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, 2010

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 whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes [ ] 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, a non-accelerated filer or a smaller reporting
company. See definition of `large accelerated filer,` `accelerated filer,`
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 and non-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, 2010, the aggregate market value of National
Bancshares Corporation stock held by non-affiliates was $27,392,055.

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 2,205,973 shares were outstanding on March 7, 2011.

Documents Incorporated by Reference

Portions of the registrant`s annual report to shareholders for the fiscal
year ended December 31, 2010 are incorporated by reference in Part II.
Portions of the registrant`s definitive proxy statements for the 2011
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                              16

Item 2          Properties                                             17

Item 3          Legal Proceedings                                      18

Item 4          [Removed and Reserved]                                 18

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            20

Item 9          Changes in and Disagreements with Accountants
                on Accounting and Financial Disclosure                 20

Item 9A         Controls and Procedures                                20

Item 9B         Other Information                                      20

Part III

Item 10         Directors, Executive Officers and Corporate
                Governance                                             21

Item 11         Executive Compensation                                 21

Item 12         Security Ownership of Certain Beneficial Owners
                and Management and Related Stockholder Matters         21

Item 13         Certain Relationships and Related Transactions,
                and Director Independence                              21

Item 14         Principal Accountant Fees and Services                 21

Part IV

Item 15         Exhibits and FinancialStatement Schedules              23

Signatures                                                             25


                                                                          1


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 the `National Bank of Orrville`
1965	the Bank opens its first branch at 1320 West High Street, Orrville, Ohio
1968	the Bank merges with the First National Bank of Dalton, becoming `First
        National Bank Orrville-Dalton`
1969	the Bank merges with the Bank of Mt. Eaton Company

                                                                          2


1972	the Bank merges with the Farmers and Merchants Bank Company of
        Smithville and renamed to `First National Bank`
1975	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
1994	the Bank establishes its second Medina County office with the purchase
        of the Seville office
1999	the Bank opens its Cleveland Road office in the city of Wooster
2002	the acquisition of Peoples Financial Corporation and its subsidiary,
        Peoples Federal Savings and Loan Association of Massillon, is
        completed, adding three more banking offices, our first offices
        in Stark County
2005	the Bank closes its Marketplace office in Massillon and opens its
        Burbank Road office in Wooster
2006	First National Bank celebrates its 125 year anniversary
2009	the Bank opens an office in Summit County, located at
        3085 West Market Street in Fairlawn, Ohio

Market Area.  National Bancshares` sole banking subsidiary is First
National Bank (`Bank`).  The Bank operates 14 offices in Wayne, Medina,
Stark and Summit Counties and a loan production office in Columbiana County.
Wayne County generally, and more specifically the city of Orrville and its
other municipalities in the northeastern quadrant of Wayne County,
constitutes the geographic center of the Bank`s market, extending from
there to most of Wayne County, the southern portion of Medina County and
southwestern part of Summit 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.  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.

Massillon is the largest urban center in the Bank`s market, with a
population of slightly more than 32,700 according to the 2009 estimate by
Ohio Department of Development (www.odod.state.oh.us/research) data,
followed by Wooster in Wayne County, with a population of approximately
26,000, and the city of Orrville in Wayne County, with a population just
under 8,500.  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, Summit and Wayne benefit from an unemployment rate
that is less than the state average, which was 9.5% according to 2010
Ohio Department of Job and Family Services (available at lmi.state.oh.us).
The unemployment rates at December 2010 are 9.0% in Summit County, 8.4% in
Wayne County, 7.7% in Medina County, and 6.4% in Holmes County.  Meanwhile,
Stark County had an unemployment rate of 10.2% at December 2010.

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.

                                                                          3


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, Medina and Summit 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.  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 Federal Deposit
Insurance Corporation (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
four counties as of June 30, 2010.  Based on the FDIC`s June 30, 2010
deposit data, First National Bank had a 14.35% share of deposits in Wayne
County (ranking 3rd of 13 FDIC-insured institutions), 0.88% in Stark County
(11th of 16), and 1.11% in Medina County (14th of 18), and 0.04% in Summit
County (22nd of 22). 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, cell phone, 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

                                                                          4


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 the Bank`s
market area. The Bank`s residential mortgage loans generally are
originated with loan documentation permitting sale to Federal Home
Loan Mortgage Corporation.

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

                                                                          5


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
that past year 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, 2010, the Bank`s legal lending limit for loans to a single
borrower was approximately $4.7 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 $1.0
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, 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.

                                                                          6


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 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 Federal Home Loan Bank (FHLB) of Cincinnati.  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 mortgage loans are pledged to the FHLB.
As of December 31, 2010, the Bank had additional borrowing capacity of
approximately $8.8 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, 2010, First National Bank had 113
full-time equivalent employees. A collective bargaining group represents
none of the employees. Management considers its relations with
employees to be excellent.

NBOH Properties, LLC ~ National Bancshares established the wholly-owned
subsidiary, NBOH Properties, LLC in 2010. NBOH Properties, LLC owns a
multi-tenant commercial building in Fairlawn, Ohio. A portion of this
building is utilized as our full-service office in Fairlawn, Ohio.

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 and VanSickle, L.L.C.,
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

                                                                          7


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.discoverfirstnational.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 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 (Federal Reserve), 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).

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 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.

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.

                                                                          8


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`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 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 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. 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.

                                                                          9


The Federal Reserve 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 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 determines that the company`s bank
subsidiary is not well capitalized or well managed. National Bancshares
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 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 may
require a bank holding company to terminate any activity or relinquish
control of a nonbank subsidiary if the Federal Reserve 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 2010, rates ranged between
7 and 77.5 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 7 and
24 cents per $100 in assessable deposits in 2010. The FDIC premium
assessment rates increased dramatically in 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, Bank Insurance Fund (BIF) and Savings
Association Insurance Fund (SAIF), into a new single deposit insurance
fund, 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 May 22, 2009, the FDIC adopted a rule designed to replenish the
deposit insurance fund. This rule established a special assessment of
five basis points on each FDIC-insured depository institution`s assets
minus its Tier 1 capital with a maximum assessment not to exceed 10 bps
of an institution`s domestic deposits. This special

                                                                          10


assessment was calculated based on asset levels at June 30, 2009, and was
collected on September 30, 2009. The Corporation recorded an expense of
$162,382 in 2009 in connection with this assessment.

Insured depository institutions are further assessed premiums for
Financing Corporation (`FICO`) bond debt service. The FICO assessment
rate for DIF in 2010 ranged between a high of 1.06 basis points for the
first quarter to a low of 1.04 for the fourth quarter. For the first
quarter of 2011, the FICO assessment rate for DIF is 1.02 basis points
resulting in a premium of $0.0102 per $100 of DIF-eligible deposits.

On November 17, 2009, the FDIC issued a final rule that required insured
institutions to prepay on December 30, 2009 their estimated quarterly
risk-based assessments for the fourth quarter of 2009 and for all of
2010, 2011 and 2012. For the fourth quarter of 2009 and for all of
2010, the prepaid assessment rate was based on each institution`s
total base assessment rate for the third quarter of 2009, modified
to assume that the assessment rate in effect on September 30, 2009
had been in effect for the entire third quarter of 2009. The prepaid
assessment rates for 2011 and 2012 are equal to the modified third
quarter of 2009 total base assessment rate plus three bps adjusted
quarterly for an estimated five percent annual growth rate in the
assessment base through the end of 2012. As the prepayment related
to future periods, it was recorded in other assets for financial
reporting purposes and will be recognized as expense over the
coverage period.

In November 2009, the Federal Reserve issued amendments to Regulation E,
which implement the Electronic Fund Transfer Act (Regulation E). The
new rules have a compliance date of July 1, 2010. These amendments
change, among other things, the way we and other banks may charge
overdraft fees; by limiting our ability to charge an overdraft fee
for ATM and one-time debit card transactions that overdraw a consumer`s
account, unless the consumer affirmatively consents to the bank`s payment
of overdrafts for those transactions. Changes to our overdraft practices
will negatively impact future service charge revenue primarily in 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

                                                                          11


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
with more than $500 million in total assets and all 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, 2010, 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`s audited financial statements for the
year ended December 31, 2010.

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.

                                                                          12


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`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 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

                                                                          13


four-tiered rating system: Outstanding, Satisfactory, Needs to Improve
and Substantial Noncompliance. Since the inception of the CRA, 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 May 31, 2007, 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. An important function of the Federal Reserve System
is regulation of aggregate national credit and money supply. The Federal
Reserve 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 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.

Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the `Dodd-Frank Act`) was signed into law. The goals
of the Dodd-Frank Act include restoring public confidence in the
financial system following the financial and credit crises, preventing
another financial crisis and allowing regulators to identify failings
in the system before another crisis can occur. Further, the Dodd-Frank
Act is intended to effect a fundamental restructuring of federal banking
regulation by taking a systemic view of regulation rather than focusing
on prudential regulation of individual financial institutions. However,
the Dodd-Frank Act itself may be more appropriately considered as a
blueprint for regulatory change, as many of the provisions in the
Dodd-Frank Act require that regulatory agencies draft implementing
regulations. In many cases, such implementing regulations have not
yet been promulgated and it may be, in some cases, years before the
study and rulemaking processes called for by the Dodd-Frank Act are
concluded. Among other significant developments, the Dodd-Frank Act
creates a new Financial Stability Oversight Council to identify systemic
risks in the financial system, and in an effort to end the notion that
any financial institution is `too big to fail,` gives federal regulators
new authority to take control of and liquidate systemically important
but distressed financial firms. The Dodd-Frank Act additionally
creates a new independent federal regulator, the Consumer Financial
Protection Bureau (the `CFPB`), which will exclusively draft rules
for designated federal consumer protection laws and which will
share examination, supervision and enforcement authority with other
federal regulators. Despite its broad scope, the Dodd-Frank Act
generally does not provide significant regulatory reform regarding
Fannie Mae, Freddie Mac or the Federal Home Loan Bank System.

                                                                          14


The Dodd-Frank Act is expected to have a significant impact on the
Company`s business operations as its provisions take effect. Among
the provisions that are likely to affect the Company or the Bank are
the following:

Deposit Insurance. The Dodd-Frank Act permanently increases the
maximum deposit insurance amount for banks, savings institutions
and credit unions to $250,000 per depositor, and extends unlimited
deposit insurance to most noninterest-bearing transaction accounts
until December 31, 2012. The Dodd-Frank Act also broadens the base
for FDIC insurance assessments. Assessments will now be based on the
average consolidated total assets less tangible equity capital of an
institution, rather than on the deposit base of such institution. The
Dodd-Frank Act (i) requires the FDIC to increase the DIF`s reserve ratio
from 1.15% to 1.35% of insured deposits by September 30, 2020,
(ii) removes the upper limit of 1.5% on the DIF`s designated reserve
ratio, which is a long-term target ratio, and (iii) requires the FDIC
to offset the effect on insured depository institutions with total
consolidated assets of less than $10 billion. The Dodd-Frank Act
also eliminates the requirement that the FDIC pay dividends from the
DIF when the reserve ratio is between 1.35% and 1.5%, and continues
the FDIC`s authority to declare dividends when the reserve ratio at
the end of a calendar year is at least 1.5%. However, the FDIC is
granted sole discretion in determining whether to suspend or limit
the declaration or payment of dividends.

Corporate Governance. The Dodd-Frank Act and the implementing regulations
thereunder require publicly traded companies to give shareholders a
non-binding vote on (i) executive compensation, commonly referred to as
a `say-on-pay` vote, at their first annual meeting taking place after
January 21, 2011 and at least once every three years thereafter and
(ii) on so-called `golden parachute` payments in connection with approvals
of mergers and acquisitions unless previously voted on by shareholders.
On January 25, 2011, the SEC adopted a temporary exemption for smaller
reporting companies from having to conduct `say on pay` and `say on pay
frequency` votes. Smaller reporting companies are not required to
conduct say-on-pay and frequency votes until annual meetings occurring
on or after January 21, 2013. The new legislation also authorizes the SEC
to promulgate rules that would allow shareholders to nominate their own
candidates using a company`s proxy materials. As of August 2010, the SEC
has adopted such a rule, which would require public companies to provide
shareholders with access to the proxy statement for their nominees;
however, the SEC has agreed to an indefinite stay of the effectiveness
of the rule until litigation surrounding its implementation has been
resolved. Additionally, the Dodd-Frank Act directs the federal banking
regulators to promulgate rules prohibiting excessive compensation paid
to executives of depository institutions and their holding companies
with assets in excess of $1.0 billion, regardless of whether the company
is publicly traded or not. The Dodd-Frank Act also gives the SEC authority
to prohibit broker discretionary voting on elections of directors and
executive compensation matters.

Consumer Financial Protection Bureau; Mortgage Origination. The Dodd-Frank
Act creates a new, independent federal agency, the CFPB, which is granted
broad rulemaking, supervisory and enforcement powers under various
designated federal consumer financial protection laws, including the Equal
Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement
Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act,
the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act a
nd certain other statutes. The CFPB is charged with protecting consumers
from unfair or deceptive financial products, acts or practices and the
Company expects that the CFPB, once it is fully operational, will take an
aggressive stance in consumer protection matters. The CFPB will have
examination and primary enforcement authority with respect to depository
institutions with $10 billion or more in assets. Smaller institutions,
including the Company and the Bank, will be subject to rules promulgated
by the CFPB but will continue to be examined and supervised by the
current federal banking regulators for consumer compliance purposes.
The Dodd-Frank Act prohibits creditors from making residential mortgage
loans unless the creditor makes a good faith determination, based on
verified and documented information that, at the time loan was
consummated, the consumer had the reasonable ability to repay the
loan, according to its terms, as well as all applicable taxes,
insurance and assessments and further authorizes the CFPB to
establish certain minimum standards regarding same. In addition,
the Dodd-Frank Act will allow borrowers to raise certain defenses
to foreclosure if they receive any loan other than a `qualified mortgage`
as defined by the CFPB or if anti-steering prohibitions, discussed below,
are violated.

The Dodd-Frank Act also contains a series of new mortgage loan origination
standards including prohibiting mortgage originators, which includes
loan officers of banks, from receiving from any person, or any person
from paying such mortgage originator, directly or indirectly,
compensation that varies based on terms of a loan other than

                                                                          15


the principal amount of the loan. In addition, the CFPB is required to
prescribe regulations prohibiting mortgage originators from (i) steering
any consumer to a loan that (a) the consumer lacks the reasonable ability
to repay, or (b) has predatory characteristics or effects such as equity
stripping, excessive fees or abusive terms; (ii) steering any consumer
from a `qualified mortgage` to a non-qualified mortgage when the consumer
qualifies for a qualified mortgage; (iii) abusive or unfair lending
practices that promote disparities among consumers of equal
creditworthiness but of different race, ethnicity, gender, or age, and
(iv) engaging in certain other conduct. In September 2010 and independent
of the Dodd-Frank Act`s requirements, the FRB enacted similar regulations
regarding anti-steering and loan originator compensation, and these
regulations will eventually be supplemented or revised by the rules to
be promulgated pursuant to the Dodd-Frank Act. Although there are many
elements of a `qualified mortgage,` and the CFPB has the authority to
revise the definition of a qualified mortgage as it deems appropriate,
one element which must be satisfied to be a qualified mortgage is that
total points and fees payable in connection with a loan may not exceed
3% of the total loan amount. The Dodd-Frank Act also prohibits prepayment
penalties for all loans that are not qualified mortgages and, for
qualified mortgages, prepayment penalties must be phased out over a
three-year period following consummation of the loan. Lenders will
also be required to offer a loan without a prepayment penalty if they
offer a loan with a prepayment penalty. The Dodd-Frank Act permits states
to adopt consumer protection laws and standards that are more stringent
than those adopted at the federal level and, in certain circumstances,
permits state attorneys general to enforce compliance with both the
state and federal laws and regulations.

Transactions with Affiliates and Insiders. Effective July 21, 2011,
the Dodd-Frank Act will apply Section 23A of the Federal Reserve Act
and Section 22(h) of the Federal Reserve Act (governing transactions
with insiders) to derivative transactions, repurchase agreements and
securities lending and borrowing transactions that create credit
exposure to an affiliate or an insider. Any such transactions with
affiliates must be fully secured. The current exemption from Section
23A for transactions with financial subsidiaries will be eliminated.
The Dodd-Frank Act will additionally prohibit an insured depository
institution from purchasing an asset from, or selling an asset to, an
insider unless the transaction is on market terms and, if representing
more than 10% of capital, is approved in advance by the institution`s
disinterested directors.

Interstate Branching. The Dodd-Frank Act authorizes national and state
banks to establish de novo branches in other states to the same extent
as a bank chartered by that state would be permitted to branch.
Previously, as provided in the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the `Interstate Act`), banks could
only establish branches in other states if the host state expressly
permitted out-of-state banks to establish branches in that state.
Accordingly, banks will be able to enter new markets more freely,
but will still need to adhere to the applicable state law requirements
of the host state.

Holding Company Capital Requirements. The Dodd-Frank Act requires the
FRB to apply consolidated capital requirements to depository
institution holding companies that are no less stringent than those
currently applied to insured depository institutions. Under these
standards, trust preferred securities will be excluded from Tier 1
capital unless such securities were issued prior to May 19, 2010 by
a bank holding company that has less than $15 billion in assets.
Additionally, the Dodd-Frank Act requires bank holding company capital
levels to be countercyclical so that during times of economic expansion,
capital requirements increase and during times of economic contraction
such capital requirements decrease.

The Dodd-Frank Act contains many other provisions which may affect the
Company or the Bank. Accordingly, the topics discussed above are only
a representative sample of the types of regulatory issues in the
Dodd-Frank Act that have an impact on the Company and the Bank.

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.

                                                                          16


ITEM 2 ~ PROPERTIES



First National Bank operates fourteen full service offices in a market
area comprising most of Wayne County, western Stark County, northeastern
Holmes County, southern Medina County and southwestern Summit 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           $1,211
Orrville, Ohio 44667

Other Full-service Offices:
12 West Main Street                     Wayne           $  493
Dalton, Ohio 44618

1320 West High Street                   Wayne           $  718
Orrville, Ohio 44667

4934 Kidron Road                        Wayne           $  758
Kidron, Ohio 44636

153 East Main Street                    Wayne           $  559
Smithville, Ohio 44677

15974 East Main Street                  Wayne           $  277
Mt. Eaton, Ohio 44659

7227 Lincoln Way East                   Wayne           $  104
Apple Creek, Ohio 44606

1725 Cleveland Road                     Wayne           $  506
Wooster, Ohio 44691

4192 Burbank Road                       Wayne           $1,137
Wooster, Ohio 44691








                                                        Net Book Value
Location                                County          (Dollars in Thousands)
                                                  
211 Lincoln Way East                    Stark           $1,378
Massillon, Ohio 44646

2312 Lincoln Way N.W.                   Stark           $  542
Massillon, Ohio 44647

106 Ainsworth Street                    Medina          $  268
Lodi, Ohio 44254

4885 Atlantic Drive                     Medina          $1,042
Seville, Ohio 44667

3085 West Market Street                 Summit          $2,807(1)
Fairlawn, OH 44303

Cash ATM Only:

1720 North Main Street                  Wayne           $  118
Orrville, OH 44667

51 Massillon Marketplace Drive S.W.     Stark           $    0
Massillon, OH 44646
(leased location)

Loan Production Office:

1020 East State Street                  Columbiana      $   56
Salem, Ohio 44460
(leased location)

Operations Center:

1444 North Main Street                  Wayne           $  452
Orrville, OH 44667

(1) $498 thousand represents the leasehold improvements and equipment of
the Bank. $2,309 represents the investment in the land and buildings by
NBOH Properties, LLC.



