10-K

TABLE OF CONTENTS

Exhibit 10.1 Directors Defined Benefit Plan

Exhibit 10.2 Special Separation Agreement

Exhibit 13 Annual Report

Exhibit 23 Consent of Independent Auditors

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended Dec. 31, 2000
Commission File Number 0-14773

NATIONAL BANCSHARES CORPORATION

Ohio	34-1518564
State of incorporation	I.R.S. Employer
	Identification No.

112 West Market Street, Orrville, Ohio 44667
Address of principal executive offices

Registrant’s telephone number: (330) 682-1010

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

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

Common Stock, No Par Value
Title of Class

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

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

State the aggregate market value of the voting stock held by non-affiliates of the registrant as of March 1, 2001: $31,918,752.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of March 1, 2001.

Common Stock, No Par Value: 2,239,449

Documents Incorporated by Reference:

• Portions of the registrant’s Proxy Statement dated March 23, 2001 and previously filed March 22, 2001, are incorporated by reference into Part III.

• Portions of the registrant’s Annual Report to Shareholders, December 31, 2000 are incorporated by reference in Parts I, II, IV.

PAGE 1

Form 10-K Cross Reference Index				Page
Part I
	Item 1 — Business
		Description of Business			4
		Financial Ratios — Note 1			A23
		Daily Average Balance Sheets, Interest and Rates — Note 1			A22
		Volume and Rate Variance Analysis			6
		Investment Portfolio			7
		Loan Portfolio			8
		Summary of Loan Loss Experience			9
		Deposits			10
	Item 2 — Properties				5
	Item 3 — Legal Proceedings				5
	Item 4 — Submission of Matters to a Vote of Security Holders — None
Part II
	Item 5 — Market for the Registrant’s Common Equity and Related Stockholder Matters — Note 1				A9
			Number of shareholders of common stock		5
	Item 6 — Selected Financial Data — Note 1				A23
	Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operation — Note 1				A4-8
	Item 7A — Quantitative and Qualitative Disclosures About Market Risk
			(See Asset and Liability Management)		A7-8
	Item 8 — Financial Statements — Note 1				A10-21
	Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure — None
Part III
	Item 10 — Directors of the Registrant — Note 2				B3
			Executive Officers of the Registrant		5
	Item 11 — Executive Compensation — Note 2				B6
	Item 12 — Security Ownership of Certain Beneficial Owners and Management — Note 2				B3
	Item 13 — Certain Relationships and Related Transactions — Note 2				B9
Part IV
	Item 14 — Exhibits, Financial Statement Schedules and Reports on Form 8-K
		Report of Crowe, Chizek and Company LLP, Independent Auditors			A21
		Financial Statements: — Note 1
		Consolidated Balance Sheets as of December 31, 2000 and 1999			A10
		Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998			A11
		Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998			A13
		Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2000, 1999 and 1998			A12
		Notes to Financial Statements — Note 1			A14-20
	Reports on Form 8-K filed in fourth quarter of 2000: None
	Exhibit Table				13
Signatures					11-12
Appendix A — National Bancshares 2000 Annual Report to Shareholders					A

PAGE 2

Note 1 — Incorporated by reference from the registrant’s Annual Report to Shareholders for the year ended December 31, 2000 — Appendix A

Note 2 — Incorporated by reference from the registrant’s proxy statement dated March 23, 2001 previously filed with the SEC on March 22, 2001

PAGE 3

Item 1 — Business:

National Bancshares Corporation (the “Company”), incorporated in 1985, is a one-bank holding company for First National Bank, Orrville, Ohio (the “Bank”). The formation was approved by shareholders on April 24, 1986 and consummated on June 2, 1986. The Bank offers a full line of services usually found in any commercial bank operation, including checking accounts, savings accounts, certificates of deposit, personal loans, loans to business and industry, installment loans, safety deposit boxes and credit cards. While the Company’s chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment. The Bank does not have trust powers and, therefore, does not offer trust services. The Bank operates ten full service offices and one limited service office in a market area comprising most of Wayne County, portions of western Stark County, northeastern Holmes County and southern Medina County. There are approximately 15 other banking and thrift organizations in the immediate market area. The Bank also competes with insurance companies, consumer finance companies, credit unions, mortgage banking companies, and commercial finance and leasing companies. In addition, money market mutual funds and brokerage houses provide many of the financial services offered by the Bank. The principal methods of competition are the rates of interest charged and paid for loans and deposits, fees charged for services, the quality of services provided and the convenience of banking hours and branch locations. No major elimination of services presently offered is anticipated in the immediate future.

Lending policies of the Bank follow the guidelines set forth in the Bank’s Credit Policy, which is approved by the Board of Directors on an annual basis. The Credit Policy designates lending authority for the Chief Executive Officer, Senior Vice President, Chief Loan Officer and all loan officers. The Credit Policy also sets forth the maximum aggregate amount that may be loaned to any one customer. Guidelines are established for credit types, loan mix, concentration of credit and credit standards. Collateral is generally obtained on loans and an appraisal is required to determine the value of the collateral. For real estate loans, guidelines have been established for maximum loan-to-value ratios. Guidelines are also established for the term of the loan, which must coincide with the credit purpose and life of the collateral. In addition to the Credit Policy, the Bank has established a series of control procedures to monitor the overall credit quality of the loan portfolio. These controls include checklists, loan diaries, annual loan reviews of all loans over $75,000 (excluding first mortgage loans), monthly board reports of problem loans, and a monthly review and determination of the adequacy of the allowance for loan losses.

Management estimates the allowance for loan loss balance required using past loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.

The Bank is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation. It is subject to supervision, examination and regulation by the Comptroller of the Currency. The Company is also subject to supervision, examination and regulation by the Federal Reserve System. Management is not currently aware of any regulatory recommendations which if were to be implemented would have a material effect on the registrant.

On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act, which, effective March 11, 2000, permits bank holding companies to become financial holding companies and thereby affiliate with securities firms, and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its 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 (CRA) by filing a declaration that the bank holding company wishes to become a financial holding company. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

PAGE 4

The Gramm-Leach-Bliley Act defines “financial in nature” to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Board has determined to be closely related to banking. Subsidiary banks of a financial holding company must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a CRA rating of satisfactory or better.

Item 2 — Properties:

The headquarters of the Company and the Bank are located in Orrville, Ohio. The Bank has a total of eleven banking office buildings which are located in Orrville, Dalton, Kidron, Smithville, Mt. Eaton, Apple Creek, Lodi, Wooster and Seville, Ohio. All buildings are owned by the Bank with the exception of the Seville Office which is a leased facility.

Item 3 — Legal Proceedings

There were no legal proceedings during 2000, other than ordinary routine litigation which was incidental to business and which was not material.

Item 5 — Number of shareholders of common stock

The Company had 986 shareholders of common stock as of March 5, 2001. Price ranges of the Company’s common stock for 2000 and 1999 are reported in the Annual Report to Shareholders (Appendix A, Page 9). A local broker that deals in the Company’s stock supplied the stock prices.

Item 10 — Executive Officers

The Executive Officers of the Company are as follows:

Name	Age		Position
Charles J. Dolezal		47	President President of First National Bank
Kenneth R. VanSickle		53	Senior V.P., Secretary Senior V.P., Chief Loan Officer of First National Bank
Lawrence M. Cardinal, Jr.		49	Vice President, Treasurer Vice President & Controller of First National Bank

There is no family relationship between any of the above executive officers. Mr. Dolezal has been an executive officer of the Company since its formation in 1986 and the President of the Bank since 1981. Mr. VanSickle was appointed Senior V.P., Secretary of the Company on April 24, 1997 and has been a senior loan officer of the Bank since 1986. Mr. Cardinal was appointed Vice President, Treasurer of the Company and Vice President & Controller of the Bank on April 24, 1997. Mr. Cardinal previously worked as an audit manager for the CPA firm of Reinhard, Kopko and Keller from 1995 to 1997.

PAGE 5

VOLUME AND RATE VARIANCE ANALYSIS

The following table represents a summary analysis of changes in interest income, interest expense and the resulting net interest income on a tax equivalent basis for the periods presented. Volume is based on daily average balances. Changes not associated with either rate or volume are reflected as a rate change.

(Dollars in thousands)				2000 versus 1999								1999 versus 1998
			Increase (Decreases)									Increase (Decreases)
			Due to Changes In									Due to Changes In
									Net									Net
			Volume			Rate			Change			Volume			Rate			Change
Interest Income
Investment securities:
	Taxable		$	(37	)	$	7		$	(30	)	$	(295	)	$	52		$	(243	)
	Nontaxable (tax equivalent basis)*			(76	)		5			(71	)		4			(12	)		(8	)
Federal funds sold				(219	)		79			(140	)		(90	)		(44	)		(134	)
Interest bearing deposits				53			1			54			68						68
Loans (including Nonaccrual loans)				631			364			995			1,186			(724	)		462
		Total interest Income (tax equivalent basis)*	$	352		$	456		$	808		$	873		$	(728	)	$	145
Interest Expense
Deposits
	Interest bearing checking		$	(17	)	$	(21	)	$	(38	)	$	34		$	(142	)	$	(108	)
	Savings			(60	)		2			(58	)		59			(174	)		(115	)
	Time, $100,000 and over			(63	)		218			155			57			(145	)		(88	)
	Time, other			213			155			368			115			(141	)		(26	)
Other borrowed funds				101			133			234			87						87
		Total interest Expense	$	174		$	487		$	661		$	352		$	(602	)	$	(250	)
Changes in net Interest income (tax Equivalent basis)*			$	178		$	(31	)	$	147		$	521		$	(126	)	$	395

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

PAGE 6

INVESTMENT PORTFOLIO

The carrying amounts and distribution of the Company’s securities held at year-end 2000 and 1999 are summarized in the Annual Report to Shareholders (Appendix A, Page 16, Note 2). The carrying amount, maturities and approximate weighted average yields (on a tax equivalent basis) of debt securities at December 31, 2000 and the carrying amounts as of December 31, 1998 are as follows:

INVESTMENT PORTFOLIO
December 31, 2000
(Dollars in thousands)
	Total					0 to 1 Year					1 to 5 Years					5 to 10 Years					Over 10 years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Available for Sale:
US Agencies	$	5,030		7.2	%											$	5,030		7.2	%
State & political
Subdivisions		2,341		7.8	%																$	2,341		7.8	%
Other securities		10,905		6.9	%						$	6,243		6.9	%		4,662		6.9	%
TOTAL	$	18,276		7.1	%						$	6,243		6.9	%	$	9,692		7.1	%	$	2,341		7.8	%
Held to Maturity:
US Treasury	$	2,449		8.0	%	$	1,000		7.2	%	$	1,449		8.5	%
US Agencies		17,311		6.6	%							6,243		6.1	%	$	11,068		7.0	%
State & political Subdivisions		17,394		8.5	%		3,511		8.9	%		5,617		9.0	%		3,184		7.9	%	$	5,082		8.0	%
Other securities		10,699		6.4	%		2,541		6.2	%		6,127		6.6	%		2,031		6.1	%
TOTAL	$	47,853		7.3	%	$	7,052		7.7	%	$	19,436		7.3	%	$	16,283		7.1	%	$	5,082		8.0	%

There was no single issuer of securities where the total book value of such securities exceeded 10% of shareholders’ equity except for US government and agency obligations.

		December 31, 1998
				Gross		Gross
(Dollars in thousands)		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
Available for Sale:
U.S. Government and federal agency		$	5,009	$	46				$	5,055
State and municipal			2,815		81	$	(9	)		2,887
Corporate bond and notes			3,751		70					3,821
	Total debt securities		11,575		197		(9	)		11,763
Equity securities			1,720		13		(466	)		1,267
	Total	$	13,295	$	210	$	(475	)	$	13,030
Held to Maturity:
U.S. Government and federal agency		$	24,300	$	595	$	(35	)	$	24,860
State and municipal			18,569		998		(2	)		19,565
Mortgage-backed			2,084		39		(8	)		2,115
Corporate bond and notes			11,826		225		(7	)		12,044
	Total	$	56,779	$	1,857	$	(52	)	$	58,584

PAGE 7

LOAN PORTFOLIO

The detail of the loan portfolio balances for year-end 2000 and 1999 is included in the Annual Report to Shareholders (Appendix A, Page 16, Note 3). The detail of the loan portfolio balances for year-end 1998, 1997 and 1996 is as follows:

(Dollars in thousands)		1998			1997			1996
Collateralized by real estate:
	Commercial	$	25,173		$	22,935		$	25,514
	Residential		33,045			29,173			26,208
	Home equity		5,284			2,537			1,142
	Construction		1,212			1,918			1,462
			64,714			56,563			54,326
Consumer			8,843			8,642			10,923
Commercial			16,577			11,923			11,961
Credit cards			1,130			1,043			840
Other			2,402			1,728			1,736
			93,666			79,899			79,786
Unearned and deferred income			(161	)		(196	)		(219	)
Unamortized discount on purchased loans			(171	)		(213	)		(266	)
			93,334			79,490			79,301
Allowance for loan losses			(1,297	)		(1,232	)		(1,151	)
		$	92,037		$	78,258		$	78,150

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES

The following are approximate maturities and sensitivity to changes in interest rates of certain loans exclusive of real estate mortgages and consumer loans as of December 31, 2000.

