	 263,642	 242,523	8.7 %
Loans - net		 	 179,831	 191,488	(6.1)%
Securities		 	 127,248	  84,514	50.6 %
Shareholders` equity	 	  36,881	  34,991	5.4 %
Book value per share	 	   16.75	   15.85	5.7 %


Year ended December 31,						
Net interest income		$ 11,286	$ 10,864	3.9 %
Income before income taxes	   2,964	   2,207        34.3 %
Net income			   2,194	   1,711	28.2 %
Cash dividends declared		   1,404	   1,430	(1.8)%
Net income per share		    1.00	    0.77	29.9 %
Cash dividends per share	    0.64       	    0.64	--



National Bancshares Corporation is the holding company for First National
Bank, a federally chartered national bank formed in Ohio in 1881. First
National Bank has thirteen offices in Orrville, Wooster, Massillon,
Apple Creek, Dalton, Kidron, Lodi, Mt. Eaton, Seville and Smithville.
Additional information is available at www.fnborrville.com.



SELECTED FINANCIAL DATA

(Dollar amounts in thousands, except per share data)

As of or for the years ended December 31,

				2008		2007		2006		2005		2004
												
Income statement data:
Interest income			$17,071		$17,832		$17,157		$16,075		$15,312
Interest expense		  5,785		  6,968		  5,995		  4,128		  3,346
Net interest income		 11,286		 10,864		 11,162		 11,947		 11,966
Provision for loan losses	    482		    147		    160  	    159 	    178
Net interest income after
  provision for loan losses	 10,804		 10,717		 11,002		 11,788		 11,788
Noninterest income		  2,333		  1,990		  1,653		  1,801		  1,895
Noninterest expense		 10,173		 10,500		 11,354		 10,986		  9,897
Income before income taxes	  2,964		  2,207		  1,301		  2,603		  3,786
Income taxes			    770		    496		    137		    503		    875
Net income			  2,194		  1,711		  1,164		  2,100		  2,911

Balance sheet data:
Cash and due from banks		$11,001		$11,842		$ 8,955		$10,985		$11,756
Federal funds sold		     --		    443		  9,820		  8,780		  6,070
Securities			127,248		 84,514		 86,000		 77,009		 76,327
Loans, net			179,831		191,488		184,481		191,538		196,725
Deposits			263,642		242,523		247,681		249,488		248,522
Borrowings			 34,285		 26,374		 22,744		 19,952		 21,679
Shareholders` equity		 36,881		 34,991		 34,680		 34,653		 35,319
Total assets			338,002		306,651		308,358		306,881		308,425

Share and per share data:
Net income			$  1.00		$  0.77		$  0.52		$  0.94		$  1.30
Cash dividends			   0.64		   0.64		   0.64		   0.64		   0.61
Book value at period end	  16.75		  15.85		  15.52		  15.51		  15.81
Weighted average number
  of shares outstanding	      2,203,218	      2,231,369	      2,234,488	      2,234,488	      2,234,488

Performance ratios:
Return on average equity	  6.20%		  4.94%		  3.29%		  5.90%		  8.29%
Return on average assets	  0.70%		  0.56%		  0.38%		  0.70%		  0.97%
Dividend payout percentage	 64.00%		 83.58%		122.87%		 68.10%		 46.83%
Efficiency ratio (1)		 74.70%		 81.69%		 88.60%		 79.91%		 71.41%
Full time equivalent staff	   108		   105		   132		   135	           136
Average total assets to
  full time equivalent staff	$2,916		$2,903		$2,296		$2,234		$2,214

Asset quality ratios:
Allowance for loan losses
  to ending total loans		0.95%		1.05%		1.07%		0.98%		0.89%
Net loan charge-offs
  to average loans		0.41%		0.06%		0.03%		0.01%		0.01%

Capital ratios:
Average equity to average
assets				11.24%		11.35%		11.66%		11.81%		11.65%
Leverage ratio (2)		 7.78%		 8.26%		 8.57%	  	 9.76%		 9.41%
Total risk-based capital
ratio (2)			12.60%		12.78%		13.26%		14.45%		13.73%

(1) The efficiency ratio is calculated by dividing noninterest expenses by
the sum of net interest income and noninterest income.
(2) Computed in accordance with Comptroller of the Currency and FDIC guidelines.





SELECTED FINANCIAL DATA

The following table shows quarterly results of operations for 2008 and 2007.

													Basic and
			Interest 	Net interest	Provision for	Income before			diluted earnings
			income		income 		loan losses	income taxes	Net income	per share
(Dollar amounts in thousands)
													
2008
First quarter		$4,270		$2,744		$187		$660		$491		$0.22
Second quarter		 4,196		 2,763		  71		 685		 514		 0.23
Third quarter		 4,294		 2,843		 126		 778		 574		 0.26
Fourth quarter		 4,311		 2,936		  98		 841		 615		 0.28

2007
First quarter		$4,352		$2,642		$27		$354		$287		$0.13
Second quarter		 4,542		 2,758		 --		 361		 314		 0.14
Third quarter		 4,497		 2,741		 --		 674		 507		 0.23
Fourth quarter		 4,441		 2,723		 120		 818		 603		 0.27






MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This section of the annual report is intended to assist the reader in
evaluating the performance of National Bancshares Corporation for
the years ended December 31, 2008, 2007 and 2006. This information should
be read in conjunction with the consolidated financial statements and
accompanying notes to the financial statements.

Forward Looking Statement
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. Forward-looking statements
can be identified by terminology such as `believes,` `expects,` `anticipates,`
`estimates,` `intends,` `should,` `will,` `plans,` `potential` and similar
words. Forward-looking statements are also statements that are not statements
of historical fact. Forward-looking statements necessarily involve risks and
uncertainties. They are merely predictive or statements of probabilities,
involving known and unknown risks, uncertainties and other factors. If one or
more of these risks or uncertainties occurs or if the underlying assumptions
prove incorrect, actual results in 2009 and beyond could differ materially
from those expressed in or implied by the forward-looking statements.

Forward-looking statements are based upon a variety of estimates and
assumptions. The estimates and assumptions involve judgments about a number
of things, including future economic, competitive, and financial market
conditions and future business decisions. These matters are inherently
subject to significant business, economic, and competitive uncertainties,
all of which are difficult to predict and many of which are beyond National
Bancshares Corporation`s control. Although we believe the estimates and
assumptions are reasonable, actual results could vary materially from those
shown. Inclusion of forward-looking information does not constitute a
representation by National Bancshares Corporation or any other person that
the indicated results will be achieved. You are cautioned not to place undue
reliance on forward-looking information.

Management Strategy
The Company is a community-oriented financial institution offering a variety
of financial services to meet the needs of the communities it serves. The
Company attracts deposits from the general public and uses such deposits,
together with borrowings and other funds, primarily to originate commercial
and commercial real estate loans, single-family and multi-family residential
mortgage loans, home equity loans and lines of credit and consumer loans.

During 2008, the Company continued to execute a plan, which was implemented
in December 2006. The plan focuses on four critical areas. These areas are
first; enhancing services for depositor clients, second; strengthening
regulatory compliance, third; enhancing the Company`s ability to originate
loan assets and fourth; reducing costs and increasing noninterest income.

In the first half of 2008, the company introduced `Platinum Checking`,
a high-interest checking account for clients with balances above $10 thousand.
The Platinum Checking account product accounted for $25.4 million or 9.6% of
total deposits at December 31, 2008. In November 2008, the Company introduced
`Bonus Checking`, an account that pays bonus interest to clients that use our
Visa debit card, bill pay services, receive their account statement online,
and make at least one electronic direct deposit.

In the first quarter of 2008, the Company hired a new Compliance Officer and
Internal Auditor. Each of these new officers has at least twenty years of
banking industry experience. In 2008, these officers conducted a comprehensive
review of our Compliance and Internal Audit risk assessments and programs to
ensure an effective risk-based approach is utilized.

Loans, net of allowance for loan losses decreased $11.7 million or 6.1% from
2007 to 2008. The change in loans was significantly impacted by a $20.9 million
mortgage loan securitization transaction in December 2008. Most of the loan
growth, net of the securitization, has occurred through loan participations
purchased from other Ohio financial institutions. The Bank announced a new
senior loan officer in January 2009. The new senior loan officer has 27 years
of banking experience and is responsible for business development and
management of all Bank lending activities.

Checking account fees, Visa check card interchange fees and income from
mortgage banking activities have significantly increased since the
implementation of this plan. In July 2008, the Bank sold its $1.5 million
credit card portfolio and generated a $435 thousand gain on the transaction.

Cost reductions have been realized in 2008 through reduced salaries and wages
and marketing expenses. Salaries and employee benefits were $5.1 million for
the year ended December 31, 2008, a decrease of $0.7 million compared to the
year ended December 31, 2006. Nearly thirty full-time equivalent positions
have been eliminated since 2006 almost entirely through attrition. Marketing
expenses were $144 thousand for the year ended December 31, 2008, a decrease
of $272 thousand compared to the same period in 2006.

Office of the Comptroller of the Currency (`OCC`) regulations requires banks
to maintain certain minimum levels of regulatory capital. Additionally, the
regulations establish a framework for the classification of banks into five
categories: well-capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. Generally,
an institution is considered well-capitalized if it has a core (Tier 1)
capital ratio of at least 5.0% (based on adjusted total assets); a core
(Tier 1) risk-based capital ratio of a least 6.0%; and a total risk-based
capital ratio of at least 10.0%. The Bank had capital ratios above the
well-capitalized levels at December 31, 2008 and December 31, 2007.

The Company is not aware of any market or institutional trends, events or
uncertainties that are expected to have a material effect on liquidity,
capital resources or operations or any current recommendations by its
regulators which would have a material effect if implemented. The Company
has not engaged in sub-prime lending activities and does not plan to engage
in those activities in the future.

Financial Condition
Total assets increased 10.2% to $338.0 million as of December 31, 2008,
from $306.7 million at December 31, 2007. Securities available for sale
totaled $127.2 million as of December 31, 2008, compared to $84.5 million
at December 31, 2007. Loans, net of allowance for loan losses decreased
$11.7 million to $179.8 million as of December 31, 2008, compared to
$191.5 million at December 31, 2007. The increase in securities available
for sale and the decrease in the loan portfolio were significantly impacted
by a $20.9 million mortgage loan securitization transaction with the Federal
Home Loan Mortgage Corporation in December 2008. The Bank has recorded the
securities as available for sale and continues to service the loans. Deposits
increased 8.7% to $263.6 million as of December 31, 2008, compared to
$242.5 million at December 31, 2007. Shareholders` equity increased 5.4% to
$36.9 million at the end of 2008, from $35.0 million at the end of 2007.
Accumulated other comprehensive income increased to $1.5 million as of
December 31, 2008, compared to $295,000 as of Dec. 31, 2007. The change
in accumulated other comprehensive income was a result of an increase in
unrealized gains on securities.

Loans:
Net loans decreased by $11.7 million or 6.1% from 2007 to 2008. The change
in net loans was significantly impacted by the aforementioned securitization
transaction. The loan demand in the Bank`s primary market remains soft.
However, the Bank is focusing its efforts on aggressively attracting
commercial loan business and continuing to buy loan participations from
other Ohio banks (commercial and commercial real estate and consumer loans.)
Real estate loans decreased by $20.6 million or 12.8%. Home equity loans
increased $3.6 million or 17.2% from 2007 to 2008 as a result of increased
marketing efforts by the Bank`s mortgage banking department. The Bank`s loan
portfolio consists of $140.2 million loans secured by real estate, which
represents 77.1% of total loans as of December 31, 2008.

First National Bank`s loan policy provides for a loan mix up to 60% of total
loans for commercial loans, up to 40% of total loans for consumer loans, up
to 60% of total loans for residential real estate loans and up to 200% of
total capital for commercial real estate loans. The loan to deposit ratio will
not exceed 90%.

Consumer loans increased $2.4 million as of December 31, 2008 compared to
December 31, 2007. Consumer loans increased due to the purchase of automobile
loans from another Ohio bank. The purchased loans are subject to the same
underwriting standards as loans generated in our offices.





Loan portfolio composition at December 31,

			2008		2007		2006		2005		2004
			$	 %	$	 %      $ 	 %	$	 %	$	 %
(Dollar amounts in thousands)
				 		 		 		 		 
Real estate:
Commercial		$48,034	 27%	$51,463	 27%	$45,737	 25%	$47,638	 25%	$47,081	 24%
Residential		 54,924	 30%	 80,113	 41%	 86,652	 46%	 91,592	 47%	 97,694	 49%
Home equity		 24,442	 13%	 20,857	 11%	 19,383	 10%	 19,045	 10%	 18,272	  9%
Construction		 12,846   7%	  8,367	  4%	  6,079	  3%	  6,440	  3%	  6,327	  3%
			140,246	 77%	160,800	 83%	157,851	 84%	164,715	 85%	169,374	 85%

Consumer		 14,354	  8%	 11,988	  6%	  7,522	  4%	  6,205	  3%	  5,386	  3%
Commercial		 25,583	 14%	 17,552	  9%	 18,519	 10%	 20,046	 10%	 21,197	 10%
Credit cards  		     --	  0%	  1,614	  1%	  1,521	  1%	  1,406	  1%	  1,362	  1%
Other		          1,658	  1%	  1,987	  1%	  1,609	  1%	  1,566	  1%	  1,675   1%
Total Loans		181,841	100%	193,941	100%	187,022	100%	193,938	100%	198,994	100%
Less:
Unearned and
  deferred income	   (292)	   (425)	   (548)	   (496)	   (505)
Allowance for
  loan losses		 (1,718)	 (2,028)  	 (1,993)	 (1,903)	 (1,763)
Net loans		$179,831	$191,488	$184,481	$191,539	$196,726
Net loans as
  a percent of
  total assets		  53.20%	  62.45%	  59.83%	  62.41%	  63.78%



In 2008, total agricultural loans decreased by $1.4 million to $2.9 million.
$2.4 million of the principal outstanding consists of loans collateralized
by farmland, which is included in the $48.0 million commercial loans secured
by real estate. The remainder, $500 thousand, consists of loans for
agricultural production and other loans to farmers, and that figure
is included in the $25.6 million figure for commercial loans (not
collateralized by real estate). Ranked by North American Industry
Classification System ~ or NAICS ~ codes, the industries most represented
by First National Bank`s commercial borrowers includes lessors of residential
buildings and dwellings and lessors of non-residential buildings, in that
order, accounting for 3.8% and 1.3% of the total loans at year-end 2008,
respectively.

Approximately 46% of the conventional mortgage loans secured by 1-4 family
real estate are long term fixed interest rate loans. The majority of loans
added to First National Bank`s portfolio, by the 2002 acquisition of Peoples
Federal, were fixed- rate residential mortgage loans, but the number of such
loans has declined since the merger as the fixed-rate mortgages have been
refinanced or paid off. Approximately 54% of the portfolio of conventional
mortgage loans secured by 1-4 family and multifamily real estate at year-end
2008 consisted of adjustable rate loans. First National Bank`s fixed-rate
conventional mortgage loans are originated with loan documentation that
permits their sale in the secondary market. The Bank`s policy is to classify
all fixed-rate mortgage loans as `Held for Sale` or `Held for Portfolio` at
the time the loans are originated within various scenarios and classifications
set by the Bank. The classification is based upon several factors such as the
Bank`s interest rate risk position, the loan`s interest rate and term, the
Bank` liquidity position, the interest rate environment and general economic
conditions.

First National Bank has not engaged in the practice of originating sub-prime
loans. As of December 31, 2008, the Bank does not have a single variable-rate
loan on which the interest is scheduled to increase.

Allowance for Loan Losses
As explained in Note 1 of the consolidated financial statements, the allowance
for loan losses is a valuation allowance for probable credit losses,
increased by the provision for loan losses and recoveries, and decreased by
charge-offs. The allowance for loan losses is the sum of components
recognized and measured either: (1) according to Statement of Financial
Accounting Standards (SFAS) 5, `Accounting for Contingencies,` for pools of
homogenous loans, or (2) according to SFAS 114, `Accounting by Creditors for
Impairment of a Loan,` for loans the Bank considers impaired based upon
individual loan review. Management determines the necessary allowance balance
using the Bank`s loan loss experience, the nature and volume of the portfolio,
information about specific borrower situations and estimated collateral
values, economic conditions, and other factors. Loan losses are charged
against the allowance when management believes the uncollectibility of a loan
balance is confirmed.