At December 31, 2010 the net book value of the Bank`s investment in
premises and equipment totaled $12.5 million.  The full-service in
Fairlawn, Ohio is located in a multi-tenant building owned by NBOH
Properties, LLC. 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 its subsidiaries, 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 ~ [REMOVED AND RESERVED]

                                                                          18


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 60 of National Bancshares`s Annual Report 2010.  National
Bancshares had 848 shareholders of record as of March 7, 2011.

Because National Bancshares 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 59 of National Bancshares
Corporation`s Annual Report 2010.



EQUITY COMPENSATION PLAN INFORMATION
as of December 31, 2010

                        Number of securities to                               Number of securities
                        be issued upon exercise                               remaining available for
                        of outstanding options,         Restricted stock      future issuance under
Plan Category           warrants and rights             awards issued         equity compensation plans
                                                                     
Equity compensation
plans approved by
the security holders    89,000 (1)                      3,605 (2)             130,843

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

Total                   89,000                          3,605                 130,843



(1) Weighted-average exercise price of outstanding options, warrants and
     rights is $18.03
(2) The fair value of the 2009 stock award was determined to be $14.01 per
    share using the closing market price of National Bancshares` common
    stock on the date of grant

A description of the equity compensation plan is incorporated by reference
to `Note 13 ~ Stock-Based Compensation` appearing on pages 48 and 49 of
National Bancshares Corporation`s Annual Report 2010.

Issuer Purchase and Sales of Equity Securities

No equity securities of National Bancshares were repurchased or sold by
it during 2010.

ITEM 6 ~ SELECTED FINANCIAL DATA

Incorporated by reference to `Selected Financial Data` appearing on pages
7 and 8 of National Bancshares Corporation`s Annual Report 2010.

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

Incorporated by reference appearing on pages 9 through 27 of National
Bancshares Corporation`s Annual Report 2010.

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 22 and 23 of National Bancshares Corporation`s Annual
Report 2010.

                                                                          19


ITEM 8 ~ FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and the Report of Independent Auditors
are incorporated by reference from pages 28 through 57 of National Bancshares
Corporation`s Annual Report 2010.

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, 2010.

ITEM 9AT ~ CONTROLS AND PROCEDURES

With the participation of the President and Chief Executive Officer, and
the Chief Financial Officer, management carried out an evaluation of the
effectiveness of the design and operation of National Bancshares`s
disclosure controls and procedures as of the end of 2010.  Based upon
that evaluation, the President and Chief Executive Officer, and the Chief
Financial Officer concluded that as of December 31, 2010 National
Bancshares`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
2010 there were no changes in National Bancshares`s internal controls
over financial reporting that have materially affected or are
reasonably likely to affect National Bancshares`s internal controls
over financial reporting.

The report of Management on the Corporations` Internal Control Over
Financial Reporting is incorporated by reference on page 58 of National
Bancshares`s Annual Report 2010.

ITEM 9B ~ OTHER INFORMATION

None

                                                                          20


Part III

ITEM 10 ~ DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning the directors of National Bancshares is
incorporated by reference from pages 4 through 7 of the definitive
proxy statement for the 2011 annual meeting of shareholders, filed
or to be filed with the Securities and Exchange Commission not
later than 120 days after December 31, 2010.  Disclosure by National
Bancshares about directors` and executive officers` compliance with
Section 16(a) of the Securities Exchange Act of 1934 appears on page
17 of the proxy statement for the 2011 annual meeting, and it is
incorporated herein by reference.



The executive officers of National Bancshares and First National Bank are ~


Name                    Age     Position
                          
David C. Vernon         70      President and Chief Executive Officer of National Bancshares
                                Corporation and First National Bank. He served as Chairman
                                Emeritus of Central Federal Corporation from February 28, 2008
                                until April 8, 2009; and its wholly owned subsidiary CFBank,
                                a federally chartered savings association headquartered in
                                Fairlawn in Summit County, Ohio from February 28, 2008 until
                                May 15, 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      40      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 an Executive in the firm`s Financial Institutions
                                Group. He joined Crowe in 1992 and was promoted to Executive in 2003.

Thomas R. Poe           55      Senior Vice President and Senior Loan Officer of First National Bank
                                since January 2009. Mr. Poe began his banking career with National
                                City Bank, where he spent 27 years. For the last ten years he was
                                President and CEO of National City Commercial Finance Inc. Prior
                                to that he was Senior Vice President and Regional Manager for the
                                middle-market group of the Cleveland Corporate Banking division.
                                Mr. Poe left National City in 2004 to become Managing Director
                                with GMAC Structured Finance Group. In 2008 he joined MidCap
                                Business Credit, L.L.C. He has over 33 years experience in banking
                                focusing on commercial and asset-based lending. He currently serves
                                on the Boards of Cleveland Vicon Corporation and Philpott Rubber Company.

Richard A. White        48      Vice President and Senior Credit Officer of First National Bank since
                                January 2010. Previously, Mr. White has worked for Grant Thornton,
                                KeyBank and National City Business Credit. He has over 25 years of
                                finance experience as staff auditor, field examination manager,
                                bank operations, asset-based lending and business credit. Prior to
                                joining First National Bank, Mr. White founded Richard Allen Associates,
                                a lender services firm.


                                                                          21


                          
Myron Filarski          62      Senior Vice President, Retail Banking, Mortgage and Consumer Lending for
                                First National Bank since July 2010.  Most recently Mr. Filarski was
                                President of Keybank Mortgage. Prior to his duties with Key he was the
                                Senior Vice President for mortgage lending at Fifth Third Bank, N.E.
                                Ohio, Senior Vice President, Second National Bank, Warren, Ohio and
                                President of Mortgage Banking for Signal Bank in Wooster, Ohio.
                                Mr. Filarski was Executive Vice President of the Leader Mortgage
                                Company from 1992 to 1996. Mr. Filarski began his banking career at
                                Transohio Savings Bank, Cleveland, Ohio, a $6.6 billion bank, where he
                                moved from management trainee to branch manager then Vice President.
                                From 1984 to 1991 he was President and CEO of Transohio.

John L. Falatok         52      Senior Vice President, Market Manager for First National Bank since May 2009.
                                Mr. Falatok has over 29 years of banking experience in various lending
                                capacities, including business development, credit policy, community
                                development and corporate services with financial institutions of all
                                sizes including The Huntington National Bank, SkyBank, Society National Bank.
                                Mr. Falatok began his career as a credit analyst and was most recently a
                                Business Banking Market Manager with Huntington National Bank, where he was
                                responsible for the development and management of commercial loans in the
                                Greater Akron/Canton Region. Mr. Falatok is a Certified Public Accountant.

Mark R. Witmer          46      Group Vice President, Agribusiness and Community Banking for First National
                                Bank since July 2010. Prior to this Mr. Witmer was Dealer/Manager, EVP and
                                Chief Credit Officer, Farm Credit, Kentucky and Pennsylvania. Prior to his
                                duties with Farm Credit he was Senior Vice President, Sky Bank,
                                Salineville, 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 9 and 10 of National Bancshares` Proxy Statement for
the 2011 annual meeting, under the caption `Audit Committee` and `Audit
Committee Report.`

ITEM 11 ~ EXECUTIVE COMPENSATION

Incorporated by reference from pages 13 and 14 of the definitive Proxy
Statement for the 2011 annual meeting of shareholders, filed or to be filed
with the Securities and Exchange Commission not later than 120 days after
December 31, 2010.

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 2011 annual meeting of shareholders, filed or to be filed with the
Securities and Exchange Commission not later than 120 days after
December 31, 2010.

ITEM 13 ~ CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
          INDEPENDENCE

Incorporated by reference from pages 16 and 17 of the definitive Proxy
Statement for the 2011 annual meeting of shareholders, filed or to be filed
with the Securities and Exchange Commission not later than 120 days after
December 31, 2010.

ITEM 14 ~ PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from page 8 of the definitive Proxy Statement
for the 2011 annual meeting of shareholders, filed or to be filed with the
Securities and Exchange Commission not later than 120 days after
December 31, 2010.

                                                                          22


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, 2010 and 2009
 	~ Consolidated Statements of Income for the Years Ended December 31, 2010,
	  2009, and 2008
 	~ Consolidated Statements of Changes in Shareholders` Equity for the Years
	  Ended December 31, 2010, 2009, and 2008
 	~ Consolidated Statements of Cash Flows for the Years Ended
	  December 31, 2010, 2009, and 2008
 	~ 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 on Quarterly Report 10-Q
                Thomas R. Poe and National Bancshares           filed November 16, 2009
                and First National Bank

10.5*           Special Separation Agreement entered into by    Incorporated by reference on Quarterly Report 10-Q
                Myron Filarski and National Bancshares          filed November 2, 2010
                and First National Bank

10.6*           Amendment to Employment Agreement entered       Filed herewith
                into by David C. Vernon and National
                Bancshares Corporation and First National
                Bank


                                                                          23


                                                          
13              2010 Annual Report to Security Holders          Filed herewith

14.1            Code of Business Conduct and Ethics             Filed herewith

14.2            Code of Ethical Conduct for the Finance         Filed herewith
                Officers And Finance Department	Personnel

21              Subsidiaries                                    Filed herewith

23              Consent of Crowe Horwath LLP                    Filed herewith

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

31.2            Certification of Chief Financial Officer        Filed herewith
                under 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

                                                                          24


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 29, 2011



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 29, 2011
David C. Vernon
President, Chief Executive Officer, and Director

/s/ James R. VanSickle                                  March 29, 2011
James R. VanSickle, Sr. Vice President &
Chief Financial Officer
(Principal Accounting and Financial Officer)

/s/ John Cook, CPA, Ph. D.                              March 29, 2011
John Cook, CPA, Ph. D., Director

/s/ Bobbi E. Douglas                                    March 29, 2011
Bobbi E. Douglas, Director

/s/ John W. Kropf                                       March 29, 2011
John W. Kropf, Director

/s/ John L. Muhlbach, Jr                                March 29, 2011
John L. Muhlbach, Jr., Director

/s/ Victor B. Schantz                                   March 29, 2011
Victor B. Schantz, Director

/s/ Stephen W. Schmid                                   March 29, 2011
Stephen W. Schmid, Director

/s/ James R. Smail                                      March 29, 2011
James R. Smail, Director

/s/ Howard J. Wenger                                    March 29, 2011
Howard J. Wenger, Director

/s/ Albert W. Yeagley                                   March 29, 2011
Albert W. Yeagley, Director



                                                                          25

EX-10

Exhibit 10.6

Effective December 21, 2010, the Board of Directors of National Bancshares
Corporation and David C. Vernon, President and Chief Executive Officer of
National Bancshares Corporation and its subsidiary, First National Bank,
have agreed to amend the terms of Mr. Vernon`s November 14, 2006 employment
agreement.

The term of the employment period was amended to continue until
December 31, 2012 and shall be automatically extended for one year
periods thereafter, unless Mr. Vernon receives written notice from the
Board of Directors on or before November 30, 2012 that the employment
period will end on December 31, 2012.

All provisions of the original employment agreement dated
November 14, 2006, other than the aforementioned amendment, shall remain
in full force and effect.

EX-13

TABLE OF CONTENTS


3       Message to Shareholders

6       Financial Highlights

7       Selected Financial Data

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

28      Consolidated Balance Sheets

29      Consolidated Statements of Income

30      Consolidated Statements of Changes in Shareholders` Equity

31      Consolidated Statements of Cash Flows

32      Notes to Consolidated Financial Statements December 31, 2010, 2009
        and 2008

57      Report of Independent Registered Public Accounting Firm

58      Report of Management on the Coorporation`s Internal Control Over
        Financial Reporting

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

60      Price Range of Common Stock

60      Shareholder Information

61      Officers

62      Directors

62      First National Bank Offices

                                                                          1



(This page left intentionally blank)

                                                                          2



MESSAGE TO SHAREHOLDERS


Dear Shareholders;

2010 earnings of $1.325 million or $.60 per share were disappointing and
primarily caused by the need to add $2.2 million to the allowance for loan
losses. I warned in 2009, that because of continued poor economic
conditions, a higher provision for loan loss expense might be required in
2010. It was also pointed out that when our clients suffer financially, we
suffer. People without jobs cannot make loan payments. Retail merchants
who suffer a decline in business cannot make rent or mortgage payments.
Businesses which suffer a decline in sales cannot make loan payments. In
2010, the economy impacted all of our clients to some degree, but two
commercial loan borrowers went out of business resulting in losses above
our already pessimistic forecast. In addition, commercial real estate
values continued to drop and the decline in the value of collateral
securing loans required us to add even more to the allowance. By way
of example, a building in Massillon appraised for $2.8 million in 2005
when a loan was originated. The building is now valued at $1.1 million
and the business occupying the building when the loan was originated is
gone.

Even though we incurred the large provision expense in 2010, there is a
lot of good news in this Annual Report. Please take time to review the
financial statements and footnotes contained in this report for more
details about our financial results. Here are a few highlights.

In 2010, net interest income increased $54,000 and non interest income
increased $327,000 excluding securities gains of $661,000 in 2010 and
$770,000 in 2009. Loans declined slightly but the volume of new loans
in 2010 totaled $24,000,000 and loan fee income from commercial loans
was $247,000. A primary reason for the decline in loans is that a number
of large commercial loans paid off and borrowers with lines of credit
scaled back their usage of the lines. In this market, small businesses
are not taking on the risk of more debt and low interest rates alone
will not cause a small business to expand or take on additional risk.
Nor will low interest rates alone increase the value of houses.
Businesses need customers and people need jobs. Then and only then
will people buy homes and businesses borrow money to expand. Actually,
low interest rates are nothing more than a tax on savers and seniors.
Retirees need interest income and would spend it and savers who are
trying to accumulate funds for retirement, a rainy day or special
purpose should not be required to suffer nearly zero interest rates
while they watch the value of the dollar decline and purchasing power
erode even further.

Our Fairlawn office is now a full service office with a retail business
lobby and drive-in window.

Income from the sale of mortgage loans totaled $285,000 in 2010, down
slightly from 2009 because we started keeping 15 year residential loans
in the portfolio in October. A noteworthy change in our balance sheet is
the $13 million reduction in borrowing from the Federal Home Loan Bank.
This borrowing was originated by Peoples Savings prior

                                                                          3


to our acquisition of Peoples and there was no need to replace the
borrowing given the strength of our liquidity position.

In 2010, we continued to increase the sale of business cash management
services and remote deposit services which makes it possible for local
businesses to deposit checks electronically from their offices and
eliminate a trip to the bank. As a result in 2010, local businesses
made remote electronic deposits totaling $291,000,000. Hundreds of
our business customers are now using the many new services we have
introduced in the last two years.

In 2010, we redesigned Bonus Checking and renamed it Reward Checking.
We also introduced Reward Savings, a high-yield savings account available
to Reward Checking clients. Reward Checking is a service for customers who
use our debit card, make deposits electronically and receive their
statement electronically. The Reward Checking interest rate is 3.01% and
that rate is paid on the entire balance up to $25,000. In 2010 Reward
Checking grew $6,458,000 or 302%.

Several years ago, I was privileged to be in a group of approximately 60
individuals who spent a couple of hours with the legendary Warren Buffett
at Case Western Reserve University. Mr. Buffett handed out a sheet of paper
on which was listed the performance statistics of 10 companies. He asked
the group to explain why performance among the companies was so varied. Of
course one brave soul immediately responded `management.` Mr. Buffett
explained that management was not the answer since he owned all 10
companies. No, the answer was the business the company was in. One was
a textile company and Mr. Buffett wondered why he ever thought he could
make money in the textile business. Another was a candy company and he
observed that no matter who managed it, the candy company would make money
but the best managers in the world could not make money in textiles.

This is a tough environment. We are confronted with a bad economy, high
unemployment and a flood of new regulations. As a result, one wonders
if banking has not become one of those businesses where it is just
impossible to achieve an appropriate return on investment. We are
convinced however that banking, while under assault, is not one of
those textile type businesses and management does make a difference
and we are optimistic but at the same time realistic about our future.

Our Bank is strong. In 2010 deposits increased $17.8 million and our
capital base is well above regulatory requirements. We are blessed
with an outstanding and dedicated Board of Directors, the best staff
and management team any community bank could possibly assemble and
most importantly, we have the support of you, our shareholders.
Thank you for your interest in National Bancshares Corporation and
First National Bank. All of the directors, officers and staff
appreciate your support.


David C. Vernon
President and CEO

                                                                          4


In 2010, the Charitable Giving Committee of the Board of Directors
approved gifts to the following organizations.


Boy Scouts of America
Dalton Historical Society
Every Woman`s House
First National Bank Scholarship (Wayne County Community Foundation)
Goodwill Industries
Kidron Community Historical Society
Main Street Orrville
Main Street Wooster, Inc.
Massillon Boys and Girls Club
Massillon Chamber of Commerce
Orr Views
Orrville Area Boys and Girls Club
Orrville Chamber of Commerce
Orrville Community Chorus
Orrville-Dalton YMCA
Orrville Public Library
Orrville School Multi-Purpose Facility
Orrville United Way, Inc.
Paint Township Area Fireworks
Smithville Community Historical Society
STEPS (FKA Wayne County Alcoholism Services)
Tschantz Cabin
United Way of Wayne and Holmes Counties
United Way of Western Stark County
Village Network (FKA Boy`s Village)
Wayne College Capital Campaign
Wayne County Crippled Children`s Committee
Wayne County Fraternal Order of Police
Wayne Development Council
Wayne/Holmes Soap Box Derby
Wooster Chamber of Commerce
Wooster Jazz Arts Festival


Special thanks to the following local companies who have helped us with the
rebranding and remodeling of our offices.

Kidron Electric
RBS Construction
Northstar Asphalt
Orrville Plumbing and Heating
Benchmark Craftsmen
Adams Signs

                                                                          5


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 consolidated financial statements and notes to the
consolidated financial statements.