Types of Loans
(Dollars in Thousands)	0 to 1 Year		1 to 5 Years		5 and Over Years		Total
Commercial	$	7,572	$	5,445	$	6,834	$	19,851
Real Estate Construction	$	6	$	34	$	971	$	1,011
Above loans due beyond 1 year with:
Predetermined interest rates							$	4,519
Adjustable interest rates							$	8,765

NONACCRUAL AND PAST DUE LOANS

Generally, recognition of interest income is discontinued where reasonable doubt exists as to the collectability of the interest. Income from non-accrual loans is recorded when received. The difference between interest income recognized on such loans and income that would have been recognized at original contractual rates is immaterial. The bank generally places loans on a non-accrual status when a default of principal or interest has existed for 90 days or more. The bank generally does not renegotiate loans due to deterioration in the financial position of the borrower. The amounts of renegotiated loans are not considered material and are now considered impaired.

(Dollars in Thousands)	12/31/00		12/31/99		12/31/98		12/31/97		12/31/96
90 Days Past Due and Accruing	$	112	$	225	$	141	$	126	$	458
Nonaccruing Loans	$	144	$	250	$	168	$	427	$	85

PAGE 8

POTENTIAL LOAN PROBLEMS

Management reviews the loan portfolio for potential loan problems on a monthly basis. The following loans were classified by management, which excludes the above non-accrual loan totals. The amount shown below is the outstanding loan balance, which has not been reduced by collateral values.

(Dollars in Thousands)	12/31/00
Loss	$	2
Doubtful		60
Substandard		1,082
OAEM		106
Watch		0
Total	$	1,250

LOAN CONCENTRATIONS

Due to the nature of our market area, there are no significant loan concentrations of 10% of total loans to borrowers engaged in similar activities other than noted in the loan categories disclosed in the Annual Report to Shareholders (Appendix A, Page 16, Note 3).

SUMMARY OF LOAN LOSS EXPERIENCE

The determination of the balance of the allowance for loan losses historically has been based on an overall analysis of the loan portfolio and reflects an amount, which, in management’s judgment, is adequate to provide for probable loan losses. This analysis considers, among other things, the Company’s loan loss experience, present risks of the loan portfolio and general economic conditions. In addition, management considers the examinations of the loan portfolio by federal regulatory agencies and internal reviews and evaluations. The Company’s allocation of the allowance for loan losses by category represents only an estimate for each category of loans based upon a detailed review of the loan portfolio by management.

Transactions in the allowance for loan losses are maintained by three major loan categories and the summary of such transactions for the periods indicated follows:

CHANGES IN ALLOWANCE
FOR LOAN LOSSES
(Dollars in Thousands)	2000			1999			1998			1997			1996
Balance at the beginning of period	$	1,309		$	1,297		$	1,232		$	1,151		$	1,046
Loans charged off:
Commercial & industrial		9			58			34			34			77
Real estate mortgages		—			—			11			19			5
Consumer		48			88			90			38			60
Total loans charged off		57			146			135			91			142
Recoveries of loans charged off:
Commercial & industrial		2			13			7			1			43
Real estate mortgages		1			6			45			30			—
Consumer		26			19			28			21			24
Total recoveries		29			38			80			52			67
Net loans charged off		28			108			55			39			75
Provision charged to operating expense		62			120			120			120			180
Balance at end of period	$	1,343		$	1,309		$	1,297		$	1,232		$	1,151
Net charge-offs to average loans		0.03	%		0.11	%		.07	%		.05	%		.10	%

PAGE 9

DISTRIBUTION OF ALLOWANCE FOR
LOAN LOSSES BY CATEGORY
(Dollars in thousands)

	December 31, 2000					December 31, 1999					December 31,1998
			% of					% of					% of
	Amount		Total Loans			Amount		Total Loans			Amount		Total Loans
Commercial & industrial	$	409		20	%	$	305		20	%	$	345		20	%
Real estate construction		3		1	%		12		1	%		12		1	%
Real estate mortgages		355		71	%		398		70	%		222		68	%
Consumer loans		258		8	%		140		9	%		152		11	%
Unallocated		318		N/A			454		N/A			566		N/A
TOTAL	$	1,343		100	%	$	1,309		100	%	$	1,297		100	%

	December 31, 1997					December 31, 1996
			% of					% of
	Amount		Total Loans			Amount		Total Loans
Commercial & industrial	$	91		16	%	$	74		17	%
Real estate construction		0		2	%		0		2	%
Real estate mortgages		18		70	%		18		67	%
Consumer loans		11		12	%		19		14	%
Unallocated		1,112		N/A			1,040		N/A
TOTAL	$	1,232		100	%	$	1,151		100	%

DEPOSITS

The classification of average deposits and the average rate paid on such deposits for periods ending December 31, 2000, 1999 and 1998 is included in Analysis of Net Interest Earnings included in the Annual Report to Shareholders (Appendix A, Page 22).

A summary of maturities of time deposits of $100,000 or more is as follows:

	12/31/00
Three months or less	$	10,117,484
Over 3 months through 6 months		838,756
Over 6 months through 12 months		2,480,997
Over 12 months		620,874
	$	14,058,111

PAGE 10

SIGNATURES

Pursuant to the requirements 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
DATE:	3-20-01 _________________	/s/ Charles J. Dolezal ________________________________ Charles J. Dolezal, President
DATE:	3-20-01 _________________	/s/ Lawrence M. Cardinal, Jr. ________________________________ Lawrence M. Cardinal, Jr., V.P., Treasurer (Principal Financial Officer)

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

DATE:	3-20-01 _________________	/s/ Charles J. Dolezal ________________________________ Charles J. Dolezal, Chairman
DATE:	3-20-01 _________________	/s/ Sara Balzarini ________________________________ Sara Balzarini, Director
DATE:	3-20-01 _________________	/s/ Bobbi Douglas ________________________________ Bobbi Douglas, Director
DATE:	3-20-01 _________________	/s/ John W. Kropf ________________________________ John W. Kropf, Director
DATE:	_________________	________________________________ Steve Schmid, Director
DATE:	3-20-01 _________________	/s/ John E. Sprunger ________________________________ John E. Sprunger, Director

PAGE 11

DATE:	3-20-01 _________________	/s/ Howard J. Wenger ________________________________ Howard J. Wenger, Director
DATE:	3-20-01 _________________	/s/ James F. Woolley ________________________________ James F. Woolley, Director
DATE:	3-20-01 _________________	/s/Albert Yeagley ________________________________ Albert Yeagley, Director

PAGE 12

EXHIBIT INDEX

Exhibit No.				If incorporated by Reference,
Under Reg.	Form 10-K			Documents with Which Exhibit
S-K, Item 601	Exhibit No.		Description of Exhibits	was Previously Filed with SEC
(3)(i)			Amended Articles of Incorporation	Registration Statement S-4 filed 3/31/86 File No. 33-03711
(3)(ii)			Code of Regulations	Registration Statement S-4 filed 3/31/86 File No. 33-03711
(10.1)			Directors Defined Benefit Plan Agreement
(10.2)			Special Separation Agreement
(11)		A23	Computation of Earnings per Share	Incorporated by reference
(12)		A23	Computation of Ratios	Incorporated by reference
(13)		A	2000 Annual Report to Shareholders
(21)		A1	Subsidiaries of the registrant	Incorporated by reference
(23)			Consent of Crowe, Chizek and Co. LLP

No other exhibits are required to be filed herewith pursuant to Item 601 of Regulation S-K.

PAGE 13 EX-10.1 2 l86945aex10-1.htm EXHIBIT 10.1 DIRECTORS DEFINED BENEFIT PLAN

TABLE OF CONTENTS

Exhibit 10.1 Directors Defined Benefit Plan

Exhibit 10.2 Special Separation Agreement

Exhibit 13 Annual Report

Exhibit 23 Consent of Independent Auditors

EX: 10.1

DIRECTORS DEFINED BENEFIT PLAN AGREEMENT

      This Agreement made and entered into this 16^th day of August, 1994, by and between First National Bank, a Banking corporation under the laws of the State of Ohio (hereinafter referred to as “the Bank”) and Charles J. Dolezal (hereinafter referred to as “the Director”).

      The Bank has adopted the Director Defined Benefit Plan (hereinafter referred to as “the Plan”), a copy of the terms and conditions of which are attached hereto and incorporated by reference.

      Accordingly, it is the desire of the Bank and the Director to enter into this Agreement under which the Bank will agree to make certain payments to the Director either upon his retirement, or alternatively, to his beneficiary(ies) in the event of his death, pursuant to the Plan.

I. RETIREMENT AND DEATH BENEFITS

The amount and length of time of payment of the annual retirement benefit and/or any death benefit that shall be paid to the Director shall be calculated using the appropriate formulas set forth in Paragraph I or II of the Plan Adoption Agreement. For these purposes, any portion of a year greater than or equal to six (6) months shall be counted as a full year. Any portion of a year less than six (6) months shall not be considered in the calculation of the benefit. Such annual benefit shall commence sixty (60) days following the later of the date of the Director’s retirement or his attaining age 70 and shall continue for the lifetime of the Director, but in no case less than fifteen (15) years.

II. DEFERRED FEES

      A. Amount of Deferral

The Director may elect to defer a maximum of $1,000.00 per month of his director and committee fees earned from the Bank.

      B. Fees

The fees covered under this Agreement shall be any and all amounts paid to the Director for his services as a director, including but not limited to annual fees, meeting fees and committee fees. The fees covered under this Agreement shall be credited to the Director in the manner and on the terms and conditions specified in Paragraph II D herein subject to the election pursuant to Paragraph II A herein.

      C. Election of Deferred Compensation

The election to defer fees may only be made for fees not yet earned as of the date of said election. This election unless modified or revoked, shall be valid for all succeeding years. Any modification or revocation of such election must be in writing and shall be effective for calendar years succeeding the year in which the modification or revocation is made.

      D. Credits to Deferred Compensation Account

The Bank shall establish a bookkeeping account for the Director (hereinafter called the “Director’s Deferred Compensation Account”) which shall be credited on the date such fees, as defined in Paragraph II B herein, would otherwise have been paid with the dollar amount that the Director has elected to defer, pursuant to Paragraph II A herein.

      E. Interest on the Deferred Compensation Account

The Director’s Deferred Compensation Account shall be credited with an amount that is in addition to the fees credited under Paragraph II D herein. Such amount shall be determined by multiplying the balance of the Director’s Deferred Compensation Account by a rate of interest equal to two (2) times the one-year treasury rate as of December 31st of each year. However, in no case will the rate of interest credited be less than 8%. Such rate shall be adjusted annually. Such amount shall be credited as long as there is a balance in the Director’s Deferred Compensation Account and shall be credited on December 31 of each year.

      F. Nature of the Deferred Compensation Account

The Director’s Deferred Compensation Account shall be utilized solely as a device for the measurement and determination of the amount of deferred compensation to be paid to the Director at the times hereinafter specified, and the Bank shall not segregate any of its assets in order to satisfy any obligations under the plan. The Director’s Deferred Compensation Account shall not constitute or be treated as a trust fund of any kind. On the contrary, it is understood that all amounts credited to the Director’s Deferred Compensation Account shall be for the sole purpose of bookkeeping and remain the sole property of the Bank, and that the Director shall have no ownership rights of any nature with respect thereto. The Director’s rights are limited to the rights to receive payments as hereinafter provided and the Director’s position with respect thereto is that of a general unsecured creditor of the Bank.

      G. Payment of Director’s Deferred Compensation

The amounts in the Director’s Deferred Compensation Account shall be amortized with interest at the rate of eight percent (8%) per annum and paid in equal monthly installments for one hundred and twenty (120) months commencing on the first day of the calendar month following the end of the Director’s term of office due to retirement, resignation, removal or failure to be re-elected.

      H. Death of Director Prior to Termination of Service or Commencement of Payments

In the event of the death of the Director prior to termination of service or commencement of benefit payments, payments shall begin pursuant to this Paragraph within sixty (60) days after the Director’s death, as if the Director had retired on his date of death, and shall be made to a beneficiary or beneficiaries designated by the Director in writing and delivered to the Bank’s president. The Director shall have the right to change his designated beneficiary from time to time. In the event no designation is made, a lump-sum payment shall be made to his estate.

III. DESIGNATED BENEFICIARY

The Director shall designate a beneficiary on the form attached hereto. This beneficiary designation may be changed at any time prior to the death of the Director, provided such change is done in writing and acknowledged by the Bank.

IV. RESTRICTIONS UPON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or, money with which to pay its obligations under this Agreement. The Director, his beneficiary (ies) or any successor in interest to him or her shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation.

The Bank reserves the absolute right at its sole discretion to either fund the obligations undertaken by this Agreement or to refrain from funding the same and to determine the exact nature and method of such funding. Should the Bank elect to fund this Agreement, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Director be deemed to have any lien nor right, title or interest in or to any specific funding investment or to any assets of the Bank.

If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Director, then the Director shall assist the Corporation by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities.