Loans Analyzed Individually.
Determining the loan loss allowance begins with the Bank`s assessment of
credit risk for loans analyzed individually. Individual loans are assigned
credit-risk grades based on the Bank`s assessment of conditions affecting
a borrower`s ability to satisfy its contractual obligation under the loan
agreement. The assessment process includes reviewing a borrower`s current
financial information, historical payment experience, credit documentation,
public information, and other information specific to each borrower. Loans
reviewed individually are reviewed at least annually or more frequently if
management becomes aware of information affecting a borrower`s ability to
fulfill its obligation. All loans over $250 thousand or to customers whose
aggregate total borrowing exceeds $250 thousand are reviewed individually,
except for first mortgage loans on a borrower`s personal residence. Loans
or customers with balances under $250 thousand may also be reviewed
individually if considered necessary by the board and management. All
commercial lending relationships over $100 thousand are ranked according
to risk at least annually. Risk rankings also change at any point during
the year if the creditworthiness of a borrower changes. In addition, risk
ratings are reviewed annually by a qualified independent third party. The
independent third party reviews all aggregate loan relationships of $250
thousand or greater along with a sampling of loan relationships between
$100 thousand and $250 thousand. Loans analyzed individually are ranked as
follows:

Loans Graded 1, 2, 3 and 4 are loans that are considered satisfactory, with
lower than average risk and low probability of serious financial
deterioration on the borrower`s part.

Loans Graded 5 (`Watch`) are performing according to the terms of the loan
agreement but that nevertheless require enhanced management supervision
because of factors such as an unusual payment history or a deterioration
in the borrower`s financial condition.

Loans Graded 6 (`Special-Mention`) have more than average risk, with
identified potential weaknesses that deserve management`s close
attention. Left uncorrected, the potential weaknesses could result in
deterioration of repayment prospects. In the case of a commercial
borrower, for example, potential weaknesses could include adverse trends in
the borrower`s operations or adverse economic or market conditions that could
affect the borrower in the future.

Loans Graded 7 (`Substandard`) are inadequately protected by the current
financial condition and paying capacity of the borrower or by the collateral
securing the loan. Substandard loans have a well-defined weakness or
weaknesses jeopardizing collection of the debt in full, with a distinct
possibility of loss if the weakness or weaknesses are not corrected. Loans
may be classified substandard even if payments are not 90 days or more past
due. Loans 90 days or more past due are classified as substandard or lower
unless the loan is adequately collateralized and in the process of collection.

Loans Graded 8 (`Doubtful`) have all the weaknesses inherent in those
classified as substandard, with the added characteristic that existing
facts, conditions and values make collection or liquidation in full highly
questionable and improbable. The possibility of loss is extremely high, but
because of factors that could work to the borrower`s advantage classification
of the `doubtful` loan as `loss` is deferred.

Loans Graded 9 (`Loss`) are those considered uncollectible or portions of
loans that are considered uncollectable. Loans in this category are
charged-off by management.

If it is probable that the Bank will be unable to collect all principal
and interest due on a commercial or non-loan then that loan is considered
impaired. Management measures the amount of impairment using the loan`s
expected future cash flows (discounted at the loan`s effective interest rate),
or the fair value of the underlying collateral if loan repayment is expected
to come from the sale or operation of the collateral. First National Bank
considers commercial or non-loans graded doubtful or loss to be impaired.
Some loans graded substandard are considered impaired. Special mention and
watch loans are not considered to be impaired. Impairment is evaluated in
total for smaller-balance loans of similar type and purpose ~ such as
residential mortgage and consumer, ~ and on an individual loan basis
for other loans (other loans consists of loans to non-profit organizations
and loans collateralized with cash). If a loan is impaired, a portion of
the loan loss allowance is allocated so that the loan is reported net, at
the present value of estimated future cash flows using the loan`s existing
rate or at the fair value of collateral if repayment is expected solely from
the collateral. Increases in the allowance for loan losses are made by
expensing a provision for loan losses. No specific provision for loan
losses expense would result if an individually reviewed loan is graded
higher than `watch`, but such loans are included in the pools of loans
analyzed under SFAS 5. Loans classified `special mention` or `substandard`,
and smaller-balance loans classified `doubtful` are assigned a provision
based upon a historical migration analysis performed on classified loans.
The migration analysis identifies the percentage of classified loans by
category that has historically been ultimately charged-off. The migration
percentages are reviewed and adjusted by management to reflect various
factors such as the growth and change in mix of the loan portfolio and
the regulator`s guidelines. Loans ranked `loss` are charged off in their
entirety because at that point the unconfirmed loss that the loan loss
allowance is intended to approximate is considered to be confirmed.



As of December 31, 2008, 2007 and 2006 classified assets were as follows:

Classified assets at December 31,

				    2008		    2007		    2006
					Percent of		Percent of		Percent of
				Amount  total loans	Amount  total loans	Amount  total loans
(Dollar amounts in thousands)
											
Classified Loans:
  Special mention		$3,294	1.8%		$  401	0.2%		$6,476	3.5%
  Substandard			 3,874	2.1%		 4,839	2.5%		 5,350	2.9%
  Doubtful		   	    --	0.0%		    79	0.0%		   161	0.0%
  Loss			   	    --	0.0%		    --	0.0%		   152	0.0%
  Total classified loans	 7,168	3.9%		 5,319	2.7%		12,139	6.5%
  Other classified assets	    --	0.0%		    --	0.0%		    --	0.0%
  Total classified assets	 7,168	3.9%		 5,319	2.7%		12,139	6.5%



Pools of Loans Analyzed under SFAS 5
The total loan loss allowance is derived both from analysis of individual
impaired loans under SFAS 114 and analysis of aggregated pools of loans under
SFAS 5. Smaller balance loans (such as automobile or home equity loans, for
example), groups of loans (such as residential mortgage loans), and less
severely classified loans reviewed individually may be analyzed on an
aggregated or pooled basis under SFAS 5.

Under SFAS 5, loans are segmented into groups of loans having similar risk
characteristics based on purpose, loan type, and collateral, for example
residential mortgage loans, home equity loans, and consumer loans. Losses
inherent in pools of loans are estimated using average historical losses
over a period of years for loans of those types, but with adjustments to
account for changes in loan policies, changes in underwriting or loan
recovery practices, changes in prevailing economic conditions, changes
in the nature or volume of the loan portfolio, and changes in other internal
and external factors. Loans secured by real estate ~ particularly residential
mortgage loans ~ generally have less credit risk than other types of loans.

Changes in the Allowance for Loan Losses and Classified Assets
A proper loan review function is vital to establishment of an appropriate
loan loss allowance. Loan officers and the Bank`s credit analysts are
responsible for the assignment of risk ratings for loans reviewed
individually. Each quarter, a committee consisting of the Bank`s Chief
Financial Officer and Senior Credit Officer evaluates the loan loss allowance
and reports the results of its evaluation to senior management and the Bank`s
board. The Bank adjusts its loan loss allowance methodologies retrospectively
as well, making adjustments in its estimates and assumptions as necessary
to account for variances of estimated loan losses from actual loan loss
experience. The Bank`s determination about classification of its assets
and the amount of its allowances is subject to review by the Office of the
Comptroller of the Currency (OCC), which may order the establishment of
additional loss allowances.

First National Bank`s allowance for loan losses to total loans was 0.95% for
2008. This is a decrease of 0.10% when compared to 2007. In 2007, the
percentage of the allowance for loan losses to total loans was 1.05%.
This represents a 0.02% decrease over 2006. Total nonperforming loans
have decreased from $2.8 million as of December 31, 2007 to $2.0 million
at December 31, 2008. In 2008, total classified loans increased from $5,319
to $7,168 or 34.8%. A stagnant local economy and marginal deterioration of
the financial position of some of the Bank`s commercial borrowers led to
more loans being classified.

Loan review and monitoring is vital to establishment of an appropriate loan
loss allowance and to proper credit administration and risk management. In
order to minimize the credit risk inherent in the lending process, management
and the Board has adopted a more formal and systematic approach with credit
administration and loan review. As part of this systematic approach, in both
2007 and 2008, a qualified independent third party was engaged to perform
loan reviews. Management intends to continue this practice on an annual basis.

Loans deemed uncollectible are charged against the allowance for loan
losses. After a loan is charged off, the Bank continues to recover the
loss. Recoveries of previously charged-off amounts are credited to the
allowance for loan losses. The Bank recorded a $676 thousand partial
charge-off of a $1.7 million Summit County commercial real estate loan
in 2008. Transactions in the allowance for loan losses are summarized
in following table:


				Year ended December 31,

				  2008		  2007		  2006		  2005		  2004
(Dollar amounts in thousands)
				  		  		  		  		  
Balance, beginning of period	  $2,028	  $1,993	  $1,903	  $1,763	  $1,604
Loans charged off:
Collateralized by real estate:
     Commercial			     688	      --	      39	      --	      --
     Residential		      16	      12	      42	      --	      24
     Home equity		       9	      --	      --	      --	      --
     Construction		      --	      --	      --	      --	      --
     Consumer			      69	      72	      43	       8	      25
     Commercial			      32	      67	      17	      33	      --
     Credit cards		      21	      --	      21	      16	      20
     Other		              10	      --	      --	      --	      --
          Total loans charged off    845	     151	     162	      57	      69
Recoveries of loans
  previously charged off:
Collateralized by real estate:
     Commercial			       5	      --	      --	      --	      --
     Residential		      14	       1	      14	      --	      --
     Home equity		       2	      --	      --	      --	      --
     Construction		      --	      --	      55	      32	      --
     Consumer			      11	      37	      16	       5	       1
     Commercial		     	      --	      --	       1	       1	      41
     Credit cards		       1	       1	       6	      --	       8
     Other			      20	      --	      --	      --	      --
           Total recoveries	      53	      39	      92	      38	      50
Net loans charged off		    (792)	    (112)	     (70)	     (19)	     (19)
Provision charged to operations	     482	     147	     160	     159	     178

Balance, end of period		  $1,718	  $2,028	  $1,993	  $1,903	  $1,763
Loans outstanding:
          Average		$192,472	$187,888	$186,146	$197,064	$194,032
          End of period		 181,549	 193,941	 187,022	 193,937	 198,993
Ratio of allowance for loan
  losses to total loans
  outstanding at end of period	   0.95%	   1.05%	   1.07%	   0.98%	   0.89%
Net charge offs to average loans   0.41%	   0.06%	   0.04%	   0.01%	   0.01%




The allowance for loan losses is allocated among loan categories as shown in
the following table. Although the Bank considers inherent losses in
individual loans and categories of similar loans when it establishes
the loan loss allowance, the allowance is a general reserve available
to absorb all credit losses in the portfolio. No part of the allowance
is segregated for or dedicated to any particular asset or group of assets.


			Allocation of the allowance for loan losses at December 31,
			2008			2007			2006			2005			2004
			Amount	Percent(1)	Amount	 Percent(1)	 Amount	Percent(1)	Amount	Percent(1)	Amount	Percent(1)
(Dollar amounts in thousands)
																
Real estate:
     Commercial		$  501	27%		$  779	27%		$  654	25%		$  720	25%		$  373	24%
     Residential	   169	30%		   321	41%		    88	46%		   186	47%		   114	49%
     Home equity	   121	13%		   115	11%		     9	10%		     8	10%		    13	9%
     Construction	    26	7%		    --	4%	 	    --	3%		    --	3%		    --	3%
Consumer		   280	8%		   116	6%		    89	4%		    40	3%		    16	3%
Commercial		   579	14%		   552	9%		 1,064	10%		   826	10%		 1,226	10%
Credit cards		    --	0%		    48	1%		    31	1%		    47	1%		    21	1%
Other			    10	1%		    --	1%		    58	1%		    76	1%		    --	1%
Unallocated		    32	n/a		    97	n/a		    --	n/a		    --	n/a		    --	n/a
	Total		$1,718	100%		$2,028	100%		$1,993	100%		$1,903	100%		$1,763	100%

(1) - Percent of loans in each category to total loans.





Management reviews nonperforming assets on a regular basis and assesses the
requirement for specific reserves on those assets. Any loan past due 90 days
or more and any loan on non-accrual is considered to be a nonperforming asset.
Any loan 90 days or more past due that is not both adequately collateralized
and in a positive cash-flow position and any loan to a borrower experiencing
serious financial deterioration may be placed on non-accrual by the Senior
Credit Officer with the concurrence of senior management. Interest received
on non-accrual loans ~ also referred to as nonperforming loans ~ is recorded
as a reduction of principal. The table to follow summarizes nonperforming
assets and other nonperforming assets by category.


				Problem assets at December 31,
					2008	2007	2006	2005	2004

(Dollar amounts in thousands)
													
Real estate:
Commercial:
	Non-accrual			$  1,306	$  2,106	$    454	$     --	$     --
	Past due 90 days or more	      --	      --	      --	      --	      --
Residential:
	Non-accrual			      60	     209	     223	     599	     395
	Past due 90 days or more	     173	     142	     217	     198	      52
Home equity:
	Non-accrual			     386	      --	       8	       5	      --
	Past due 90 days or more	      34	       9	      --	      --	      --
Construction:
	Non-accrual			      --	      --	     276 	      --	     125
	Past due 90 days or more	      --	      --	      --	      --	      --
Not collateralized by real estate:
Consumer:
	Non-accrual			      --	      --	      --	       4	       8
	Past due 90 days or more	      24	       1	       8               5	       4
Commercial:
	Non-accrual			      --	     330	   1,100	   1,472	     899
	Past due 90 days or more	      30	      --	      22	      36    	      --
Credit cards:
	Non-accrual			      --	      --	      --	      --	      --
	Past due 90 days or more	      --	       6	      --   	       6	      --
	Total nonperforming loans	   2,013	   2,803	   2,308	   2,325	   1,483
Other real estate owned			     354	     194	     103	     103	      46
     Total nonperforming assets		$  2,367	$  2,997	$  2,411	$  2,428	$  1,529
Loans outstanding, net			$179,831	$191,488	$184,481	$191,538	$196,725
Nonperforming loans
  to total net loans			    1.12%	   1.46%	   1.25%	   1.21%	   0.75%
Nonperforming assets
  to total assets			    0.70%	   0.98%	   0.78%	   0.79%	   0.50%
Allowance for loan losses
  to total loans			    0.95%	   1.05%	   1.07%	   0.98%	   0.89%
Allowance for loan losses
  to nonperforming loans   		   85.35%	  72.35%	  86.38%	  81.86%	 118.88%





Securities
Total securities increased $42.7 million or 50.6% at December 31, 2008 when
compared to December 31, 2007. The Bank actively purchases bonds issued
by local municipalities, school systems and other public entities when
opportunities arise. Other securities are primarily comprised of
mortgage-backed securities, municipal securities and securities issued
by corporations. Securities are classified either as held to maturity
or as available for sale. The Bank does not hold any securities for trading
purposes. If management has the intent and the Bank has the ability at the
time of purchase to hold a security until maturity, the security is
classified as held-to-maturity and it is reflected on the balance sheet at
amortized cost. Securities to be held for indefinite periods and not intended
to be held to maturity or on a long-term basis are classified as
available-for-sale, and they are reflected on the balance sheet at their
market value. Management generally believes that all securities should be
classified as available-for-sale but makes that determination at the time
of purchase. In order to more effectively manage securities and to be in
a better position to react to market conditions, at December 31, 2008,
all securities were classified as available for sale. At year-end 2008 and
2007 there was no single issuer of securities where the total book value
of such securities exceeded 10% of shareholders` equity except for U.S.
government and agency obligations.



The following table shows the amortized cost and estimated fair values of
the corporation`s securities portfolio at the date indicated.

						Gross		Gross
				Amortized	unrealized	unrealized	Fair
				cost		gains		losses		value

(Dollar amounts in thousands)
										
December 31, 2008
Available for sale:
State and municipal		$ 16,173	$   234		$   (193)	$ 16,214
Corporate bonds and notes	   7,630	      5		    (453)	   7,182
Mortgage-backed		         101,220	  2,616		      --	 103,836
Equity Securities		      23	     --		      (7)	      16
	Total securities	$125,046	$ 2,855		$   (653)	$127,248

December 31, 2007
Available for sale:
U.S. Government and federal
agency				$ 10,107	$   161		$     --	$ 10,268
State and municipal		  15,786	    295		     (13)	  16,068
Corporate bonds and notes	  17,864  	     26		    (295)	  17,595
Mortgage-backed			  40,310	    294		     (21)	  40,583
	Total securities	$ 84,067	$   776		$   (329)	$ 84,514

December 31, 2006
Available for sale:
U.S. Government and federal
agency				$ 29,537	$    69		$   (226)	$ 29,380
State and municipal		  17,110	    330		     (45)	  17,395
Corporate bonds and notes	  27,579	    132		    (441)	  27,270
Mortgage-backed			  12,030	      4		     (79)	  11,955
	Total securities	$ 86,256	$   535		$   (791)	$ 86,000







The contractual maturity of securities available for sale at
December 31, 2008 is shown below.