Financial Position
(Dollar amounts in thousands, except per share data)
                                                             Percentage
At December 31,                 2010            2009            Change
                                                       
Total assets                    $374,096        $370,228         1.0 %
Deposits                         309,134         291,373         6.1 %
Loans, net                       190,685         194,071        (1.7)%
Securities                       138,033         130,241         6.0 %
Shareholders` equity              38,981          38,903         0.2 %
Book value per share               17.67           17.64         0.2 %


Year ended December 31,                                   
Net interest income             $ 12,282        $ 12,228         0.4 %
Income before income taxes         1,396           2,007       (30.4)%
Net income                         1,325           1,609       (17.6)%
Cash dividends declared              706             705         0.1 %
Net income per share                0.60            0.73       (17.8)%
Cash dividends per share            0.32            0.32         0.0 %



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 fourteen offices in Orrville,
Massillon, Wooster, Apple Creek, Dalton, Fairlawn, Kidron, Lodi,
Mt. Eaton, Seville and Smithville. Additional information is available
at www.discoverfirstnational.com.

                                                                          6


SELECTED FINANCIAL DATA

(Dollar amounts in thousands, except per share data)



                                As of or for the years ended December 31,

                                2010            2009            2008            2007            2006
                                                                                 
Income statement data:
Interest income                 $15,501         $16,465         $17,071         $17,832         $17,157
Interest expense                  3,219           4,237           5,785           6,968           5,995
Net interest income              12,282          12,228          11,286          10,864          11,162
Provision for loan losses         2,229           1,829             482             147             160
Net interest income after
  provision for loan losses      10,053          10,399          10,804          10,717          11,002
Noninterest income                3,190           2,972           2,333           1,990           1,653
Noninterest expense              11,847          11,364          10,173          10,500          11,354
Income before income taxes        1,396           2,007           2,964           2,207           1,301
Income taxes                         71             398             770             496             137
Net income                        1,325           1,609           2,194           1,711           1,164

Balance sheet data:
Cash and due from banks         $12,837         $ 8,124         $11,001         $11,842         $ 8,955
Federal funds sold                    -               -               -             443           9,820
Securities                      138,033         130,241         127,248          84,514          86,000
Loans, net                      190,685         194,071         179,831         191,488         184,481
Deposits                        309,134         291,373         263,642         242,523         247,681
Borrowings                       23,471          36,720          34,285          26,374          22,744
Shareholders` equity             38,981          38,903          36,881          34,991          34,680
Total assets                    374,096         370,228         338,002         306,651         308,358

Share and per share data:
Net income                      $  0.60         $  0.73         $  1.00         $  0.77         $  0.52
Cash dividends                     0.32            0.32            0.64            0.64            0.64
Book value at period end          17.67           17.64           16.75           15.85           15.52
Weighted average number
  of shares outstanding       2,205,973       2,202,457       2,203,218       2,231,369       2,234,488

Performance ratios:
Return on average equity          3.34%           4.21%           6.20%           4.94%           3.29%
Return on average assets          0.35%           0.46%           0.70%           0.56%           0.38%
Dividend payout percentage       53.28%          43.82%          64.00%          83.58%         122.87%
Efficiency ratio (1)             76.56%          74.76%          74.70%          81.69%          88.60%
Full-time equivalent staff         113             101             108             105             132
Average total assets to
  full-time equivalent staff    $3,370          $3,491          $2,916          $2,903          $2,296

Asset quality ratios:
Allowance for loan losses
  to ending total loans           1.34%           1.48%           0.95%           1.05%           1.07%
Net loan charge-offs
  to average loans                1.30%           0.35%           0.41%           0.06%           0.03%

Capital ratios:
Average equity to average
assets                           10.40%          10.84%          11.24%          11.35%          11.66%
Leverage ratio (2)                7.46%           7.40%           7.78%           8.26%           8.57%
Total risk-based capital
ratio (2)                        13.59%          12.64%          12.60%          12.78%          13.26%

(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.


                                                                          7


SELECTED FINANCIAL DATA

The following table shows quarterly results of operations for 2010 and 2009.

                                                                                                        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)
                                                                                      
2010
First quarter           $3,958          $3,112          $  507          $  301          $  293          $0.13
Second quarter           3,920           3,101             615              96             158           0.07
Third quarter            3,919           3,120             228           1,154             866           0.39
Fourth quarter           3,704           2,949             879            (155)              8           0.01

2009
First quarter           $4,208          $2,993          $  123          $  780          $  573          $0.26
Second quarter           4,149           3,013             228             596             454           0.21
Third quarter            4,026           3,072             576             285             267           0.12
Fourth quarter           4,082           3,150             902             346             315           0.14






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, 2010, 2009 and 2008. 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 2011 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 Corporation is a community-oriented financial institution offering a
variety of financial services to meet the needs of the communities it
serves. The Corporation 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 2010, the Corporation operated under a strategic plan which is
updated, modified and adopted annually by the Board of Directors. The plan
calls for achieving an above peer return on equity, achieving a loan to
asset ratio of 60%, reducing the net overhead ratio to 2.30%, maintaining
cash-type deposits above 70%, achieving a net interest margin of at least
3.58%, maintaining a risk based capital ratio of at least 12% and holding
the classification ratio at 20% or less.

Historically, the Corporation`s low loans-to-assets ratio has been
detrimental to the net interest margin and return on equity. Accordingly,
the Board and Management have established a goal of changing the
Corporation`s asset mix by increasing the loan to asset ratio to 60%. On
December 31, 2010, the loan-to-asset ratio was 51.7% and this change will
take place over several years as growth in the loan portfolio is
accomplished by the increased capacity of the Corporation`s lending
divisions. Business bankers and mortgage originators have been added
and office managers have undergone increased consumer loan training. An
integral component of increasing the loan-to-asset ratio is credit
underwriting. In 2010, the Bank added a new senior credit officer and
two credit analysts to its underwriting staff. These additions have
increased the credit administration staff to five and the result is
improved credit underwriting and loan monitoring.

Reducing the net overhead ratio, excluding securities gains and losses
on the sale of other real estate owned from 2.41% to 2.30% will be
accomplished as the loan-to-asset ratio is achieved without adding to
expenses. Lending divisions and support personnel are in place to support
the $31.2 million increase in loan volume which will be required to reach
the 60% loan-to-asset ratio. Negatively impacting the net overhead ratio
is the high number of office locations relative to the small asset size of
the offices which is a primary reason Corporation`s higher than peer
overhead expense ratio. The personnel costs associated with expansion of
the loan divisions also negatively impacts the overhead ratio since the
increased number of bankers not yet managing the size of a fully developed
portfolio of loans has increased. In other words the cost of lending is
too high given the size of the loan portfolio. That will change as growth
in the loan portfolio is achieved.

The Corporation benefits from a cash-type deposit ratio of 78.1%. The goal
of maintaining cash type deposits above 70% will be challenging but can be
accomplished through the increased productivity of the Corporation`s retail
office system which generates core funding cash-type deposits. The
Corporation benefits from its strong core deposit base which is much higher
than peer and its strong core deposit base significantly enhances value and
makes it possible

                                                                          9


for assets to be supported by stable and relatively low cost funding. But
while the Corporation enjoys a low cost of funds this cost advantage comes
at the price of increased overhead expenses discussed above which is a
result of the relatively small size of many of its offices.

The Corporation`s net interest margin for 2010 was 3.43%. Achieving a net
interest margin of at least 3.58% will be accomplished through loan growth
which will result in the reduction of securities as a percentage of assets.
The banking business starts with loans. Loans are supported by deposits and
capital is needed to support the volume of loans and deposits. Without
loans there is no need for deposits and certainly there is no need for
capital. The Corporation has historically relied too heavily on income
from its securities portfolio and that was a reasonable plan when the term
structure of interest rates accommodated such a business plan.
Unfortunately that reliance is misplaced in a nearly zero interest rate
environment. In this low rate environment the only way to increase yield
with securities is by extending the duration of the securities portfolio
which is exactly the wrong action to take since longer duration securities
will decline in value significantly should interest rates rise. Securities
are of course needed for liquidity and income but the overreliance on
securities as a source of interest income is inappropriate.

A Strong capital ratio is critical to the subsidiary Bank`s safety and
soundness. A bank must have a risk-based capital ratio over 10% to be
considered well capitalized by its regulators. The Corporation`s Board
of Directors has established a goal of maintaining a risk-based capital
ratio of 12 to protect the financial stability of the organization. The
risk-based capital ratio was 13.59% as of December 31, 2010.

The classification ratio is calculated using total adversely classified
assets (excluding special mention loans) divided by Tier 1 capital plus
allowance for loan losses.  The classification ratio was 32.0% and 39.5%
as of December 31, 2010 and 2009. Prior to 2009, the classification ratio
was consistently less than 20%. As the economy improves and the current
number of classified loans is reduced through monitoring and working with
borrowers, the classification ratio will improve.

In 2010, loans, net of allowance for loan losses decreased $3.4 million
from year-end 2009. The volume of new commercial loans remained strong at
$24 million and fee income generated from commercial loans totaled
$247,000. The primary reason for the decline in loans is that a number
of large commercial loans paid off in 2010 and borrowers with lines of
credit scaled back their usage of the lines. However, the Bank has been
taking advantage of the opportunity to lend to businesses in search of a
bank that will be responsive to their credit needs as other banks have
tightened lending requirements. The Bank opened a full-service office in
Fairlawn, Ohio in May, 2009. The office is staffed by four business
bankers, one corporate services specialist, a retail office manager
and two client service representatives. Total loans at the Fairlawn
office reached $30.1 million and deposits totaled $6.8 million as of
December 31, 2010.

In August 2010, the Bank formed a new Agribusiness and Community Banking
Group. The new group is made up of five community bankers and focuses
primarily on agriculture lending, small business lending and corporate
services. The Bank has not historically been focused on agricultural-type
lending and yet it is headquartered in a perfect market to do so.
Establishing the Agribusiness and Community Banking Group has been a goal
for several years, but the goal could only be accomplished if personnel
could be found to make formation of this group possible. Formation of this
group, while extremely important in the loan run, puts pressure on
accomplishing the overhead ratio goal outlined above since the group is
currently not managing a sufficiently large loan asset base.

The securities portfolio is a significant source of income. However income
from securities will decline unless interest rates rise significantly, as
cash flow from maturing securities and cash flow from mortgage backed
securities is reinvested at lower interest rates.  Changing market
conditions could affect the profitability of the portfolio, as well as
the level of interest rate risk exposure. The Bank invests in securities
it believes offer good relative value at the time of purchase, and it will,
as needed reposition its securities portfolio. In making its decisions to
sell or purchase securities, the Bank considers credit ratings, call
features, maturity dates, relative yields, current market factors, interest
rate risk and other relevant factors.  In 2010, the Bank increased the
amount of state and municipal bonds in the portfolio by $16.3 million.
Attractive taxable-equivalent yields make state and municipal bonds an
appealing alternative to U.S. Treasury, federal agency bonds and
mortgage-backed securities in the current interest rate environment.

The average yield of the securities portfolio was 3.55% as of
December 31, 2010. The portfolio duration was 2.0 years and based on
current interest rates and payment assumptions, cash flows of $29.7 million
are projected over the next twelve months. The yield on securities is
expected to decline in 2011 as cash flows are reinvested in the current
low interest rate environment. The Bank will continue to monitor market
conditions and invest in securities with good relative value.

                                                                          10


Platinum Checking, a high-interest checking account for clients with
balances above $10 thousand accounted for $55.4 million or 17.9% of total
deposits at December 31, 2010. Reward Checking, an account that pays bonus
interest to clients that use the Bank`s Visa debit card, receive their
account statement online, and make at least one electronic direct deposit
accounted for $8.6 million of deposits at December 31, 2010. In 2010 these
two accounts grew 23% and 302% respectively. In March 2010, the Corporation
introduced `Reward Savings`, a high-yield savings account that is available
to customers have a Reward Checking account. Reward Savings accounted for
$4.0 million as of December 31, 2010. In 2010 total deposits grew
$17.8 million or 6.1%.

Office of the Comptroller of the Currency (`OCC`) regulations require 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%.  At December 31, 2010 the bank`s capital
ratios were well above regulatory minimums.

The Corporation 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. The Corporation is not aware of any
current recommendations by its regulators which would have a material
effect if implemented.  The Corporation 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 1.0% to $374.1 million as of December 31, 2010, from
$370.2 million at December 31, 2009. Securities available for sale totaled
$138.0 million as of December 31, 2010, compared to $130.2 million at
December 31, 2009. Loans, net of allowance for loan losses decreased
$3.4 million to $190.7 million as of December 31, 2010, compared to
$194.1 million at December 31, 2009. Deposits increased 6.1% to
$309.1 million as of December 31, 2010, compared to $291.4 million at
December 31, 2009. Shareholders` equity increased 0.2% to $39.0 million
at the end of 2010, from $38.9 million at the end of 2009. Accumulated
other comprehensive income decreased to $1.9 million as of
December 31, 2010, compared to $2.5 million as of December 31, 2009.
The change in accumulated other comprehensive income was a result of a
decrease in unrealized gains on securities available for sale.

Loans
Total loans decreased by $3.7 million or 1.9% from year-end 2010 to
year-end 2009. The Bank continues to focus its efforts on attracting
commercial loan business. Average loans, net of allowance for loan losses
increased from $183.0 million in 2009 to $192.8 million in 2010.

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%.

The Bank purchased $1.2 million of automobile loans from another Ohio
bank during 2010. All of the purchased loans were underwritten
individually using the same underwriting standards used for loans generated
in our offices.

                                                                          11




                                       Loan portfolio composition at December 31,

                                       2010        2009        2008        2007        2006
(Dollar amounts in thousands)
                                                                        
Real estate:
 Commercial and land development       $58,047     $54,787     $43,972     $45,820     $45,737
 One-to-four family                     47,204      50,390      54,924      80,113      83,491
 Home equity                            27,766      26,526      24,442      20,857      19,383
 Multifamily                            14,397      10,353       4,062       5,643       3,161
Real Estate Construction:
 Commercial and land development         9,942      11,797      11,725       4,460       4,196
 One-to-four family                        301         598       1,121       3,907       1,883
Commercial                              26,158      30,621      27,241      19,539      20,128
Consumer:
 Auto:
  Direct                                 2,474       3,171       3,171       4,392       5,524
  Indirect                               6,401       8,605      10,923       7,206       1,337
 Credit Cards                                -           -           -       1,614       1,521
 Other                                     989         567         260         390         661
Total loans                            193,679     197,415     181,841     193,941     187,022
Less:
Unearned and deferred income              (409)       (438)       (292)       (425)       (548)
Allowance for loan losses               (2,585)     (2,906)     (1,718)     (2,028)     (1,993)
Net loans                             $190,685    $194,071    $179,831    $191,488    $184,481
Net loans as a percent of
  total assets                           50.97%      52.42%      53.20%       62.45%     59.83%




Ranked by North American Industry Classification System ~ or NAICS ~ codes,
the industries most represented by First National Bank`s commercial
borrowers include lessors of non-residential buildings and lessors of
residential buildings and dwellings, in that order, accounting for 12.0%
and 10.3% of the total loans at year-end 2010, respectively.

Approximately 37% of the conventional mortgage loans secured by one-to-four
family and multifamily 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 63% of the
portfolio of conventional mortgage loans secured by one-to-four family and
multifamily real estate at year-end 2010 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`s liquidity position,
the interest rate environment and general economic conditions.

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 incurred
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 Accounting
Standards Codification (ASC) 450-10-05, `Accounting for Contingencies,`
for pools of homogenous loans, or (2) according to ASC 310-10-35,
`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, current economic trends and other
information specific to each borrower. Loans reviewed individually are


                                                                          12


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 borrower`s whose aggregate total
borrowing exceeds $250 thousand are reviewed individually, except for
first and second mortgage loans on a borrower`s personal residence.
Loans or borrowers with balances under $250 thousand may also be
reviewed individually if considered necessary by the board and management.
A borrower`s risk rating may be downgraded at any point during the year
if the creditworthiness of a borrower deteriorates. In addition, risk
ratings are reviewed annually by a qualified independent third party.
The independent third party reviews all aggregate loan relationships
of $300 thousand or greater along with a sampling of loan relationships
under $300 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 may result in deterioration
of the repayment prospects for the loan or of the institution`s credit
position at some future date. 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 the
weaknesses make collection or liquidation in full, on the basis of
currently existing facts, condition and values, 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-homogenous loan then that loan
is considered impaired. The measure of impairment is based on the present
value of expected future cash flows discounted at the loan`s effective
interest rate or the value of collateral less estimated costs to sell
for collateral dependent loans, compared to the recorded investment in the
loan (including accrued interest, net deferred loans fees or costs, and
unamortized premium or discount). The Bank considers commercial or
non-homogenous 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 ASC 450-10-05. 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.

                                                                          13



As of December 31, 2010, 2009 and 2008 classified assets were as follows:

                                Classified assets at December 31,

                                2010                    2009                     2008
                                        Percent of               Percent of              Percent of
                                Amount  total loans     Amount   total loans     Amount  total loans
(Dollar amounts in thousands)
                                                                        
Classified Loans:
  Special mention              $ 2,667  1.4%            $ 2,841  1.4%            $ 3,294  1.8%
  Substandard                    9,878  5.1%             11,783  6.0%              3,874  2.1%
  Doubtful                           -  0.0%                  -  0.0%                  -  0.0%
  Loss                               -  0.0%                  -  0.0%                  -  0.0%
    Total classified loans      12,545  6.5%             14,624  7.4%              7,168  3.9%
Other real estate owned             58  0.0%                104  0.1%                354  0.2%
    Total classified assets    $12,603  6.5%            $14,728  7.5%            $ 7,522  4.1%



Total classified loans decreased from $14.6 million at December 31, 2009
to $12.5 million at December 31, 2010. The Bank`s classification ratio
was 32.0% and 39.5% as of December 31, 2010 and December 31, 2009. The
classification ratio is calculated using total adversely classified
assets (excluding special mention loans) divided by Tier 1 capital plus
allowance for loan losses.

Pools of Loans Analyzed under ASC 450
The total loan loss allowance is derived both from analysis of individual
impaired loans under ASC 310-10-35 and analysis of aggregated pools of
loans under ASC 450. 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 ASC 450.

Under ASC 450, 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
An effective loan review function is vital to the 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 of Directors. The Bank may adjust its loan loss
allowance methodology 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 decreased $321 thousand
during the year to $2.6 million as of December 31, 2010. The allowance for
loan losses to total loans was 1.34% at December 31, 2010. This is a
decrease of 14 basis points when compared to December 31, 2009. The
percentage of the allowance for loan losses to total loans was 1.48%
at December 31, 2009. Total nonperforming loans have decreased from $5.2
million as of December 31, 2009 to $4.9 million at December 31, 2010. In
2010, total classified loans decreased from $14.6 million to $12.5 million
or 14.4%. The amount of allowance for loan losses specifically allocated
to impaired loans decreased from $916 thousand at December 31, 2009 to
$269 thousand at December 31, 2010. Management believes the allowance for
loan losses is adequate as of December 31, 2010.