V. MISCELLANEOUS

A. Alienability and Assignment Prohibition

Neither the Director, his widow nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder, nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Director or his beneficiary, nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Director or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank’s liabilities shall forthwith cease and terminate.

B. Binding Obligation of the Bank and Any Successor in Interest

The Bank expressly agrees that it shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Agreement. The Agreement shall be binding upon the parties hereto their successors, beneficiaries, heirs and personal representatives.

C. Revocation

It is agreed by and between the parties hereto that, during the lifetime of the Director, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written assent of the Director and the Bank.

D. Gender

Whenever in this Agreement words are used in the masculine or neuter genders, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

E. Effect on Other Bank Benefit Plans

Nothing contained in this Agreement shall affect the right of the Director to participate in or be covered by any qualified or non-qualified pension, profit-sharing , group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank’s existing or future compensation structure.

F. Headings

Headings and subheadings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

G. Applicable Law

The validity and interpretation of this Agreement shall be governed by the laws of the State of Ohio.

VI. ERISA PROVISION

A. Named Fiduciary and Plan Administrator:

The “Named Fiduciary and Plan Administrator” of this plan shall be Charles J. Dolezal until his resignation or removal by the Board. As Named Fiduciary and Administrator, Mr. Dolezal shall be responsible for the management, control and administration of the Director Defined Benefit Plan Agreement as established herein. He may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

B. Claims Procedure and Arbitration:

In the event a dispute arises over benefits under this Agreement and benefits are not paid to the Director (or to his beneficiary in the case of the Director’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Administrator named above within ninety (90) days from the date payments are refused. The Plan Fiduciary and Administrator and the Bank shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within ninety (90) days of receipt of such claim their specific reasons for such denial, reference to the provisions of this Agreement upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the

Plan Fiduciary and Administrator fails to take any action within the aforesaid ninety-day period.

If claimants desire a second review they shall notify the Plan Fiduciary and Administrator in writing within ninety (90) days of the first claim denial. Claimants may review this Agreement or any documents relating thereto and submit any written issues and comments they may feel appropriate. In its sole discretion, the Plan Fiduciary and Administrator shall then review the second claim and provide a written decision within ninety (90) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of this Agreement upon which the decision is based.

If claimants continue to dispute the benefit denial based upon completed performance of this Agreement or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to a Board of Arbitration for final arbitration. Said Board shall consist of one member selected by the claimant, one member selected by the Bank, and the third member selected by the first two members. The Board shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such Board with respect to any controversy properly submitted to it for determination.

Where a dispute arises as to the Bank’s discharge of the Director “for cause”, such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder.

IN WIT NESS WHEREOF, the Bank has caused this Agreement to be signed in its corporate name by its duly authorized officer, and Director hereunto set his hand and seal, all on the day and year first above written.

Executed this 16^th. day of August, 1994

FIRST NATIONAL BANK

/s/ Michael D. Hofstetter
___________________________________________
Michael D. Hofstetter
Senior V.P. & Controller

/s/ Charles J. Dolezal
___________________________________________
Charles J. Dolezal, Director

DIRECTOR DEFINED BENEFIT PLAN
ADOPTION AGREEMENT

The members of the Board of Directors of First National Bank (the Bank) are providing service that is of exceptional merit as well as making an invaluable contribution to the profits and growth of the Bank. In addition, the experience, knowledge, good reputation and contacts of these Directors is of extreme value to the Bank’s future success.

Accordingly, it is the desire of the Board of the Bank to modify the compensation of its members by agreeing to make certain payments to each Director either upon his or her retirement, or alternately, to his or her beneficiary (ies) in the event of his or her death. To provide for this desire the Board of Directors of First National Bank has on the date hereof adopted the Director Defined Benefit Plan, the terms and conditions of which are as follows:

I. DEFINED RETIREMENT BENEFIT

Each Director shall receive an annual retirement benefit commencing at his or her retirement or age seventy (70), whichever occurs later. The amount of this annual benefit shall be $1,000.00 for each year of Board service from and after the date hereof.

This annual retirement benefit shall be paid in successive years and continue for the lifetime of the Director but in no event less than fifteen (15) years. Should the Director die prior to having received fifteen (15) annual payments, the balance of the payments shall be paid to the designated beneficiary (ies) of the Director.

II. DEATH BENEFIT

A. While Serving on the Board

In the event a Director should die while serving, on the Board, the Bank shall pay to the Director’s designated beneficiary(ies), in lieu of the retirement benefit described herein above in paragraph I, fifteen (15) successive annual benefit payments, each equal to $1,000.00 for each year of service from and after the date hereof. If the Director has not yet reached seventy (70) years of age at the date of death and is insurable and the Bank has purchased insurance on his or her life, it shall be assumed for the purpose of calculating this annual benefit that the Director died at age seventy (70).

B. Death After Service on the Board has Terminated

In the event the Director dies prior to age seventy (70) while not serving on the Board, the Bank shall pay the Director’s designated beneficiary(ies) an annual benefit in an amount equal to the Director’s retirement benefit calculated pursuant to Paragraph I herein above, for a continuous period of fifteen (15) years commencing sixty (60) days following the notification to the Bank of the Director’s death.

C. Alternative to Retirement Benefit

The Pre-retirement Death Benefit described herein above (Paragraph II, A and B) is paid as an alternative to the Retirement Benefit described in Paragraph I herein above, and therefore, benefit payments shall be made pursuant to either Paragraph I or Paragraph II herein, but not both.

D. Suicide

In the event the Director’s death is within two (2) years of the date hereof and is the result of suicide, the amount of these pre-retirement death benefits shall be calculated as if the Director was uninsurable.

III. DEFERRED COMPENSATION AGREEMENT

Each Director may elect to defer a portion or all of his or her director’s and committee fees up to a maximum of $1,000 per month. The Bank shall establish a Deferred Compensation Account for each Director electing to defer and credit that account with the deferrals. The Bank shall credit interest to that Deferred Compensation Account balance on December 31st of each year. The interest rate shall be equal to two (2) times the one-year Treasury rate as of the crediting date to a minimum of eight percent (8%).

Each Director must state his or her intention to defer and the maximum amount to be deferred annually as of the date hereof to preserve his or her right to defer in the future.

The balance of the Director Deferred Compensation Account shall be paid to the Director at the time he or she leaves the Board by retirement or otherwise, or to the Director’s designated beneficiary (ies) upon the death of the Director.

IV. DESIGNATED BENEFICIARY

Each Director shall name a designated beneficiary(ies) in writing on a form provided by the Bank. This beneficiary designation may be changed at any time prior to the death of the Director provided such change is done in writing and acknowledged by the Bank.

V. FINANCING

The Bank intends to finance its obligations under this plan with policies of life insurance insuring the life of each Director. This plan is a non-qualified benefit plan and, therefore, at no time shall any Director be deemed to have any lien, right, title or interest in or to any specific asset of the Bank, including the insurance policies used to finance the plan.

VI. AGREEMENTS

Each Director shall enter into a written agreement with the Bank. The terms and conditions of the plan set forth herein shall be incorporated into that agreement.

Adopted on this 16^th day of August, 1994

FIRST NATIONAL BANK

/s/ Charles J. Dolezal
     President

Exhibit 10.1 Directors Defined Benefit Plan Agreement

The following directors entered into an identical agreement on the dates indicated:

	Date
Ray D. Gill		8-24-94
James L. Gerber		8-18-94
John E. Sprunger		8-27-94
Stephen W. Schmid		8-22-94
John W. Kropf		8-31-94
Sara E. Steinbrenner		8-18-94
Paul H. Smucker		8-23-94
James F. Woolley		8-22-94
Albert W. Yeagley		7-01-97
Bobbi E. Douglas		5-26-99
Howard J. Wenger		4-13-99

  EX-10.2 3 l86945aex10-2.htm EXHIBIT 10.2 SPECIAL SEPARATION AGREEMENT

EX: 10.2

SPECIAL SEPARATION AGREEMENT

      This SPECIAL SEPARATION AGREEMENT (“Agreement”) is entered into as of this 19 day of June, 2000, by and between First National Bank (the “Company”) and Charles J. Dolezal (the “Executive”) and is guaranteed by National Bancshares Corp. (the “Parent Company”).

      WHEREAS, the Executive is presently in the employ of the Company as President and Chief Executive Officer of the Company; and

      WHEREAS, the Company has determined that it is desirable to obtain from the Executive certain protections with respect to non-disclosure, non-interference and noncompetition; and

      WHEREAS, the Company has determined that it is desirable to agree at this time to provide the Executive with severance benefits under certain circumstances after a Change in Control has occurred in order that the Executive may more fully focus his current efforts on expanding the Company’s business and profits without concern for his personal security in the event of a Change in Control;

      WHEREAS, the Company and the Executive desire to set forth in a written agreement the terms and provisions of these protections; and

      WHEREAS, the Parent Company desires to guarantee the benefits payable under this Agreement;

      NOW THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth in this Agreement, the Company and the Executive agree as follows:

Section 1. Definitions

      1.1 Affiliate. The term “Affiliate” shall mean any entity controlling, controlled by or under common control with the Company, including, but not limited to, divisions and subsidiaries of the Company.

      1.2 Cause. The term “Cause” shall include:

a.	a breach of the Executive’s obligations under Section 5 hereof; or
b.	the indictment of the Executive for, conviction of the Executive for, or written confession of the Executive to a misdemeanor or felony against the Company or any of its Affiliates, employees or customers, including but not limited to embezzlement or embezzlement of customer account assets, but excluding any such misdemeanor or felony related to an automobile accident.

      1.3 Change in Control. The term “Change in Control” shall include:

a.

the first purchase of shares pursuant to a tender offer or exchange (other than a tender offer or exchange by the Parent Company) for twenty-five percent (25%) or more of the Parent Company’s common stock of any class and any securities convertible into such common stock;

b.

the receipt by the Parent Company of a Schedule 13D or other advice after the date of execution of this Agreement indicating that a person is the “beneficial owner” (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of twenty-five percent (25%) or more of the Parent Company’s common stock of any class or any securities 3 convertible in such common stock calculated as provided in paragraph (d) of said Rule 13d-3;

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c.	the date of approval by stockholders of the Parent Company of an agreement providing for any consolidation or merger of the Parent Company in which the Parent Company will not be the continuing or surviving corporation or pursuant to which shares of capital stock, of any class or any securities convertible into such capital stock, of the Parent Company would be converted into cash, securities, or other property, other than a merger of the Parent Company in which the holders of common stock of all classes of the Parent Company immediately prior to the merger would own in excess of fifty percent (50%) of the common stock of the surviving corporation immediately after the merger;
d.	the date of the approval by stockholders of the Parent Company of any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Parent Company or the Company;
e.	the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of the Company or the Parent Company;
f.	any transaction whereby the Company ceases to be a wholly owned subsidiary of the Parent Company;
g.	any sequence of events whereby the individuals who constitute the Board of Directors of the Parent Company as of the date of this Agreement (“Incumbent Directors”) together with individuals whose election or nomination for election by the Parent Company’s shareholders was approved by a majority of the Incumbent Directors do not constitute at least seventy-five percent (75%) of the then current Board of Directors of the Parent Company; or

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h. such other event as the Outside Committee Members shall, in their sole and absolute discretion, deem to be a “Change in Control.”

      1.4 Company. The term “Company” shall mean First National Bank or any successor corporation or business organization which shall assume the obligations of the Company under Agreement.

      1.5 Confidential Information. The term “Confidential Information” shall mean any and all information (excluding information in the public domain) which relates to the business of the Company and its Affiliates, including without limitation all information relating to the identity and/or location of all past, present and prospective customers of the Company and its Affiliates, strategic plans, financial plans, financial information, computer programs, information concerning pricing and pricing policies, marketing techniques, and methods and manner of operations.

      1.6 Good Reason. The term “Good Reason” shall include:

a.	any reduction in either the current base salary or the annual bonus of the Executive;
b.	any material reduction in the employee benefits and fringe benefits of the Executive;
c.	any material reduction in the position, office or title of the Executive;
d.	the Executive ceases to have the powers, perquisites, responsibilities or duties commensurate with being the President and Chief Executive Officer of a bank of comparable size to the Company;
e.	the Executive ceases to report to the Board of Directors of the Bank; or

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f. the principal place of employment of the Executive is relocated to any location which is outside of a twenty (20) mile radius of the current main office of the Company in Orrville, Ohio.

      1.7 Outside Committee Members. The term “Outside Committee Members” shall mean members of the Executive Committee of the Board of Directors of the Company who are not employees of the Company or an Affiliate; provided, however, that in the event of a Change in Control, “Outside Committee Members” shall mean those same individuals who were Outside Committee Members immediately prior to such Change in Control.

      1.8 Parent Company. The term “Parent Company” shall mean National Bancshares Corp. or any successor corporation or business organization which shall assume the obligations of the Parent Company under Agreement.

      1.9 Protection Period. The term “Protection Period” shall mean the thirty-six (36) month period after a Change in Control occurs.

      1.10 Successor. The term “Successor” will include any person, firm, corporation or business entity which acquires all or substantially all of the assets or succeeds to the business of the Company.