	 		One year	More than one	More than five	More than
			or less		to five years	to ten years	ten years	Total securities

			Carrying value	Carrying value	Carrying value	Carrying value	Carrying value		Market
			Average yield	Average yield	Average yield	Average yield	Average yield		value
(Dollar amounts in thousands)
														
State and municipal	$    297	$  4,465	$  6,593	$  4,859	$ 16,214		$ 16,214
			   4.89%	   3.91%	   4.10%	   4.03%	   4.04%
Corporate bonds
  and notes		   3,884	   3,298	      --	      --    	   7,182	   	7,182
			   6.91%	   5.68%	      --	      --	   6.34%
Mortgage-backed		       3	      --	  30,315  	  73,518  	 103,836		 103,836
			   9.57%	      --	   4.86%	   5.26%	   5.14%
Total securities	$  4,184	$  7,763	$ 36,908	$ 78,377	$127,232		$127,232
			   6.77%	   4.66%	   4.72%	   5.19%	   5.07%



Restricted Equity Securities
As of December 31, 2008, the Bank held 24,855 shares of $100 par value
Federal Home Loan Bank of Cincinnati stock, which are restricted-equity
securities. FHLB stock represents an equity interest in the FHLB, but
it does not have a readily determinable market value. The stock can be
sold at its par value only, and only to the FHLB or to another member
institution. Member institutions are required to maintain a minimum stock
investment in the FHLB, based on total assets, total mortgages, and total
mortgage-backed securities.

Total Liabilities
Total liabilities increased by $29.5 million or 10.8% from 2007 to 2008.
This increase is primarily a result of a $19.5 million increase in
interest-bearing deposits and an increase of $4.0 million in Federal
Home Loan Bank advances.

Deposits
Deposits increased during 2008 by $21.1 million or 8.7%. The increase
is primarily attributed to a growth in interest-bearing demand deposits
of $27.9 million. This increase was partially offset by decreases in
savings and time deposits. First National Bank`s savings accounts include
passbook and statement savings, as well as preferred savings accounts, which
are tiered to pay higher rates for higher balances. First National Bank has
not solicited brokered deposits. Savings accounts decreased by $3.9 million
or 7.3% from the end of 2007 to the end of 2008. This was primarily due to
customer fund movement to higher yielding money market type demand accounts.
Time deposits decreased by $4.6 million or 5.7%. This decrease is a result
of the success of our premium money market demand and checking accounts,
and management`s decision to maintain a reasonable time deposit rate
structure. Interest-bearing demand deposits, which include negotiable order
of withdrawal accounts and money market demand accounts, increased $27.9
million or 43.2% during 2008. Much of the increase in this category is
attributed to the Bank`s success in marketing our `Platinum Checking` account.







Maturity of time deposits of $100,000 or more at December 31, 2008

(Dollar amounts in thousands)

Time Remaining to Maturity			Amount      	Percent of Total
     							
     Three months or less			$ 4,303		33.3%
     Over three through 12 months		  5,601		43.3%
     Over one year through 3 years		  3,033		23.4%
     Over 3 years				     --		--%
     Total					$12,937		100.0%



Liquidity and Capital Resources
A Bank`s liquidity risk is the risk associated with having to satisfy
current and future financial obligations in a timely manner. Both short-
and long-term liquidity needs are addressed by maturities and sales of
unpledged securities, loan repayments and maturities, sales of loans that
are not pledged as security for FHLB borrowings, and transactions in cash
and cash equivalents, such as federal funds purchased. The use of these
resources, combined with access to credit, provide funds for satisfying
depositor and borrower needs. Management considers the Bank to have
satisfactory liquidity, with the ability to satisfy the demands of
customers and the local economy. Liquidity may be adversely affected by
unexpected deposit outflows, which can be caused by higher interest rates
paid by competitors. Management continually monitors projected liquidity
needs and establishes a desirable level based in part on the Bank`s commitment
to make loans as well as management`s assessment of the Bank`s ability to
generate funds.

The most liquid assets are cash and cash equivalents, which at year-end 2008
consisted of $11.0 million in cash and due from banks. At year-end 2007
cash and cash equivalents consisted of $11.8 million in cash and due from
banks and $0.4 million in federal funds sold. Federal funds sold are
overnight investments with correspondent banks, an investment and liquidity
tool used to maximize earning assets. Securities classified as available for
sale that are not pledged are another source of liquidity. We consider the
Bank`s loans-to-deposits ratio to assess liquidity, seeking to cap the
ratio of loans to deposits at 100%. The ratio of total loans to deposits
at year-end 2008 was 68.9%. At the end of 2008 the fair value of securities
available for sale was approximately $127.2 million, while the total carrying
value of securities pledged was approximately $30.7 million, representing
securities pledged to secure public deposits and repurchase agreements.

Operating activities, as described in the Consolidated Statements of Cash
Flows in the attached consolidated financial statements, shows net cash
provided of $2.9 million in 2008, $1.8 million in 2007 and $2.4 million in
2006, generated principally from net income in those years. The Bank
reported $7.1 million in originations and proceeds from sales of mortgage
loans held for sale as operating activities in 2008.

Investing activities, as described in the Consolidated Statements of Cash
Flows in the attached consolidated financial statements, consist primarily
of loan originations and repayments, along with securities purchases, sales
and maturities. In 2008, net cash used in investing activities was
$31.8 million. The increase in loans over the year and the purchase of
loans utilized $11.3 million of cash. Net cash used from activity in
securities available for sale totaled $21.0 million in 2008. Management
continued the reallocation of the investment portfolio started in 2007
by primarily purchasing seasoned 15 and 20 year discount agency
mortgage-backed securities in 2008. In 2007, net cash used in investing
activities was $4.9 million. The increase in loans over the year and
the purchase of loans generated a $7.2 million use of cash. Net proceeds
from activity in securities available for sale was $2.3 million in 2007.
During 2007, management sold $22.7 million of callable securities and
corporate bonds. The proceeds from those sales were used to purchase `bullet
substitute` discount agency mortgage-backed securities with shorter duration
than the securities sold and seasoned 15 and 20 year discount agency
mortgage-backed securities. A `bullet substitute` is a collateralized
mortgage obligation whose structure and price lends itself to perform
well in a declining rate environment like a bullet bond of a similar
duration. Three characteristics that contribute to a bullet like
performance are discount coupon, prepayment accretion and structure
(e.g. principal lock-out and prepayment protection.) Duration is a
weighted-average term-to-maturity of a security`s cash flows, the
weights being the present value of each cash flow as a percentage of
the security`s full price. In 2006, as interest rates continued to
increase we experienced a decline in loans. Overall, net cash used in
investing activities was $2.9 million, as net loan pay downs resulted
in a $6.7 million source of cash and net securities purchased resulted
in an $8.8 million use of cash. Additionally, capital expenditures resulted
in a use of cash, in the amount of $918 thousand, primarily for the cost
associated with replacing our Kidron, Ohio, office with a new office.

Financing activities, as described in the Consolidated Statements of Cash
Flows in the attached consolidated financial statements, includes the
solicitation and repayment of customer deposits, borrowings and repayments,
treasury stock activity, and the payment of dividends. In 2008, net cash
provided by financing activities was $27.5 million. The increase in deposits
and short-term borrowings over the year provided $25.0 million of cash. At
December 31, 2008, the Bank had $21 million of borrowings outstanding with
FHLB, maturing in the years 2009, 2010 and 2011. This amount represents
a $4.0 million increase from the $17.0 million that was owed at the end
of 2007.


First National Bank has approximately $45.6 million available in short-term
funding arrangements with its correspondent banks and the FHLB. Additional
information concerning FHLB borrowings and bank obligations under repurchase
agreements is contained in Notes 8 and 9 of the consolidated financial
statements of National Bancshares Corporation. The outstanding balances and
related information about short-term borrowings, which consists almost
entirely of securities sold under agreements to repurchase are summarized
as follows:


						Year ended December 31,
					2008		2007		2006
(Dollar amounts in thousands)
									
Balance at year-end			$10,469		$ 8,831		$ 7,902
Average balance outstanding		 10,134		  8,642		  6,008
Maximum month-end balance		 11,136		 10,956		  7,902
Weighted-average rate at year-end	  0.50%		  2.85%		  3.63%
Weighted-average rate during the year	  1.43%		  3.86%		  3.48%



The Bank is subject to federal regulations imposing minimum capital
requirements. Total risk-based capital, tier I risk-based capital, and
tier I leverage capital ratios are monitored to assure compliance with
regulatory capital requirements. At December 31, 2008, the Bank exceeded
minimum risk-based and leverage capital ratio requirements. The Bank`s ratio
of total capital to risk-based assets was 12.60% on December 31, 2008.
The minimum required ratio is 8%. Additional information concerning capital
ratios at year-end 2008 and 2007 is contained in Note 14 of the consolidated
financial statements.



Contractual Obligations
As discussed in the notes to National Bancshares Corporation`s consolidated
financial statements, obligations exist to make payments under contracts,
including borrowings. At December 31, 2008, the aggregate contractual
obligations are outlined below:



Payment due by period

(Dollar amounts in thousands)

						One year	More than one	More than three		More than
Contractual Obligations		Total		or less	 	to three years	to five years		five years
													
Time deposits			$75,326		$51,744		$21,813		$ 1,763			$    6
Long-term obligations		 21,000		  3,000		 18,000		     --		            --
Information system
  contract obligations		  3,409		    632		  1,147		  1,073			   557
Operating lease obligations	     36		     26		     10		     --		            --
	Total			$99,771		$55,402		$40,970		$ 2,836			$  563



Off-Balance Sheet and Contingent Liabilities
Financial instruments, such as loan commitments, credit lines, and letters of
credit are issued to satisfy customers` financing needs. Ordinarily having
fixed expiration dates, these commitments are agreements to provide credit
or to support the credit of others, as long as conditions established in
the contracts are satisfied. Off-balance-sheet risk in the form of potential
credit loss exists up to the face amount of these instruments, although we
do not expect losses. Since these commitments are viewed as loans, the same
credit policies used for loans are used to evaluate making the commitments.
These funding commitments by expiration period were as follows at
year-end 2008:



Expiration of funding commitments

				One year	More than
				or less		one year	Total
(Dollar amounts in thousands)
								
Unused loan commitments		$26,454		$22,935		$49,389
Commitment to make loans	  2,382		     --		  2,382
Letters of credit		    109		     --		    109
	Total			$28,945		$22,935		$51,880



Of the unused loan commitments, $10,065 are fixed-rate commitments and
$39,324 are variable-rate commitments. Rates on unused fixed-rate loan
commitments range from 6.25% to 19.80%. The funding commitments shown
in the table above do not necessarily represent future cash requirements
since experience demonstrates that a large percentage of funding commitments
expire unused or partially used.

The Bank is required by regulations of the Federal Reserve Board to maintain
cash reserves on hand or on deposit with the Federal Reserve Bank. Reserve
requirements vary according to the amount of a Bank`s transaction accounts,
checking accounts principally. Reserve balances do not earn interest. First
National Bank was required to maintain cash reserve balances with the
Federal Reserve Bank of $100 thousand at year-end 2008 and
$3.5 million at year-end 2007.

The Bank sells some of the loans it originates, particularly conventional
fixed-rate residential mortgage loans. The loans are sold without recourse.
The Bank has retained mortgage-servicing rights on approximately $38.0 million
of residential mortgage loans sold.



Shareholders` Equity
The $1.9 million or 5.4% increase in shareholders` equity from year-end 2007
to year-end 2008 was caused by an increase in accumulated other comprehensive
income, which results from improvement in the market value of securities
available for sale and earnings greater than the dividend payout. These
increases were partially offset by the purchase of 5,017 shares of National
Bancshares Corporation common stock for $86 thousand in 2008. Accumulated
other comprehensive income represents the unrealized appreciation or
depreciation (net of taxes) in the market value of securities available
for sale. Interest rate volatility, economic and interest rate conditions
could cause material fluctuations in accumulated other comprehensive income.
The dividend payout ratio for 2008 is 64.00% versus 83.58% in 2007.

National Bancshares Corporation is dependent on the Bank for earnings and
funds necessary to pay dividends, and the payment of dividends, by the Bank
to National Bancshares Corporation, is subject to bank regulatory
restrictions. According to the National Bank Act and Office of the
Comptroller of the Currency (OCC) Rule 5.64, a national bank may never
pay a cash dividend without advance OCC approval if the amount of the
dividend exceeds retained net income for the year and for the two preceding
years (after any required transfers to surplus). In December 2008, the Bank
paid a dividend to National Bancshares Corporation in the amount of
$2.5 million. During 2009, the Bank must obtain regulatory approval to
pay dividends to the holding company until 2009 net income exceeds $1,210.

Interest Rate Sensitivity
Asset-liability management is the active management of a bank`s balance sheet
to maintain a mix of loans and deposits consistent with its goals for
long-term growth and risk management. Banks, in the normal course of business,
assume financial risk by making loans at interest rates that differ from rates
paid on deposits. Deposits often have shorter maturities than loans and
adjust to current market rates faster than loans. The result is a balance
sheet mismatch between assets (loans) and liabilities (deposits).

The function of asset-liability management is to measure and control three
levels of financial risk: interest rate risk (the pricing difference between
loans and deposits), credit risk (the probability of default), and liquidity
risk (occurring when loans and deposits have different maturities).

A primary objective in asset-liability management is managing net interest
margin, that is, the net difference between interest earning assets (loans)
and interest paying liabilities (deposits) to produce consistent growth in
the loan portfolio and shareholder earnings, regardless of short-term movement
in interest rates. The dollar difference between assets (loans) maturing or
repricing and liabilities (deposits) is known as the rate sensitivity gap
(or maturity gap). Banks attempt to manage this asset-liability gap by
pricing some of their loans at variable interest rates.

A more precise measure of interest rate risk is duration, which measures the
impact of changes in interest rates on the expected maturities of both assets
and liabilities. In essence, duration takes the gap report data and converts
that information into present-value worth of deposits and loans, which is
more meaningful in estimating maturities and the probability that either
assets or liabilities will reprice during the period under review.

Interest rate risk is the result of such risks as repricing risk, option risk
and basis risk. Repricing risk is caused by the differences in the maturity,
or repricing, of assets and liabilities. Most residential mortgage and
consumer loans give consumers the right to prepay with little or no
prepayment penalty, and because of competitive pressures, it may not be
advisable to enforce prepayment penalties on commercial loans. First National
Bank`s fixed-rate conventional mortgage loans are originated with loan
documentation that permits such loans to be sold in the secondary market.
The Bank`s policy is to classify these loans as `Held for Sale` or
`Held in Portfolio` at the time the loans are originated based on such
factors as the Bank`s liquidity position, interest rate environment and
general economic conditions.

Option is the risk that a change in prevailing interest rates will lead to
an adverse impact on earnings or capital caused by changes in the timing of
cash flows from investments. Cash flows may be received earlier than expected
as a result of the exercise of options or of embedded options in financial
contracts. The option a borrower has to prepay a loan is similar to the option
a depositor has to make an early withdrawal from a deposit account. This
form of embedded option, which gives the customer the opportunity to benefit
when interest rates change in their favor, ordinarily occurs at the Bank`s
expense in the form of higher interest expense or lower interest income.
Although residential mortgage loans tend to have lower credit risk than
other types of loans, they tend also to have higher option risk because of
the borrower`s option to prepay the loan and interest rate risk because of
the longer term associated with residential mortgage loans. Option risk
in the form of prepayments also affects the value of mortgage-backed
securities.

Basis risk is the risk that changes in interest rates will cause
interest-bearing deposit liabilities to reprice at a different rate than
interest-bearing assets, creating an asset-liability mismatch. If a bank
lends at prime rate and finances itself at Libor rates, it faces basis risk
due to the possibility that the prime-to-Libor spread might narrow.

Economic Value of Equity
The economic value of equity (EVE) is the difference between the net present
value of the assets and the net present value of liabilities. EVE can be
thought of as the liquidation value of the Bank on the date the calculation
is made. Calculating EVE involves using a discount rate to calculate the net
present value of assets and liabilities after making assumptions about the
duration of assets and liabilities. As interest rates change, the discount
rate changes and the change in interest rates effects the duration of assets
and liabilities. If interest rates fall, for example, the duration of loans
shortens since borrowers tend to prepay by refinancing their loan. Conversely,
the duration of loans increases if interest rates rise since borrowers are
inclined to hold on to the favorable rate they were able to obtain in the
lower interest rate environment.



In 2007, the Board of Directors adopted revised limits on a decline in EVE
and EAR given changes in interest rates. These limits are that EVE shall
not decline by more than 10%, 20% and 30% given a 1%, 2% and 3% increase or
decrease in interest rates respectively and that EAR shall not be greater
than 8%, 16% or 24% given a 1%, 2% or 3% increase or decrease in interest
rates respectively.  The following illustrates our equity at risk in the
economic value of equity model:



December 31, 2008

														
Basis Point Change in Rates	+300 bp		+200 bp		+100 bp		-100 bp		-200 bp		-300 bp
Increase (decrease) in EVE	(11.0)%		(4.3)%		(0.5)%		(1.8)%		(15.5)%		(28.6)%



The Bank is in compliance with the interest rate risk policy limits related
to EVE as of December 31, 2008.