Loan review and monitoring is integral to effective credit administration
and risk management. In order to minimize the credit risk inherent in the
lending process, management and the Board of Directors has adopted a more
formal and systematic approach with credit administration and loan review.
As part of this systematic approach, a qualified independent third party
was engaged to perform loan reviews in both 2010 and 2009. 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 its efforts to
recover the loss. Recoveries of previously charged-off amounts are
credited to the allowance for loan losses.

                                                                          14


The increase in charge-offs in 2010 relate primarily to two commercial
loans totaling $1.7 million. The Bank recorded a $400 thousand partial
charge-off of a $1.6 million commercial real estate loan in 2009. The
Bank recorded a $676 thousand partial charge-off of a $1.7 million
commercial real estate loan in 2008. Transactions in the allowance for
loan losses are summarized in following table:



                                       Year ended December 31,

                                       2010            2009            2008            2007            2006
(Dollar amounts in thousands)
                                                                                        
Balance, beginning of period           $2,906          $1,718          $2,028          $1,993          $1,903
Loans charged off:
Real estate:
 Commercial and land development          340               -             688               -              39
 One-to-four family                        82              38              16              12              42
 Home equity                               45              25               9               -               -
 Multifamily                                -               -               -               -               -
Real estate construction:
 Commercial and land development          272             400               -               -               -
 One-to-four family                         -               -               -               -               -
Commercial                              1,797               -              42              67              17
Consumer                                   40             195              69              72              43
Credit cards                                -               1              21               -              21
  Total loans charged off               2,576             659             845             151             162
Recoveries of loans
  previously charged off:
Real estate:
 Commercial and land development            -               -               5               -               -
 One-to-four family                         -               -              14               1              14
 Home equity                                2               2               2               -               -
 Multifamily                                -               -               -               -               -
Real estate construction:
 Commercial and land development            -               -               -               -              55
 One-to-four family                         -               -               -               -               -
Commercial                                  -               1              20               -               1
Consumer                                   24              15              11              37              16
Credit cards                                -               -               1               1               6
  Total recoveries                         26              18              53              39              92
Net loans charged off                  (2,550)           (641)           (792)           (112)            (70)
Provision charged to operations         2,229           1,829             482             147             160

Balance, end of period                 $2,585          $2,906          $1,718          $2,028          $1,993
Loans outstanding:
 Average                             $195,730        $184,965        $192,472        $187,888        $186,146
 End of period                        193,270         196,977         181,549         193,941         187,022
Ratio of allowance for loan
 losses to total loans
 outstanding at end of period            1.34%           1.48%           0.95%           1.05%           1.07%
Net charge offs to average loans         1.30%           0.35%           0.41%           0.06%           0.04%


                                                                          15



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,
                        2010                 2009                 2008                 2007                 2006
                        Amount  Percent(1)   Amount  Percent(1)   Amount  Percent(1)   Amount  Percent(1)   Amount  Percent(1)
(Dollar amounts in thousands)
                                                                                      
Real estate:
 Commercial and
  land development      $1,019  30%          $1,142  28%          $  501  24%          $  779  24%          $  654  24%
 One-to-four family        510  24%             163  26%             283  30%             321  41%             150  45%
 Home equity               100  14%              73  13%              74  14%              86  11%              33  10%
 Multifamily               164   8%              29   5%              41   2%              20   3%               6   2%
Real estate
 construction:
 Commercial and
  land development         248   5%             424   6%              42   6%              16   2%               8   2%
 One-to-four family          1   0%               2   0%               4   1%              14   2%               3   1%
Commercial                 460  14%             929  16%             579  15%             552  10%           1,064  11%
Consumer:
 Auto:
  Direct                    13   1%              37   2%              43   2%              60   2%              32   3%
  Indirect                  35   3%             100   4%             147   6%              99   4%               8   1%
 Other                       5   1%               7   0%               4   0%               5   1%               4   1%
Credit cards                 -   0%               -   0%               -   0%              48   0%              31   0%
Unallocated                 30   0%               -   0%               -   0%              28   0%               -   0%
  Total                 $2,585 100%          $2,906 100%          $1,718 100%          $2,028 100%          $1,993 100%

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


                                                                          16


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 nonaccrual 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
nonaccrual by the Senior Credit Officer with the concurrence of senior
management. Interest received on nonaccrual 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,
                                        2010            2009            2008            2007            2006

(Dollar amounts in thousands)
                                                                                         
Nonaccrual loans                        $  4,373        $  4,716        $  1,752        $  2,645        $  2,061
Past due 90 days or more
 and still accruing                          487             458             261             158             247
Restructured loans and leases(1)               -               -               -               -               -
  Total nonperforming loans                4,860           5,174           2,013           2,803           2,308
Other real estate owned                       58             104             354             194             103
  Total nonperforming assets            $  4,918        $  5,278        $  2,367        $  2,997        $  2,411
Loans outstanding, net                  $190,685        $194,071        $179,831        $191,488        $184,481
Nonperforming loans
 to total net loans                         2.55%           2.67%           1.12%           1.46%           1.25%
Nonperforming assets
  to total assets                           1.31%           1.43%           0.70%           0.98%           0.78%
Allowance for loan losses
  to total loans                            1.34%           1.48%           0.95%           1.05%           1.07%
Allowance for loan losses
  to nonperforming loans                   53.19%          56.17%          85.35%          72.35%          86.38%

(1) All restructured loans and leases as of the dates shown were on
nonaccrual status and are included as nonaccrual loans and leases
in this table.


                                                                          17


Securities
Total securities increased $7.8 million or 6.0% at December 31, 2010 when
compared to December 31, 2009. Securities are primarily comprised of
mortgage-backed securities, municipal securities and securities issued by
corporations. The Bank actively purchases bonds issued by local
municipalities, school systems and other public entities when opportunities
arise. 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 fair 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, 2010, all
securities were classified as available for sale. At year-end 2010 and
2009 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, 2010
Available for sale:
U.S. Government and federal agency      $  2,954        $    21         $      -        $  2,975
State and municipal                       44,656            833             (484)         45,005
Corporate bonds and notes                  1,487             29                -           1,516
Mortgage-backed: residential              86,001          2,766             (240)         88,527
Equity securities                             23              -              (13)             10
  Total securities                      $135,121        $ 3,649         $   (737)       $138,033

December 31, 2009
Available for sale:
U.S. Government and federal agency      $    819        $     -         $      -        $    819
State and municipal                       28,019            763              (99)         28,683
Corporate bonds and notes                  7,640            137                -           7,777
Mortgage-backed: residential              89,972          3,058              (87)         92,943
Equity securities                             23              -               (4)             19
  Total securities                      $126,473        $ 3,958         $   (190)       $130,241

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: residential             101,220          2,616                -         103,836
Equity securities                             23              -               (7)             16
  Total securities                      $125,046        $ 2,855         $   (653)       $127,248


                                                                          18




The contractual maturity of securities available for sale at
December 31, 2010 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     Fair
                        Average yield   Average yield   Average yield   Average yield   Average yield      value
(Dollar amounts in thousands)
                                                                                         
U.S. Government and     $     -         $  2,200        $    754        $       -       $  2,954           $  2,975
  federal agency              -             2.48%           4.45%               -           2.99%

State and municipal       3,879            5,060          15,532           20,185         44,656             45,005
                           1.53%            3.63%           3.62%            3.59%          3.43%
Corporate bonds
  and notes               1,487               -                -                -          1,487              1,516
                           4.28%              -                -                -           4.28%
Mortgage-backed:
  residential                 -            5,883          53,256           28,862         86,001             88,527
                              -             2.01%           3.58%            4.02%          3.61%

Total                   $ 5,366         $ 13,143        $ 69,542         $ 47,047       $135,098           $138,023
                           2.29%            2.72%           3.60%            3.84%          3.55%



Restricted Equity Securities
As of December 31, 2010, 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 fair 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 $3.8 million or 1.1% from 2009 to 2010. This
increase is primarily a result of a $17.8 million increase in deposits,
partially offset by a decrease of $12.0 million in Federal Home Loan Bank
advances.

Deposits
Deposits increased during 2010 by $17.8 million or 6.1%. The increase is
primarily attributed to a growth in interest-bearing demand deposits of
$16.1 million or 13.7%. This increase was partially offset by a decrease
in time deposits.  Savings accounts increased by $3.4 million or 7.4% from
the end of 2009 to the end of 2010. Time deposits decreased by $4.9 million
or 6.8%. This decrease is a result of the success of our premium money
market and interest-bearing checking accounts, and management`s decision
to maintain a reasonable time deposit rate structure. Much of the increase
in this category is attributed to the Bank`s success in marketing our
`Platinum Checking` and `Reward Checking` accounts.



Maturity of time deposits of $100,000 or more at December 31, 2010

(Dollar amounts in thousands)

Time Remaining to maturity:                     Amount          Percent of Total
                                                          
 Three months or less                           $  5,774         35.9%
 Over three through 12 months                      5,395         33.5%
 Over one year through 3 years                     1,590          9.9%
 Over 3 years                                      3,330         20.7%
  Total                                         $ 16,089        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
2010 consisted of $12.8 million in cash and due from banks. At year-end
2009 cash and cash equivalents consisted of $8.1 million in cash and due
from banks. Federal

                                                                          19


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 90%. The ratio of total loans to deposits at year-end 2010 was 62.5%.
At the end of 2010 the fair value of securities available for sale was
approximately $138.0 million, while the fair value of securities pledged
was approximately $58.8 million, representing securities pledged to
secure public deposits and repurchase agreements.

The Corporation`s operating activities, as described in the Consolidated
Statements of Cash Flows in the attached consolidated financial statements,
include net cash provided of $5.1 million in 2010, $1.4 million in 2009 and
$2.3 million in 2008, generated principally from net income in those years.
The Bank reported $11.9 and $12.5 million in originations and proceeds from
sales of mortgage loans held for sale as operating activities in 2010.

The Corporation`s 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. The purchases of securities,
offset by maturities, repayments and sales accounted for the use of
$9.0 million. Proceeds from the maturities and repayments of time deposits
with other financial institutions provided $8.9 million. Purchases of
property and equipment, primarily related to our office rebranding
project, were $4.2 million. In 2009, net cash used in investing activities
was $33.6 million. The increase in loans over the year and the purchase of
loans utilized $16.3 million of cash. Net cash used to purchase time
deposits with other financial institutions was $13.6 million in 2009.
Purchases of property and equipment, primarily related to our office
rebranding project, were $3.4 million.

The Corporation`s financing activities, as described in the Consolidated
Statements of Cash Flows in the attached consolidated financial
statements, include the solicitation and repayment of customer deposits,
borrowings and repayments, treasury stock activity, and the payment of
dividends. In 2010, net cash provided by financing activities was
$3.8 million. The increase in deposits over the year provided $17.8
million of cash. At December 31, 2010, the Bank had $15.0 million of
borrowings outstanding with FHLB, maturing in the years 2011, 2012 and
2014. This amount represents a $12.0 million decrease from the $27.0
million that was owed at the end of 2009.


First National Bank has approximately $14.0 million available in
short-term funding arrangements with its correspondent banks and
the FHLB as of December 31, 2010. 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,
                                        2010            2009            2008
(Dollar amounts in thousands)
                                                               
Balance at year-end                     $ 7,747         $ 6,105         $10,469
Average balance outstanding               8,032           7,442          10,134
Maximum month-end balance                12,083           8,965          11,136
Weighted-average rate at year-end          0.15%           0.25%           0.50%
Average rate during the year               0.15%           0.26%           1.42%



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, 2010, the Bank exceeded
minimum risk-based and leverage capital ratio requirements. The Bank`s
ratio of total capital to risk-based assets was 13.59% on
December 31, 2010. The minimum required ratio to be considered adequately
capitalized is 8%. Additional information concerning capital ratios at
year-end 2010 and 2009 is contained in Note 14 of the consolidated
financial statements.
                                                                          20


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, 2010, 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                   $ 67,908        $ 41,883        $ 13,809          $ 12,216           $      -
Deposits without a stated
 maturity                        241,226         241,226               -                 -                  -
Repurchase agreements with
 customers                         7,747           7,747               -                 -                  -
Long-term obligations             15,000           7,000           3,000             5,000                  -
Information system
  contract obligations             4,592           1,061           1,960             1,571                  -
Operating lease obligations          264              72              98                94                  -
  Total                         $336,737        $298,989        $ 18,867          $ 18,881           $      -



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 2010:



                                Expiration of funding commitments

                                One year        More than
                                or less         one year        Total
(Dollar amounts in thousands)
                                                       
Unused loan commitments         $42,239         $25,046         $67,285
Commitment to make loans          1,658               -           1,658
Letters of credit                   398               -             398
  Total                         $44,295         $25,046         $69,341



Of the unused loan commitments, $11,622 are fixed-rate commitments and
$55,663 are variable-rate commitments. Rates on unused fixed-rate loan
commitments range from 3.38% to 21.90%. 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. First National Bank
was required to maintain cash reserve balances with the Federal Reserve
Bank of $100 thousand at year-end 2010 and $100 thousand at year-end 2009.

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
$22.1 million of residential mortgage loans sold.

Shareholders` Equity
The $78 thousand or 0.2% increase in shareholders` equity from year-end
2009 to year-end 2010 was caused by an increase in retained earnings of
$619 thousand, partially offset by a $564 thousand decrease in accumulated
other comprehensive income, which resulted from a decline in the fair value
of securities available for sale. Accumulated other comprehensive income
represents the unrealized appreciation or depreciation (net of taxes) in
the fair 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 2010
was 53.28% versus 43.82% in 2009.

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). The Bank
could, without prior approval, pay dividends to the holding company of
approximately $3.1 million as of December 31, 2010.

                                                                          21


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 risk 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, loans and deposits. Cash flows may
be received earlier than expected as a result of the exercise of the
option to prepay or withdraw early embedded in the 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 gives the customer the opportunity to benefit
when interest rates change in their favor and ordinarily occurs at the
Bank`s expense in the form of higher interest expense or lower interest
income. Residential mortgage loans tend to have higher option risk
because of the borrower`s option to prepay the loan, primarily through
refinancing when rates decline, and higher 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
for example, a bank lends at a rate which changes as the prime rate
changes and finances the loan with deposits not tied to the prime rate
as an index; it faces basis risk due to the possibility that the prime
rate-deposit rate spread might change.

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. 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.

The Board of Directors has established revised limits on a decline in the
economic value of equity (EVE) and earnings at risk (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, 2010

                                                                          
Basis Point Change in Rates     +300 bp     +200 bp     +100 bp     -100 bp     -200 bp     -300 bp
Increase (decrease) in EVE      (12.9)%     (6.8)%      (1.9)%      (4.3)%      nm          nm


                                                                          22




December 31, 2009

                                                                          
Basis Point Change in Rates     +300 bp     +200 bp     +100 bp     -100 bp     -200 bp     -300 bp
Increase (decrease) in EVE      (13.4)%     (7.4)%      (2.3)%      (4.4)%      nm          nm



nm ~ not meaningful

The Bank is in compliance with the interest rate risk policy limits
related to EVE as of December 31, 2010 and 2009.

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, 2010

                                                                            
Basis Point Change in Rates       +300 bp     +200 bp     +100 bp     -100 bp     -200 bp     -300 bp
Increase (decrease) in Earnings   (0.7)%      (0.4)%      (0.3)%      (1.4)%      nm          nm





December 31, 2009

                                                                            
Basis Point Change in Rates       +300 bp     +200 bp     +100 bp     -100 bp     -200 bp     -300 bp
Increase (decrease) in Earnings   (1.6)%      (1.1)%      (0.3)%      (0.1)%      nm          nm



nm ~ not meaningful

The Bank is in compliance with the interest rate risk policy limits
related to EAR as of December 31, 2010 and 2009.

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.

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, Summit, Medina and Holmes counties, Ohio.

                                                                          23


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)
                                        2010                           2009                         2008
                                        Average              Yield/    Average             Yield/   Average             Yield/
                                        Balance   Interest   Cost      Balance   Interest  Cost     Balance   Interest  Cost
                                                                                             
Assets
Interest earning assets:
  Securities:
    Taxable                             $ 99,508  $ 3,541    3.70%     $113,608  $ 5,397   4.88%    $ 79,522  $ 4,095   5.14%
    Nontaxable (1)                        35,072    1,839    5.43%       20,557    1,226   6.09%      16,491      991   6.07%
  Federal funds sold                           -        -       -         6,063       12   0.20%       3,353       63   1.88%
  Interest bearing deposits               25,704      210    0.82%        1,906       25   1.31%       1,019       18   1.77%
  Net loans (including
    nonaccrual loans)                    192,836   10,536    5.46%      183,001   10,222   5.59%     192,472   12,241   6.36%
Total interest-earning assets            353,120   16,126    4.57%      325,135   16,882   5.19%     292,857   17,408   5.94%
All other assets                          27,689                         27,502                       22,059
  Total assets                          $308,809                       $352,637                     $314,916
Liabilities and
Shareholder`s Equity
Interest-bearing liabilities:
  Deposits:
    Interest-bearing checking           $123,993      683    0.55%     $109,400    1,026   0.94%    $ 73,243    1,342   1.83%
    Savings                               48,721       62    0.13%       48,198      123   0.26%      51,963      291   0.56%
    Time, $100,000 and over               18,962      357    1.88%       13,901      340   2.45%      13,197      497   3.77%
    Time, other                           55,742    1,086    1.95%       58,822    1,627   2.77%      65,248    2,527   3.87%
  Other funds purchased                   33,767    1,031    3.05%       34,166    1,121   3.28%      31,138    1,128   3.62%
Total interest-bearing liabilities       281,185    3,219    1.14%      264,487    4,237   1.60%     234,789    5,785   2.46%
Demand deposits                           56,657                         46,265                       42,004
Other liabilities                          3,345                          3,662                        2,741
Shareholders` equity                      39,622                         38,223                       35,382
  Total liabilities and
    shareholders` equity                $380,809                       $352,637                     $314,916
Net interest income (1)                           $12,907                        $12,645                      $11,623
Interest rate spread (2)                                     3.43%                         3.59%                        3.48%
Net yield on interest-
  earning assets (3)                                         3.66%                         3.89%                        3.97%
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                             125.58%                       122.93%                      124.73%

(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.

                                                                          24




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.