Section 2. Employment Terminations Which Qualify For Severance Benefits

      2.1 Termination by the Company Other Than For Cause. In the event the Company terminates the Executive’s employment within the Protection Period other than for Cause, the Executive will be entitled to receive the Severance Benefits set forth in Section 4 hereof.

      2.2 Voluntary Termination by the Executive With Good Reason. In the event the Executive terminates his employment within the Protection Period with Good Reason, the

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Executive will be entitled to receive the Severance Benefits set forth in Section 4 hereof. In order to terminate employment in accordance with this Section 2.2, an Executive must give sixty (60) days advance written notice of his impending termination of employment to the Company, specify the reason for such termination in such notice and provide the Company with an opportunity to correct the situation which he feels necessitates his termination of employment with Good Reason under this Section 2.2.

Section 3. Employment Terminations Which Do Not Qualify For Severance Benefits

      3.1 Termination by the Company Outside the Protection Period. In the event the Company terminates the Executive’s employment outside the Protection Period, the Executive will not be entitled to receive the Severance Benefits set forth in Section 4 hereof. The Executive shall, however, comply with the provisions of Section 5 hereof. The Company may, in its sole discretion, provide some form or amount of severance benefits to the Executive in such circumstances as the Company shall, in its sole discretion, determine.

      3.2 Voluntary Termination by the Executive Outside the Protection Period. In the event the Executive terminates his employment outside the Protection Period, the Executive will not be entitled to receive the Severance Benefits set forth in Section 4 hereof. The Executive shall, however, comply with the provisions of Section 5 hereof.

      3.3 Termination by the Company For Cause. In the event the Company terminates the Executive’s employment for Cause (whether before or after a Change in Control), the Executive will not be entitled to receive the Severance Benefits set forth in Section 4 hereof. The Executive shall, however, comply with the provisions of Section 5 hereof. Cause will be determined by the Outside Committee Members in the exercise of good faith and reasonable judgment.

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      3.4 Voluntary Termination by the Executive Other Than For Good Reason. In the event the Executive terminates his employment other than for Good Reason (whether before or after a Change in Control), the Executive will not be entitled to receive the Severance Benefits set forth in Section 4 hereof. The Executive shall, however, comply with the provisions of Section 5 hereof.

Section 4. Severance Benefits

      In the event that the Company shall terminate the employment of the Executive as described in Section 2.1 hereof, or in the event the Executive terminates his employment as described in Section 2.2 hereof, the Company will, in lieu of any other severance which may otherwise be payable:

a.

Continue to pay to the Executive, for the thirty-six (36) months following his termination of employment, his monthly base salary at the rate in effect as of the date of such termination in accordance with the Company’s normal payroll practices.

b.

Pay to the Executive, with respect to each December 31 on which payments are made pursuant to subsection a. above, a bonus in a cash lump sum. Each such yearly bonus shall equal the bonus paid to the Executive in the year prior to his termination of employment. Each such yearly bonus will be paid to the Executive on the same day as bonuses, if any, are paid to the executives of the Company who are still employed with the Company. If bonuses are not paid to the executives of the Company who are still employed with the Company at the time a bonus is to be paid, such bonus will be paid to the Executive on the first anniversary of the most recent date bonuses were paid to executives of the

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	Company or, if such anniversary has already occurred at the time the Executive terminates employment, on the next subsequent anniversary of said date.
c.	Throughout the thirty-six (36) months following his termination of employment, continue the normal fringe benefits and perquisites being provided to the Executive immediately prior to his termination of employment, including but not limited to life insurance and health care benefits coverage, in the same amounts and at the same cost to the Executive as was applicable prior to the Change in Control; provided, however, that in the event the Executive begins to receive comparable fringe benefits and perquisites (determined at the sole discretion of the Outside Committee Members) from a subsequent employer during such period, the Company may immediately terminate such fringe benefits and perquisites. Coverage under the Company’s health care benefits plan will be in lieu of health care continuation under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for periods such coverage is in effect under this Agreement.
d.	Pay to the Executive in cash an amount equal to the matching and discretionary contributions which would have been made by the Company under any qualified and nonqualified 401(k), profit sharing, savings or retirement plan of the Company or an Affiliate during the period described in paragraph a of this Section 4 if the Executive made 401 (k) contributions and the Company made matching and discretionary contributions during such period at the same rate as the Executive and the Company made such contributions during the twelve (12) month period immediately prior to the Change of Control. Such amounts

8

	shall be paid to the Executive on the same days that the salary is payable to him under paragraph a. above.
e.	Pay for the costs of outplacement services actually used by the Executive; provided, however, that the total fee paid for such services will be limited to an amount equal to ten percent (10%) of the Executive’s annual base salary rate as of the effective date of his termination of employment.
f.	Continue to be obligated to pay when due all other benefits to which the Executive has a vested right according to the provisions of any applicable retirement or other benefit plan or program.

Section 5. Covenants

      5.1 Disclosure or Use of Information. The Executive will at all times during and after the period of his employment by the Company keep and maintain the confidentiality of all Confidential Information and will not at any time either directly or indirectly use such Confidential Information for his own benefit or otherwise divulge, disclose or communicate such Confidential Information to any person or entity in any manner whatsoever other than employees or agents of the Company or its Affiliates who have a need to know such Confidential Information and then only to the extent necessary to perform their responsibilities on behalf of the Company or its Affiliates.

      5.2 Co-operation. During the term of his employment and for a period of five (5) years following his termination of employment, the Executive will not attempt to induce any employee of the Company or an Affiliate to terminate his or her employment with the Company or an Affiliate nor will he take any action with respect to any of the customers of the Company and its Affiliates which would have or might be likely to have an adverse effect upon the

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business of the Company and its Affiliates. Executive hereby agrees not to make any statement or take any action, directly or indirectly, that will disparage or discredit the Company and its Affiliates, their Officers, Directors of the Company, their employees or any of their products or services, or in any way damage their reputation or ability to do business or conduct their affairs. Executive agrees that subsequent to his termination of employment he will, in conjunction with a Company request, reasonably cooperate with the Company in connection with transition matters, disputes and litigation matters upon reasonable notice, at reasonable times, and will be paid or reimbursed for reasonable expenses incurred by the Executive relating to such matters.

      5.3 Non-Competition. The Executive agrees that, in the event his employment with the Company terminates prior to a Change in Control for any reason, he will not for one year after his date of termination of employment, directly or indirectly, work or otherwise perform services for a financial institution or any affiliate of a financial institution which has a branch or location within a twenty (20) mile radius of any branch or location of the Company or any entity which was an Affiliate during the period the Executive was employed by the Company; except that the Executive may work or perform services for such a financial institution provided that his place of employment is outside of a twenty (20) mile radius of any branch or location of the Company or any such Affiliate and provided further that the Executive does not have any direct or indirect control, oversight, supervision or involvement with the operations which are conducted by any of the branches or locations which are within a twenty (20) mile radius of any branch or location of the Company or any Affiliate and does not have any customer contact or solicit customers, potential customers or business located within a twenty (20) mile radius of any branch or location of the Company or any Affiliate. This provision will have no force or effect if the employment of the Executive terminates subsequent to a Change in Control.

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      The Executive understands that the foregoing restrictions of this Section 5.3 may limit his ability to engage in certain business pursuits, but acknowledges that the protections of this Agreement for the Executive justify such restrictions. The Executive acknowledges that he understands the effect of the provisions of this Section 5.3, that he has had reasonable time to consider the effect of these provisions, and that he was encouraged to and had an opportunity to consult an attorney with respect to these provisions. The Company and the Executive consider the restrictions contained in this Section 5.3 to be reasonable and necessary. Nevertheless, if any aspect of these restrictions is found to be unreasonable or otherwise unenforceable by a Court of competent jurisdiction, the parties intend for such restrictions to be modified by such Court so as to be reasonable and enforceable and, as so modified by the Court, to be fully enforced.

      5.4 Injunctive Relief. In the event of a breach or threatened breach of any of the provisions of this Section 5 by the Executive, the Executive and the Company agree that the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions thereof. In addition, the Company will be entitled to pursue such other remedies at law or in equity as it deems appropriate.

Section 6. Miscellaneous

      6.1 Successors. This Agreement is personal to the Executive and will not be assignable by him without the prior written consent of the Outside Committee Members. This Agreement will be assigned or transferred to and will be binding upon and inure to the benefit of any Successor of the Company.

      6.2 Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the Executive and the Company with respect to the subject matter hereof and constitutes the entire agreement of the parties with respect thereto.

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      6.3 Administration. The provisions of this Agreement shall be administered by the Outside Committee Members. The Outside Committee Members shall have the sole discretion to make all determinations which may be necessary or advisable for the administration of this Agreement. Any action expressed from time to time by a vote at a meeting, or expressed in writing, after notice to all Outside Committee Members, may be done by a majority of the Outside Committee Members; and such action shall have the same effect for all purposes as if assented to by all the Outside Committee Members.

      6.4 Appeals Procedure. Any disputes arising under this Agreement with regard to any determination made by the Company or the Outside Committee Members under this Agreement, including but not limited to any dispute with regard to the denial of Severance Benefits to the Executive, may be appealed to the Outside Committee Members by the Executive. The Executive, or any authorized representative of the Executive, may upon written notice to the Outside Committee Members within sixty (60) days after any such determination or denial request a review by the Outside Committee Members of any such determination or denial. Such review may be made by written briefs submitted by the Executive and the Outside Committee Members or at a hearing, or by both, as shall be deemed necessary by the Outside Committee Members. Any hearing shall be held in the Corporate Headquarters of the Company, unless the Outside Committee Members shall specify otherwise. The date and time of any such hearing shall be designated by the Outside Committee Members upon not less than seven (7) days’ notice to the Executive unless the Executive accepts shorter notice. The Outside Committee Members shall make every effort to schedule the hearing on a day and at a time which is convenient to the Executive. The Outside Committee Members may, in their sole discretion, establish such rules of procedure as it may deem necessary or advisable for the

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conduct of any such review or of any such hearing. After the review has been completed, the Outside Committee Members shall render a decision in writing, a copy of which shall be sent to the Executive. In rendering their decision, the Outside Committee Members shall have full power and discretion to interpret this Agreement, to resolve ambiguities, inconsistencies and omissions, to determine any question of fact, to determine the right to Severance Benefits, and the amount of Severance Benefits, if any, payable to, the Executive in accordance with the provisions of this Agreement. Such decision shall set forth the specific reason or reasons for the decision and the specific provisions of this Agreement upon which the decision is based. There shall be no further appeal from a decision rendered by a quorum of the Outside Committee Members. Any determination made by the Outside Committee Members as a result of an appeal shall be final and binding in all respects upon the Company, the Parent Company and the Executive.

      6.5 Modification. This Agreement will not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement in a written instrument executed by either two (2) officers of the Company on behalf of the Board of Directors of the Company or, in the event a Change in Control has occurred, by the Outside Committee Members, and by the Executive, or by their legal representatives.

      6.6 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.

      6.7 Governing Law. To the extent not preempted by federal law, the provisions of this Agreement will be construed and enforced in accordance with the laws of the State of Ohio.

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      6.8 Section 280(G) Limit. Notwithstanding anything contained in this Agreement to the contrary, in the event the Company experiences a change described in Section 280G(b)(2)(A)(i) of the Internal Revenue Code, the amounts payable to the Executive under this Agreement which are contingent on such change shall not exceed an amount which; when added to the present value of all other amounts which are payable to him under other plans and programs of the Company, shall cause the total present value of all such amounts to equal one dollar ($1.00) less than three (3) times the base amount (as described in Section 280G(b)(3) of the Internal Revenue Code.)

      If the Internal Revenue Service subsequently asserts that the amounts payable to the Executive under this Agreement give rise to an excise tax under Section 4999 of the Internal Revenue Code and the Executive co-operates with the Company in appealing the determination of the Internal Revenue Service through whatever level of administrative or judicial appeals is deemed appropriate by the Company, the Company shall indemnify the Executive for all costs of challenging the determination that the excise tax applies to payments hereunder including any administrative costs, court costs, attorney fees, and accounting fees, whether incurred by the Company or incurred by the Executive.

      6.9 Reimbursement of Legal Fees. In the event that the Executive brings an action in a court of law to enforce any provision of this Agreement and prevails in such action in any respect, the Company shall reimburse the Executive for his attorney fees and expenses and any other fees and expenses incurred by the Executive in connection with such cause of action or in connection with the enforcement of this Agreement against the Company.

      IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of the day and year first above written.

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First National Bank

By: /s/ Charles J. Dolezal

      The Parent Company hereby guarantees the benefits payable under this Agreement as of the day and year first above written.

National Bancshares Corp.

By: /s/ John W. Kropf

And: /s/ James F. Woolley

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Exhibit 10.2 Special Separation Agreement

Kenneth R. VanSickle, Sr. Vice President, Chief Loan Officer of the Company entered into an identical agreement on June 14, 2000. Two executive officers of the Company, not named in the Executive Compensation table of the Company’s proxy, also entered into this agreement on June 14 and June 16, 2000. Mr. Dolezal’s and Mr Van Sickle’s agreements have a three-year term and provide for benefits equal to three-year’s pay. The agreements for the two executive officers for the Company, not named in the Executive Compensation table of the Company’s proxy, have a two-year term and provide for benefits equal to two years’s pay.