Earnings at Risk
Earnings at risk, is the amount by which net interest income will be affected
given a change in interest rates. The interest income and interest expense
for each category of earning assets and interest bearing liabilities is
recalculated after making up and down assumptions about the change in
interest rates. Changes In prepayment speeds and repricing speeds are also
taken into account when computing earnings at risk, given a change in interest
rates.

The following illustrates the effect on earnings or EAR, given rate
increases of 100 to 300 basis points and decreases in interest rates
of 100 to 300 basis points.



December 31, 2008

														
Basis Point Change in Rates	+300 bp		+200 bp		+100 bp		-100 bp		-200 bp		-300 bp
Increase (decrease) in Earnings	(19.0)%		(12.1)%		(5.7)%		7.8%		1.4%		(5.5)%



The Bank is in compliance with the interest rate risk policy limits related
to EAR as of December 31, 2008.

One way to minimize interest rate risk is to maintain a balanced or matched
interest-rate sensitivity position. However, matched funding does not
generally maximize profits. To increase net interest income, the Bank
mismatches asset and liability repricing to take advantage of interest
rate conditions. The magnitude of the mismatch depends on management`s
assessment of the risks presented by the interest rate environment.

Interest rate risk can significantly affect income and expense on interest
sensitive assets and liabilities, and can also affect the underlying value
of the Bank`s assets. The goal in managing interest rate sensitivity is to
maintain an appropriate balance between interest sensitive assets and
liabilities in order to minimize the impact of volatility in market
interest rates.

Management of maturity distributions of assets and liabilities between
the most and least sensitive extremes is as important as the balances on
hand. Management of maturity distributions involves matching interest rate
maturities as well as principal maturities, which can influence net interest
income significantly. In periods of rapidly changing interest rates, a
negative or positive gap can cause major fluctuations in net interest
income and earnings. Managing asset and liability sensitivities, and
insulating net interest income from changes in market and interest rate
conditions is one of the objectives of the Bank`s asset/liability management
strategy.

Management attempts to maintain consistent net interest income and net income
while managing interest rate risk within Board approved policy limits.
Evaluating the Bank`s exposure to changes in interest rates is the
responsibility of Bank management which reports directly to the Board
of Directors. Bank management assesses both the adequacy of the management
process used to control interest rate risk and the quantitative level of
exposure, monitoring and managing interest rate risk to control the effect
of changing interest rates on net interest income and net income. Evaluating
the quantitative level of interest rate risk exposure requires assessment of
existing and potential effects of changes in interest rates on the Bank`s
financial condition, including capital adequacy, earnings, liquidity and
asset quality. Bank management also monitors the Bank`s liquidity levels.
Interest rate risk exposure is reviewed quarterly with the Board of
Directors. Risk is mitigated by matching maturities or repricing
opportunities.



MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Results of Operations
First National Bank derives substantially all of its income from banking
and bank-related services, including interest earnings on residential
real estate, commercial real estate, commercial and consumer loans and
investment securities along with fee income from deposit services. National
Bancshares Corporation`s business consists almost exclusively of acting as
holding company for the Bank. First National Bank`s business is not complex:
the Bank gathers deposits and it makes loans, principally in Wayne, Stark,
Medina and Holmes counties, Ohio.

Average Balances, Interest Rates and Yields
The average balances of our interest-earning assets and interest-bearing
liabilities, interest earned on assets and interest cost of liabilities for
the periods indicated, and the average yields earned and rates paid are
presented in the following table. Yields are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for
the periods presented. Average balances are daily averages.



Year ended December 31,

(Dollars amounts in thousands)
					2008			    2007		       2006
					Average		  Yield/    Average	      Yield/   Average 		 Yield/
					Balance	 Interest Cost	    Balance  Interest Cost     Balance	Interest Cost
						 	  	    	                       	 
Assets
Interest earning assets:
     Securities:
       Taxable				$ 79,522   4,095   5.14%   $ 68,787    3,585   5.18%   $ 65,044	  3,299	  5.07%
       Nontaxable (1)			  16,491     991   6.07%     16,757    1,059   6.39%	 18,820	  1,209	  6.45%
     Federal funds sold			   3,353      63   1.88%      6,447      335   5.20%	  8,816	    440	  4.99%
     Interest bearing deposits		   1,019      18   1.77%      1,319       69   5.23%	     --	     --	    --
     Net loans (including
       nonaccrual loans)		 192,472  12,241   6.36%    187,888   13,144   7.00%	186,146  12,620	  6.78%
Total interest-earning assets		 292,857  17,408   5.94%    281,198   18,192   6.34%	278,826	 17,568	  6.30%
All other assets			  22,059		     23,645			 24,215
     Total assets			$314,916		   $304,843		       $303,041
Liabilities and
Shareholder`s Equity
Interest-bearing liabilities:
     Interest-bearing checking		$ 73,243   1,342   1.83%   $ 58,148    1,341   2.31%   $ 42,342	    908	  2.14%
     Savings				  51,963     291   0.56%     56,690      615   1.08%	 64,979	    721	  1.11%
     Time, $100,000 and over		  13,197     497   3.77%     14,087	 641   4.55%	 14,168	    584	  4.12%
     Time, other			  65,248   2,527   3.87%     72,584    3,231   4.45%	 71,593	  2,754	  3.85%
Other funds purchased			  31,138   1,128   3.62%     23,838    1,140   4.78%	 21,319	  1,028	  4.82%
     Total interest-bearing liabilities	 234,789   5,785   2.46%    225,347    6,968   3.09%	214,401	  5,995	  2.80%
Demand deposits				  42,004		     42,225			 51,078
Other liabilities			   2,741 		      2,666			  2,221
Shareholders` equity			  35,382		     34,605			 35,341
     Total liabilities and
       shareholders` equity		$314,916		   $304,843			$303,041
Net interest income (1)		 		 $11,623		     $11,224			$11,573
Interest rate spread (2)				   3.48%		       3.25%			  3.50%
Net yield on interest-
  earning assets (3)					   3.97%		       3.99%			  4.15%
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities				 124.73%		     124.78%			130.05%


(1)	Tax-equivalent basis
(2)	Interest rate spread represents the difference between the average yield
	on interest-earning assets and the average cost of interest-bearing
	liabilities.
(3)	Net yield on interest-earning assets represents net interest income as a
	percentage of average interest-earning assets.






Rate/Volume Analysis
Changes in interest income and interest expense attributable to (1) changes
in volume (changes in average volume multiplied by prior year rate), and
(2) changes in rates (changes in rate multiplied by prior year average
volume) are shown in the table to follow. Increases and decreases have been
allocated proportionally to the change due to volume and the change due
to rate.

					2008 over 2007 			2007 over 2006
(Dollar amounts in thousands)
					Volume	Rate	 Net change	Volume	 Rate	  Net change
							 			 	  
Interest Income
Securities:
	Taxable				$ 557	$   (47)  $   510	$   214	 $   72	  $   286
	Nontaxable			  (27)	    (41)      (68)	   (144)     (6)     (150)
	(tax-equivalent basis)
Federal funds sold			  (58)	   (214)     (272)	   (123)     18	     (105)
Interest bearing deposits		   (5)	    (46)      (51)	     69	     --	       69
Loans (including
  nonaccrual loans)			  292    (1,195)     (903)	    122	    402	      524
	Total interest income
	(tax-equivalent basis)		$ 759	$(1,543)  $  (784)	$   138	 $  486	  $   624
Interest Expense
Deposits
	Interest bearing checking	$ 277	$  (276)  $     1	$   365	 $   68	  $   433
	Savings		  		  (26)	   (298)     (324)	    (90)    (16)     (106)
	Time, $100,000 and over		  (34)	   (110)     (144)	     (4)     61	       57
	Time, other		 	 (284)     (420)     (704)	     44	    433	      477
Other funds purchased			  264	   (276)      (12)	    120	     (8)      112
	Total interest expense		$ 197	$(1,380)  $(1,183)	$   435	 $  538	  $   973
Change in net
  interest income
(tax-equivalent basis)*      		$ 562	$  (163)  $   399	$  (297) $  (52)  $  (349)

*Tax equivalence based on highest statutory tax rates of 34%.



2008 versus 2007
During 2008, net income increased $483 thousand or 28.2% to $2.2 million.
Accordingly, basic and diluted earnings per share increased from $0.77 per
share in 2007 to $1.00 per share in 2008. The increase in net income is the
result of a relatively stable net interest margin, an increase in noninterest
income and a decrease in noninterest expenses. Returns on average equity
(ROE) and average assets (ROAA) for the year ending December 31, 2008,
were 6.20% and 0.70%, respectively, compared to 4.94% and 0.56% for the
year ending December 31, 2007.

Total interest and dividend income decreased $761 thousand or 4.3% in 2008.
Interest and fees on loans decreased $903 thousand or 6.9%, due primarily to
the decrease in interest rates during the year, partially offset by the
$4.6 million increase in average loans. Management has focused on
aggressively attracting commercial loan business and purchasing loan
participations from other Ohio banks (commercial real estate and consumer
loans). Securities interest and dividend income increased $465 thousand
or 10.9% over 2007. Much of this increase is attributable to an increase
in the average balance of securities.

Interest expense decreased by $1.2 million or 17.0% during 2008, as the
Bank`s deposits and short-term borrowings were affected by the falling
interest rate environment. Interest expense on deposits decreased
$1.2 million or 20.1% in 2008.  Deposit customers continued moving funds
from lower-rate deposit accounts to higher-yielding accounts, such as
premium money market accounts and high interest checking accounts during
2008.  Interest expense for short-term borrowings decreased by $196 thousand
or 54.4%, primarily due to the significant decrease in short-term market
interest rates during 2008. Federal Home Loan Bank advances interest expense
increased $184 thousand or 23.6% as the amount of advances increased from
$17 million to $21 million during 2008.

The provision for loan losses was $482 thousand in 2008, compared to
$147 thousand in 2007. The allowance for loan losses and the related
provision for loan losses is based on management`s judgment and
evaluation of the loan portfolio. Net charge-offs were $792 thousand
for 2008, compared to $112 thousand for 2007. The increase in 2008
charge-offs were primarily related to a $676 thousand partial charge-off
of a $1.7 million Summit County commercial real estate loan. The allowance
as a percentage of loans declined from 1.05% at December 31, 2007 to 0.95%
at December 31, 2008.  Classified loans have increased from $5.3 million as
of December 31, 2007 to $7.2 million as of December 31, 2008. Total
nonperforming loans have decreased from $2.8 million as of December 31, 2007
to $2.0 million as of December 31, 2008, a decrease of 28.2%. Management
believes the current allowance for loan losses is adequate, however changing
economic and other conditions may require future adjustments to the allowance
for loan losses.

Noninterest income increased $343 thousand or 17.2% during 2008. The
increase is related to the Bank`s enhancement of the deposit and service
charge fee structure, improvements in mortgage banking operations and
marketing activities and an increase in customer utilization of Visa check
card transactions. The Bank sold its $1.5 million credit card portfolio in
July 2008. The transaction generated a $435 thousand gain on sale. During
2008, the Company recorded an other than temporary impairment of
$444 thousand for the FHLMC preferred stock owned by the holding company.

Noninterest expense was $10.2 million for the year ended December 31, 2008
compared to $10.5 million for 2007, a decrease of 3.1%. The decrease is
primarily due to lower data processing expenses, professional and consulting
fees and maintenance and repairs expense. Data processing expense decreased
$158 thousand during 2008 as a result of a new contract entered into in
January of 2008 with the provider of the Bank`s core processing solution.
The decrease in professional and consulting fees was the result of a higher
level of services utilized in 2007. The Company engaged a consulting firm
to review the key business processes and procedures of First National Bank
in 2007.

Income tax expense was $770 thousand for the year ended December 31, 2008,
representing an increase of $274 thousand or 55.2%.

2007 versus 2006
During 2007, net income increased $547 thousand or 47.0%. Accordingly,
basic and diluted earnings per share increased from $0.52 per share in
2006 to $0.77 per share in 2007. The increase in net income is the result
of a relatively stable net interest margin, an increase in noninterest income
and a decrease in noninterest expenses. Returns on average equity (ROE) and
average assets (ROAA) for the year ending December 31, 2007 were 4.94% and
0.56%, respectively, compared to 3.29% and 0.38% for the year ending
December 31, 2006.

Total interest and dividend income increased $675 thousand or 3.9% in 2007.
Interest and fees on loans increased $524 thousand or 4.2%, due primarily to
the $7.0 million increase in loans. Management has focused on aggressively
attracting commercial loan business and purchasing loan participations from
other Ohio banks (commercial real estate and consumer loans). Securities
interest and dividend income increased $187 thousand or 4.6% over 2006.
Much of this increase is attributable to an increase in the average balance
of securities.

Interest expense increased by $1.0 million or 16.2% during 2007, as the Bank
continued to experience a shift from lower interest rate deposits to higher
paying interest rate deposits. Interest expense on deposits increased
$861 thousand or 17.3% in 2007.  Deposit customers continued moving funds
from lower rate deposit accounts to higher yielding certificates of deposit
and premium money market accounts during 2007. Short-term borrowings
increased by $135 thousand or 60.0%, primarily due to the increase in
repurchase agreements.

The provision for loan losses was $147 thousand in 2007, compared to
$160 thousand in 2006. The allowance for loan losses and the related
provision for loan losses is based on the management`s judgment and
evaluation of the loan portfolio. Net charge-offs have been relatively
low in recent years. Classified loans have decreased from $12.1 million
as of December 31, 2006 to $5.3 million as of December 31, 2007, a decrease
of 56.2%. The decrease in classified loans is the primary reason the
allowance as a percentage of loans declined from 1.07% at December 31, 2006,
to 1.05% at December 31, 2007. Total nonperforming loans have increased
from $2.3 million as of December 31, 2006, to $2.8 million as of
December 31, 2007, an increase of 21.7%. Management believes the current
allowance for loan losses is adequate, however changing economic and other
conditions may require future adjustments to the allowance for loan losses.



Noninterest income increased $337 thousand or 20.4% during 2007. The
increase is related to the Bank`s enhancement of the deposit and
service charge fee structure effective July 1, 2007. The Bank hired two
mortgage-banking specialists and reorganized mortgage loan operations
in the fourth quarter of 2007. The Bank is in the process of enhancing its
residential mortgage product and service offerings in an effort to improve
noninterest income in 2008 and beyond.

Noninterest expense was $10.5 million for the year ended December 31, 2007,
compared to $11.4 million for 2006, a decrease of 7.9%. The decrease is
primarily due to lower salaries and employee benefits due to lower staff
levels and a reduction in marketing expenses. Salaries and employee benefits
decreased $678 thousand in 2007 as the Bank reduced the number of full-time
equivalent employees from 132 at December 31, 2006 to 105 at
December 31, 2007. Marketing expenses decreased $289 thousand to
$127 thousand in 2007, compared to $416 thousand in 2006. Management has
focused on efficient and effective marketing solutions in an effort to reduce
unnecessary marketing costs in 2007.  Offsetting the decrease in noninterest
expense for 2007 were increases in professional and consulting fees of
$344 thousand and data processing of $102 thousand. In the first half of
2007, the Company engaged a consulting firm to review key business processes
and procedures for the Bank. The consulting firm identified opportunities to
improve operational efficiency and enhance the deposit and service charge fee
structure.



Income tax expense was $496 thousand for the year ended December 31, 2007,
representing an increase of $359 thousand or 262.0%.

Critical Accounting Policies
National Bancshares Corporation`s consolidated financial statements are
prepared in accordance with accounting principles generally accepted in
the United States of America ~ GAAP ~ and follow general practices within
the industry in which it operates. Application of these principles requires
management to make estimates, assumptions, and judgments based on information
available as of the date of the consolidated financial statements, affecting
the amounts reported in the financial statements and accompanying notes.
Certain policies necessarily require greater reliance on the use of
estimates, assumptions, and judgments. Estimates, assumptions, and judgments
are necessary when assets and liabilities are required to be recorded at
fair value, when a decline in the value of an asset not carried on the
consolidated financial statements at fair value warrants an impairment
write-down or valuation reserve to be established, or when an asset or
liability needs to be recorded contingent upon a future event. Carrying
assets and liabilities at fair value inherently results in more financial
statement volatility. The fair values and the information used to record
valuation adjustments for certain assets and liabilities are based either on
quoted market prices or are provided by other third-party sources, when
available. When third-party information is not available, valuation
adjustments are estimated in good faith by management, including the use
of internal cash-flow modeling techniques. National Bancshares Corporation`s
most significant accounting policies are presented in Note 1 of the
consolidated financial statements. Management considers the allowance for
loan losses, valuation of securities and goodwill and other intangible assets
to be the most subjective and the most susceptible to change as circumstances
and economic conditions change.