                                        2010 over 2009                  2009 over 2008
(Dollar amounts in thousands)
                                        Volume   Rate      Net change    Volume   Rate      Net change
                                                                          
Interest Income
Securities:
  Taxable                               $ (658)  $(1,198)  $(1,856)      $ 1,516   $  (214)  $ 1,302
  Nontaxable                               722      (109)      613           221        14       235
  (tax-equivalent basis)
Federal funds sold                         (12)        -       (12)            5       (56)      (51)
Interest bearing deposits                  194        (9)      185            12        (5)        7
Loans (including
  nonaccrual loans)                        537      (223)      314          (529)   (1,490)   (2,019)
  Total interest income
  (tax-equivalent basis)                $  783   $(1,539)  $  (756)      $ 1,225   $(1,751)  $  (526)
Interest Expense
Deposits
  Interest bearing checking             $   80   $  (423)  $  (343)      $   339   $  (655)  $  (316)
  Savings                                    1       (62)      (61)          (10)     (158)     (168)
  Time, $100,000 and over                   95       (78)       17            17      (174)     (157)
  Time, other                              (60)     (481)     (541)         (178)     (722)     (900)
Other funds purchased                      (12)      (78)      (90)           99      (106)       (7)
  Total interest expense                $  104   $(1,122)  $(1,018)      $   267   $(1,815)  $(1,548)
Change in net
  interest income
(tax-equivalent basis)*                 $  679   $  (417)  $   262       $   958   $    64   $ 1,022

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



2010 versus 2009
During 2010, net income decreased $284 thousand or 17.6% to $1.3 million.
Accordingly, basic and diluted earnings per share decreased from $0.73 per
share in 2009 to $0.60 per share in 2010. Earnings for 2010 were
negatively impacted by an increase in the provision for loan loss and
noninterest expense, partially offset by an increase in noninterest
income and a decrease in income tax expense. Returns on average equity
and average assets for the year ending December 31, 2010, were 3.34% and
0.35%, respectively, compared to 4.21% and 0.46% for the year ending
December 31, 2009.

Total interest and dividend income decreased $964 thousand or 5.9% in
2010. Interest and fees on loans increased $314 thousand or 3.1%, due to
an increase in the average balance of loans in 2010, offset by a decrease
in the yield on loans. Securities interest and dividend income decreased
$1.5 million or 23.4% over 2009. Much of this decrease is attributable
to a lower yield on securities.

Interest expense decreased by $1.0 million or 24.0% during 2010, as the
Bank`s deposits and short-term borrowings were affected by the falling
interest rate environment. The cost of interest-bearing liabilities fell
from 1.60% in 2009 to 1.14% in 2010. Most of the growth in
interest-bearing liabilities occurred in interest-bearing demand
deposit accounts. The cost of interest-bearing demand deposits is
relatively low compared to other interest-bearing liabilities. Interest
expense on deposits decreased $928 thousand or 29.8% in 2010. Federal
Home Loan Bank advances interest expense decreased $92 thousand or
8.6% as the amount of advances decreased from $27 million to $15
million during 2010.

The provision for loan losses was $2.2 million in 2010, compared to
$1.8 million in 2009. 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 $2.6 million
for 2010, compared to $641 thousand for 2009. The increase in
charge-offs in 2010 relate primarily to two commercial loans totaling
$1.7 million. One of the aforementioned loans was graded substandard
and considered impaired as of December 31, 2009. Management allocated
$500 thousand for the loan as of December 31, 2009. The allowance as
a percentage of loans decreased from 1.48% at December 31, 2009 to
1.34% at December 31, 2010.  Classified loans have decreased from
$14.6 million as of December 31, 2009 to $12.5 million as of
December 31, 2010. Total nonperforming loans have decreased from
$5.2 million as of December 31, 2009 to $4.9 million as of
December 31, 2010. 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.

                                                                          25


Noninterest income increased $218 thousand or 7.3% during 2010. The change
is primarily related to an increase in Visa check card interchange fees
and a reduction in the loss on sales of other real estate owned, partially
offset by a decline in net gains recorded on the sale of investments.

Noninterest expense was $11.8 million for the year ended December 31, 2010
compared to $11.4 million for 2009, an increase of 4.2%. Salaries and
employee benefits, data processing, occupancy expense and professional
and consulting fees were slightly higher in 2010, compared to 2009 levels.
Professional and consulting fees, which includes legal fees, increased
$103 thousand in 2010, compared to 2009. Legal fees were higher in 2010
due to the cost of managing and resolving problem assets. The
amortization of intangibles decreased $135 thousand in 2010, compared to
2009, due to the branch acquisition and customer relationship intangibles
becoming fully amortized in 2009.

Income tax expense was $71 thousand for the year ended December 31, 2010,
representing a decrease of $327 thousand or 82.2% compared to 2009. The
change is primarily related to a decrease in income before income taxes
and an increase in interest income from nontaxable securities.

2009 versus 2008
During 2009, net income decreased $585 thousand or 26.7% to $1.6 million.
Accordingly, basic and diluted earnings per share decreased from $1.00
per share in 2008 to $0.73 per share in 2009. Earnings for 2009 were
negatively impacted by a $1.3 million increase in the provision for loan
loss and a $570 increase in FDIC insurance expense, partially offset by
an increase in net interest income of $942 thousand. Returns on average
equity and average assets for the year ending December 31, 2009, were
4.21% and 0.46%, respectively, compared to 6.20% and 0.70% for the year
ending December 31, 2008.

Total interest and dividend income decreased $606 thousand or 3.5% in
2009. Interest and fees on loans decreased $2.0 million or 16.5%, due
to the decrease in interest rates during the year, and the mortgage
loan securitization transaction with the Federal Home Loan Mortgage
Corporation in December 2008 which decreased loans by $20.9 million.
Securities interest and dividend income increased $1.5 million or
30.7% over 2008. Much of this increase is attributable to an increase
in the average balance of securities related to the aforementioned
mortgage loan securitization.

Interest expense decreased by $1.5 million or 26.8% during 2009, as the
Bank`s deposits and short-term borrowings were affected by the falling
interest rate environment. Interest expense on deposits decreased
$1.5 million or 33.1% in 2009.  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 2009. Interest expense for short-term borrowings decreased by
$119 thousand or 72.6%, primarily due to the significant decrease in
short-term market interest rates during 2009. Federal Home Loan Bank
advances interest expense increased $112 thousand or 11.6% as the
amount of advances increased from $21 million to $27 million during 2009.

The provision for loan losses was $1.8 million in 2009, compared to
$482 thousand in 2008. 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 $641 thousand
for 2009, compared to $792 thousand for 2008. The allowance as a
percentage of loans increased from 0.95% at December 31, 2008 to
1.48% at December 31, 2009. Classified loans have increased from
$7.2 million as of December 31, 2008 to $14.6 million as of
December 31, 2009 as some of our borrowers have struggled with the
challenging business environment created by the current economic
recession. Total nonperforming loans have increased from $2.0 million
as of December 31, 2008 to $5.2 million as of December 31, 2009.
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 $639 thousand or 27.4% during 2009. The
increase is primarily related to net gains recorded on the sale of
securities of $770 thousand. Income from mortgage banking activities
increased from $126 thousand in 2008 to $310 thousand in 2009 as the
Corporation originated $16.8 million in mortgage loans for sale on the
secondary market. The 2009 originations represent an amount significantly
higher than the $7.1 million originated in 2008.

Noninterest expense was $11.4 million for the year ended December 31, 2009
compared to $10.2 million for 2008, an increase of 11.7%. The increase in
noninterest expense was due primarily to an increase in the FDIC deposit
insurance premium from $35 thousand in 2008 to $605 thousand in 2009.
Salaries and employee benefits, occupancy and professional and consulting
fees were slightly higher in 2009 compared to 2008 levels.

Income tax expense was $398 thousand for the year ended December 31, 2009,
representing a decrease of $372 thousand or 48.3% compared to 2008. The
change is primarily related to a decrease in income before income taxes
and an increase in interest income from nontaxable securities.

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

                                                                          26


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, 2010, 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 and related to a deterioration of the credit
worthiness of the issuer 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.

The Corporation performed a goodwill impairment analysis as of
September 30, 2010. The fair value of the single reporting unit was
determined to be greater than the carrying value. The fair value was
determined by using estimated sales price multiples based on recent
observable market transactions.

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

                                                                          27



CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
(Dollar amounts in thousands, except per share data)


                                                     2010               2009
                                                                  
ASSETS
Cash and due from banks                              $ 12,837           $  8,124
Time deposits with other financial institutions         5,697             13,580
Securities available for sale                         138,033            130,241
Restricted equity securities                            3,219              3,218
Loans held for sale                                         -                316
Loans, net of allowance for loan losses:
  2010 ~ $2,585
  2009 ~ $2,906                                       190,685            194,071
Premises and equipment, net                            12,526              9,033
Goodwill                                                4,723              4,723
Identified intangible assets                              107                197
Accrued interest receivable                             1,270              1,334
Bank owned life insurance                               2,862              2,771
Other assets                                            2,137              2,620

                                                     $374,096           $370,228

LIABILITIES AND SHAREHOLDERS` EQUITY
Liabilities
Deposits
  Non-interest bearing                               $ 57,435           $ 54,290
  Interest bearing                                    251,699            237,083
    Total deposits                                    309,134            291,373
Repurchase agreements                                   7,747              6,105
Federal funds purchased                                     -              3,300
Federal Reserve note account                              724                315
Federal Home Loan Bank advances                        15,000             27,000
Accrued interest payable                                  312                408
Accrued expenses and other liabilities                  2,198              2,824
  Total liabilities                                   335,115            331,325

Commitments and contingent liabilities

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                              4,775              4,752
Retained earnings                                      22,475             21,856
Treasury stock, at cost (83,555 shares)                (1,639)            (1,639)
Accumulated other comprehensive income (loss)           1,923              2,487
Total shareholders` equity                             38,981             38,903

                                                     $374,096           $370,228


see accompanying notes.
                                                                          28




CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)


                                                2010            2009            2008
                                                                       
Interest and dividend income
  Loans, including fees                         $ 10,536        $ 10,222        $ 12,241
  Securities:
    Taxable                                        3,541           5,397           4,095
    Nontaxable                                     1,214             809             654
  Federal funds sold and other                       210              37              81
    Total interest and dividend income            15,501          16,465          17,071

Interest expense
  Deposits                                         2,188           3,116           4,657
  Short-term borrowings                               47              45             164
  Federal Home Loan Bank advances                    984           1,076             964
    Total interest expense                         3,219           4,237           5,785

Net interest income                               12,282          12,228          11,286

Provision for loan losses                          2,229           1,829             482

Net interest income after provision for
 loan losses                                      10,053          10,399          10,804

Noninterest income
  Checking account fees                            1,125           1,070           1,218
  Visa check card interchange fees                   442             353             326
  Deposit and miscellaneous service fees             338             280             312
  Mortgage banking activities                        285             310             126
  Gain on sale of credit card portfolio                -               -             435
  Loss on sales of other real estate owned           (24)           (112)            (15)
  Securities gains (losses), net                     661             770            (344)
  Other                                              363             301             275
Total noninterest income                           3,190           2,972           2,333

Noninterest expense
  Salaries and employee benefits                   5,550           5,279           5,118
  Data processing                                  1,033             909             947
  Net occupancy                                    1,231           1,056             915
  FDIC assessment                                    520             605              35
  Professional and consulting fees                   685             582             431
  Franchise tax                                      348             327             326
  Maintenance and repairs                            203             187             212
  Amortization of intangibles                         90             225             232
  Telephone                                          237             216             194
  Marketing                                          240             233             144
  Director fees and pension                          291             224             312
  Software license and maintenance fees              202             189             134
  Postage and supplies                               295             304             360
  Other                                              922           1,028             813
Total noninterest expense                         11,847          11,364          10,173

Income before income taxes                         1,396           2,007           2,964

Income tax expense                                    71             398             770

Net income                                      $  1,325        $  1,609        $  2,194

Weighted average common shares outstanding     2,205,973       2,202,457       2,203,218
Basic and diluted earnings per common share    $    0.60       $    0.73       $    1.00


See accompanying notes.

                                                                          29



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS` EQUITY
Years ended December 31, 2010, 2009 and 2008
(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, 2008                        $11,447      $ 4,690      $20,182      $(1,623)   $   295        $34,991

Comprehensive income:
  Net income                                                                  2,194                                  2,194
  Other comprehensive income (loss), net of tax                                                       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

Comprehensive income:
  Net income                                                                  1,609                                  1,609
  Other comprehensive income (loss), net of tax                                                       1,034          1,034
    Total comprehensive income                                                                                       2,643

Cash dividends declared ($.32 per share)                                       (705)                                  (705)
Stock awards issued from Treasury Shares
 (3,605) shares                                                                 (20)          70                        50
Compensation expense under stock-based
 compensation plans                                                 34                                                  34

Balance at December 31, 2009                       11,447        4,752       21,856       (1,639)     2,487         38,903

Comprehensive income
  Net income                                                                  1,325                                  1,325
  Other comprehensive income (loss), net of tax                                                        (564)          (564)
    Total comprehensive income                                                                                         761

Cash dividends declared ($.32 per share)                                       (706)                                  (706)
Compensation expense under stock-based
 compensation plans                                                 23                                                  23

Balance at December 31, 2010                      $11,447      $ 4,775       $22,475      $(1,639)   $ 1,923       $38,981



See accompanying notes.
                                                                          30



CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands except per share data)


                                                                2010            2009            2008
                                                                                       
Cash flows from operating activities
  Net income                                                    $  1,325        $  1,609        $  2,194
  Adjustments to reconcile net income
    to net cash from operating activities
    Provision for loan losses                                      2,229           1,829             482
    Deferred income taxes                                             95            (382)             40
    Depreciation, amortization and accretion                       1,876             877             271
    Earnings on Bank owned life insurance                            (91)            (94)            (90)
    Restricted equity securities dividends                            (1)             (1)            (96)
    Origination of mortgage loans held for sale                  (11,889)        (16,751)         (7,080)
    Proceeds from sales of mortgage loans held
      for sale                                                    12,490          16,745           7,187
    Gain on sale of loans                                           (285)           (310)           (114)
    Net security (gains) losses                                     (661)           (770)           (100)
    Securities impairment loss recognized in earnings                  -               -             444
    Gain on sale of credit card portfolio                              -               -            (435)
    Loss on sale/write-down of other real estate owned                24             112              24
    Compensation expense under stock-based
      compensation plans                                              23              84              28
    Change in other assets and liabilities                           (68)         (1,503)           (498)
      Net cash from operating activitiess                          5,067           1,445           2,257

Cash flows from investing activities
  Purchases of time deposits with other financial
    institutions                                                    (984)        (13,580)              -
  Proceeds from time deposits with other financial
    institutions                                                   8,867               -               -
  Securities available for sale
    Proceeds from maturities and repayments                       38,526          36,757          28,426
    Proceeds from sales                                           18,775          23,084          25,417
    Purchases                                                    (66,312)        (60,353)        (74,179)
  Purchases of property and equipment                             (4,241)         (3,437)         (1,462)
  Proceeds from sale of credit card portfolio                          -               -           1,871
  Proceeds from sale of property and equipment                         -               -              13
  Proceeds from sale of other real estate owned                      113             191             179
  Proceeds from the sale of an impaired loan                         930               -               -
  Purchase of loans                                               (1,184)         (1,151)         (6,130)
  Net change in loans to customers                                 1,350         (15,118)         (5,210)
    Net cash from investing activities                            (4,160)        (33,607)        (31,075)

Cash flows from financing activities
  Net change in deposits                                          17,761          27,731          21,119
  Net change in short-term borrowings                             (1,249)         (3,565)          3,911
  Proceeds from Federal Home Loan Bank advances                        -          10,000           4,000
  Repayments Federal Home Loan Bank advances                     (12,000)         (4,000)              -
  Dividends paid                                                    (706)           (881)         (1,410)
  Purchase of common stock                                             -               -             (86)
    Net cash from financing activities                             3,806          29,285          27,534

  Net change in cash and cash equivalents                          4,713          (2,877)         (1,284)
  Beginning cash and cash equivalents                              8,124          11,001          12,285
  Ending cash and cash equivalents                              $ 12,837        $  8,124        $ 11,001

  Supplemental cash flow information:
    Interest paid                                               $  3,315        $  4,519        $  6,070
    Income taxes paid                                                537             400             970
  Supplemental noncash disclosures:
    Transfer from loans to securities available for sale        $      -        $      -        $ 20,810
    Transfer from loans to other real estate owned                    91              54             354



See accompanying notes.
                                                                          31


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(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 subsidiaries, First National Bank, Orrville, Ohio (Bank)
and NBOH Properties, LLC, together referred to as `the Corporation.`
NBOH Properties, LLC owns a multi-tenant commercial building in Fairlawn,
Ohio. A portion of this building is utilized as our Fairlawn banking
office. This activity is not considered material for segment reporting
purposes. The Bank has a minority interest in First Kropf Title, LLC,
which 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, Stark and Summit 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 investment securities,
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 the
Corporation`s market 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.

Time Deposits with Other Financial Institutions: Interest-bearing deposits
in other financial institutions mature within eight months and are carried
at cost.

Securities: Debt 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. Debt 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.

Management evaluates securities for other than temporary impairment
(`OTTI`) at least on a quarterly basis, and more frequently when economic
or market conditions warrant such an evaluation. For securities in an
unrealized loss position, management considers the extent and duration
of the unrealized loss, and the financial condition and near-term
prospects of the issuer. Management also assesses whether it intends to
sell, or it is more likely than not that it will be required to sell, a
security in an unrealized loss position before recovery of its amortized
cost basis. If either of the criteria regarding intent or requirement to
sell is met, the entire difference between amortized cost and fair value
is recognized as impairment through earnings. For debt securities that
do not meet the aforementioned criteria, the amount of impairment is
split into two components as follows: 1) OTTI related to credit loss,
which must be

                                                                          32


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands except per share data)


NOTE 1 ~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

recognized in the income statement and 2) other-than-temporary impairment
(OTTI) related to other factors, which is recognized in other
comprehensive income. The credit loss is defined as the difference
between the present value of the cash flows expected to be collected and
the amortized cost basis. For equity securities, the entire amount of
other-than-temporary impairment is recognized through earnings.

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.

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
recorded as a reduction in principal, 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 Corporation`s business activity
is with customers located within Wayne, Stark, Summit, Holmes and Medina
Counties. Therefore, the Corporation`s exposure to credit risk is
significantly affected by changes in the economy in these counties.

Purchased Loans: The Corporation 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, based on current information and events, it is
probable that the Corporation will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Loans, for which
the terms have been modified, and for which the borrower is experiencing
financial difficulties, are considered troubled debt restructurings and
classified as impaired.

                                                                          33


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 1 ~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not
classified as impaired. Management determines the significance of payment
delays and payment shortfalls on case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the
borrower, including the length of the delay, the reasons for the delay,
the borrower`s prior payment record, and the amount of the shortfall in
relation to the principal and interest owed.