  EX-13 4 l86945aex13.htm EXHIBIT 13 ANNUAL REPORT

Exhibit 13

National
Bancshares
Corporation

2000 Annual Report

TABLE OF CONTENTS

Exhibit 10.1 Directors Defined Benefit Plan

Exhibit 10.2 Special Separation Agreement

Exhibit 13 Annual Report

Exhibit 23 Consent of Independent Auditors

Financial Highlights

Financial Position
					Percentage
(Year End Balances)	2000		1999		Change
Total Assets	$	200,792,706	$	197,402,543		1.72	%
Deposits		162,013,585		160,435,348		0.98	%
Loans-Net		107,551,674		99,531,223		8.06	%
Investment Securities		68,021,052		70,214,050		-3.12	%
Shareholders’ Equity		28,939,329		26,856,195		7.76	%
Summary of Operations
Net Interest Income	$	8,804,313	$	8,633,998		1.97	%
Net Income		2,555,271		2,516,986		1.52	%
Regular Cash Dividends		1,119,697		1,078,202		3.85	%
Net Income Per Share		1.14		1.12		1.79	%
Cash Dividends Per Share		0.50		0.48		4.17	%
Book Value Per Share		12.93		12.01		7.66	%

National Bancshares Corporation is a one-bank holding company with assets totaling over $200 million. First National Bank, its subsidiary, is headquartered in Orrville, Ohio. Serving Wayne County, southern Medina County, and parts of Stark and Holmes Counties through eleven banking offices, First National Bank offers a variety of personal and commercial deposit and lending services.

“A man’s true wealth is the good he does in this world.” – Mohammed

First National Bank’s commitment to each individual customer is reinforced
by our commitment to the community. The communities we serve are the life-blood
of our business. First National has a corporate history dedicated to financially
supporting local organizations and charities. Additionally, we take pride in the work
and accomplishments of our caring associates. These associates,
who work enthusiastically for a variety of organizations, give freely of their time,
and serve to remind us all of the importance of community.

First National Bank’s involvement and sponsorship in community events
epitomizes family entertainment for hometown America. Concerts at Rehm Pavilion in
Orrville, the annual Woosterfest celebration, Christmas in Seville, the Dalton Holidays
Festival, and many others, benefit from our support. This support assists the
communities we serve and, of course, the families who reside there.

“The banking industry has become a model for the nation,” said Colin L. Powell, founding chairman of America’s Promise – the Alliance for Youth^®. First National Bank has pledged to help build and strengthen the character and competence of youth with their support of local youth organizations.

Dear Shareholders

      While operating results for the year 2000 posted new highs, the gains over the previous year were somewhat modest. Income before income taxes increased $121 thousand, or 3.9%, above that of 1999. With income taxes increasing $83 thousand, or 13.1%, net income was up $38 thousand, or 1.5%, above 1999. Total assets increased approximately $3.4 million, or 1.7%, above the end of the previous year. Asset growth was driven primarily by an increase in loans. Net loans rose over $8 million, or 8.1%, above the end of the previous year. Most of the loan activity during this past year was realized in commercial and real estate mortgage loans. Total deposits posted a modest growth of 1%, increasing over $1.5 million. With Certificates of Deposit being a popular product during this past year, we experienced a movement of some funds from savings and interest-bearing checking into time deposits. Total shareholders’ equity increased by over $2 million, or 7.8%, above year end 1999. This increase is primarily due to an increase in retained earnings and an increase in the market value of securities available for sale. The difference between the market value and book value of these securities (net of tax) is reflected in accumulated other comprehensive income.

      Total cash dividends declared in 2000 equaled 50¢ per share, a 4.2% increase over the total cash dividends declared in 1999. This continues our long-term trend of increasing cash dividends each year.

      The stock market during this past year was not particularly kind to financial stocks. The stock values of most financial institutions took quite a beating throughout the year 2000. The price of many financial stocks sold on the over the counter market (OTC), such as ours, tend to follow the regional bank stocks. This trail seems to occur with a varying lag affect. The bid price of our stock declined throughout this past year, hitting a low of $14.50 on October 3, 2000. It rebounded modestly to $15.25 by December 31, 2000. With the price of some regional bank stocks climbing near the end of this past year, we are optimistic our stock may also enjoy an upward movement of market value during the year 2001.

      In April of this past year, we unveiled a new product in the Visa^® Check Card. This card can be used in lieu of writing a check when paying for purchases from merchants that accept Visa. The amount of the purchase is automatically deducted from the customer’s checking account. The card will also enable our customers to obtain cash or transfer

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funds at any MAC^® or PLUS^® Network ATM. This service has been very well received by our customers.

      During the fourth quarter of 2000, we totally updated our Internet web site for First National Bank and introduced transactional Online Banking. Besides obtaining information about our products and services, customers can now inquire on their account balances, transfer funds between accounts, or make loan payments online. These transactions are accomplished through our secured Internet site. All transactions are guarded with encryption and passwords for each customer’s security and peace of mind. Customers may register for this free service online. Other features of our interactive site allow you to reorder checks, use financial calculators, view current savings rates and check out recent news and bank happenings. If you have not yet seen our site, please visit us on the web at www.fnborrville.com and try our Online Banking demo.

      In December, we opened a new drive-up MAC ATM at our Mt. Eaton office bringing 24-hour banking to the community. We also unveiled a new Preferred Savings Account. This account offers a tiered rate of interest as the account balance grows. Customers with a higher balance can realize interest rates like those typically offered on certificates of deposit, with the advantage of having immediate access to these funds. I invite you to stop at any of our offices to learn more about this new savings product.

      National Bancshares Corporation, through its subsidiary, First National Bank, also supports the communities we serve through financial contributions and the voluntary efforts of our employees. We financially support more than fifty different community organizations each year. During the past five years, First National Bank has contributed over $350 thousand to these local organizations. The services provided by these groups range from education and youth to medical and social services. Our employees have also given very generously of their time and money to these organizations. During this past year our employees raised over $20 thousand for charitable causes and donated thousands of hours of their time to support many worthwhile causes in our communities. This personal involvement is indicative of the many high-quality people in our organization. These contributions, and the voluntary efforts of our employees, make our communities a better place to live and work.

/s/ Charles J. Dolezal
Charles J. Dolezal
President and Chairman

First National associates regularly donate to local causes to earn the right to wear blue jeans to work during “Casual for a Cause” day. Customers are also invited to participate, resulting in contributions in excess of $9,300 for several local causes during 2000.

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In 2000, First National associates volunteered over 2,000 hours to civic and charitable involvement. Youth athletic teams, scouting groups, charitable foundations and local non-profit boards comprise only a handful of the organizations benefitting from the time and effort donated by our staff.

Financial Review

      National Bancshares Corporation experienced continued success by setting new records in 2000. Total assets grew approximately $3.4 million ending 2000 at $200,792,706. This represents a 1.7% increase over the previous year. Average assets also experienced growth in 2000, increasing to approximately $195.9 million from $193.7 million in 1999, or an increase of $2.2 million. Net income in 2000 totaled $2,555,271 exceeding 1999 net income by approximately 1.5%.

      Cash and due from banks amounted to $7,077,797 and $8,538,351 at December 31, 2000 and 1999, respectively. This was a decrease of $1.5 million, or 17.1%. Cash reserves are maintained at appropriate levels in order to meet customer needs with consideration given to security. Excess cash is invested in order to maximize a safe and profitable return on assets. A significant portion of this account represents the normal processing of outgoing cash letters, which represents checks deposited with us that were drawn on other banks.

      Federal funds sold were $8,135,000 and $8,770,000 as of December 31, 2000 and 1999, respectively. Average balances decreased during the year with 2000 averaging $5.5 million compared to $10.0 million during 1999. Federal funds sold are overnight investments with our correspondent banks. This is an investment tool that is used to maximize the earning assets of the bank.

      Interest-bearing balances with banks were $2.0 million as of December 31, 2000 and 1999. Interest-bearing balances averaged $2.0 million during 2000 and $1.1 million during 1999.

      Total securities decreased approximately $2.2 million ending 2000 at $68,021,052 compared to $70,214,050 at the end of 1999. The average balance of taxable securities decreased from $50.1 million in 1999 to $49.5 million in 2000. The average balance of nontaxable securities decreased from $21.5 million in 1999 to $20.7 million in 2000. The market or fair value of the total portfolio was $68,686,804 and $69,673,753 as of December 31, 2000 and 1999, respectively.

      U.S. treasury and agency obligations decreased approximately $1.7 million or 6.4% with balances of $24,459,079 on December 31, 2000 compared to $26,127,058 on December 31, 1999. The net market appreciation of this category was approximately $285 thousand as of December 31, 2000.

      Mortgage-backed securities were $331,043 and $927,073 on December 31, 2000 and 1999, respectively. This was a decline of $596 thousand or 64.3%. The net market appreciation of these securities was $22 thousand on December 31, 2000.

      Obligations of states and political subdivisions ended 2000 at $19,734,709, which was 3.7% lower than the $20,500,646 balance on December 31, 1999. The net market appreciation was approximately $506 thousand as of December 31, 2000. To assist in local development, the bank actively purchases bonds issued by local municipalities, school systems and other public entities when opportunities present themselves.

      Other securities ended 2000 at $23,496,221, which was 3.7% higher than the December 31, 1999 balance of $22,659,273. This group of securities is primarily comprised of high quality corporate bonds and notes. The Corporation also maintains a portfolio of approximately $1.9 million in equity securities. The net market depreciation was approximately $340 thousand as of December 31, 2000.

      Net loans increased by approximately $8.0 million, or 8.1% during 2000. Net loan balances were $107,551,674 and $99,531,223 on December 31, 2000 and 1999, respectively. Average net loans posted an increase of $7.4 million with a yearly average of $104.9 million for 2000.

      Loans collateralized by real estate totaled $78,691,814 on December 31, 2000, as compared to $71,796,670 as of December 31, 1999. All real estate categories, except construction, posted increases in 2000. There was a $2.0 million increase in commercial mortgage loans and a $2.9 million increase in residential

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mortgage loans. Home equity loans increased $2.3 million while construction loans decreased $0.2 million. Loan demand was strong in 2000 due to customers’ confidence in the economy.

      Consumer loans, totaling $7,151,394 on December 31, 2000, were 8.9% below the 1999 year end total of $7,847,553. Commercial loans were $19,850,559 and $17,851,661 as of December 31, 2000 and 1999, respectively. Credit card loans decreased 1.6% during the year with balances of $1,188,297 on December 31, 2000. Other loans decreased $179 thousand during 2000 ending the year at $2,273,180.

      The allowance for loan losses was $1,343,124 and $1,308,630 as of December 31, 2000 and 1999, respectively. The allowance for loan losses to total loans percentages were 1.23% and 1.30% and net charge-offs to total average loans percentages were .03% and .11% for 2000 and 1999, respectively. As with any charge-offs, the bank continues to attempt recovery where feasible. The ratio of non-performing loans to total loans was .13% for 2000 compared to .25% in 1999. The ratio of the allowance for loan losses to non-performing loans was 932% for 2000 compared to 524% for 1999. Non-performing loans consist of loans that have been placed on nonaccrual status. Management reviews the allowance for loan losses on a regular basis to determine the adequacy of the reserve. Management reviews problem loans (loans past due 90 days or more and loans on non-accrual) for unfavorable collectibility factors and assesses the requirement for specific reserves on such credits. For those loans not subject to specific reserves, management reviews previous loan loss experience, general economic conditions and delinquent loan reports to establish appropriate reserves.

      Premises and equipment totaled $2,621,483 on December 31, 2000 as compared to $2,919,868 on December 31, 1999. During 2000 capital expenditures amounted to $111 thousand and depreciation was $409 thousand. Improvements and repairs to bank buildings and equipment are performed as needed to keep them in good working order in an effort to provide convenient and pleasant banking offices to meet our customers’ needs.

      Total deposits posted a $1.6 million or 1.0% increase ending 2000 at $162,013,585, as compared to $160,435,348 on December 31, 1999. Average deposits decreased from $159.1 million in 1999 to $158.1 million in 2000.

      Demand deposits, which represent noninterest-bearing checking accounts, ended 2000 at $28,236,689, which was a decrease of 0.3% from the December 31, 1999 balance of $28,324,431. Demand deposits fluctuate based on the needs of our customers. The average demand deposit accounts for 2000 were $26.5 million as compared to $27.1 million in 1999.

      Interest-bearing checking accounts finished 2000 at $30,414,962 compared to $32,326,299 a year earlier. This was a decrease of $1.9 million, or 5.9%. Average balances decreased by $0.9 million from $30.8 million in 1999 to $29.9 million in 2000. Interest-bearing checking accounts include our Negotiable Order of Withdrawal accounts and Money Market Deposit Accounts.