Allowance for Loan Losses
An allowance for loan losses recorded under generally accepted accounting
principles is a valuation allowance for probable incurred credit losses,
based on current information and events, increased by the provision for loan
losses and decreased by charge-offs less recoveries. The amount of the
allowance is a product of management`s judgment and it is inevitably
imprecise. Estimating the allowance requires significant judgment and
the use of estimates related to many factors, including the amount and
timing of future cash flows on problem loans, estimated losses on pools of
loans based on historical loss experience, and consideration of current
economic trends and conditions, all of which are susceptible to significant
change. Although management believes that the allowance for loan losses was
adequate at December 31, 2008, future adjustments could be necessary if
circumstances or economic conditions differ substantially from the
assumptions used in making the initial determinations. A downturn in the
local economy and employment could result in increased levels of
non-performing assets and charge-offs, increased loan loss provisions, and
reductions in income. Additionally, as an integral part of the examination
process, bank regulatory agencies periodically review a bank`s loan loss
allowance. The Office of the Comptroller of the Currency (OCC) could require
the recognition of additions to the loan loss allowance based on the OCC`s
judgment of information available to it at the time of its examination of
First National Bank.

Valuation of Securities
The portfolio of available-for- sale securities is reported at fair value.
The fair value of a security is determined based on quoted market prices.
If quoted market prices are not available, fair value is determined based
on quoted prices of similar instruments. Available-for-sale and
held-to-maturity securities are reviewed quarterly for possible
other-than-temporary impairment. The review includes an analysis of the
facts and circumstances of each individual investment, such as the length
of time the fair value has been below cost, the expectation for that
security`s performance, the credit worthiness of the issuer, and the bank`s
ability to hold the security to maturity. A decline in value that is
considered to be other-than-temporary would be recorded as a loss within
noninterest income in the consolidated statements of income.

Goodwill and Other Intangible Assets
Goodwill results from business acquisitions and represents the excess of
the purchase price over the fair value of acquired tangible assets and
liabilities and identifiable intangible assets. Goodwill is assessed at least
annually for impairment and any such impairment will be recognized in the
period identified. Other intangible assets consist of core deposit and
acquired customer relationship intangible assets arising from whole bank and
branch acquisitions. They are initially measured at fair value and then are
amortized on a straight line or accelerated method over their estimated
useful lives, which is 7 to 10 years.

New Accounting Pronouncements
See Note 1 of the consolidated financial statements for details on new
accounting pronouncements.




CONSOLIDATED BALANCE SHEETS
December 31, 2008 and 2007
(Dollar amounts in thousands, except per share data)


                                                2008	 		2007
									
ASSETS
Cash and due from banks				$ 11,001         	$ 11,842
Federal funds sold				      --		     443
	Total cash and cash equivalents		  11,001	   	  12,285
Securities available for sale			 127,248	    	  84,514
Restricted equity securities			   3,217	      	   3,121
Loans, net of allowance for loan losses:
	2008 ~ $1,718
	2007 ~ $2,028				 179,831	  	 191,488
Premises and equipment, net 			   6,197	     	   5,206
Goodwill 					   4,723	      	   4,723
Identified intangible assets			     422	             654
Accrued interest receivable 			   1,230	      	   1,502
Cash surrender value of life insurance		   2,677	      	   2,587
Other assets					   1,456		     571
						$338,002	 	$306,651

LIABILITIES AND SHAREHOLDERS` EQUITY
Liabilities
Deposits
	Non interest bearing			$ 46,159		$ 44,492
	Interest bearing			 217,483		 198,031
		Total deposits			 263,642	  	 242,523
Repurchase agreements				  10,469	     	   8,831
Federal funds purchased				   1,830                      --
Federal Reserve note account			     986            	     543
Federal Home Loan Bank advances			  21,000	   	  17,000
Accrued interest payable			     690		     975
Accrued expenses and other liabilities		   2,504		   1,788
	Total liabilities			 301,121	 	 271,660

Shareholders` equity
Common stock, no par value; 6,000,000
shares authorized;
         2,289,528 shares issued		  11,447	    	  11,447
Additional paid in capital		           4,718	      	   4,690
Retained earnings				  20,972	    	  20,182
Treasury stock, at cost (87,160 and
82,143 shares)					  (1,709)	    	  (1,623)
Accumulated other comprehensive income (loss)	   1,453		     295
Total shareholders` equity			  36,881		  34,991

						$338,002		$306,651






CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)



						2008		2007		2006
										
Interest and dividend income
	Loans, including fees			$ 12,241	$ 13,144	$ 12,620
	Securities:
	  Taxable				   4,095	   3,585	   3,299
	  Nontaxable				     654	     699	     798
	Federal funds sold and other		      81	     404 	     440
        Total interest and dividend income	  17,071	  17,832	  17,157

Interest expense
	Deposits		 		   4,657	   5,828	   4,967
	Short-term borrowings			     164	     360	     225
	Federal Home Loan Bank advances		     964	     780	     803
	  Total interest expense		   5,785	   6,968	   5,995

Net interest income				  11,286	  10,864	  11,162

Provision for loan losses			     482	     147	     160

Net interest income after provision for
loan losses					  10,804	  10,717	  11,002

Noninterest income
	Checking account fees			   1,218	   1,191	     985
	Visa check card interchange fees	     326	     269	     205
	Deposit and miscellaneous service fees	     171	     176	     170
	Mortgage banking activities		     126	      19	      17
	Gain on sale of credit card portfolio	     435	      --	      --
	Gain (loss) on sales or write-down of
	 other real estate owned		     (15)	     (33)	     (29)
	Securities gains (losses), net		    (344)	      14	      44
	Other					     416	     354	     261
Total noninterest income			   2,333	   1,990	   1,653

Noninterest expense
	Salaries and employee benefits		   5,118	   5,182	   5,860
	Data processing				     947	   1,105	   1,003
	Net occupancy 				     915	     859	     826
	Professional and consulting fees	     412	     593	     249
	Franchise tax				     326	     336	     362
	Maintenance and repairs			     212	     327	     294
	Amortization of intangibles		     232	     237	     246
	Telephone				     194	     243	     263
	Marketing				     144	     127	     416
	Director fees and pension		     312	     212	     380
	Other					   1,361	   1,279	   1,455
Total noninterest expense			  10,173	  10,500	  11,354

Income before income taxes			   2,964	   2,207	   1,301

Income tax expense				     770	     496	     137

Net income					$  2,194	$  1,711	$  1,164

Basic and diluted weighted average common
shares outstanding				2,203,218	2,231,369	2,234,488
Basic and diluted earnings per common share	$    1.00	$    0.77	$    0.52





CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS` EQUITY
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)

											Accumulated
									Additional	Other		Total
					Common	 Paid In    Retained	Treasury	Comprehensive	Shareholders`
					Stock	 Capital    Earnings	Stock		Income (Loss)	Equity
						 	    						
Balance at January 1, 2006		$11,447	 $4,690	    $20,167	$(1,189)	$ (362)		$34,753

Comprehensive income:
	Net income					      1,164					  1,164
	Other comprehensive income
	(loss)						   				   193		    193
		Total comprehensive
		income											  1,357

Cash dividends declared ($.64 per share)		     (1,430)				     	 (1,430)

Balance at December 31, 2006		 11,447	  4,690	     19,901	 (1,189)	  (169)		 34,680

Comprehensive income:
	Net income					      1,711					  1,711
	Other comprehensive income (loss)						   464		    464
	  	Total comprehensive income												2,175

Cash dividends declared ($.64 per share)		     (1,430)					 (1,430)
Purchase of 27,103 common stock								  (434)		   (434)
Balance at December 31, 2007		 11,447	  4,690	     20,182	 (1,623)	   295		 34,991

Comprehensive income
	Net income					      2,194					  2,194
	Other comprehensive income (loss)						 1,158		  1,158
		Total comprehensive income						  		  3,352

Cash dividends declared ($.64 per share)		     (1,404)					 (1,404)
Purchase of 5,017 common stock								   (86)		    (86)
Compensation expense under stock-based
compensation plans				     28							     28

Balance at December 31, 2008		$11,447	 $4,718	    $20,972	$(1,709)	$1,453		$36,881






CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands except per share data)


								2008		2007		2006
												
Cash flows from operating activities
	Net income						$2,194		$ 1,711		$ 1,164
	Adjustments to reconcile net income
	  to net cash from operating activities
		Provision for loan losses		   	   482		    147		    160
		Deferred income taxes			    	    40		    (19)	   (310)
		Depreciation, amortization and accretion   	   271		    442		    944
		Earnings on Bank owned life insurance 	   	   (90)		    (88)	    (83)
		Federal Home Loan Bank stock dividend	   	   (96)		     --		   (134)
		Origination of mortgage loans held for sale	(7,080)		 (1,826)	 (3,834)
		Proceeds from sales of mortgage loans held
		for sale					  7,187		  1,826		  3,812
Gain on sale of loans						   (114)	    (19)	    (17)
Net security (gains) losses					    344		    (14)	    (43)
Gain on sale of credit card portfolio				   (435)	     --		     --
Impairment charge for property					     --		     --		    124
(Gain) loss on sales or write-down of other real estate owned
  and property and equipment					     24		     33		     29
Compensation expense under stock-based compensation plans	     28		     --		     --
Change in other assets and liabilities				   (498)	   (353)	    562
		  Net cash from operating activities		  2,257		  1,840		  2,374

Cash flows from investing activities
	Proceeds from maturities of securities held to maturity	     --		     --		     50
	Securities available for sale
		Proceeds from maturities and repayments		 28,426		 15,753		  8,795
		Proceeds from sales				 25,417		 22,662		    278
		Purchases					(74,179)        (36,083)        (17,906)
	Purchases of property and equipment			 (1,462)   	   (325)	   (918)
	Proceeds from sale of credit card portfolio		  1,871		     --		     --
	Proceeds from sale of property and equipment		     13		    211		     --
	Proceeds from sale of other real estate owned		    179		     --		    105
	Purchase of loans					 (6,130)	 (6,408)	     --
	Net change in loans to customers			 (5,210)	   (747)	  6,677
		Net cash from investing activities		(31,075)	 (4,937)	 (2,919)

Cash flows from financing activities
	Net change in deposits					 21,119		 (5,158)	 (1,807)
	Net change in short-term borrowings		 	  3,911		    629		  5,792
	Proceeds from Federal Home Loan Bank advances		  4,000		  3,000		     --
	Repayments Federal Home Loan Bank advances		     --		     --	         (3,000)
	Dividends paid						 (1,410)	 (1,430)	 (1,430)
	Purchase of common stock    				    (86)	   (434)	     --
		Net cash from financing activities		 27,534		 (3,393)	   (445)

	Net change in cash and cash equivalents			 (1,284)	 (6,490)	   (990)
	Beginning cash and cash equivalents			 12,285		 18,775		 19,765
	Ending cash and cash equivalents			$11,001		$12,285		$18,775

	Supplemental cash flow information:
		Interest paid					$ 6,070		$ 7,022		$ 5,671
		Income taxes paid				    970		    662		    375
	Supplemental noncash disclosures:
         Transfer from loans to securities available for sale	$20,810		$    --		$    --
		Transfer from loans to other real estate owned	    354		    124		    134
		Transfer securities from held to maturity
	        to available for sale		 		     --		     --		 16,831





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)

NOTE 1 ~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated
financial statements include National Bancshares Corporation and its
wholly-owned subsidiary, First National Bank, Orrville, Ohio (Bank),
together referred to as `the Corporation.` The Bank has a minority interest
in First Kropf Title, LLC. The Bank`s investment in First Kropf Title, LLC
is immaterial to the consolidated financial statements. Intercompany
transactions and balances are eliminated in consolidation.

The Corporation provides financial services through its main and branch
offices in Orrville, Ohio, and branch offices in surrounding communities in
Wayne, Medina and Stark counties. Its primary deposit products are checking,
savings, and term certificate accounts, and its primary lending products are
commercial and residential mortgage, commercial and consumer installment
loans. Most loans are secured by specific items of collateral including
business assets, consumer assets and real estate. Commercial loans are
expected to be repaid from cash flow from operations of businesses. Real
estate loans are secured by both residential and commercial real estate.
Other financial instruments, which potentially represent concentrations of
credit risk, include deposit accounts in other financial institutions and
federal funds sold. There are no significant concentrations of loans to any
one industry or customer. However, the customer`s ability to repay their
loans is dependent on the real estate and general economic conditions of
this area.

Segments: As noted above, the Corporation provides a broad range of
financial services to individuals and companies in northern Ohio. While the
Corporation`s chief decision makers monitor the revenue streams of the
various products and services, operations are managed and financial
performance is evaluated on a Corporation-wide basis. Accordingly, all
of the Corporation`s financial service operations are considered by
management to be aggregated in one reportable operating segment.

Use of Estimates: To prepare financial statements in conformity with
U. S. generally accepted accounting principles, management makes estimates
and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and
the disclosures provided, and actual results could differ. The allowance
for loan losses, fair values of financial instruments and carrying value
of intangible assets are particularly subject to change.

Cash Flows: Cash and cash equivalents include cash, deposits with other
banks with original maturities under 90 days, and federal funds sold.
Net cash flows are reported for customer loan and deposit transactions,
interest bearing deposits with other banks, repurchase agreements and
other short-term borrowings.

Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to
hold them to maturity. Securities are classified as available for sale
when they might be sold before maturity. Equity securities with readily
determinable fair values are classified as available for sale. Securities
available for sale are carried at fair value, with unrealized holding
gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premium or discount.
Premiums and discounts on securities are amortized on the level-yield
method without anticipating prepayments, except for mortgage-backed
securities where prepayments are anticipated. Gains and losses on sales
are recorded on the trade date and determined using the specific
identification method.

Declines in the fair value of securities below their cost that are
other than temporary are reflected as realized losses.  In estimating
other than temporary losses, management considers the length of time and
extent that fair value has been less than cost, the financial condition
and near term prospects of the issuer, and the Company`s ability and intent
to hold the security for a period sufficient to allow for any anticipated
recovery in fair value.

Loans Held for Sale: Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of aggregate cost or market, as
determined by outstanding commitments from investors. Net unrealized losses,
if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale may be sold with servicing rights retained or
released.  The carrying value of mortgage loans sold is reduced by the amount
allocated to the servicing right for loans sold with servicing retained.
Gains and losses on sales of mortgage loans are based on the difference
between the selling price and the carrying value of the related loan sold.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands except per share data)


NOTE 1 ~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the
principal balance outstanding, net of unearned and deferred income and
an allowance for loan losses. Interest income is accrued on the unpaid
principal balance. Loan origination fees, net of certain direct origination
costs, are deferred and recognized in interest income using the
level-yield method without anticipating prepayments.

Interest income on mortgage and commercial loans is discontinued at the time
the loan is 90 days delinquent unless the loan is well-secured and in process
of collection.  Consumer loans are typically charged off no later than 120
days past due. Past due status is based on the contractual terms of the
loan. In all cases, loans are placed on nonaccrual or charged-off at an
earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual is
reversed against interest income.  Interest received on such loans is
accounted for on the cash-basis or cost recovery method, until qualifying
for return to accrual. Loans are returned to accrual status when all the
principal and interest amounts contractually due are brought current and
future payments are reasonably assured.

Concentration of Credit Risk:  Most of the Company`s business activity is
with customers located within Wayne, Stark, Holmes and Medina Counties.
Therefore, the Company`s exposure to credit risk is significantly affected
by changes in the economy in the Wayne, Stark, Holmes and Medina County area.

Purchased Loans: The Company purchases individual loans and groups of loans.
Purchased loans that show evidence of credit deterioration at the time of
purchase are recorded at the amount paid, such that there is no carryover
of the seller`s allowance for loan losses.  After acquisition, incurred
losses are recognized by an increase in the allowance for loan losses.

Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision
for loan losses and decreased by charge-offs less recoveries. Loan losses
are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Management estimates
the allowance balance required using past loan loss experience, the nature
and volume of the portfolio, information about specific borrower situations
and estimated collateral values, economic conditions, and other factors.
Allocations of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in management`s judgment, should
be charged-off.

The allowance consists of specific and general components.  The specific
component relates to loans that are individually classified as impaired or
loans otherwise classified as substandard or doubtful.  The general component
covers non classified loans and is based on historical loss experience
adjusted for current factors.

A loan is impaired when full payment under the loan terms is not expected.
Commercial and commercial real estate loans are individually evaluated for
impairment. If a loan is impaired, a portion of the allowance is allocated
so that the loan is reported, net, at the present value of estimated future
cash flows using the loan`s existing rate or at the fair value of collateral
if repayment is expected solely from the collateral. Large groups of smaller
balance loans, such as consumer and residential real estate loans, are
collectively evaluated for impairment, and accordingly, they are not
separately identified for impairment disclosures.