Commercial and commercial real estate loans over $250 thousand or to
borrowers whose aggregate total borrowing exceeds $250 thousand, except
for first and second mortgage loans on a borrower`s personal residence
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 homogeneous
loans, such as consumer and residential real estate loans, are
collectively evaluated for impairment, and accordingly, they are not
separately identified for impairment disclosures. Troubled debt
restructurings are separately identified for impairment disclosures and
are measured at the present value of estimated future cash flows using the
loan`s effective rate at inception. If a troubled debt restructuring is
considered to be a collateral dependent loan, the loan is reported, net,
at the fair value of the collateral. For troubled debt restructurings that
subsequently default, the Corporation determines the amount of reserve in
accordance with the accounting policy for the allowance for loan losses.

The general component covers non impaired loans and is based on historical
loss experience adjusted for current factors. The historical loss
experience is determined by portfolio segment and is based on the actual
loss history experienced by the Corporation over the most recent 5 years.
This actual loss experience is supplemented with other economic factors
based on the risks present for each portfolio segment. These economic
factors include consideration of the following: levels of and trends in
delinquencies and impaired loans; levels of and trends in charge-offs
and recoveries; trends in volume and terms of loans; effects of any
changes in risk selection and underwriting standards; other changes in
lending policies, procedures, and practices; experience, ability, and
depth of lending management and other relevant staff; national and local
economic trends and conditions; industry conditions; and effects of
changes in credit concentrations. The following portfolio segments have
been identified: commercial loans, commercial real estate loans,
residential real estate loans, home equity loans and consumer loans.

The majority of the Corporation`s loan portfolio is residential real
estate, home equity and consumer loans made to individuals in the
Corporation`s market area. These loans are largely secured by underlying
real estate or consumer collateral. Repayment of these loans is dependent
on general economic conditions and unemployment levels in the
Corporation`s market area.

Commercial and commercial real estate loans primarily consist of income
producing real estate and related business assets. Repayment of these
loans depends, to a large degree, on the results of operations, cash
flow and management of the related businesses. These loans may be affected
to a greater extent by adverse commerce conditions or the economy in
general, including today`s economic recession. Accordingly, the nature
of these loans makes them more difficult for management to monitor and
evaluate.

The historic loss ratio for each class of loans is based on the loss
experience for loans in that group. In 2010, the historic loss ratio for
each class was changed from a twelve quarter moving average to a blended
rate of the twelve quarter moving average and the twenty quarter moving
average. The change was made to enhance the time frame over which we
evaluate loss experience and emphasize the most recent loss experience.

Servicing Rights: When mortgage loans are sold, 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 Corporation 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.

                                                                          34


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)


NOTE 1 ~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

At December 31, 2010 and 2009, the servicing assets of the Corporation
totaled $76 and $115, respectively, and are 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. Servicing
assets are evaluated for impairment based upon the fair value of the
assets compared to carrying amount. 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. Late fees and ancillary fees related
to loan servicing are not material.

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 resulting from business
combinations prior to January 1, 2009 represents the excess of the
purchase price over the fair value of the net assets of businesses
acquired. Goodwill resulting from business combinations after
January 1, 2009, is generally determined as the excess of the fair
value of the consideration transferred, plus the fair value of any
noncontrolling interests in the acquiree, over the fair value of the
net assets acquired and liabilities assumed as of the acquisition date.
Goodwill and intangible assets acquired in a purchase business
combination and determined to have an indefinite useful life are not
amortized, but tested for impairment at least annually. The Corporation
has selected September 30th as the date to perform the annual impairment
test. Intangible assets with definite useful lives are amortized over
their estimated useful lives to their estimated residual values. Goodwill
is the only intangible asset on the Corporation`s balance sheet with
an indefinite life.

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.

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 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.

                                                                          35


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)


NOTE 1 ~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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.

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 Corporation 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 Corporation, 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 Corporation 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. 89,000, 53,000
and 58,000 stock options were not considered in computing diluted earnings
per common share for 2010, 2009 and 2008 because they were antidilutive.

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 was required to meet regulatory reserve and
clearing requirements at year-end 2010 and 2009. 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 these estimates.

Reclassifications: Some items in the prior year financial statements were
reclassified to conform to the current presentation. Reclassification had
no affect on prior year net income or shareholder`s equity.

                                                                          36


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)


Adoption of New Accounting Standards: On July 21, 2010, the FASB issued
ASU No. 2010-20, `Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses,` which requires
significant new disclosures about the allowance for credit losses and
the credit quality of financing receivables. The requirements are
intended to enhance transparency regarding credit losses and the credit
quality of loan and lease receivables. Under this statement, allowance
for credit losses and fair value are to be disclosed by portfolio segment,
while credit quality information, impaired financing receivables and
nonaccrual status are to be presented by class of financing receivable.
The disclosures are to be presented at the level of disaggregation that
management uses when assessing and monitoring the portfolio`s risk and
performance. This ASU is effective for interim and annual reporting
periods after December 15, 2010. See Note 3 ~ Loans.

NOTE 2 ~ SECURITIES


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


                                                                Gross           Gross
                                                Amortized       Unrealized      Unrealized      Fair
                                                Cost            Gains           Losses          Value
                                                                                    
2010
  U.S. Treasury and federal agency              $  2,954        $     21        $     -         $  2,975
  State and municipal                             44,656             833           (484)          45,005
  Corporate bond and notes                         1,487              29              -            1,516
  Mortgage backed: residential                    86,001           2,766           (240)          88,527
  Equity securities                                   23               -            (13)              10
    Total debt securities                       $135,121        $  3,649        $  (737)        $138,033







                                                                Gross           Gross
                                                Amortized       Unrealized      Unrealized      Fair
                                                Cost            Gains           Losses          Value
                                                                                    
2009
  U.S. Treasury and federal agency              $    819        $      -        $     -         $    819
  State and municipal                             28,019             763            (99)          28,683
  Corporate bond and notes                         7,640             137              -            7,777
  Mortgage backed: residential                    89,972           3,058            (87)          92,943
  Equity securities                                   23               -             (4)              19
    Total debt securities                       $126,473        $  3,958        $  (190)        $130,241





Sales of available for sale securities were as follows:

                                                2010            2009            2008
                                                                       
  Proceeds                                      $ 18,775        $ 23,084        $ 25,471
  Gross gains                                        679             949             330
  Gross losses                                       (26)           (179)           (230)
  Gross gains from calls                               8               -               -
Other than temporary impairment loss                   -               -            (444)



The tax provision (benefit) related to these net realized gains and losses
was $225, $262 and $(34), respectively.

                                                                          37


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 2 ~ SECURITIES (Continued)



The amortized cost and fair value of securities at year-end 2010 by
contractual maturity were as follows.  Securities not due at a single
maturity date, primarily mortgage backed securities and equity securities,
are shown separately.


                                            Amortized
                                            Cost           Fair Value
                                                     
  Due in one year or less                   $  5,366       $  5,392
  Due from one to five years                   7,260          7,493
  Due from five to ten years                  16,286         16,768
  Due after ten years                         20,185         19,843
  Mortgage-backed: residential                86,001         88,527
  Equity securities                               23             10
                                            $135,121       $138,033



Securities pledged at year-end 2010 and 2009 had a fair value of $58,827
and $45,882 and were pledged to secure public deposits and repurchase
agreements.

At year-end 2010 and 2009, there were no holdings of securities of any one
issuer, other than the U.S. Government, and its agencies and corporations,
in an amount greater than 10% of shareholders` equity.

All mortgage-backed securities are issued by the United States government
or any agency or corporation thereof as of December 31, 2010.

Securities with unrealized losses at year-end 2010 and 2009, aggregated by
investment category and length of time that individual securities have
been in a continuous unrealized loss position, are as follows:



Securities with unrealized losses at year-end 2010 and 2009, 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
2010                                    Value      Loss         Value      Loss         Value     Loss
                                                                                
State and municipal                     $18,125    $  (484)     $     -    $     -     $18,125    $   (99)
Mortgage-backed: residential             17,067       (240)           -          -      17,067       (240)
Equity securities                             -          -           10        (13)         10        (13)
  Total temporarily impaired            $35,192    $  (724)     $    10    $   (13)    $35,202    $  (737)








                                        Less Than 12 Months     12 Months or More       Total
                                        Fair       Unrealized   Fair       Unrealized   Fair      Unrealized
2009                                    Value      Loss         Value      Loss         Value     Loss
                                                                                
State and municipal                     $ 4,375    $   (60)     $   455    $   (39)     $ 4,830   $   (99)
Corporate bonds and notes                11,761        (87)           -          -       11,761       (87)
Equity securities                            19         (4)           -          -           19        (4)
  Total temporarily impaired            $16,155    $  (151)     $   455    $   (39)     $16,610   $  (190)



Unrealized losses have not been recognized into income because the
securities are of high credit quality, management does not intend to
sell and it is likely that management will not be required to sell
the securities prior to their anticipated recovery, and the decline
in fair value is largely due to changes 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.

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 and recorded $444 of
other than temporary impairment write-downs. The loss has been recorded
in Securities gains (losses), net in the Consolidated Statements of
Income. The fair value of these securities at December 31, 2010 and
2009 was $10 and $19 compared to an adjusted cost basis of $23.

                                                                          38


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 3 ~ LOANS


Loans at year-end were as follows:

                                                2010            2009
                                                          
Real estate:
  Commercial and land development               $ 58,047        $ 54,787
  One-to-four family                              47,204          50,390
  Home equity                                     27,766          26,526
  Multifamily                                     14,397          10,353
Real estate construction:
  Commercial and land development                  9,942          11,797
  One-to-four family                                 301             598
Commercial                                        26,158          30,621
Consumer:
  Auto:
    Direct                                         2,474           3,148
    Indirect                                       6,401           8,605
  Other                                              989             590
                                                 193,679         197,415
Unearned and deferred income                        (409)           (438)
Allowance for loan losses                         (2,585)         (2,906)
                                                $190,685        $194,071




Activity in the allowance for loan losses was as follows:


                                        2010            2009            2008
                                                               
  Beginning balance                     $ 2,906         $ 1,718         $ 2,028
  Provision for loan losses               2,229           1,829             482
  Loans charged-off                      (2,576)           (659)           (845)
  Recoveries                                 26              18              53
    Ending balance                      $ 2,585         $ 2,906         $ 1,718


                                                                          39


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 3 ~ LOANS (Continued)


The recorded investment in loans includes the principal balance
outstanding, net of unearned and deferred income and including
accrued interest receivable. The following table presents the
balance in the allowance for loan losses and the recorded
investment in loans by portfolio segment and based on
impairment method as of December 31, 2010:



                                                           Commercial   Residential  Home
                                               Commercial  Real Estate  Real Estate  Equity     Consumer   Unallocated  Total
                                                                                                   
Allowance for loan losses:
  Ending allowance balance
   attributable to loans:
    Individually evaluated for
     impairment                                $      -    $     30     $    239     $      -   $      -   $      -     $    269
    Collectively evaluated for
     impairment                                     460       1,237          436          100         53         30        2,316

    Total ending allowance balance             $    460    $  1,267     $    675     $    100   $     53   $     30     $  2,585

Recorded investment in loans:
  Loans individually evaluated
   for impairment                              $    662    $  2,881     $  1,149     $      -   $      -   $      -     $  4,692
  Loans collectively evaluated
   for impairment                                25,539      65,035       60,609       27,914     10,049          -      189,146

    Total ending loans balance                 $ 26,201    $ 67,916     $ 61,758     $ 27,914   $ 10,049   $      -     $193,838


                                                                          40


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 3 ~ LOANS (Continued)



Individually impaired loans were as follows:

                                                        2010            2009
                                                                  
  Year-end loans with no allocated allowance
    for loan losses                                     $  3,298        $  2,069
  Year-end loans with allocated allowance
    for loan losses                                        1,394           3,692
  Amount of the allowance for loan losses                    269             916
    allocated





                                                        2010            2009            2008
                                                                               
  Average of individually impaired
    loans during year                                   $  3,888        $  2,897        $  1,846




The following table presents loans individually evaluated for impairment by
class of loans asof December 31, 2010:

                                                        Unpaid                          Allowance for
                                                        Principal       Recorded        Loan Losses
                                                        Balance         Investment      Allocated

                                                                               
With no related allowance recorded:
  Real estate:
    Commercial and land development                     $  1,258        $  1,256        $      -
    One-to-four family                                        52              52               -
  Real estate construction:
    One-to-four family                                     1,326           1,325               -
  Commercial                                                 662             662               -
With an allowance recorded:
  Real estate:
    Commercial and land development                           99              99              10
    One-to-four family                                     1,097           1,097             239
    Multifamily                                                -               -               -
  Real estate construction:
    Commercial and land development                          198             198              20

                                                        $  4,692        $  4,694        $    269




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

                                                        2010            2009
                                                                  

Loans past due over 90 days still on accrual            $    487        $    458
Nonaccrual loans                                           4,373           4,716



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

                                                                          41


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 3 ~ LOANS (Continued)



The following table presents the recorded investment in nonaccrual and
loans past due over 90 days still on accrual by class of loans as of
December 31, 2010:

                                                                        Loans Past
                                                                        Due Over 90
                                                                        Days Still
                                                        Nonaccrual      Accruing
                                                                  
Real estate:
  Commercial and land development                       $  1,358        $      -
  One-to-four family                                         448             360
  Home equity                                                382             116
Real estate construction:
  Commercial and land development                          1,524               -
Commercial                                                   661               -
Consumer:
  Auto:
    Indirect                                                   -              11
                                                        $  4,373        $    487




The following table presents the aging of the recorded investment in past
due loans as of December 31, 2010 by class of loans:

                                               30 - 59      60 - 89      Greater Than
                                               Days         Days         90 Days        Total      Loans Not
                                               Past Due(1)  Past Due(2)  Past Due(3)    Past Due   Past Due(4)   Total
                                                                                               
Real estate:
  Commercial and land development              $      -     $    165     $  1,076       $  1,241   $ 56,806      $ 58,047
  One-to-four family                                769          167          784          1,720     45,484        47,204
  Home equity                                         2           45          498            545     27,221        27,766
  Multifamily                                         -            -            -              -     14,397        14,397
Real estate construction:
  Commercial and land development                   930          396          198          1,524      8,418         9,942
  One-to-four family                                  -            -            -              -        301           301
Commercial                                            -           22          661            683     25,475        26,158
Consumer:
  Auto:
    Direct                                           22            -            -             22      2,452         2,474
    Indirect                                         52            -           11             63      6,338         6,401
  Other                                               9            -            -              9        980           989
                                               $  1,784     $    795     $  3,228       $  5,807   $187,872      $193,679


(1)  Includes $854 thousand of loans on nonaccrual status.
(2)  Includes $399 thousand of loans on nonaccrual status.
(3)  All loans are nonaccrual status except for $487 thousand
     of loans past due over 90 days still on accrual.
(4)  Includes $379 thousand of loans on nonaccrual status.

Troubled Debt Restructuring: The Company has $1,876 of loans individually
evaluated for impairment whose loan terms have been modified in troubled
debt restructurings as of December 31, 2010.  No specific reserve has been
allocated for these loans.  The Company has not committed to lend any
additional amounts as of December 31, 2010 to customers with outstanding
loans that are classified as troubled debt restructurings.  There were no
loans whose terms have been modified in troubled debt restructurings as of
December 31, 2009.

                                                                          42


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 3 ~ LOANS (Continued)

Credit Quality Indicators: The Corporation categorizes loans into risk
categories based on relevant information about the ability of borrowers
to service their debt such as: current financial information, historical
payment experience, credit documentation, public information, and current
economic trends and other information specific to each borrower. The
Corporation analyzes loans individually by classifying the loans as to
credit risk. This analysis includes non-homogeneous loans, such as
commercial and commercial real estate loans. This analysis is performed
on an annual basis or more frequently if management becomes aware of
information affecting a borrower`s ability to fulfill its obligation.
The Corporation uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential
weakness that deserves management`s close attention. If left uncorrected,
these potential weaknesses may result in deterioration of the repayment
prospects for the loan or of the institution`s credit position at some
future date.

Substandard. Loans classified as substandard are inadequately protected by
the current financial condition and paying capacity of the obligor or of
the collateral securing the loan. Substandard loans have a well-defined
weakness or weaknesses that jeopardize the liquidation of the debt with a
distinct possibility that the institution will sustain some loss if the
deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in
those classified as substandard, with the added characteristic that the
weaknesses make collection or liquidation in full, on the basis of
currently existing facts, conditions, and values, highly questionable
and improbable.



Loans not meeting the criteria above that are analyzed individually as
part of the above described process are considered to be pass rated loans.
As of December 31, 2010, and based on the most recent analysis performed,
the risk category of loans by class of loans is as follows:

                                                            Special
                                               Pass         Mention      Substandard  Doubtful     Total
                                                                                    
Real estate:
  Commercial and land development              $ 53,794     $    350     $  3,903     $      -     $ 58,047
Real estate construction:
  Commercial and land development                 6,352        1,788        1,802            -        9,942
Commercial                                       23,627          507        2,024            -       26,158
                                                 83,773        2,645        7,729            -       94,147



The Corporation considers the performance of the loan portfolio and its
impact on the allowance for loan losses. For residential and consumer loan
classes, the Corporation also evaluates credit quality based on the aging
status of the loan, which was previously presented, and by payment
activity. The following table presents the recorded investment in
residential and consumer loans based on payment activity as of
December 31, 2010:

                                   Consumer                              Residential Real Estate
                                                                                       one-to-four
                        Direct      Indirect    Other      Construction  Multifamily   Family       Equity
                                                                               
Performing              $ 2,474     $ 6,390     $   989    $   301       $14,397       $46,420      $27,268
Nonperforming                 -          11           -          -             -           784          498
                        $ 2,474     $ 6,401     $   989    $   301       $14,397       $47,204      $27,766



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.

                                                                          43


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 3 ~ LOANS (Continued)

The Bank securitized $20,897 single-family residential mortgage loans
formerly held in its mortgage loan portfolio, with Freddie Mac in
December, 2008 as a guaranteed mortgage securitization and retained
the resulting securities as available for sale. 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. 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 accumulated other comprehensive income and capital by $554. During
2010, the Corporation sold a portion of the securities created by the
securitization resulting in proceeds of $8.9 million and a gross gain on
sale of $541. During 2009, the Corporation sold a portion of the
securities created by the securitization resulting in proceeds of $3.3
million and a gross gain on sale of $152. The Corporation continues to
service all of the underlying loans of the guaranteed mortgage
securitization, including the portion of the securitization sold during
2010 and 2009.