      Savings accounts totaled $39,985,914 on December 31, 2000, approximately $3.3 million below the end of the previous year. With certificates of deposit being a popular product during 2000, funds moved from savings and interest-bearing checking accounts into time deposits. Average savings accounts decreased from $43.6 million during 1999 to approximately $41.3 million in 2000. First National offers both passbook and statement savings accounts.

      Time deposits of less than $100,000 amounted to $49,317,909 and $42,306,736 as of December 31, 2000 and 1999, respectively. This represents an increase of $7.0 million or 16.6%. The increase was due mainly to a special rate offered on our 15-month certificates of deposit. Average time balances of less than $100,000 increased approximately $4.3 million giving 2000 an average time deposit balance of $46.7 million compared to approximately $42.4 million in 1999.

      Time deposits of $100,000 and over decreased from $14,239,385 on December 31, 1999 to $14,058,111 on December 31, 2000. Average time deposits of $100,000 and over decreased by $1.4 million from 1999 giving 2000 an average of $13.7 million.

      Securities sold under agreements to repurchase were $3,949,485 on December 31, 2000 compared to $2,057,041 at the end of 1999, or approximately $1.9 million higher. The Federal Reserve note account balance was $615,298 and $1,000,000 as of December 31, 2000 and 1999, respectively. Since loan growth exceeded deposit growth, the Bank obtained advances from the Federal Home Loan Bank. Federal Home Loan Bank advances were $3,446,086 and $5,606,641 at December 31, 2000 and 1999, respectively. The average of other funds purchased increased in 2000 to $8.6 million from $6.3 million during 1999.

Fifty-four First National associates raised nearly $3,500 in the 2000 Wayne County Junior Achievement Bowl-A-Thon. These contributions helped provide business education to more than 150 students.

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The Board of Directors, on behalf of First National Bank, contributed nearly $75,000 to charitable organizations during 2000. This generosity upholds the Bank’s long-standing commitment to "give back" to the communities we serve.

Shareholders’ equity had an ending balance of $28,939,329 on December 31, 2000. This is an increase of $2.1 million or 7.8% from the 1999 ending balance of $26,856,195. The increase is due mainly to retained earnings and an improvement in accumulated other comprehensive income. This growth translates to a $0.92 increase in book value per share, raising the book value per share to $12.93 on December 31, 2000, compared to $12.01 on December 31, 1999. Under the federal risk-based capital regulations, the Bank’s total capital to risk-based assets of 19.40% on December 31, 2000 was more than twice the 8% minimum required. The Bank remains in a very favorable position when compared to its peer group in the area of capitalization.

      Shareholders’ equity reflects the change in accumulated other comprehensive income. This represents the unrealized appreciation or depreciation in the market value of investment securities (net of taxes) that are available for sale. During 2000, accumulated other comprehensive income increased by $597,722, resulting in an unrealized depreciation balance of $127,139 at December 31, 2000. A general improvement in the market value of debt and equity investments owned, due to economic conditions and lower interest rates, has increased the market value of securities in the available for sale portfolio.

      In summary, the Corporation continued to experience balance sheet growth highlighted by increases of approximately 8.1% in loans, 1.0% in deposits and 7.8% in shareholders’ equity.

Liquidity

      Liquidity is the consideration of the corporation’s ability to meet its necessary outgoing cash flow needs. Cash equivalents for the cash flow statement of $15.2 million is composed of $7.1 million in cash and due from banks and $8.1 million in federal funds sold. Management considers the corporation to be in a satisfactory liquidity position with the ability to meet the demands of its customers and the local economy.

Results of Operations

      Net income set a new record high of $2,555,271 in 2000, or approximately 1.5% over 1999’s net income of $2,516,986. Net income for 1999 was approximately 7.4% above 1998’s net income of $2,344,645. This equates to net income per share of $1.14 for 2000, $1.12 for 1999 and $1.03 for 1998. The primary source of income continues to be interest on loans and other investments with additional revenues generated from fees on non-interest related services.

      Interest and fees on loans of $9,280,026 for 2000 was above 1999 by 12.0%, or approximately $995 thousand. Interest and fees on loans also increased from 1998 to 1999, improving by 5.9%, or approximately $461 thousand. The improvement in 2000 was due to an increase in average loan volume and average loan yields. The improvement in 1999 was due to an increase in average loan volume. Average interest yields on loans were 8.85%, 8.50% and 9.25% for 2000, 1999 and 1998, respectively.

      Interest on federal funds sold was $348,202, $488,523 and $621,579 for 2000, 1999 and 1998, respectively. The decrease of $140 thousand in 2000 was the result of lower volume of funds sold. The decrease of $133 thousand in 1999 was the result of lower average rates and volume of funds sold.

      Interest on taxable investment securities, which includes interest-bearing deposits with banks, increased by approximately $25 thousand ending 2000 at $3,419,441. This 0.7% increase in interest income was due primarily to an increase in the average investment balances. In 1999, interest on taxable investment securities decreased by approximately $175 thousand or 4.9% from 1998. This decrease was due to a decrease in average investment balances.

      Interest on obligations of states and political subdivisions totaled $1,166,910 for 2000, which was $47 thousand or 3.9% below 1999. The average balance of these investments decreased $884 thousand while the average taxable equivalent yield increased slightly from 8.54% in 1999 to 8.55% in 2000. Interest on obligations of states and political subdivisions

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totaled $1,214,513 for 1999, which was $6 thousand or 0.5% below 1998. The average balances increased $49 thousand in 1999 while the average taxable equivalent yield declined from 8.60% to 8.54%.

      Total interest and dividend income of $14,214,579 for 2000 was $832 thousand higher than 1999’s total of $13,382,607 as a result of the generally higher loan volumes and yields. 1999’s total interest income exceeded 1998’s by $147 thousand due primarily to higher loan volumes.

      Interest on deposits totaled $4,898,207 in 2000 as compared to $4,470,562 in 1999. This $428 thousand increase, which equaled a 9.6% increase, was due principally to higher average rates on deposits. Comparing 1999 to 1998, interest on deposits decreased $337 thousand or 7.0%. The decrease was due to lower average rates on deposits.

      Interest expense on other funds purchased, which includes Federal Home Loan Bank advances, was $512,059, $278,047 and $191,603 for 2000, 1999 and 1998, respectively. The increases in 2000 and 1999 were primarily the result of higher average balances of Federal Home Loan Bank advances.

      Net interest income before provision for loan losses was $8,804,313, $8,633,998 and $8,235,686 for 2000, 1999 and 1998 respectively. This represents an increase of 2.0% in 2000 and 4.8% in 1999. The net interest margin, which is calculated on a tax equivalent basis, was 5.15% for 2000 and 5.14% for 1999 and 1998.

      The Bank provides for potential loan losses throughout the year. In 2000 the provision for loan losses was $62,500. In 1999 and 1998 the provision for loan losses was $120,000. The total provision for loan losses for the last three years was $302,500, compared to total net charge-offs of $191,840 for the same three-year period. The provision for loan losses is based on the Bank’s past loan loss experience, current delinquencies, mix and various types of loans, general economic conditions and trends, and an evaluation of the losses inherent in the current loan portfolio.

      Net interest income after provision for loan losses was $8,741,813, $8,513,998 and $8,115,686 in 2000, 1999 and 1998, respectively. This represents an increase of 2.7% in 2000 and 4.9% in 1999.

      Noninterest income totaled $849,467, $836,598 and $874,699 for 2000, 1999 and 1998, respectively. Noninterest income is primarily comprised of checking account fees, which were $560 thousand in 2000, $544 thousand in 1999 and $545 thousand in 1998. Other noninterest income includes safety deposit box rents, net gains/losses on loans sold and other miscellaneous fees and collections.

      Noninterest expenses were $6,318,759 for 2000, $6,199,427 in 1999 and $6,051,569 in 1998. This represents a $119 thousand or 1.9% increase in 2000 and a $148 thousand or 2.4% increase in 1999. The increase in 2000 was primarily due to higher salaries and employee benefits and miscellaneous other expenses. The higher salaries and employee benefits were mainly due to normal salary increases. The increase in 1999 was due to higher salaries and employee benefits. The higher salaries and employee benefits in 1999 were mainly due to normal salary increases and staffing the new office in Wooster.

      The income tax provision amounted to $717,250, $634,183 and $594,171 in 2000, 1999 and 1998, respectively. The increase in net interest income after provision for loan losses and lower nontaxable interest income, offset by higher noninterest expenses resulted in a higher tax provision in 2000. In 1999, the increase in net interest income was the main reason for a higher tax provision. The effective tax rate was 21.9%, 20.1% and 20.2% in 2000, 1999 and 1998, respectively.

      Cash dividends declared during 2000 were $0.50 per share, compared to $0.48 per share in 1999 and $0.44 per share in 1998. The dividend payout percentage was 43.82%, 42.84% and 42.72% in 2000, 1999 and 1998, respectively. Return on average equity was 9.08%, 9.22% and 8.71% for 2000, 1999 and 1998, respectively. Return on average assets was a respectable 1.30% in 2000 and 1999, and 1.27% in 1998.

Asset & Liability Management

      Management considers interest rate risk to be the Corporation’s most significant market risk. Management focuses on maintaining consistent growth in net interest income, while managing interest rate risk within Board-approved policy limits. The Corporation’s Asset/Liability Management Committee, which consists of the Bank’s Executive Officers and reports directly to the Board of Directors, monitors and manages interest rate risk in order to maintain an acceptable level of possible change in net interest income as a result of changes in interest rates. The Asset/Liability Management Committee also monitors the Corporation’s

First National donates checking account simulation packets to local high schools to help students develop personal financial skills. Associates also speak to students regarding the importance of maintaining a good credit history. On “National Teach Children to Save Day”, First National associates stress the value of saving money to students at eight area elementary schools.

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First National Bank has a long history of supporting the United Way. In 2000, more than $17,000 was donated to local United Ways and Community Chests by the Bank and its associates. FNB associates also support United Way by taking leadership roles. These roles include board of trustee positions, citizen review committees and fund-raising committees.

liquidity levels, which were within the Corporation’s policy guidelines at December 31, 2000. The Corporation does own certain equity securities, which have more price volatility compared to debt securities and does subject the Corporation to some equity risk. The Corporation does not own any trading assets and is not subject to foreign currency exchange or commodity price risk.

      The Corporation uses a gap analysis model as its primary method to identify and manage its interest rate risk. The model measures the difference between the assets and liabilities repricing or maturing within specific time periods. The model also considers prepayment assumptions and estimated paydowns in the loan and investment portfolios. An asset-sensitive position indicates that there are more rate-sensitive assets than rate-sensitive liabilities repricing or maturing within specific time horizons, which would generally imply a favorable impact on net interest income in periods of rising interest rates and a negative impact in periods of falling rates. A liability-sensitive position would generally imply a negative impact on net interest income in periods of rising rates and a positive impact in periods of falling rates.

      Management’s goal is to manage the Corporation’s interest rate risk by maintaining the gap between interest-earning assets and interest-bearing liabilities repricing in a one-year period within a range of plus or minus 10% of total assets.

      Gap analysis has limitations because it cannot measure the effect of interest rate movements and competitive pressures on the repricing and maturity characteristics of interest-earning assets and interest-bearing liabilities. The model assumes that certain assets and liabilities of similar maturity or repricing opportunities will react the same to changes in interest rates. However, certain types of financial instruments may react in advance to changes in market rates, while other types of financial instruments may lag behind the change in general market rates.

      At December 31, 2000 the Corporation had a negative one year cumulative gap of 2.9% of total assets, indicating a slightly higher balance of rate sensitive liabilities than rate sensitive assets. The estimated impact on the net interest margin from modestly rising or falling interest rates would be relatively insignificant due to the short duration of mismatch within the first 12 months. The following table shows the estimated change in net interest income over 12 months if interest rates were to immediately increase or decrease by 200 basis points.

Change in	Percentage Change in Net Interest
Interest Rates	Income Over 12 Months
(basis points)	Dec. 31, 2000	Dec. 31, 1999
+200	-2.6%	-3.7%
-200	1.3%	3.4%

Forward-Looking Statements

      The Corporation is not aware of any trend, events or uncertainties that will have or are reasonably likely to have a material affect on the liquidity, capital resources or operations except as discussed herein. Also, the Corporation is not aware of any current recommendations by regulatory authorities which would have such an affect if implemented. The Corporation cautions that any forward-looking statements contained in this report, in a report incorporated by reference to this report or made by management of the Corporation involves risk and uncertainties and are subject to change based on various important factors. Actual results could differ materially from those expressed or implied. Additionally, the Corporation claims no notification responsibilities should their opinions change from those expressed herein.

Impact of New Accounting Standard

      A new standard requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. The standard does not allow hedging of a security, which is classified as held to maturity. Accordingly, companies may reclassify any security from held to maturity upon adoption of the pronouncement if they wish to be able to hedge the security in the future. The standard is effective for the Corporation in 2001.

      In January 2001, the Corporation adopted the new standard and transferred securities with an amortized cost of approximately $30.5 million and a fair value of approximately $30.7 million from the held to maturity to the available for sale category to take advantage of the flexibility provided by this classification. The transfer had a positive impact on the corporation’s capital, net of taxes, of approximately $134 thousand.