Servicing Rights: Servicing rights are recognized separately when they are
acquired through sales of loans. For sales of mortgage loans prior to
January 1, 2007, a portion of the cost of the loan was allocated to the
servicing right based on relative fair values. The Company adopted
SFAS No. 156 on January 1, 2007, and for sales of mortgage loans beginning
in 2007, servicing rights are initially recorded at fair value with the
income statement effect recorded in gains on sales of loans. Fair value is
based on market prices for comparable mortgage servicing contracts, when
available, or alternatively, is based on a valuation model that calculates
the present value of estimated future net servicing income. The valuation
model incorporates assumptions that market participants would use in
estimating future net servicing income, such as the cost to service,
the discount rate, the custodial earnings rate, an inflation rate,
ancillary income, prepayment speeds and default rates and losses. The
Company compares the valuation model inputs and results to published
industry data in order to validate the model results and assumptions.
All classes of servicing assets are subsequently measured using the
amortization method which requires servicing rights to be amortized into
non-interest income in proportion to, and over the period of, the estimated
future net servicing income of the underlying loans.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)

NOTE 1 ~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

At December 31, 2008 and 2007, the servicing assets of the Corporation
totaled $173 and $67, respectively, and is included with other assets
on the consolidated balance sheets. Fair value is determined using
prices for similar assets with similar characteristics, when available,
or based upon discounted cash flows using market-based assumptions.
Any impairment is reported as a valuation allowance, to the extent
that fair value is less than the capitalized amount for a grouping.

Servicing fee income is recorded when earned for servicing loans based
on a contractual percentage of the outstanding principal or a fixed amount
per loan. The amortization of mortgage servicing rights is netted against
loan servicing fee income.

Other Real Estate Owned:  Assets acquired through or instead of loan
foreclosure are initially recorded at fair value less costs to sell when
acquired, establishing a new cost basis.  If fair value declines subsequent
to foreclosure, a valuation allowance is recorded through expense.
Operating costs after acquisition are expensed.

Premises and Equipment: Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Buildings and related
components are depreciated using the straight-line method with useful lives
ranging from 7 to 39 years. Furniture, fixtures and equipment are depreciated
using the straight-line method with useful lives ranging from 3 to 7 years.

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock:  The
Bank is a member of the FHLB and FRB systems. FHLB members are required to
own a certain amount of stock based on the level of borrowings and other
factors, and may invest in additional amounts. The stocks are carried at
cost, classified as a restricted security, and periodically evaluated for
impairment based on ultimate recovery of par value.  Both cash and stock
dividends are reported as income.

Bank Owned Life Insurance: The Corporation has purchased life insurance
policies on its directors. Life insurance is recorded at the amount that
can be realized under the insurance contract at the balance sheet date,
which is the cash surrender value adjusted for other amounts due that are
probable at settlement.

Goodwill and Other Intangible Assets: Goodwill results from business
acquisitions and represents the excess of the purchase price over the
fair value of acquired tangible assets and liabilities and identifiable
intangible assets. Goodwill is assessed at least annually for impairment
and any such impairment will be recognized in the period identified.

Other intangible assets consist of core deposit and acquired customer
relationship intangible assets arising from whole bank and branch
acquisitions.  They are initially measured at fair value and then are
amortized on an accelerated method over their estimated useful lives,
which range from 7 to 10 years.

The Corporation also has intangible assets associated with a prior branch
acquisition, including unidentified intangibles of approximately $27 and
$56 at year-end 2008 and 2007. Management does not believe that this
purchase constituted a business combination and therefore is continuing
to amortize the unidentified intangible asset.

Long-term Assets: These assets are reviewed for impairment when events
indicate their carrying amount may not be recoverable from future
undiscounted cash flows. If impaired, the assets are recorded at fair
value.

Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged
to cover these liabilities, which are not covered by federal deposit
insurance.

Benefit Plans: Retirement plan expense is the amount of required matching
contributions plus any discretionary contributions to the Corporation`s
401(k) plan as determined by Board decision. Director retirement plan
expense allocates the benefits over the estimated years of service.

Stock-Based Compensation: Compensation cost is recognized for stock options
and restricted stock awards issued to employees, based on the fair value of
these awards at the date of grant. A Black-Scholes model is utilized to
estimate the fair value of stock options, while the market price of the
Corporation`s common stock at the date of grant is used for restricted
stock awards. Compensation cost is recognized over the required service
period, generally defined as the vesting period, on an accelerated basis.
For awards with graded vesting, compensation cost is recognized on a
straight-line basis over the requisite service period for the entire
award.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 1 ~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes: Income tax expense is the total of the current year income
tax due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for
the temporary differences between carrying amounts and tax bases of assets
and liabilities, computed using enacted tax rates. A valuation allowance,
if needed, reduces deferred tax assets to the amount expected to be realized.

The Company adopted FASB Interpretation 48, Accounting for Uncertainty in
Income Taxes (`FIN 48`), as of January 1, 2007.  A tax position is
recognized as a benefit only if it is `more likely than not` that
the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is the largest
amount of tax benefit that is greater than 50% likely of being realized on
examination.  For tax positions not meeting the `more likely than not` test,
no tax benefit is recorded.  The adoption had no affect on the Company`s
financial statements.

The Company recognizes interest and/or penalties related to income tax
matters in income tax expense.

Transfers of Financial Assets: Transfers of financial assets are accounted
for as sales, when control over the assets has been relinquished. Control
over transferred assets is deemed to be surrendered when the assets have
been isolated from the Company, the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets, and the Company does not maintain
effective control over the transferred assets through an agreement to
repurchase them before their maturity.

Loan Commitments and Related Financial Instruments: Financial instruments
include off-balance sheet credit instruments, such as commitments to make
loans and commercial letters of credit, issued to meet customer-financing
needs. The face amount for these items represents the exposure to loss,
before considering customer collateral or ability to repay. Such financial
instruments are recorded when they are funded.

Earnings Per Common Share: Earnings per common share is net income divided
by the weighted average number of shares outstanding during the period.
Diluted earnings per share includes the dilutive effect of additional
potential common shares issuable under stock options. 58,000 stock options
were not considered in computing diluted earnings per common share for 2008
because they were antidilutive. No options were outstanding prior to 2008.

Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains
and losses on securities available for sale, which is also recognized as a
separate component of equity.

Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. Management does not believe there now are such matters
that will have a material effect on the financial statements.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve
Bank of $100 and $3,527 was required to meet regulatory reserve and clearing
requirements at year-end 2008 and 2007. These balances do not earn interest.

Dividend Restriction: Banking regulations require maintaining certain
capital levels and limit the dividends paid by the Bank to the holding
company or by the holding company to shareholders. Dividends paid by the
Bank to the holding company are the primary source of funds for dividends
by the holding company to its shareholders.

Fair Value of Financial Instruments: Fair values of financial instruments
are estimated using relevant market information and other assumptions, as
more fully disclosed in a separate note. Fair value estimates involve
uncertainties and matters of significant judgment regarding interest rates,
credit risk, prepayments, and other factors, especially in the absence of
broad markets for particular items. Changes in assumptions or in market
conditions could significantly affect the estimates.

Reclassifications: Certain items in the prior year financial statements
were reclassified to conform to the current presentation.

Adoption of New Accounting Standards: In September 2006, the FASB issued
Statement No. 157, Fair Value Measurements (FAS 157).  This Statement
defines fair value, establishes a framework for measuring fair value and



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 1 ~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

expands disclosures about fair value measurements.  This Statement
establishes a fair value hierarchy about the assumptions used to
measure fair value and clarifies assumptions about risk and the effect
of a restriction on the sale or use of an asset.  The standard was
effective for fiscal years beginning after November 15, 2007.  In
February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date
of FASB Statement No. 157. This FSP delays the effective date of FAS 157
for all nonfinancial assets and nonfinancial liabilities, except those that
are recognized or disclosed at fair value on a recurring basis (at least
annually) to fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years. The impact of adoption was not material.
In October 2008, the FASB issued FSP 157-3, Determining the Fair Value of
a Financial Asset when the Market for That Asset Is Not Active.  This FSP
clarifies the application of FAS 157 in a market that is not active.  The
impact of adoption was not material.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities. The standard provides
companies with an option to report selected financial assets and liabilities
at fair value and establishes presentation and disclosure requirements
designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities.  The new
standard was effective for the Company on January 1, 2008. The Company did
not elect the fair value option for any financial assets or financial
liabilities as of January 1, 2008.

Effect on Newly Issued But Not Yet Effective Accounting Standards: In
December 2007, the FASB issued FAS No. 141 (revised 2007), Business
Combinations (`FAS 141(R)`), which establishes principles and requirements
for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in an acquiree, including the recognition and
measurement of goodwill acquired in a business combination.  FAS No. 141(R)
is effective for fiscal years beginning on or after December 15, 2008.
Earlier adoption is prohibited.  The adoption of this standard will not have
a material effect on the Corporation`s results of operations or financial
position.

In December 2007, the FASB issued SFAS No. 160, `Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51`
(`SFAS No. 160`), which will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling
interests and classified as a component of equity within the consolidated
balance sheets. FAS No. 160 is effective as of the beginning of the first
fiscal year beginning on or after December 15, 2008. The adoption of this
standard will not have a material effect on the Corporation`s results of
operations or financial position

In March 2008, the FASB issued SFAS No. 161, `Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133`.
FAS No. 161 amends and expands the disclosure requirements of SFAS No. 133
for derivative instruments and hedging activities. FAS No. 161 requires
qualitative disclosure about objectives and strategies for using derivative
and hedging instruments, quantitative disclosures about fair value amounts
of the instruments and gains and losses on such instruments, as well as
disclosures about credit-risk features in derivative agreements. FAS No. 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
encouraged. The adoption of this standard will not have a material effect
on the Corporation`s results of operations or financial position.

NOTE 2 ~ SECURITIES


The fair value of available for sale securities and the related gross
unrealized gains and losses recognized in accumulated other comprehensive
income (loss) were as follows:


								Gross		Gross
						Fair		Unrealized	Unrealized
						Value		Gains		Losses
										
2008
	State and municipal			$ 16,214	$  234		$(193)
     	Corporate bond and notes	  	   7,182	     5		 (453)
	Mortgage backed			 	 103,836	 2,616		   --
	Equity securities		  	      16	    --		   (7)
		Total debt securities		$127,248	$2,855		$(653)





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)



NOTE 2 ~ SECURITIES (Continued)


								Gross		Gross
						Fair		Unrealized	Unrealized
						Value		Gains		Losses
										
2007
	U.S. Treasury and federal agency	$10,268		$161		$  --
	State and municipal			 16,068		 295		  (13)
 	Corporate bond and notes		 17,595		  26		 (295)
	Mortgage-backed				 40,583		 294		  (21)
		Total debt securities		$84,514		$776		$(329)





Sales of available for sale securities were as follows:

						2008		2007		2006
										
	Proceeds				$25,471		$22,662		$278
	Gross gains				    330		    132		  38
	Gross losses				   (230)	   (121)	  --
	Gross gains from calls			     --		      3		   6
Other than temporary impairment loss		   (444)	     --		  --



The tax provision (benefit) related to these net realized gains and losses
was $(34), $5, and $15, respectively.



The fair value of debt securities at year-end 2008 by contractual maturity
were as follows. Securities not due at a single maturity date, primarily
mortgage backed securities, are shown separately.

						Fair Value
						
	Due in one year or less			$  4,181
	Due from one to five years		   7,763
	Due from five to ten years		   6,593
	Due after ten years			   4,859
	Mortgage backed				 103,836
	Equity securities			      16
		Total				$127,248



Securities pledged at year-end 2008 and 2007 had a carrying amount of
$30,679 and $24,668 and were pledged to secure public deposits
and repurchase agreements.

At year-end 2008 and 2007, there were no holdings of securities of
any one issuer, other than the U.S. Government and its agencies, in
an amount greater than 10% of shareholders` equity.


Securities with unrealized losses at year end 2008 and 2007, aggregated by
investment category and length of time that individual securities have been
in a continuous unrealized loss position, are as follows:


				Less Than 12 Months	12 Months or More	Total
				Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
2008				Value	Loss		Value	Loss		Value	Loss
											
State and municipal		$3,406	$(193)		$ --	$  --		$3,406	$(193)
Corporate bonds and notes	 5,166	 (453)	  	  --	   --	 	 5,166	 (453)
Mortgage-backed			    --	   --	  	  --	   --	    	    --	   --
Equity securities		    23	   (7)	  	  --	   --	    	    23	   (7)
   Total temporarily impaired	$8,595	$(653)		$ --	$  --	 	$8,595	$(653)




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 2 ~ SECURITIES (Continued)


				Less Than 12 Months	12 Months or More	Total
				Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
				Value	Loss		Value	Loss		Value	Loss
2007
											
U.S. Government
  and federal agency		$   --	$  --		$    --	$  --		$    --	$  --
State and municipal		   486	   (8)		  1,969	   (5)		  2,455	  (13)
Corporate bonds and notes	 1,181    (17)	 	 12,156	 (278)		 13,337	 (295)
Mortgage-backed			 6,246	   (9)		  1,269	  (12)		  7,515	  (21)
   Total temporarily impaired	$7,913	$ (34)		$15,394	$(295)		$23,307	$(329)



Unrealized losses have not been recognized into income because the securities
are of high credit quality, management has the intent and ability to hold
for the foreseeable future, and the decline in fair value is largely due to
increases in market interest rates or normally expected market pricing
fluctuations. The fair value of debt securities is expected to recover as
the securities approach their maturity date and/or market rates decline.

National Bancshares Corporation purchased $467 of FHLMC preferred stock in
the first quarter of 2008. During 2008, management determined this preferred
stock was other than temporarily impaired. Management recorded $84 and $360
of other than temporary impairment write-downs in the second and third
quarter of 2008 related to this investment security. The loss has been
recorded in Securities gains (losses), net in the Consolidated Statements
of Income and Comprehensive Income. The market value of these securities
at December 31, 2008 was $16 compared to an adjusted cost basis of $23.

The Bank holds a senior corporate bond issued by American International
Group, Inc. (`AIG`) maturing May 2013, which was purchased in October, 2003.
At December 31, 2008, the bond had an amortized cost of $982 and a market
value of $701. Based on management`s evaluation of this AIG security bond,
it is believed the decline in market value is temporary due to current
market conditions and negative press primarily centering around capital
contributions in consideration of the financial support of AIG so far
from the U.S. Treasury Department. The Bank has the intent and ability
to hold this security until the fair value is recovered, which may be at
maturity. Management will continue to monitor this security for impairment.


NOTE 3 ~ LOANS

Loans at year-end were as follows:

					2008		2007
							
Collateralized by real estate:
	Commercial			$ 48,034	$ 51,463
	Residential	     		  54,924	  80,113
	Home equity	     		  24,442	  20,857
	Construction			  12,846	   8,367
					 140,246	 160,800
Other:
      Consumer				  14,354	  11,988
      Commercial			  25,583	  17,552
      Credit card			      --	   1,614
      Other				   1,658	   1,987
					 181,841	 193,941
	Unearned and deferred income	    (292)     	    (425)
	Allowance for loan losses	  (1,718)	  (2,028)
	   Total    			$179,831	$191,488




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 3 ~ LOANS (Continued)


Activity in the allowance for loan losses was as follows:


					2008		2007		2006
									
	Beginning balance		$2,028		$1,993		$1,903
	Provision for loan losses	   482		   147		   160
	Loans charged-off		  (845)		  (151)		  (162)
	Recoveries		            53		    39		    92

		Ending balance		$1,718		$2,028		$1,993




Individually impaired loans were as follows:


							2008		2007
									
	Year end loans with no allocated allowance
	  for loan losses				$ 396		$   --
	Year end loans with allocated allowance
	  for loan losses				  940		 2,702
	Amount of the allowance for loan losses
	allocated					   75		   629





							2008		2007		2006
											
	Average of individually impaired
loans during year

							$1,846		$2,500		$  584


The impact on interest income of impaired loans was not significant to
the consolidated statements of income.


Nonaccrual loans and loans past due 90 days still on accrual were as follows:


							2008		2007
									
	Loans past due over 90 days still on accrual	$  261		$  158
	Nonaccrual loans				 1,752		 2,645



Nonaccrual loans and loans past due 90 days still on accrual include both
smaller balance loans that are collectively evaluated for impairment and
individually classified impaired loans.

The Bank sold its $1,486 credit card portfolio to Elan Financial Services
(Elan), a subsidiary of U.S. Bank National Association ND in July, 2008.
Under the agreement, Elan purchased the Bank`s existing credit card
portfolio, and subsequently will issue credit cards for the Bank utilizing
the First National Bank name and logo. First National Bank will continue
to earn certain fees from ongoing portfolio activity and new accounts.
The transaction generated a $435 gain recorded in the third quarter of 2008.