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:


                                                        2010            2009
                                                                  
Mortgage loan portfolios serviced for:
  FHLMC                                                 $22,100         $29,255



There were no custodial escrow balances maintained in connection with
serviced loans at year-end 2010 and 2009.


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


                                                        2010            2009            2008
                                                                               
Servicing rights:
  Beginning balance                                     $   115         $   173         $    67
  Additions                                                   5               2             139
  Amortized to expense                                      (44)            (60)            (33)
  End of year                                                76             115             173



NOTE 5 ~ PREMISES AND EQUIPMENT


Year-end premises and equipment were as follows:

                                                        2010            2009
                                                                  
  Land                                                  $ 1,758         $ 1,571
  Buildings                                              11,503           8,518
  Furniture, fixtures and equipment                       5,332           4,997
  Construction in progress                                    -             183
                                                         18,593          15,269
  Less:  Accumulated depreciation                        (6,067)         (6,236)
                                                        $12,526         $ 9,033



Depreciation expense was $748, $588 and $442 in 2010, 2009 and 2008.

Rent expense under operating leases included in occupancy was $37, $39
and $39 for the years ended December 31, 2010, 2009 and 2008. Future lease
payments are not material.

                                                                          44


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 6 ~ INTANGIBLE ASSETS


During 2002, the Corporation acquired Peoples Financial Corporation and
merged the Corporation`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:


                                              2010                            2009
                                              Gross                           Gross
                                              Carrying        Accumulated     Carrying        Accumulated
                                              Amount          Amortization    Amount          Amortization
                                                                                  
Amortized intangible assets:
  Core deposit intangibles                    $ 1,063         $   956         $ 1,063         $   866
  Branch acquisition intangible                   760             760             760             760
  Customer relationship intangibles               728             728             728             728
                                              $ 2,551         $ 2,444         $ 2,551         $ 2,354



Aggregate amortization expense was $90, $225 and $232 for 2010,
2009 and 2008.



Estimated amortization expense for each of the next two years:

                                
                       2011        $  86
                       2012           21



Goodwill impairment exists when a reporting unit`s carrying value of
goodwill exceeds its fair value, which is determined through a two-step
impairment test. Step 1 includes the determination of the carrying value
of our single reporting unit, including the existing goodwill and
intangible assets, and estimating the fair value of the reporting unit.
We determined the fair value of our reporting unit and compared it to its
carrying amount. If the carrying amount of a reporting unit exceeds its
fair value, we are required to perform a second step to the impairment
test.

Our annual impairment analysis as of September 30, 2010, indicated that
the Step 2 analysis was not necessary. Step 2 of the goodwill impairment
test is performed to measure the impairment loss.  Step 2 requires that
the implied fair value of the reporting unit goodwill be compared to the
carrying amount of that goodwill. If the carrying amount of the reporting
unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss shall be recognized in an amount equal to that excess.

NOTE 7 ~ DEPOSITS



                                                2010            2009
                                                          
  Demand, noninterest-bearing                   $ 57,435        $ 54,290
    Demand, interest-bearing                     133,987         117,862
    Savings                                       49,804          46,371
    Time, $100,000 and over                       16,089          15,712
    Time, other                                   51,819          57,138
                                                $309,134        $291,373





A summary of time deposits at year-end 2010 by maturity follows:


                                 
                       2011         $ 41,883
                       2012            7,072
                       2013            6,737
                       2014           11,764
                       2015              452
                                    $ 67,908



                                                                          45


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 8 ~ FEDERAL HOME LOAN BANK ADVANCES



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


                                                        2010            2009
                                                                  

Maturity in 2010, fixed rate at 6.26%,                  $      -        $  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%
to 5.79% at December 31, 2010 and 2009,
convertible to variable if 1-month LIBOR is at
or above fixed rate                                        3,000          13,000

Maturities in 2010, fixed rate at 3.19%                        -           1,000
Maturities in 2011, fixed rate at 2.31% to 2.88%           4,000           4,000
Maturities in 2012, fixed rate at 2.00%                    3,000           3,000
Maturities in 2014, fixed rate at 2.86% to 2.88%           5,000           5,000
  Total                                                 $ 15,000        $ 27,000



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 $41,660 and $45,626 of first mortgage
loans available under a blanket lien arrangement at year-end 2010 and 2009.



Required payments over the next four years are:


                                            

2011                    2.31 to 5.12%             $ 7,000
2012                    2.00%                       3,000
2014                    2.86 to 2.88%               5,000



NOTE 9 ~ REPURCHASE AGREEMENTS


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


                                                    2010        2009        2008
                                                                   
  Average balance during the year                   $ 8,032     $ 7,442     $10,134
  Average interest rate during the year                0.15%       0.26%       1.42%
  Maximum month-end balance during the year         $12,083     $ 8,965     $11,136
  Weighted average rate at year-end                    0.15%       0.25%       0.50%



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. Matching contributions may be made
in amounts and at times determined by the Corporation. Total matching
discretionary contributions made by the Corporation during 2010, 2009
and 2008 amounted to $57, $73 and $81.

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
2010, 2009 and 2008 amounted to $2, $2 and $1.

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.

                                                                          46


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 10 ~ BENEFIT PLANS (Continued)

Interest credited to participant accounts associated with the deferrals
was $8, $9 and $12 in 2010, 2009 and 2008.  The deferred directors` fee
liability was $193 at December 31, 2010 and $224 at December 31, 2009.
Expense recognized in 2010, 2009 and 2008 for the director retirement
and death benefit plan was $79, $25 and $117.  The liability related to
the plan was $713 at December 31, 2010 and $670 at December 31, 2009.

NOTE 11 ~ INCOME TAXES


The components of deferred taxes were as follows:


                                                    2010        2009
                                                          
Deferred tax assets:
  Bad debts                                         $   719     $   828
  Deferred compensation                                 308         321
  Deferred loan fees                                    195         223
  FHLMC preferred stock impairment loss                 151         151
  Deferred income                                        37          43
  Real estate owned write-down                           26          26
  Nonaccrual loan interest income                        43          17
  Stock-based compensation                               26          19
  Charitable contribution carryforward                   21           -
  ATM credit carryforward                                17           -
  Accrued bonus                                          14           -
  Other                                                   -           1
    Total                                           $ 1,557     $ 1,629

Deferred tax liabilities:
  Unrealized security gains, net                    $   991     $ 1,281
  Federal Home Loan Bank stock dividends                542         542
  Depreciation                                          524         432
  Purchase accounting adjustments                       105         137
  Mortgage servicing rights                              33          50
  Prepaid expenses                                       24          25
  Securities accretion                                   27          47
  Partnership income                                      3           2
    Total                                             2,249       2,516
Net deferred tax asset (liability)                  $  (692)    $  (887)



Federal income tax laws provided that the 2002 acquired entity could
claim additional bad debt deductions through 1987, totaling $1.9 million.
Accounting standards do not require a deferred tax liability to be
recorded on this amount, which liability otherwise would total $646 at
December 31, 2010. 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:


                                                    2010        2009        2008
                                                                   
  Current                                           $   (24)    $   780     $   730
  Deferred                                               95        (382)         40
                                                    $    71     $   398     $   770





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

                                                2010               2009               2008
                                                Rate    Amount     Rate    Amount     Rate    Amount
                                                                            
  Tax at federal statutory rate                 34%     $  475     34%     $  682     34%     $1,008
  Tax-exempt income                            (29)       (399)   (13)       (270)    (7)       (214)
  Other                                          0          (5)    (1)        (14)    (1)        (24)
  Income tax expense                             5%     $   71     20%        398     26%        770



                                                                          47


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 11 ~ INCOME TAXES (Continued)

As of December 31, 2010 and December 31, 2009, the Corporation had no
unrecognized tax benefits or accrued interest and penalties recorded.
The Corporation does not expect the amount of unrecognized tax benefits
to significantly increase within the next twelve months. The Corporation
records interest and penalties as a component of income tax expense.

The Corporation and its subsidiaries are subject to U.S. federal income
tax as well as income tax in the state of Ohio for National Bancshares.
The Bank is subject to tax in Ohio based upon its net worth. The
Corporation is no longer subject to examination by state taxing
authorities for years prior to 2007.

NOTE 12 ~ RELATED-PARTY TRANSACTIONS


Loans to principal officers, directors, and their affiliates during 2010
were as follows:


                                                        
  Beginning balance                                        $ 6,361
  Effect of changes in composition of related parties       (2,635)
  New loans                                                      -
  Repayments                                                (1,305)
  Ending balance                                           $ 2,421



Unused commitments to these related parties totaled $1,798 and $3,762 at
year-end 2010 and 2009.  Related party deposits totaled $3,955 and $4,749
at year-end 2010 and 2009.

The Corporation has minority ownership in a title agency affiliated with
a Director resulting in fee income to the Corporation of $35, $32 and $11
for 2010, 2009 and 2008, respectively.

NOTE 13 ~ STOCK-BASED COMPENSATION

The Corporation`s 2008 Equity Incentive Plan (`the Plan`), which is
shareholder-approved, permits the grant of stock options or restricted
stock awards, to its officers, employees, consultants and non-employee
directors for up to 223,448 shares of common stock.

Stock Option Awards

Option awards are granted with an exercise price equal to the market price
of the Corporation`s common stock at the date of grant; those option
awards have vesting periods determined by the Corporation`s compensation
committee and have terms that shall not exceed 10 years.

On May 20, 2008, the Corporation granted options to purchase 58,000 shares
of stock to directors and certain key officers, 46,000 of which remained
outstanding at December 31, 2010. 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. None of these options have
been exercised as of December 31, 2010.

On October 19, 2010, the Corporation granted options to purchase 43,000
shares of stock to directors and certain key officers, all of which
remained outstanding at December 31, 2010. The exercise price of the
options is $13.22 per share. The options vest in five equal installments
over a five-year period and have a term of 10 years. None of these options
have been exercised as of December 31, 2010.

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 Corporation`s common stock. The Corporation
has estimated the option exercise and post-vesting termination behavior
and expected term of options granted due to the lack of historical data.
The expected term of options granted 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.

                                                                          48


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 13 ~ STOCK-BASED COMPENSATION (Continued)


The fair value of options granted and the assumptions used for grants in
2010, 2009 and 2008 were as follows:

                                         2010        2009       2008
                                                       
  Fair value of options granted          $ 2.53      $    -     $ 1.83
  Risk-free interest rate                  1.49%          -       3.19%
  Expected term (years)                    6.5            -       6.5
  Expected stock price volatility         24.67%          -      13.76%
  Dividend yield                           2.42%          -       3.60%




A summary of the activity in the stock option plan for 2010 follows:

                                                                         Weighted
                                                                         Average
                                                             Average     Remaining     Aggregate
                                                             Exercise    Contractual   Intrinsic
                                                 Shares      Price       Term          Value
                                                                           
  Outstanding at beginning of year               53,000      $ 18.03
  Granted                                        43,000        13.22
  Exercised                                           -         -
  Forfeited or expired                           (7,000)       18.03
  Outstanding at end of year                     89,000        15.71         8.6       $     -

  Fully expected to vest                        (70,600)     $ 15.10         8.9       $     -

  Exercisable at end of year                     18,400      $ 18.03         7.4       $     -



The total compensation cost that has been charged against income for the
plan was $23, $34 and $28 for 2010, 2009 and 2008. The total income tax
benefit was $8, $12 and $10 for 2010, 2009 and 2008. There was $117,
$38 and $78 of total unrecognized compensation cost related to nonvested
stock options granted under the Plan as of December 31, 2010, 2009 and
2008. The cost is expected to be recognized over a weighted-average period
of 3.6 years.

Restricted Stock Awards

On December 23, 2009, the Corporation issued restricted stock awards for
3,605 shares of the Corporation`s common stock to certain officers.

The awards vested immediately and the compensation expense related to the
awards of $50 was recorded in 2009. The fair value of the stock was
determined using closing market price of the Corporation`s common stock
on the date of the grant.

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, 2010, 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
2010 and 2009, 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.

                                                                          49


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 14 ~ REGULATORY CAPITAL MATTERS (Continued)


Actual and required capital amounts and ratios for the Bank 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
                                                                               
2010
Total capital to risk
  weighted assets                       $31,032  13.59%         $18,267  8.00%          $22,834  10.00%
Tier 1 capital to risk
  weighted assets                        28,447  12.46%           9,134  4.00%           13,701   6.00%
Tier 1 capital to
  average assets                         28,447   7.46%          15,261  4.00%           19,077   5.00%

2009
Total capital to risk
  weighted assets                       $29,842  12.46%         $19,161  8.00%          $23,952  10.00%
Tier 1 capital to risk
  weighted assets                        26,936  11.25%           9,581  4.00%           14,371   6.00%
Tier 1 capital to
  average assets                         26,936   7.40%          14,562  4.00%           18,202   5.00%



Dividend Restrictions ~ The Corporation`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. The Bank
could, without prior approval, pay dividends to the holding Corporation
of approximately $3,057 as of December 31, 2010.

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:


                                        2010            2009
                                                  
  Commitments to make loans             $ 1,658         $ 2,531
  Unused lines of credit                 67,285          60,567
  Letters of credit                         398             308



Of the above unused instruments at December 31, 2010, approximately
$11,622 pertains to fixed-rate commitments and variable-rate commitments
account for approximately $55,663. At year-end 2009, approximately $9,974
of total commitments were fixed-rate and approximately $53,432 were
variable rate. Rates on fixed-rate unused lines of credit ranged from
3.38% to 21.90% at December 31, 2010 and 6.25% to 21.90% at
December 31, 2009.

                                                                          50


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 16 ~ FAIR VALUE

ASC 820-10 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.

Investment Securities: The fair values for investment securities are
determined by quoted market prices, if available (Level 1). For securities
where quoted prices are not available, fair values are calculated based on
market prices of similar securities (Level 2). For securities where quoted
prices or market prices of similar securities are not available, fair
values are calculated using discounted cash flows or other market
indicators (Level 3). Discounted cash flows are calculated using spread to
swap and LIBOR curves that are updated to incorporate loss severities,
volatility, credit spread and optionality. During times when trading is
more liquid, broker quotes are used (if available) to validate the model.
Rating agency and industry research reports as well as defaults and
deferrals on individual securities are reviewed and incorporated into
the calculations.

Derivatives: The fair value of derivatives is based on valuation models
using observable market data as of the measurement date (Level 2 inputs).

Impaired Loans: 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 usually significant and
typically result in a Level 3 classification of the inputs for determining
fair value.

Other Real Estate Owned: Nonrecurring adjustments to certain commercial
and residential real estate properties classified as other real estate
owned are measured at the lower of carrying amount or fair value, less
cost to sell. Fair Values are generally based on third party appraisals
of the property, resulting in a Level 3 classification. In cases where
the carrying amount exceeds the fair value, less costs to sell, an
impairment loss is recognized.

Loans Held for Sale: Loans held for sale are carried at the lower of cost
or fair value, as determined by outstanding commitments, from third party
investors.

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, 2010 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:
    U.S. Government and federal agency          $     -                 $ 2,975         $     -
    State and municipal                               -                  44,705             300
    Corporate bonds and notes                         -                   1,516               -
    Mortgage-backed securities: residential           -                  88,507              20
    Equity securities                                10                       -               -
  Interest rate swaps                                 -                      47               -



                                                                          51


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 16 ~ FAIR VALUE (Continued)




                                                Fair Value Measurements
                                                At December 31, 2010 Using
                                                Quoted Prices in        Significant
                                                Active Markets          Other           Significant
                                                for Identical           Observable      Unobservable
                                                Assets                  Inputs          Inputs
                                                (Level 1)               (Level 2)       (Level 3)
                                                                               

Liabilities:
  Interest rate swaps                           $     -                 $    47         $     -





                                                Fair Value Measurements
                                                At December 31, 2009 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:
    U.S. Government and federal agency          $     -                 $   819         $     -
    State and municipal                               -                  28,683               -
    Corporate bonds and notes                         -                   7,777               -
    Mortgage-backed securities: residential           -                  92,943               -
    Equity securities                                19                       -               -
  Interest rate swaps                                 -                       4               -




                                       Fair Value Measurements
                                                At December 31, 2009 Using
                                                Quoted Prices in        Significant
                                                Active Markets          Other           Significant
                                                for Identical           Observable      Unobservable
                                                Assets                  Inputs          Inputs
                                                (Level 1)               (Level 2)       (Level 3)
                                                                               

Liabilities:
  Interest rate swaps                           $     -                 $     4         $     -



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, 2010 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                                $     -                 $     -         $ 3,116
  Other real estate owned                             -                       -              58


                                                                          52


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 16 ~ FAIR VALUE (Continued)



                                                Fair Value Measurements
                                                At December 31, 2009 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                                $     -                 $     -         $ 2,882
  Other real estate owned                             -                       -              58



Impaired loans, which are measured for impairment using the fair value of
the collateral for collateral dependent loans, had a principal amount of
$3,385, with a valuation allowance of $269 at December 31, 2010, resulting
in an additional provision for loan loss of $1,790 for the year ended
December 31, 2010.

Impaired loans, which are measured for impairment using the fair value of
the collateral for collateral dependent loans, had a principal amount of
$3,798, with a valuation allowance of $916 at December 31, 2009, resulting
in an additional provision for loan loss of $1,091 for the year ended
December 31, 2009.

Other real estate owned measured at fair value less costs to sell, had a
net carrying amount of $58, which is made up of the outstanding balance of
$133, net of a valuation allowance of $75 at December 31, 2010. The
write-down of $75 occurred during the year end December 31, 2009. There
were no write-downs of other real estate owned for the year ended
December 31, 2010.



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


                                                2010                            2009
                                                Carrying        Fair            Carrying        Fair
                                                Amount          Value           Amount          Value
                                                                                    
Financial assets
  Cash and cash equivalents                     $ 12,837        $ 12,837        $  8,124        $  8,124
  Time deposits with other financial
    institutions                                   5,697           5,697          13,580          13,580
  Securities available for sale                  138,033         138,033         130,241         130,241
  Restricted equity securities                     3,219              na           3,218              na
  Loans, net1                                    190,685         192,372         194,071         194,103
  Accrued interest receivable                      1,270           1,270           1,334           1,334
  Interest rate swaps                                 47              47               4               4

Financial liabilities
  Deposits                                       309,134         309,908          291,373        292,045
  Short-term borrowings                            8,471           8,471            9,720          9,720
  Federal Home Loan Bank advances                 15,000          15,337           27,000         27,779
  Accrued interest payable                           312             312              408            408
  Interest rate swaps                                 47              47                4              4



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,
time deposits with other financial institutions, 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. Fair value of debt is based on current
rates for similar financing. It was not practicable to determine the fair
value of restricted equity securities due to restrictions placed on its
transferability. The fair value of off balance sheet items is not
considered material.