8

Price Ranges of Common Stock

      The stock prices below reflect inter-dealer bid prices, without adjustments for retail markups, markdowns or commissions and may not represent actual transactions.

					Dividends
2000	High		Low		Per Share
First Quarter	$	24.50	$	19.50	$	.120
Second Quarter		20.00		16.87		.120
Third Quarter		17.25		16.75		.120
Fourth Quarter		17.00		14.50		.140

					Dividends
1999	High		Low		Per Share
First Quarter	$	29.00	$	29.00	$	.100
Second Quarter		30.00		29.00		.100
Third Quarter		30.00		27.00		.100
Fourth Quarter		27.12		20.50		.180

The Heart Walk, a local fund- raiser to support the American Heart Association, benefitted from First National’s corporate sponsorship in 2000. In addition, a team of First National associates walked the five-mile course to raise $868.

Shareholder Information

Corporate Office

National Bancshares Corporation
112 West Market Street
P.O. Box 57
Orrville, Ohio 44667
(330)682-1010
www.fnborrville.com

Stock Trading Information

      The shares of common stock of National Bancshares Corporation are traded on the local over-the-counter market primarily with brokers in the Corporation’s service area. The ticker symbol for National Bancshares Corporation is NBOH.

Form 10-K

      A copy of the Corporation’s 2000 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 and Transfer Agent

      Shareholders with questions are invited to write or call the Transfer Agent, Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016, 1-800-368-5948 or National Bancshares Corporation, Shareholder Services Department, at (330)682-1030. Registrar and Transfer Company can also be contacted by e-mail at invrelations@rtco.com. Their website is rtco.com.

Dividend Reinvestment Plan

      This plan makes available an opportunity to increase ownership of National Bancshares Corporation common stock through the automatic reinvestment of all or part of the dividends paid to shareholders without paying brokerage commissions or service charges.

Dividend Direct Deposit Plan

      This plan permits shareholders to electronically deposit cash dividends to their checking or savings accounts. This free service provides a convenient and safe method of receiving dividend payments.

9

Consolidated
Balance Sheets
December 31, 2000 and 1999

				2000			1999
Assets
Cash and due from banks				$	7,077,797		$	8,538,351
Federal funds sold					8,135,000			8,770,000
	Total cash and cash equivalents				15,212,797			17,308,351
Interest-bearing time deposits with other banks					1,989,440			1,985,122
Securities available for sale					20,168,513			19,538,195
Securities held to maturity (fair value 2000 – $48,518,291; 1999 – $50,135,558)					47,852,539			50,675,855
Federal bank stock					975,800			928,000
Loans, net of allowance for loan losses 2000 – $1,343,124; 1999 – $1,308,630					107,551,674			99,531,223
Accrued interest receivable					1,492,613			1,344,846
Premises and equipment, net					2,621,483			2,919,868
Other assets					2,927,847			3,171,083
TOTAL				$	200,792,706		$	197,402,543
Liabilities and Shareholders’ Equity
	Deposits			$	162,013,585		$	160,435,348
	Repurchase agreements				3,949,485			2,057,041
	Federal Reserve note account				615,298			1,000,000
	Federal Home Loan Bank advances				3,446,086			5,606,641
	Accrued expenses and other liabilities				1,828,923			1,447,318
			Total liabilities		171,853,377			170,546,348
Shareholders’ Equity:
		Common stock, no par value; 6,000,000 shares authorized; 2,289,528 shares issued			11,447,640			11,447,640
		Additional paid-in-capital			4,689,800			4,689,800
		Accumulated other comprehensive income (loss)			(127,139	)		(724,861	)
	Retained earnings				14,292,805			12,981,399
	Less 51,384 and 52,740 treasury shares —at cost				(1,363,777	)		(1,537,783	)
			Total shareholders’ equity		28,939,329			26,856,195
	TOTAL			$	200,792,706		$	197,402,543

See accompanying notes to consolidated financial statements.

10

Consolidated
Statements of Income
Years Ended December 31, 2000, 1999 and 1998

				2000		1999		1998
INTEREST AND DIVIDEND INCOME:
	Loans, including fees			$	9,280,026	$	8,284,749	$	7,823,312
	Federal funds sold				348,202		488,523		621,579
	Securities:
		Taxable			3,419,441		3,394,822		3,569,761
		Nontaxable			1,166,910		1,214,513		1,220,486
			Total interest and dividend income		14,214,579		13,382,607		13,235,138
INTEREST EXPENSE:
	Deposits				4,898,207		4,470,562		4,807,849
	Short-term borrowings				181,576		176,391		191,603
	Federal Home Loan Bank advances				330,483		101,656		—
			Total interest expense		5,410,266		4,748,609		4,999,452
NET INTEREST INCOME					8,804,313		8,633,998		8,235,686
PROVISION FOR LOAN LOSSES					62,500		120,000		120,000
NET INTEREST INCOME AFTER PROVISION
	FOR LOAN LOSSES				8,741,813		8,513,998		8,115,686
NONINTEREST INCOME
	Checking account fees				559,750		543,631		545,212
	Other				289,717		292,967		329,487
			Total noninterest income		849,467		836,598		874,699
NONINTEREST EXPENSE
	Salaries and employee benefits				3,353,392		3,183,466		2,959,396
	Data processing fees				653,001		709,038		761,320
	Net occupancy expense				216,918		206,157		245,834
	Depreciation – furniture and fixtures				306,831		315,366		276,490
	Franchise taxes				302,164		318,316		352,211
	Maintenance and repairs				173,445		203,534		157,232
	Other				1,313,008		1,263,550		1,299,086
			Total noninterest expense		6,318,759		6,199,427		6,051,569
INCOME BEFORE INCOME TAXES					3,272,521		3,151,169		2,938,816
INCOME TAX EXPENSE					717,250		634,183		594,171
NET INCOME				$	2,555,271	$	2,516,986	$	2,344,645
WEIGHTED AVERAGE COMMON
	SHARES OUTSTANDING				2,240,534		2,253,650		2,281,166
BASIC EARNINGS PER COMMON SHARE				$	1.14	$	1.12	$	1.03

See accompanying notes to consolidated financial statements.

11

Consolidated
Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2000, 1999 and 1998

								Accumulated
						Additional		Other									Total
				Common		Paid-in		Comprehensive			Retained			Treasury			Shareholders'
				Stock		Capital		Income (Loss)			Earnings			Shares			Equity
Balance, January 1, 1998				$	11,447,640	$	4,689,800	$	91,755		$	10,137,118		$	(188,520	)	$	26,177,793
Comprehensive income:
		Net income										2,344,645						2,344,645
		Other comprehensive income (loss)							(266,269	)								(266,269	)
			Total comprehensive income															2,078,376
Stock split (2 for 1)
Cash dividends declared, $.44 per share												(1,001,743	)					(1,001,743	)
Shares issued under dividend reinvestment plan (6,867 shares)												42,985			139,921			182,906
Purchase of 8,563 treasury shares															(244,450	)		(244,450	)
Balance, December 31, 1998					11,447,640		4,689,800		(174,514	)		11,523,005			(293,049	)		27,192,882
Comprehensive income:
		Net income										2,516,986						2,516,986
		Other comprehensive income (loss)							(550,347	)								(550,347	)
			Total comprehensive income															1,966,639
Cash dividends declared, $.48 per share												(1,078,202	)					(1,078,202	)
Shares issued under dividend reinvestment plan (5,144 shares)												19,610			135,054			154,664
Purchase of 47,296 treasury shares															(1,379,788	)		(1,379,788	)
Balance, December 31, 1999					11,447,640		4,689,800		(724,861	)		12,981,399			(1,537,783	)		26,856,195
Comprehensive income:
		Net income										2,555,271						2,555,271
		Other comprehensive income							597,722									597,722
			Total comprehensive income															3,152,993
	Cash dividends declared, $.50 per share											(1,119,697	)					(1,119,697	)
Shares issued under dividend reinvestment plan (11,694 shares)												(124,168	)		348,620			224,452
Purchase of 10,338 treasury shares															(174,614	)		(174,614	)
Balance, December 31, 2000				$	11,447,640	$	4,689,800	$	(127,139	)	$	14,292,805		$	(1,363,777	)	$	28,939,329

See accompanying notes to consolidated financial statements.

12

Consolidated
Statements of Cash Flows
Years Ended December 31, 2000, 1999 and 1998

				2000			1999			1998
CASH FLOWS FROM OPERATING ACTIVITIES:
		Net income		$	2,555,271		$	2,516,986		$	2,344,645
		Adjustments to reconcile net income to net cash provided by operating activities:
			Provision for loan losses		62,500			120,000			120,000
			Depreciation, amortization and accretion		352,948			492,404			539,665
			Federal Home Loan Bank stock dividend		(47,800	)		(43,500	)		(41,700	)
			Gain on sale of loans		—			—			(43,395	)
			Change in deferred taxes		(12,888	)		16,089			(132,022	)
			Change in other assets and liabilities		215,686			(207,856	)		178,974
	Net cash from operating activities				3,125,717			2,894,123			2,966,167
CASH FLOWS FROM INVESTING ACTIVITIES:
		Net change in interest-bearing deposits with banks			(4,318	)		(1,985,122	)		—
		Securities held to maturity
			Proceeds from maturities and repayments		6,321,926			13,128,950			20,015,915
			Purchases of investments		(3,410,530	)		(7,019,241	)		(6,462,252	)
		Securities available for sale
			Proceeds from maturities and repayments		3,310,000			2,090,000			1,860,000
			Purchases of investments		(3,010,892	)		(9,447,626	)		(4,761,674	)
		Capital expenditures			(110,789	)		(681,203	)		(543,152	)
		Net increase in loans to customers			(8,082,951	)		(7,614,148	)		(13,855,902	)
	Net cash from investing activities				(4,987,554	)		(11,528,390	)		(3,747,065	)
CASH FLOWS FROM FINANCING ACTIVITIES:
		Net change in demand and savings accounts			(5,251,662	)		(1,449,426	)		6,023,645
		Net change in time deposits			6,829,899			4,170,223			609,050
		Net change in short-term borrowings			1,507,742			(986,818	)		(533,107	)
		Proceeds from Federal Home Loan Bank advances			1,000,000			6,700,000			—
		Repayments of Federal Home Loan Bank advances			(3,160,555	)		(1,093,359	)		—
		Dividends paid			(1,208,979	)		(1,063,000	)		(980,647	)
		Dividends reinvested			224,452			154,664			182,906
		Purchase of treasury shares			(174,614	)		(1,379,788	)		(244,450	)
	Net cash from financing activities				(233,717	)		5,052,496			5,057,397
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS					(2,095,554	)		(3,581,771	)		4,276,499
BEGINNING CASH AND CASH EQUIVALENTS					17,308,351			20,890,122			16,613,623
ENDING CASH AND CASH EQUIVALENTS				$	15,212,797		$	17,308,351		$	20,890,122
SUPPLEMENTAL DISCLOSURES
		Cash paid for interest		$	5,105,860		$	4,758,088		$	5,010,902
		Cash paid for income taxes			625,000			690,000			632,762

See accompanying notes to consolidated financial statements.

13

Notes to Consolidated Financial Statements

Years Ended December 31, 2000, 1999 and 1998

1. Summary of Significant Accounting Policies

      Nature of Operations and Principles of Consolidation: The consolidated financial statements include National Bancshares Corporation and its wholly-owned subsidiary, First National Bank, Orrville, Ohio, together referred to as “the Corporation.” Intercompany transactions and balances are eliminated in consolidation.

      The Corporation provides financial services through its offices in Orrville, Ohio, and surrounding communities. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Most loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Other financial instruments, which potentially represent concentrations of credit risk, include deposit accounts in other financial institutions and federal funds sold.

      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 banking operations are considered by management to be aggregated in one reportable operating segment.

      Use of Estimates: To prepare financial statements in conformity with 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 future results could differ. The allowance for loan losses, fair values of financial instruments and fair values of certain securities are particularly subject to change.

      Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions with original maturities under 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions and deposits with other banks.

      Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Other securities such as Federal Home Loan Bank stock are carried at cost.

      Interest income includes amortization of purchase premium or discount. Gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is not temporary.

      Loans: Loans are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis.

      Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are past due over 90 days. Payments received on such loans are reported as principal reductions.

      Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, known and inherent risks in 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.

      A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans. 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.

      Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

14

      Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the asset useful lives on the straight-line basis.

      Intangibles: Purchased intangibles, including goodwill of $261,000 and core deposit value of $75,000 at year-end 2000, are recorded at cost and amortized over the estimated life. Goodwill amortization is straight-line and core deposit amortization is accelerated.

      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 discounted amounts.

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

      Benefit Plans: Retirement plan expense is the amount of required matching contributions plus any discretionary contributions as determined by Board decision. Deferred compensation plan expense allocates the benefits over the estimated years of service.

      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.

      Financial Instruments: Financial instruments include credit instruments, such as commitments to make loans and standby 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.

      Earnings Per Common Share: Earnings per common share are calculated based on the weighted average number of shares outstanding during the period. There are no potentially dilutive instruments. During 1998, the Corporation declared a 2-for-1 stock split effected in the form of a 100% stock dividend.

      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.