The Bank securitized $20,897 single-family residential mortgage loans
formerly held in its mortgage loan portfolio, with Freddie Mac in
December, 2008. The Bank has recorded the securities as available for sale
and continues to service the loans. The securitization increased the Bank`s
liquidity as the securities are readily marketable, eliminated credit risk
on the loans and increased the Bank`s risk-based capital ratio. Since the
Bank cannot de-securitize the securities to get back the loans, the
securitization is not considered a sale or transfer under SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, but an exchange of loans for securities
under SFAS No. 134, Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise, and SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities because the Bank received the beneficial interest
in the loans it transferred to Freddie Mac. As a result of the
securitization, single-family residential mortgage loan balances net of
unamortized loan origination fees declined $20,810, the loan servicing asset
increased $132 and securities available for sale increased $21,532. The
unrealized gain on the securities at December 31, 2008 was $840 which
increased the Bank`s capital by $554.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 4 ~ LOAN SERVICING


Mortgage loans serviced for others are not reported as assets.  The
principal balances of these loans at year-end are as follows:


							2008		2007
									
	Mortgage loan portfolios serviced for:
		FHLMC					$38,011		$17,597



There were no custodial escrow balances maintained in connection with
serviced loans at year end 2008 and 2007.


Activity for mortgage servicing rights and the related valuation allowance follows:


							2008		2007		2006
											
	Servicing rights:
		Beginning balance			$ 67		$ 86		$ 84
		Additions				 139		  19		  40
		Amortized to expense			 (33)		 (38)		 (38)

		     Ending balance			$173		$ 67		$ 86


NOTE 5 ~ PREMISES AND EQUIPMENT


Year end premises and equipment were as follows:


							2008		2007
									
	Land						$ 1,528		$ 1,378
	Buildings					  6,380		  6,096
	Furniture, fixtures and equipment		  4,764		  4,536
	Construction in progress			    275		     --
							 12,947		 12,010
	Less:  Accumulated depreciation			 (6,750)	 (6,804)
							$ 6,197		$ 5,206



Depreciation expense was $442, $457 and $446 in 2008, 2007 and 2006.

Rent expense under operating leases included in occupancy was $39, $38
and $47 for the years ended December 31, 2008, 2007 and 2006. Future lease
payments are not material.

NOTE 6 ~ INTANGIBLE ASSETS


During 2002, the Corporation acquired Peoples Financial Corporation and
merged the Company`s banking operations into the Bank.  Identified
intangible assets totaling $1,791 were recognized and have useful lives
of 7 to 10 years.  Goodwill of $4,723 was realized from this transaction.
Identified intangible assets at year-end were as follows:


							2008				2007
							Gross				Gross
							Carrying	Accumulated	Carrying	Accumulated
							Amount		Amortization	Amount		Amortization
													
Amortized intangible assets:
	Core deposit intangibles			$1,063		$  772		$1,063		$  673
	Branch acquisition intangible			   760		   733		   760		   704
	Customer relationship intangibles		   728		   624		   728		   520
Total							$2,551		$2,129		$2,551		$1,897



Aggregate amortization expense was $232, $237 and $246 for 2008,
2007 and 2006.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 6 ~ INTANGIBLE ASSETS (Continued)


Estimated amortization expense for the next four years:

				
			2009	$224
			2010	  90
			2011	  86
			2012	  22




NOTE 7 ~ DEPOSITS


							2008		2007
									
	Demand, noninterest-bearing			$ 46,159	$ 44,492
	Demand, interest-bearing			  92,515	  64,594
	Savings						  49,642	  53,545
	Time, $100,000 and over				  12,937	  12,725
	Time, other					  62,389	  67,167
							$263,642	$242,523





A summary of time deposits at year-end 2008 by maturity follows:


						
			2009			$51,744
			2010			 17,941
			2011			  3,872
			2012			  1,181
			2013 and thereafter	    588
						$75,326



NOTE 8 ~ FEDERAL HOME LOAN BANK ADVANCES



At year-end, advances from the Federal Home Loan Bank were as follows:


							2008		2007
									
Maturity in 2010, fixed rate at 6.26%, 			$ 1,000		$ 1,000
onvertible to variable rate if 3-month LIBOR is
at or above predetermined conversion rate level

Maturities in 2010 and 2011, fixed rate at 4.93% 	 13,000		 13,000
to 5.79% at December 31, 2008 and 2007,
convertible to variable if 1-month LIBOR is at
or above fixed rate

Maturities in 2009, fixed rate at 3.95% to 4.10%  	  3,000		  3,000

Maturities in 2010, fixed rate at 3.19%			  1,000		     --

Maturities in 2011, fixed rate at 2.88%			  3,000		     --
     Total						$21,000		$17,000





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)

NOTE 8 ~ FEDERAL HOME LOAN BANK ADVANCES (Continued)

Each advance is payable at its maturity date; advances may be paid prior to
maturity subject to a prepayment penalty. As collateral for the advances,
the Bank has approximately $49,769 and $76,395 of first mortgage loans
available under a blanket lien arrangement at year-end 2008 and 2007.



Required payments over the next three years are:

						
2009                    3.95 to 4.10%		$ 3,000
2010                    3.19 to 6.26%		 12,000
2011                    2.88 to 5.12%		  6,000



NOTE 9 - REPURCHASE AGREEMENTS


Repurchase agreements generally mature within 30 days from the transaction
date.  Information concerning repurchase agreements is summarized as
follows:


								2008		2007		2006
												
	Average balance during the year                         $10,134		$ 8,642		$ 6,008
	Average interest rate during the year			   1.42%	   3.86%	   3.48%
	Maximum month-end balance during the year               $11,136		$10,956		$ 7,902
	Weighted-average rate at year end			   0.50%	   2.85%	   3.63%



NOTE 10 ~ BENEFIT PLANS

The Corporation has a 401(k) retirement plan that covers substantially all
employees. The plan allows employees to contribute up to a predetermined
amount, subject to certain limitations, with the Corporation matching 50%
of contributions up to 6% of the employee`s pay. Discretionary contributions
may also be made to the plan.  Total matching and discretionary contributions
made by the Corporation during 2008, 2007 and 2006 amounted to $81, $83
and $142.

The Corporation has an Employee Stock Purchase Incentive Plan for full-time
and most part-time employees. Under the Plan, each employee is entitled to
receive a cash payment equal to 20% of the purchase price of Corporation
common stock acquired by the employee on the open market, up to a maximum of
100 shares per calendar year. Expenses recognized in 2008, 2007 and 2006
amounted to $1, $2, and $3.

The Corporation has a director retirement and death benefit plan for the
benefit of all members of the Board of Directors.  The plan is designed
to provide an annual retirement benefit to be paid to each director upon
retirement from the Board and attaining age 70.  The retirement benefit
provided to each director is an annual benefit equal to $1 for each year
of service on the Board from and after August 24, 1994 until August 2007,
when the Board voted to cease further benefits.  In addition, each director
has the option of deferring any portion of directors` fees to a maximum
of $5 per month until retirement.

Interest credited to participant accounts associated with the deferrals
was $12, $29 and $45 in 2008, 2007 and 2006. The deferred directors` fee
liability was $374 at December 31, 2008 and $414 at December 31, 2007.
Expense recognized in 2008, 2007 and 2006 for the director retirement and
death benefit plan was $117, $59 and $167. The liability related to the
plan was $680 at December 31, 2008 and $599 at December 31, 2007.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 11 ~ INCOME TAXES


The components of deferred taxes were as follows:


								2008		2007
										
Deferred tax assets:
		Bad debts					$  424		$  529
		Deferred compensation				   382		   363
		Deferred loan fees				   192		   190
		FHLMC preferred stock impairment loss		   151		    --
		Non-accrual loan interest income		    45		    78
		Stock-based compensation		            10		    --
		Core deposit intangibles		             7		    14
		Other						     5		    --
		Real estate owned write-down		            --		    11
			Total					$1,216		$1,185



								2008		2007
										
Deferred tax liabilities:
		Unrealized security gains, net			$  749		$  152
		Federal Home Loan Bank stock dividends		   542		   509
		Depreciation					   321		   203
		Purchase accounting adjustments			   206		   283
		Mortgage servicing rights			    59		    23
		Prepaid expenses				    44		    26
		Securities accretion				    31		    87
		Partnership income				     1		     2
		   Total					 1,953		 1,285
	Net deferred tax asset (liability)			$ (737)		$ (100)



Federal income tax laws provided that the 2002 acquired entity could claim
additional bad debt deductions through 1987, totaling $1,864.  Accounting
standards do not require a deferred tax liability to be recorded on this
amount, which liability otherwise would total $634 at December 31, 2008.
If the Bank were liquidated or otherwise ceases to be a bank or if tax
laws were to change, this amount would be expensed.


The components of income tax expense are as follows:


								2008		2007		2006
												
	Currently payable					$ 730		$ 515		$ 447
	Deferred						   40		  (19)		 (310)

		Total						$ 770		$ 496		$ 137





The following is a reconciliation of income tax at the federal statutory
rate to the effective rate of tax on the financial statements:

						2008			2007			2006

      					       	Rate	Amount		Rate	Amount		Rate	Amount
      												
      Tax at federal statutory rate		34%	$1,008		34%	$ 750		34%	$ 442
      Tax-exempt income				(7)	  (214)	       (10)	 (228)		(20)	 (261)
       Other					(1)	   (24)		(2)	  (26)		 (3)      (44)
       Income tax expense			26%	$  770		22%	$ 496		 11%	$ 137






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 12 ~ RELATED-PARTY TRANSACTIONS


Loans to principal officers, directors, and their affiliates during 2008
were as follows:


								
	Beginning balance					$3,324
	Effect of changes in composition of related parties	    --
	New loans						 1,233
	Repayments						   781

	     Ending balance					$3,776



Unused commitments to these related parties totaled $969 and $1,088 at
year-end 2008 and 2007. Related party deposits totaled $2,050 and $2,758
at year-end 2008 and 2007.

The Corporation has minority ownership in a title agency affiliated with a
Director resulting in fee income to the Corporation of $11, $16 and $20
for 2008, 2007 and 2006, respectively.

NOTE 13 ~ STOCK-BASED COMPENSATION

The Company`s 2008 Equity Incentive Plan (`the Plan`), which is
shareholder-approved, permits the grant of stock options to its
officers, employees, consultants and non-employee directors for up to
223,448 shares of common stock. Option awards are granted with an
exercise price equal to the market price of the Company`s common stock
at the date of grant; those option awards have vesting periods determined
by the Company`s compensation committee and have terms that shall not
exceed 10 years.

On May 20, 2008, the Company granted options to purchase 58,000 shares of
stock to directors and certain key officers, all of which remain outstanding
at December 31, 2008. The exercise price of the options is $18.03 per share.
The options vest in five equal installments over a five-year period and have
a term of 10 years. As of December 31, 2008 none of the options had been
forfeited. All options are expected to vest.

The fair value of each option award is estimated on the date of grant
using a closed form option valuation (Black-Scholes) model that uses the
assumptions noted in the table below. Expected volatilities are based on
historical volatilities of the Company`s common stock. The Company uses
historical data to estimate option exercise and post-vesting termination
behavior. The expected term of options granted is based on historical data
and represents the period of time that options granted are expected to be
outstanding, which takes into account that the options are not transferrable.
The risk-free interest rate for the expected term of the option is based on
the U.S. Treasury yield curve in effect at the time of the grant.


The fair value of options granted of $1.83 per option was determined using
the following weighted-average assumptions as of grant date.


						
	Risk-free interest rate			 3.19%
	Expected term (years)			 6.5
	Expected stock price volatility		13.76%
	Dividend yield 				 3.60%



The total compensation cost that has been charged against income for
the plan was $28 for 2008. The total income tax benefit was $10 for 2008.
As of December 31, 2008, there was $78 of total unrecognized compensation
cost related to nonvested stock options granted under the Plan. The cost is
expected to be recognized over a weighted-average period of 4.4 years. At
December 31, 2008, no options are vested and the outstanding options have
no intrinsic value. The weighted average remaining contractual term is
9.4 years.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 14 ~ REGULATORY CAPITAL MATTERS

Banks are subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities, and
certain off balance sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators. Failure to meet capital requirements
can initiate regulatory action.  Management believes as of December 31, 2008,
the Bank meets all capital adequacy requirements to which it is subject.

Prompt corrective action regulations provide five classifications:
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are
not used to represent overall financial condition.  If adequately
capitalized, regulatory approval is required to accept brokered deposits.
If undercapitalized, capital distributions are limited, as is asset growth
and expansion, and capital restoration plans are required.  At year end 2008
and 2007, the most recent regulatory notifications categorized the Bank as
well capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since that notification that management
believes have changed the institution`s category.


Actual and required capital amounts and ratios are presented below at year-end.


											To Be Well
								Required		Capitalized Under
								For Capital		Prompt Corrective
					Actual			Adequacy Purposes	Action Regulations
					Amount	 Ratio		Amount	 Ratio		Amount	 Ratio
						 			 			 
2008
Total capital to risk
  weighted assets			$26,730	 12.60%		$16,971	 8.00%		$21,213	 10.00%
Tier 1 capital to risk
  weighted assets			 25,012	 11.79%		  8,485	 4.00%		 12,728	  6.00%
Tier 1 capital to
  average assets			 25,012	  7.78%		 12,853	 4.00%		 16,066	  5.00%

2007
Total capital to risk
  weighted assets			$26,810	 12.78%		$16,785	 8.00%		$20,981	  10.00%
Tier 1 capital to risk
  weighted assets			 24,782	 11.81%		  8,392	 4.00%		 12,588	   6.00%
Tier 1 capital to
  average assets			 24,782	  8.26%		 12,001	 4.00%		 15,001	   5.00%



Dividend Restrictions ~ The Company`s principal source of funds for dividend
payments is dividends received from the Bank. Banking regulations limit the
amount of dividends that may be paid without prior approval of regulatory
agencies. Under these regulations, the amount of dividends that may be paid
in any calendar year is limited to the current year`s net profits, combined
with the retained net profits of the preceding two years, subject to the
capital requirements described above. During 2009, the Bank must obtain
regulatory approval to pay dividends to the holding company until 2009 net
income exceeds $1,210.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 15 ~ LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Some financial instruments, such as loan commitments, credit lines, letters
of credit, and overdraft protection, are issued to meet customer financing
needs.  These are agreements to provide credit or to support the credit of
others, as long as conditions established in the contract are met, and
usually have expiration dates.  Commitments may expire without being used.
Off balance sheet risk to credit loss exists up to the face amount of these
instruments, although material losses are not anticipated.  The same credit
policies are used to make such commitments as are used for loans, including
obtaining collateral at exercise of the commitment.


The contractual amounts of financial instruments with off balance sheet risk
at year-end were as follows:


						2008		2007
								
	Commitments to make loans		$ 2,382		$ 6,723
	Unused lines of credit			 49,389		 56,077
	Letters of credit			    109		    157



Of the above unused instruments at December 31, 2008, approximately $10,065
pertains to fixed-rate commitments and variable-rate commitments account
for approximately $41,815. At year-end 2007, approximately $9,257 of
total commitments were fixed-rate and approximately $53,700 were variable
rate. Rates on fixed-rate unused lines of credit ranged from 6.25% to
19.80% at December 31, 2008 and 5.75% to 16.90% at December 31, 2007.

NOTE 16 - FAIR VALUE

Statement 157 establishes a fair value hierarchy which requires an entity
to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of
inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities
in active markets that the entity has the ability to access as of the
measurement date.

Level 2: Significant other observable inputs other than Level 1 prices
such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can
be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity`s
own assumptions about the assumptions that market participants would use
in pricing an asset or liability.

The fair values of securities available for sale are determined by obtaining
quoted prices on nationally recognized securities exchanges (Level 1 inputs)
or matrix pricing, which is a mathematical technique widely used in the
industry to value debt securities without relying exclusively on quoted
prices for the specific securities but rather by relying on the relationship
to other benchmark quoted securities (Level 2 inputs).

The fair value of impaired loans with specific allocations of the allowance
for loan losses is generally based on recent real estate appraisals. These
appraisals may utilize a single valuation approach or a combination of
approaches including comparable sales and the income approach. Adjustments
are routinely made in the appraisal process by the appraisers to adjust for
differences between the comparable sales and income data available. Such
adjustments are typically significant and result in a Level 3
classification of the inputs for determining fair value.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 16 - FAIR VALUE (Continued)

Assets and Liabilities Measured on a Recurring Basis


Assets and liabilities measured at fair value on a recurring basis are
summarized below:

						Fair Value Measurements
						At December 31, 2008 Using
						Quoted Prices in	Significant
						Active Markets		Other		Significant
						for Identical		Observable	Unobservable
						Assets	Inputs		Inputs
						(Level 1)		(Level 2)	(Level 3)
											
Assets:
	Available for sale securities		$16			$127,232	$--

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis
are summarized below:

  						Fair Value Measurements
						At December 31, 2008 Using
						Quoted Prices in	Significant
						Active Markets		Other		Significant
						for Identical		Observable	Unobservable
						Assets			Inputs		Inputs
						(Level 1)		(Level 2)	(Level 3)
											
Assets:
     Impaired loans				$--			$--		$865



Impaired loans, which are measured for impairment using the fair value of the
collateral for collateral dependent loans, had a principal amount of $940,
with a valuation allowance of $75, resulting in an additional provision for
loan loss of $75.