NOTE 17 ~ DERIVATIVES

The Corporation utilizes interest-rate swap agreements as part of its
asset liability management strategy to help manage its interest rate risk
position, not for speculation. The notional amount of the interest-rate
swaps does not represent amounts exchanged by the parties. The amount
exchanged is determined by reference to the notional amount and the other
terms of the individual interest-rate swap agreements.

                                                                          53


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 17 ~ DERIVATIVES (Continued)

The Corporation implemented a program in 2009 whereby it lends to its
borrowers at a fixed rate with the loan agreement containing a two-way
yield maintenance provision. The program has one participant as of
December 31, 2010. If the borrower prepays the loan, the yield maintenance
provision will result in a prepayment penalty or benefit depending on the
interest rate environment at the time of the prepayment. This provision
represents an embedded derivative which is required to be bifurcated
from the host loan contract. As a result of bifurcating the embedded
derivative, the Corporation records the transaction with the borrower
as a floating rate loan and a pay floating / receive fixed interest-rate
swap. To offset the risk of the interest-rate swap with the borrower,
the Corporation enters into an interest-rate swap with an outside
counterparty that mirrors the terms of the interest-rate swap between
the Corporation and the borrower. Both interest-rate swaps are carried
as freestanding derivatives with their changes in fair value reported
in current earnings. The interest-rate swaps are not designated as hedges.
The change in the fair value of the interest-rate swap between the
Corporation and its borrower was an increase of $43 for the year ended
December 31, 2010, which was offset by an equal decrease in value during
the year ended December 31, 2010 on the interest-rate swap with an outside
counterparty, with the result that there was no net impact on income in
2010.


Summary information about the interest-rate swap between the Corporation
and its borrower as of year-end is as follows:

                                        2010          2009
                                                
Notional amount                         $ 1,485       $ 1,544
Weighted average receive rate              5.33%         5.33%
Weighted average pay rate                  3.34%         3.88%
Weighted average maturity (years)          3.0           4.0
Fair value of interest-rate swap        $   47             4




Summary information about the interest-rate swaps between the Corporation
and outside parties is as follows:

                                        2010          2009
                                                
Notional amount                         $ 1,485       $ 1,544
Weighted average receive rate              5.33%         5.33%
Weighted average pay rate                  3.34%         3.88%
Weighted average maturity (years)          3.0           4.0
  Fair value of interest-rate swap         (47)           (4)



NOTE 18 ~ OTHER COMPREHENSIVE INCOME (LOSS)


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

                                                    2010            2009            2008
                                                                           
Unrealized holding gains (losses) on
  available for sale securities                     $  (195)        $ 2,337         $   571
Reclassification adjustment for losses (gains)
  later recognized in income                           (661)           (770)            344
Net unrealized gains (losses)                          (856)          1,567             915
Initial unrealized gain on mortgage-backed
securities received in securitization                     -               -             840
Tax effect                                              292            (533)           (597)
  Other comprehensive income (loss)                 $  (564)        $ 1,034         $ 1,158


                                                                          54


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 19 ~ PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION


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


BALANCE SHEETS                                  December 31,
                                                2010            2009
                                                          
ASSETS
Cash and cash equivalents                       $  1,314        $  4,438
Investment in Bank subsidiary                     35,239          34,389
Investment in real estate subsidiary               2,342               -
Securities available for sale                         10              19
Other assets                                         253             234
  Total assets                                  $ 39,158        $ 39,080

LIABILITIES AND SHAREHOLDERS` EQUITY
Dividends payable                               $    177        $    177
Shareholders` equity                              38,981          38,903
  Total liabilities and shareholders` equity    $ 39,158        $ 39,080




STATEMENTS OF INCOME                            Years ended December 31,
                                       2010            2009            2008
                                                                       
INCOME
Dividends from Bank subsidiary                  $     -         $     -         $ 2,500
Securities gains (losses), net                        -               -            (444)
Dividend income                                       -               -              16
  Total Income                                        -               -           2,072

EXPENSES
Miscellaneous expense                               (48)            (59)            (72)
Income (loss) before income tax and
  undistributed subsidiary income                   (48)            (59)          2,000
Income tax benefit                                   16              20             170
Undistributed equity in net income
  of Bank subsidiary                              1,385           1,648              24
Undistributed equity in net loss of
  real estate subsidiary                            (28)             -                -

Net income                                     $  1,325         $ 1,609         $ 2,194


                                                                          55


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2010, 2009 and 2008
(Dollar amounts in thousands, except per share data)

NOTE 19 ~ PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)


STATEMENTS OF CASH FLOWS                                Years ended December 31,

                                                        2010            2009            2008
                                                                               
Cash flows from operating activities
  Net income                                            $ 1,325         $ 1,609         $ 2,194
  Adjustments to reconcile net income
    to net cash from operating activities:
    Equity in undistributed net income of
      Bank subsidiary                                    (1,385)         (1,648)            (24)
    Equity in undistributed net loss of
      real estate subsidiary                                 28               -               -
  Net security (gains) loss                                   -               -             444
  Change in other assets and liabilities                    (16)             31            (170)
    Net cash from operating activities                      (48)             (8)          2,444

Cash flows from investing activities
  Proceeds from sale of securities                            -               -               -
  Purchase of security available for sale                     -               -            (467)
  Investment in real estate subsidiary                   (2,370)              -               -
    Net cash from investing activities                   (2,370)              -            (467)

Cash flows from financing activities
  Dividends paid                                           (706)           (881)         (1,410)
  Purchase of common stock                                    -               -             (86)
    Net cash from financing activities                     (706)           (881)         (1,496)

Net change in cash                                       (3,124)           (889)            481
Beginning cash and cash equivalents                       4,438           5,327           4,846
Ending cash and cash equivalents                        $ 1,314         $ 4,438         $ 5,327


                                                                          56


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, 2010 and 2009, 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, 2010. 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
Corporation 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, 2010 and 2009, and
the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2010 in conformity with U.S.
generally accepted accounting principles.


Crowe Horwath LLP

Cleveland, Ohio
March 15, 2011

                                                                          57


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                                                                          58


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

March 15, 2011

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
Corporation`s internal control over financial reporting as of
December 31, 2010, 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 Corporation`s internal control over financial reporting was
effective as of December 31, 2010, based on the specified criteria.

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




David C. Vernon
Chief Executive Officer



James R. VanSickle
Chief Financial Officer

                                                                          59


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                                                                          60


Set forth below is a line graph comparing the yearly percentage change
in the cumulative total shareholder return on National Bancshares` Common
Stock against the cumulative return of the S&P 500 Stock Index and the
S&P 500 Bank Index for the period of five fiscal years commencing
December 31, 2005 and ended December 31, 2010. The graph assumes that the
value of the investment in National Bancshares Common Stock and each index
was $100 of December 31, 2005 and that all dividends were reinvested.


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


                                2005       2006      2007      2008      2009      2010
                                                                 
National Bancshares Corp        $100.00    105.65     75.71     61.87     71.55     66.88
S&P 500 Stock Index~            $100.00    115.79    122.16     76.96     97.33    111.99
S&P 500 Banks Index~            $100.00    116.10     81.52     42.80     39.98     47.92



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

                                                                          61


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 2010 and 2009 follows. This information does
not reflect retail mark-up, markdown or commissions, and does not
necessarily represent actual transactions.


                             High         Low          Dividends per share
                                              
2010
First Quarter                $ 13.91      $ 12.20      $   .08
Second Quarter                 14.47        12.77          .08
Third Quarter                  13.98        12.56          .08
Fourth Quarter                 13.66        12.62          .08

2009
First Quarter                $ 14.65      $ 11.96      $   .08
Second Quarter                 14.64        13.02          .08
Third Quarter                  14.08        12.90          .08
Fourth Quarter                 17.90        13.52          .08



SHAREHOLDER INFORMATION

Corporate Office
National Bancshares Corporation
112 West Market Street, PO Box 57
Orrville, OH 44667
www.discoverfirstnational.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 853 shareholders
of Record as of December 31, 2010.

Form 10-K
A copy of the Corporation`s 2010 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
ellengerber@discoverfirstnational.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.

                                                                          62


OFFICERS

NATIONAL BANCSHARES CORPORATION

David C. Vernon, President and Chief Executive Officer
James R. VanSickle, Senior Vice President and Chief Financial Officer

FIRST NATIONAL BANK

David C. Vernon, President and Chief Executive Officer

Business Banking

Thomas R. Poe, Senior Vice President, Senior Loan Officer
John L. Falatok, Senior Vice President, Market Manager
John R. Macks, Vice President
Paul A. Manghillis, Vice President
Robert C. McConnell, Vice President
John D. Shultz, Jr., Vice President
Laura R. Yoder, Vice President

Credit Administration, Loan Operations and Managed Assets

Richard A. White, Vice President, Senior Credit Officer
Kathryn J. Barnes, Assistant Vice President, Credit Officer
Lisa M. Bryant, Consumer Credit Officer
Mindy L. Henderson, Loan Operations Officer
Dallas W. Falb, Credit Officer
Steven L. Riddick, Vice President, Managed Assets

Agribusiness and Community Banking

Mark R. Witmer, Group Vice President
Harold D. Berkey, Vice President, Relationship Manager
John P. Hall, Vice President, Wooster Market Manager
Darrell L. Smucker, Vice President
Dean M. Karhan, Assistant Vice President

Retail Banking, Mortgage and Consumer Lending

Myron Filarski, Senior Vice President
Cynthia A. Wagner, Vice President
Heather L. Kiner, Assistant Vice President, Relationship Manager
Patricia Massaro, Consumer Credit Officer
Jill R. Wachtel, Assistant Vice President, Relationship Manager
Amberly M. Wolf, Assistant Vice President, Retail Banking

Corporate

James R. VanSickle, Senior Vice President, Chief Financial Officer
James T. Griffith, Vice President, Information Technology
Pamela S. Null, Vice President, Compliance, BSA, CRA and Security
Michael G. Oberhaus, Vice President, Financial Analyst, Risk Manager
Maria A. Roush, Vice President, Auditor
Angela L. Smith, Controller
Jodi R. Blair, Deposit Operations Officer

                                                                          63


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

John P. Cook, CPA, Ph.D                        Orrville
     Shareholder                               112 W. Market St.
     Long, Cook & Samsa, Inc.                  330-682-1010

Bobbi E. Douglas                               1320 W. High St.
     Executive Director                        330-682-2881
     STEPS at Liberty Center
     Every Woman's House                       1720 N. Main St.
                                               CASH ATM ONLY
John W. Kropf
     Chairman of the Board                     Apple Creek
     National Bancshares Corporation           7227 E. Lincoln Way
     First National Bank                       330-264-8070
     Attorney,
     Kropf, Wagner                             Dalton
     & VanSickle, L.L.P.                       12 W. Main St.
                                               330-828-2227
John L. Muhlbach, Jr.
     Vice President,                           Fairlawn
     A.A. Hammersmith, Inc.                    3085 West Market St.
                                               330-475-1363
Victor B. Schantz
     President,                                Kidron
     Schantz Organ Company                     4950 Kidron Rd.
                                               330-857-3101
Steve Schmid
     President,                                Lodi
     Dairy Enterprises, Inc.                   106 Ainsworth St.
                                               330-857-3101
James R. Smail
     Chairman/Director                         Massillon
     J.R. Smail, Inc.                          211 Lincoln Way E.
     Poulson Drilling, Inc.                    330-832-7441
     Monitor Ranch, Inc.
     MOnitor Bancorp, Inc.                     2312 Lincoln Way N.W.
                                               330-833-1622
David C. Vernon
     President & CEO                           Mt. Eaton
     National Bancshares Corporation           15974 E. Main St.
     First National Bank                       330-359-3105 or
                                               330-857-4301
Howard J. Wenger
     President,                                Seville
     Wenger Excavating, Inc.                   4885 Atlantic Dr.
     Lake Region Oil, Inc.                     330-769-3105
     Northstar Asphalt, Inc.
     Massillon Materials, Inc.                 Smithville
     Stark Materials, Inc.                     153 E. Main St.

                                               Wooster
Albert W. Yeagley                              4192 Burbank Rd.
     Vice President, Industry & Government     330-263-5303
      Affairs
     The J.M. Smucker Company
                                               1725 Cleveland Rd.
                                               330-263-1725

                                                                          64

EX-14

Exhibit 14.1

NATIONAL BANCSHARES CORPORATION
CODE OF BUSINESS CONDUCT AND ETHICS
PURPOSE

National Bancshares Corporation (the `Company`) requires that all
directors, officers and employees abide by the fundamental principles
of ethical behavior listed here in performing their duties.

GENERAL OBJECTIVE

This Code of Business Conduct and Ethics (`Code`) for the Company sets
forth basic principles and guidelines for directors, officers and
employees which are intended to assist them in conducting the Company`s
affairs and business in accordance with law and business ethics. It is
impossible, however, to anticipate all the situations in which legal and
business ethical questions might arise. The best overall guidelines are
individual conscience, common sense and a careful, knowing compliance
with law.

The Company has designated the President/Chief Executive Officer (`CEO`)
and the VP Compliance to assist employees in resolving questions they may
have regarding the interpretation and application of the Code. Employees
should not hesitate to take advantage of this help and assistance.

POLICY ELEMENTS

AUTHORITY

Personal Responsibility

Every director, officer, and employee has the personal responsibility to
read, know and comply with the principles contained in this Code. For
employees, compliance with these principles is a condition of employment,
and failure to comply will result in discipline up to and including
termination. The Board of Directors (the `Board`) shall determine the
actions to be taken in the event of violations of the Code by senior
management. Such actions shall be reasonably designed to deter wrongdoing
and to promote accountability for adherence to the Code.  Every director,
officer  and employee has the duty to bring to the attention of the Chairs
of the Audit or Corporate Governance and Nominating Committees of the Board
any activity that in his judgment would violate the principles of this Code.

SPECIFIC GOALS

Reporting Ethical, Legal or Financial Integrity Concerns

Any person may report any ethical concern or any potential or actual legal
or financial violation, including any fraud, accounting, auditing, tax,
or record keeping matter directly to the Chair of the Audit Committee, the
President and CEO, or the Chief Financial Officer, or anonymously using the
Company`s website based Compliance Hotline.

The Company will not permit retaliation against any employee who reports an
ethical, legal or financial concern nor will it discipline any employee for
making a report in good faith.

Integrity of Recording and Reporting our Financial Results

We properly maintain accurate and complete financial and other business
records, and communicate full, fair, accurate, timely and understandable
financial results. In addition, we recognize that various officers and
employees of the Company must meet these requirements for the content of
reports to the U.S. Securities and Exchange Commission (`Commission`),
and for the content of other public communications made by the Company.

Avoiding Conflicts of Interest

We avoid relationships or conduct that might compromise judgment or create
actual or apparent conflicts between our personal interests and our loyalty
to the Company. We do not use our position with the Company to obtain
improper benefits for others or ourselves. We do not compete with the
Company.

Insider Trading

We follow the Company`s Insider Trading Policy and understand that the
securities laws impose severe sanctions upon any individual who uses
`inside information` for his own benefit or discloses it to others for
their use.

Obeying the Law

We respect and obey the laws, rules and regulations applying to our business.

Offering/Accepting Gifts, Entertainment, Bribes or Kickbacks

We do not offer or accept gifts or entertainment of substantial value. We
do not offer or accept bribes or kickbacks.

Protecting Our Assets and Confidentiality

We use the Company`s property, information and opportunities for the
Company`s business purposes and not for unauthorized use. We properly
maintain the confidentiality of information entrusted to us by the Company,
its suppliers and its customers.

Selling to Governments

We comply with the special laws, rules and regulations that relate to
government contracts and relationships with government personnel.

Political Contributions

We do not make contributions on behalf of the Company to political
candidates or parties even where lawful.

Competing Ethically

We gain competitive advantage through superior performance. We do not
engage in unethical or illegal trade practices.  Our business records
and communications involving our products and services are truthful and
accurate.

Respecting Diversity and Fair Employment Practices

We are committed to respecting a culturally diverse workforce through
practices that provide equal access and fair treatment to all employees
on the basis of merit. We do not tolerate harassment or discrimination
in the workplace.

RISK MANAGEMENT

Waivers of the Code

Any waiver of this Code shall be made only by the Board, and shall be
promptly publicly disclosed as required by the Commission rules.

EX-14

Exhibit 14.2

CODE OF ETHICAL CONDUCT
FOR FINANCE PERSONNEL AND OFFICERS

PURPOSE

The financial officers of National Bancshares Corporation (`Company`),
being the President and Chief Executive Officer, Chief Financial Officer
and persons in like positions (collectively, `Finance Officers`), as
well as the `Finance Department personnel` (as defined herein) for the
Company, bear a special responsibility both inside and outside of
the Company for promoting integrity.  They have a special role both to
elaborate these principles and to ensure that a culture exists throughout
the Company that ensures fair and timely reporting of the Company`s
financial results and condition.

DEFINITIONS

For purposes of this Code of Ethical Conduct for Finance Personnel and
Officers (`Financial Code of Ethics`), `Finance Department personnel`
include all of the following positions within the Company: (1) controller,
(2) assistant controller(s), (3) treasurer, (4) assistant treasurer(s),
(5) risk manager, (6) tax manager, and (7) the principal accounting
personnel at any subsidiary company or division.

SPECIFIC GOALS

Because of their special role, the Finance Officers and the Finance
Department personnel are bound by this Financial Code of Ethics and
each must:

~ Act honestly and ethically to conduct themselves in an honest and
ethical manner in their professional duties, including their handling
of actual or apparent conflicts of interest between personal and
professional relationships.

~ Provide information that is accurate, complete, objective, relevant,
and timely to ensure full, fair, accurate, and timely disclosure in reports
and documents that the Company files with, or submits to, the Securities
and Exchange Commission and in other public communications.

~ Comply with applicable financial rules and regulations.

~ Promptly report in writing, by e-mail or telecopy, to the Chair of the
Company`s Audit Committee and the President and Chief Executive Officer,
any conduct that the individual believes to be a violation of law or
business ethics or of any provision of the Financial Code of Ethics,
including any transaction or relationship that reasonably could be
expected to give rise to such a conflict.  Anonymity will be maintained.

Violations of the Financial Code of Ethics, including failures to report
potential violations by others, will be viewed as a severe disciplinary
matter that may result in personnel action, including termination of
employment.

It is against Company policy to retaliate against any employee for good
faith reporting of violations of this Financial Code of Ethics.

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.

~ NBOH Properties, LLC, an Ohio LLC, is 100% owned by National Bancshares
Corporation.

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-3 of our report dated March 15, 2011, which
report is incorporated by reference in Form 10-K for the National
Bancshares Corporation for the year ended December 31, 2010.



/s/ Crowe Horwath LLP
Crowe Horwath LLP

Cleveland, Ohio
March 29, 2011

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 29, 2011
/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 29, 2011
/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, 2010
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 29, 2011.

/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