Carrying amount and estimated fair values of financial instruments at
year-end were as follows:


						2008				2007
						Carrying	Fair		Carrying	Fair
						Amount		Value		Amount		Value
												
Financial assets
	Cash and cash equivalents		$ 11,001	$ 11,001	$ 12,285	$ 12,285
	Securities available for sale		 127,248	 127,248	  84,514	  84,514
	Loans, net				 179,831	 179,586	 191,488	 193,823
	Accrued interest receivable		   1,230	   1,230	   1,502	   1,502

Financial liabilities
	Deposits				(263,642)	(264,731)	(242,523)	(242,759)
	Short-term borrowings			 (13,285)	 (13,285)	  (9,374)	  (9,374)
	Federal Home Loan Bank advances		 (21,000)	 (21,239)	 (17,000)	 (17,060)
	Accrued interest payable		    (690)	    (690)	    (975)	    (975)



The methods and assumptions used to estimate fair value are described
as follows:

Carrying amount is the estimated fair value for cash and cash equivalents,
interest bearing deposits, accrued interest receivable and payable, demand
deposits, short term debt, and variable rate loans or deposits that reprice
frequently and fully. For fixed rate loans or deposits and for variable rate
loans or deposits with infrequent repricing or repricing limits, fair value
is based on discounted cash flows using current market rates applied to the
estimated life and credit risk. It was not praticable to determine the fair
value of restricted equity stock due to restrictions placed on its
transferability. Fair value of debt is based on current rates for similar
financing. The fair value of off balance sheet items is not considered
material.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 17 ~ OTHER COMPREHENSIVE INCOME (LOSS)


Other comprehensive income (loss) components and related tax effects
were as follows:

						2008		2007		2006
										
Unrealized holding gains (loss) on
  available for sale securities			$  571		$  717		$   73
Reclassification adjustment for losses (gains)
  later recognized in income			   344		   (14)		   (44)
Net unrealized gains (loss)			   915		   703		    29
Initial unrealized gain on mortgage-backed
securities
  received in securitization			   840		    --		    --
Unrealized gains on securities
  transferred from held to maturity
  to available for sale				    --		    --		   263
Tax effect (benefit)				  (597)		  (239)		   (99)
  Other comprehensive income (loss)		$1,158		$  464		$  193



NOTE 18 ~ PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION


Condensed financial statements for National Bancshares Corporation
(parent only) are as follows:


BALANCE SHEETS					December 31
						2008		2007
								
ASSETS
Cash and cash equivalents			$ 5,327		$ 4,846
Investment in Bank subsidiary			 31,675		 30,460
Securities available for sale		     	     16		     --
Other assets		 			    215		     43
   Total assets					$37,233		$35,349



LIABILITIES AND SHAREHOLDERS` EQUITY
Dividends payable				$   352		$   358
Shareholders` equity				 36,881		 34,991
   Total liabilities and shareholders` equity	$37,233		$35,349




STATEMENTS OF INCOME                            Years ended December 31

						2008		2007		2006
										
INCOME
Dividends from Bank subsidiary			$2,500		$3,000		$3,000
Securities gains (losses), net			  (444)		     1		    29
Dividend income                                	    16		    --		    --
  Total Income					 2,072		 3,001		 3,029

EXPENSES
Miscellaneous expense				   (72)		   (85)		   (47)
Income before income tax and undistributed
  subsidiary income				 2,000		 2,916		 2,982
Income tax benefit				   170		    29		     9
Undistributed equity in (distributions in excess
   of) net income of Bank subsidiary		    24		(1,234)		(1,827)

Net income					$2,194		$1,711		$1,164





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except per share data)


NOTE 18  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)


STATEMENTS OF CASH FLOWS             			Years ended December 31

							2008		2007		2006
											
Cash flows from operating activities
	Net income					$2,194		$1,711		$1,164
	Adjustments to reconcile net income
	   to net cash from operating activities:
		Distributions in excess of (equity
		in undistributed net income)
		of Bank subsidiary			   (24)		 1,234		 1,827
            Net security (gains) loss			   444		    (1)		   (29)
	     Change in other assets and liabilities	  (170)		   (14)		    76
	       	Net cash from operating activities	 2,444		 2,930		 3,038
Cash flows from investing activities
	Proceeds from sale of securities		    --		     1		    53
	Purchase of security available for sale		  (467)		    --		    --
		Net cash from investing activities	  (467)		     1		    53

Cash flows from financing activities
	Dividends paid					(1,410)		(1,430)		(1,430)
	Purchase of common stock			   (86)		  (434)		    --
		Net cash from financing activities	(1,496)		(1,864)		(1,430)

Net change in cash 					   481		 1,067		 1,661

Beginning cash and cash equivalents			 4,846		 3,779		 2,118

Ending cash and cash equivalents			$5,327		$4,846		$3,779




NOTE 19 ~ QUARTERLY FINANCIAL DATA (UNAUDITED)


													Basic and
							Interest	Net interest	Net		diluted earnings
							income		income		income	 	per share
													
2008
	First quarter					$4,270		$2,744		$491		$0.22
	Second quarter					 4,196		 2,763		 514		 0.23
	Third quarter					 4,294		 2,843		 574		 0.26
	Fourth quarter					 4,311		 2,936		 615		 0.28



2007
	First quarter					$4,352		$2,642		$287		$0.13
	Second quarter					 4,542		 2,758		 314		 0.14
	Third quarter					 4,497		 2,741		 507		 0.23
	Fourth quarter					 4,441		 2,723		 603		 0.27






REPORT OF MANAGEMENT ON THE COMPANY`S INTERNAL CONTROL OVER
FINANCIAL REPORTING


March 27, 2009

  Management of National Bancshares Corporation is responsible for
establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in accordance with accounting principles generally accepted in the United
States. Internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and expenditures are made only in accordance with authorizations of
management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or
disposition of assets that could have a material effect on the financial
statements.

 Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and
instances of fraud, if any, have been detected. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies and procedures may
deteriorate.

 Management of National Bancshares Corporation, including the Chief Executive
Officer and the Chief Financial Officer, has assessed the Company`s internal
control over financial reporting as of December 31, 2008, based on criteria
for effective internal control over financial reporting described in
`Internal Control ~ Integrated Framework` issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management has concluded that the Company`s internal control
over financial reporting was effective as of December 31, 2008, based on
the specified criteria.

This annual report does not include an attestation report of the Company`s
registered public accounting firm regarding internal control over financial
reporting. Management`s report was not subject to attestation by the
Company`s registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company to provide
only management`s report in this annual report.



David C. Vernon
Chief Executive Officer



James R. VanSickle
Chief Financial Officer





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders
National Bancshares Corporation
Orrville, Ohio

We have audited the accompanying consolidated balance sheets of National
Bancshares Corporation as of December 31, 2008 and 2007, and the related
consolidated statements of income, changes in shareholders` equity and
cash flows for each of the three years in the period ended December 31, 2008.
These financial statements are the responsibility of the Corporation`s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. The Corporation is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Corporation`s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Bancshares Corporation as of December 31, 2008 and 2007, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2008 in conformity with generally accepted accounting
principles in the United States of America.




Crowe Horwath LLP
Cleveland, Ohio
March 27, 2009





COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN OF NATIONAL BANCSHARES
CORPORATION, S&P 500 STOCK INDEX, AND S&P 500 BANK INDEX


			   	2003	   2004      2005      2006      2007      2008
					   	            	 	   
National Bancshares Corp	$100.00	   130.86    111.78    118.09     84.62	   69.16
S&P 500 Stock Index~		$100.00	   110.88    116.33    134.70	 142.10	   89.53
S&P 500 Banks Index~		$100.00	   114.42    112.75    130.90	  91.91	   48.26




~	National Bancshares Corporation is not included in the S&P 500 Bank Index
or S&P 500 Stock Index.



PRICE RANGE OF COMMON STOCK


National Bancshares Corporation common stock is traded on the OTC Bulletin
Board under the symbol `NBOH.`	The OTC Bulletin Board is a regulated
quotation service that displays real-time quotes, last-sale prices, and
volume information in over-the-counter equity securities. A summary of
the high and low prices of and cash dividends paid on National Bancshares
Corporation common stock in 2008 and 2007 follows. This information does not
reflect retail mark-up, markdown or commissions, and does not necessarily
represent actual transactions.


					High		Low		Dividends per share
									
2008
First Quarter				$18.10		$16.20		$.16
Second Quarter				 18.50		 14.50	 	 .16
Third Quarter				 16.69		 14.30		 .16
Fourth Quarter				 16.00		 11.60		 .16

2007
First Quarter				$25.57		$22.50		$.16
Second Quarter				 22.80		 18.40		 .16
Third Quarter				 18.50		 15.07	 	 .16
Fourth Quarter				 17.50		 15.11	 	 .16



SHAREHOLDER INFORMATION

Corporate Office
National Bancshares Corporation
112 West Market Street, PO Box 57
Orrville, OH 44667
www.fnborrville.com

Stock Trading Information
The shares of common stock of National Bancshares Corporation are
traded on the OTC Bulletin Board. The ticker symbol for National
Bancshares Corporation is `NBOH.` The Corporation had 887 shareholders
of Record as of December 31, 2008.

Form 10-K
A copy of the Corporation`s 2008 Annual Report on Form 10-K as filed
with the SEC will be furnished free of charge to shareholders upon
written request to the Company.

Shareholder Assistance
National Bancshares Corporation
Shareholder Services Department
Ellen Gerber, Shareholder Relations
330-765-0609
egerber@fnborrville.com

Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
1-800-368-5948
info@rtco.com
www.rtco.com

National Bancshares Corporation has a Dividend Reinvestment Plan and a
Dividend Direct Deposit Plan available at no cost. Please contact
Registrar and Transfer Company for enrollment.



OFFICERS

NATIONAL BANCSHARES CORPORATION

David C. Vernon
President & Chief Executive Officer

James R. VanSickle
Senior Vice President & Chief Financial Officer

Paul G. Kubiak
Senior Vice President & Secretary

FIRST NATIONAL BANK

David C. Vernon
President & Chief Executive Officer

Business Banking
Thomas R. Poe
Senior Vice President, Senior Loan Officer

Thomas M. Fast
Senior Vice President, Business Banking

John D. Shultz, Jr.
Vice President, Business Banking

Darrell L. Smucker
Vice President, Business Banking

Laura R. Yoder
Assistant Vice President, Business Banking

Harold D. Berkey
Vice President, Relationship Manager

Earl G. Mullet
Vice President, Relationship Manager

Dean M. Karhan
Assistant Vice President, Relationship Manager

Steven J. Bodo
Vice President, Mortgage Banking

Matthew M. Miller
Assistant Vice President, Mortgage Banking

Credit Administration

Steven L. Riddick
Vice President, Senior Credit Officer

Kathryn J. Barnes
Assistant Vice President, Credit Analyst

Lisa M. Bryant
Loan Operations Officer

Mindy L. Henderson
Loan Officer

Patricia J. Massaro
Loan Officer



Retail Banking

Paul G. Kubiak
Senior Vice President, Retail Banking

Cindy A. Wagner
Assistant Vice President, Retail Banking

Amberly M. Wolf
Assistant Vice President, Retail Banking

Paul J. Bayus
Assistant Vice President, Relationship Manager

Karen K. Haueter
Assistant Vice President, Relationship Manager

Heather L. Kiner
Assistant Vice President, Relationship Manager

Darrell G. Ovak
Assistant Vice President, Relationship Manager

Jill R. Wachtel
Assistant Vice President, Relationship Manager

Corporate

James R. VanSickle
Senior Vice President, Chief Financial Officer

James T. Griffith
Vice President, Cashier, Information Technology

Pamela S. Null
Vice President, Compliance & Security

Michael G. Oberhaus
Vice President, Financial Analyst

Maria A. Roush
Vice President, Auditor & Risk Management

Angela L. Smith
Controller

Jodi R. Blair
Deposit Operations Officer



BOARD OF DIRECTORS					FIRST NATIONAL BANK OFFICES
NATIONAL BANCSHARES CORPORATION &
FIRST NATIONAL BANK

Sara Steinbrenner Balzarini				Orrville
     Partner,						112 W. Market St.
     	Paramount Tennis, LLC.				330-682-1010

John P. Cook, CPA, Ph.D					1320 W. High St.
	Shareholder,					330-682-2881
	Long, Cook & Samsa, Inc.
							1720 N. Main St.
Bobbi E. Douglas					CASH ATM ONLY
	Executive Director,
	STEPS at Liberty Center				Apple Creek
	Every Woman`s House				U.S. 30 at Co. Rd. 44
							330-264-8070
John W. Kropf
	Chairman of the Board,				Dalton
	National Bancshares Corporation			12 W. Main St.
	First National Bank				330-828-2227
	Attorney,
	Kropf, Wagner, Lutz				Kidron
	& VanSickle, L.L.P.				4950 Kidron Rd.
							330-857-3101
John L. Muhlbach, Jr.
	Vice President,	Lodi
	A.A. Hammersmith, Inc.				106 Ainsworth St.
							330-948-1414
Victor B. Schantz
	President,					Massillon
	Schantz Organ Company				211 Lincoln Way E.
							330-832-7441
Steve Schmid
	President,					2312 Lincoln Way N.W.
	Smith Dairy Products, Inc.			330-833-1622
	Schmid Incorporated
							51 Massillon Marketplace Dr. S.W.
David C. Vernon						CASH ONLY ATM
	President & CEO,
	National Bancshares Corporation	Mt. Eaton
	First National Bank				15974 E. Main St.
							330-857-4301
Howard J. Wenger					330-359-3105
	President,
	Wenger Excavating, Inc.				Seville
	Lake Region Oil, Inc.				4885 Atlantic Dr.
	Northstar Asphalt, Inc.				330-769-3105
	Massillon Materials, Inc.
	Stark Materials, Inc.				Smithville
							153 E. Main St.
Albert W. Yeagley					330-669-2611
	Vice President, Industry & Government Affairs
	The J. M. Smucker Company			Wooster
							4192 Burbank Rd.
							330-263-5303

							1725 Cleveland Rd.
							330-263-1725

EX-21

Exhibit 21

Subsidiaries of National Bancshares Corporation

	First National Bank, a national bank, is 100% owned by National
Bancshares Corporation. First Kropf Title, L.L.C., an Ohio limited liability
company, is 49% owned by First National Bank.

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement
No. 033-63005 on Form S-3D of our report dated March 27, 2009, which report
is incorporated by reference in Form 10-K for National Bancshares Corporation
for the year ended December 31, 2008.



/s/ Crowe Horwath LLP
Crowe Horwath LLP

Cleveland, Ohio
March 27,2009

EX-31

Exhibit 31.1

CERTIFICATION

I, David C. Vernon, certify that:
1. 	I have reviewed this Annual Report on Form 10-K of National Bancshares
Corporation (the `registrant`);

2. 	Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

3. 	Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;

4. 	The registrant`s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a) 	Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) 	Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision,to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) 	Evaluated the effectiveness of the registrant`s disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) 	Disclosed in this report any change in the registrant`s internal
control over financial reporting that occurred during the registrant`s most
recent fiscal quarter (the registrant`s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant`s internal control over financial
reporting; and

5. 	The registrant`s other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant`s auditors and the audit committee of the registrant`s
board of directors (or persons performing the equivalent functions):

a) 	All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant`s ability to record, process,
summarize and report financial information; and
b) 	Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant`s internal
control over financial reporting.

Date: March 27, 2009

/s/ David C. Vernon
David C. Vernon
President and Chief Executive Officer

EX-31

Exhibit 31.2

CERTIFICATION

I, James R. VanSickle, certify that:
1. 	I have reviewed this Annual Report on Form 10-K of National
Bancshares Corporation (the `registrant`);

2. 	Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

3. 	Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;

4. 	The registrant`s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) 	Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) 	Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) 	Evaluated the effectiveness of the registrant`s disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) 	Disclosed in this report any change in the registrant`s internal control
over financial reporting that occurred during the registrant`s most recent
fiscal quarter (the registrant`s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant`s internal control over financial
reporting; and

5. 	The registrant`s other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant`s auditors and the audit committee of the registrant`s
board of directors (or persons performing the equivalent functions):
a) 	All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant`s ability to record, process,
summarize and report financial information; and
b) 	Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant`s internal
control over financial reporting.

Date: March 27, 2009

/s/ James R. VanSickle
James R. VanSickle
Senior Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of National Bancshares
Corporation (the `Corporation`) for the period ending December 31, 2008
as filed with the Securities and Exchange Commission on the date hereof
(the `Report`), we, David C. Vernon, President and Chief Executive Officer
of the Corporation, and James R. VanSickle, Senior Vice President and Chief
Financial Officer of the Corporation, certify, pursuant to 18 U.S.C.
Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and

(2)  	The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Corporation.

This Certification is executed as of March 27, 2009.

/s/ David C. Vernon
David C. Vernon
President and Chief Executive Officer


/s/ James R. VanSickle
James R. VanSickle
Sr. Vice President and Chief Financial Officer