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

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

      Impact of Recent Accounting Standards: In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000 with early adoption encouraged for any fiscal quarter beginning July 1, 1998 or later, with no retroactive application. The Corporation adopted SFAS No. 133 effective January 1, 2001. SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. SFAS No. 133 does not allow hedging of a security which is classified as held to maturity, accordingly upon adoption of SFAS No. 133, companies may reclassify any security from held to maturity to available for sale if they wish to be able to hedge the security in the future. As a result, the Company transferred $30,458,397 of securities classified as held to maturity to available for sale. The unrealized gain at the time the securities were transferred was approximately $203,588. The after tax effect of the transfer was to increase equity by $134,368 and is shown as cumulative effect adjustment in other comprehensive income. The adoption of SFAS No. 133 did not have any other significant impact on the Company’s financial statements.

15

2. Securities

      Year-end securities are as follows:

				December 31, 2000
						Gross		Gross
				Amortized		Unrealized		Unrealized
				Cost		Gains		Losses			Fair Value
Available for Sale:
	U.S. Government and federal agency			$	4,967,267	$	68,045	$	(5,000	)	$	5,030,312
State and Municipal					2,296,630		44,381		(444	)		2,340,567
Corporate bonds and notes					10,816,204		169,842		(80,474	)		10,905,572
		Total debt securities			18,080,101		282,268		(85,918	)		18,276,451
Equity securities					2,281,047		131,500		(520,485	)		1,892,062
			Total	$	20,361,148	$	413,768	$	(606,403	)	$	20,168,513
Held to Maturity:
	U.S. Government and federal agency			$	19,428,767	$	257,726	$	(35,597	)	$	19,650,896
State and Municipal					17,394,142		476,061		(13,897	)		17,856,306
Mortgage-backed					331,043		21,672		–			352,715
Corporate bonds and notes					10,698,587		56,035		(96,248	)		10,658,374
			Total	$	47,852,539	$	811,494	$	(145,742	)	$	48,518,291

[Additional columns below]

[Continued from above table, first column(s) repeated]

				December 31, 1999
						Gross		Gross
				Amortized		Unrealized		Unrealized
				Cost		Gains		Losses			Fair Value
Available for Sale:
	U.S. Government and federal agency			$	6,964,005	$	–	$	(164,006	)	$	6,799,999
State and Municipal					2,805,214		25,759		(104,499	)		2,726,474
Corporate bonds and notes					8,586,202		906		(243,148	)		8,343,960
		Total debt securities			18,355,421		26,665		(511,653	)		17,870,433
Equity securities					2,281,047		20,400		(633,685	)		1,667,762
			Total	$	20,636,468	$	47,065	$	(1,145,338	)	$	19,538,195
Held to Maturity:
	U.S. Government and federal agency			$	19,327,059	$	133,908	$	(579,589	)	$	18,881,378
State and Municipal					17,774,172		391,800		(229,792	)		17,936,180
Mortgage-backed					927,073		21,334		(4,033	)		944,374
Corporate bonds and notes					12,647,551		24,632		(298,557	)		12,373,626
			Total	$	50,675,855	$	571,674	$	(1,111,971	)	$	50,135,558

      There were no sales of securities in any period presented.

      Contractual maturities of debt securities at year-end 2000 were as follows.

	Amortized		Fair
	Cost		Value
Available for Sale:
Due in one year or less	$	—	$	—
Due from one to five years		6,140,512		6,243,261
Due from five to ten years		9,642,958		9,692,623
Due after ten years		2,296,631		2,340,567
	$	18,080,101	$	18,276,451

	Amortized		Fair
	Cost		Value
Held to Maturity:
Due in one year or less	$	7,051,757	$	7,069,590
Due from one to five years		19,435,662		19,863,111
Due from five to ten years		16,283,512		16,374,278
Due after ten years		5,081,608		5,211,312
	$	47,852,539	$	48,518,291

      Securities pledged at year-end 2000 and 1999 had carrying values of $33,104,000 and $32,313,000, and were pledged to secure public deposits and repurchase agreements.

3. Loans

      Loans at year-end were as follows:

			2000			1999
Collateralized by real estate:
	Commercial	$	27,005,236		$	25,030,907
	Residential		42,063,386			39,206,446
	Home equity		8,612,004			6,334,052
	Construction		1,011,188			1,225,265
			78,691,814			71,796,670
Consumer			7,151,394			7,847,553
Commercial			19,850,559			17,851,661
Credit cards			1,188,297			1,207,352
Other			2,273,180			2,452,641
			109,155,244			101,155,877
Unearned and deferred income			(153,114	)		(162,866	)
Unamortized discount on purchased loans			(107,332	)		(153,158	)
			108,894,798			100,839,853
Allowance for loan losses			(1,343,124	)		(1,308,630	)
		$	107,551,674		$	99,531,223

      Activity in the allowance for loan losses for the year was as follows.

	2000			1999			1998
Beginning balance	$	1,308,630		$	1,296,513		$	1,232,464
Provision for loan losses		62,500			120,000			120,000
Loans charged-off		(56,737	)		(145,959	)		(135,408	)
Recoveries		28,731			38,076			79,457
Ending balance	$	1,343,124		$	1,308,630		$	1,296,513

      Impaired loans were as follows:

	2000		1999
Year-end loans with no allocated allowance for loan losses	$	–	$	–
Year-end loans with allocated allowance for loan losses		14,863		60,580
Amount of the allowance for loan losses allocated		14,863		32,884
Average of impaired loans during the year	$	21,178	$	45,757
Interest income recognized during impairment		4,315		4,066
Cash-basis interest income recognized		4,315		4,066

16

      Loans past due over 90 days and still accruing interest at year-end 2000 and 1999 were $112,094 and $225,000. Nonaccrual loans for the same periods were $144,130 and $250,000.

4. Premises and Equipment

      Year-end premises and equipment were as follows:

	2000		1999
Land	$	446,070	$	446,070
Buildings		3,558,760		3,520,337
Furniture, fixtures and equipment		3,311,697		3,278,293
		7,316,527		7,244,700
Less: Accumulated depreciation		4,695,044		4,324,832
	$	2,621,483	$	2,919,868

      Depreciation included in noninterest expense was $409,174, $411,440 and $370,105 in 2000, 1999 and 1998.

5. Deposits

      Year-end deposits were as follows:

	2000		1999
Demand, noninterest-bearing	$	28,236,689	$	28,324,431
Demand, interest-bearing		30,414,962		32,326,299
Savings		39,985,914		43,238,497
Time, $100,000 and over		14,058,111		14,239,385
Time, other		49,317,909		42,306,736
	$	162,013,585	$	160,435,348

      A summary of time deposits at year-end 2000 by maturity follows:

	2000
2001	$	51,636,509
2002		7,402,225
2003		3,618,848
2004		699,468
2005 and thereafter		18,970
	$	63,376,020

6. Federal Home Loan Bank Advances

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

	2000		1999
Maturities through 2002, fixed rate at 6.5%	$	2,446,086	$	3,606,641
Maturity in 2000 variable rate at 6.0%		–		2,000,000
Maturity in 2010, fixed rate at 6.26% convertible to variable rate if 3-month LIBOR is at or above predetermined conversion		1,000,000		–
Total	$	3,446,086	$	5,606,641

      Each advance is payable at its maturity date; advances may be paid prior to maturity with a prepayment penalty. The Bank has $33,940,000 of first mortgage loans available under a blanket lien arrangement at year-end 2000.

      Minimum required principal payments are:

	Rate
2001	6.50	%	$	1,238,279
2002	6.50	%		1,207,807
2010	6.26	%		1,000,000
			$	3,446,086

7. Repurchase Agreements

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

	2000			1999
Average balance during the year	$	3,090,913		$	4,164,589
Average interest rate during the year		4.87	%		3.68	%
Maximum month-end balance during the year		4,558,650			5,976,150

8. Benefit Plans

      The Corporation has a 401(k) retirement plan that covers substantially all employees. The plan allows employees to contribute up to 15% of their pay with the Corporation matching 50% of contributions up to 6% of an employee’s pay. Discretionary contributions may also be made to the plan. Total matching and discretionary contributions made by the Corporation during 2000, 1999 and 1998 amounted to $112,011, $106,711 and $100,814, respectively.

      The Corporation has an Employee Stock Purchase Incentive Plan for full-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.

      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. The retirement benefit provided to each director is an annual benefit equal to $1,000 for each year of service on the board after August 24, 1994. In addition, each director has the option of deferring any portion of directors’ fees to a maximum of $1,000 per month until retirement. Expense recognized in 2000, 1999 and 1998 for this plan was $48,232, $32,127 and $35,476, respectively.

9. Income Taxes

      The components of deferred taxes were as follows:

		2000		1999
Deferred tax assets:
	Bad debts	$	296,532	$	284,804
	Deferred loan fees		49,552		52,758
	Core deposit intangibles		39,258		37,552
	Deferred compensation		126,892		102,162
	Capital loss carryforward		67,694		69,439
	Unrealized securities losses		65,496		373,413
	Total	$	645,424	$	920,128

17

		2000		1999
Deferred tax liabilities:
	Securities accretion	$	33,800	$	34,896
	Depreciation		70,448		77,503
	Federal Home Loan Bank stock dividends		43,724		21,131
	Investment financial stock fund		104,193		98,310
	Total		252,165		231,840
Net deferred tax asset		$	393,259	$	688,288

      The capital loss carryforward expires in 2003.

      The components of income tax expense are as follows:

	2000			1999		1998
Currently payable	$	730,138		$	618,094	$	726,193
Deferred		(12,888	)		16,089		(132,022	)
Total	$	717,250		$	634,183	$	594,171

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

	Years Ended December 31,
	2000						1999						1998
	Rate			Amount			Rate			Amount			Rate			Amount
Tax at federal statutory rate		34	%	$	1,112,657			34	%	$	1,071,397			34	%	$	999,197
Tax-exempt income		(12	)		(384,858	)		(13	)		(406,658	)		(15	)		(428,371	)
Other		–			(10,549	)		(1	)		(30,556	)		1			23,345
Income tax expense		22	%	$	717,250			20	%	$	634,183			20	%	$	594,171

10. Related Party Transactions

      Loans to principal officers, directors, and their affiliates in 2000 were as follows:

Beginning balance	$	4,214,211
New loans		1,544,427
Repayments		(1,377,327	)
Ending balance	$	4,381,311

      Unused commitments to these related parties totaled $1,199,641 at year-end 2000.

11. Capital Requirements and Restrictions on Retained Earnings

      The Company and the Bank 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.

      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

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

											To Be Well Capitalized
						For Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
2000
Total capital to risk-weighted assets
Consolidated	$	29,817		22.22	%	$	10,735		8.00	%	$	13,419		10.00	%
Bank		25,644		19.40			10,573		8.00			13,217		10.00
Tier 1 (core) capital to risk-weighted assets
Consolidated		28,474		21.22			5,368		4.00			8,051		6.00
Bank		24,301		18.39			5,287		4.00			7,930		6.00
Tier 1 (core) capital to average assets
Consolidated		28,474		14.53			7,836		4.00			9,795		5.00
Bank		24,301		12.52			7,762		4.00			9,703		5.00
1999
Total capital to risk-weighted assets
Consolidated	$	28,093		21.81	%	$	10,303		8.00	%	$	12,879		10.00	%
Bank		25,269		19.91			10,153		8.00			12,691		10.00
Tier 1 (core) capital to risk-weighted assets
Consolidated		26,784		20.80			5,152		4.00			7,727		6.00
Bank		23,960		18.88			5,077		4.00			7,615		6.00
Tier 1 (core) capital to average assets
Consolidated		26,784		13.83			7,746		4.00			9,683		5.00
Bank		23,960		12.49			7,674		4.00			9,592		5.00

18

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. The Corporation is considered well capitalized under the Federal Deposit Insurance Act at year-end 2000 and 1999. Management is not aware of any matters after December 31, 2000 that would cause the Corporation’s capital category to change.

      The Bank is restricted by regulation in the amount of dividends it may pay to the holding company. Under the most restrictive dividend limitations, at year-end 2000 approximately $98,860 is available for the Bank to pay dividends to the holding company.

12. Commitments, Contingencies and Financial Instruments with Off-Balance-Sheet Risk

      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. These agreements usually have fixed 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.

      Financial instruments with off-balance-sheet risk were as follows at year-end.

	2000		1999
Unused lines of credit	$	24,113,000	$	23,472,000
Letters of credit		1,012,000		1,575,000

      The Corporation was required to have approximately $2,060,000 and $1,722,000 of cash on hand or on deposit with the Federal Reserve Bank at year-end 2000 and 1999. These balances do not earn interest. The Corporation has also committed to invest up to $112,500 in a limited partnership that purchases stock of financial companies.

      Of the above-unused lines of credit, approximately $4,729,000 pertains to fixed-rate commitments, and variable-rate commitments account for approximately $19,384,000. In addition, rates on unused lines of credit range from 6.99% to 16.9%.

13. Fair Values of Financial Instruments

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

		2000						1999
		Carrying			Fair			Carrying			Fair
		Amount			Value			Amount			Value
Financial Assets:
	Cash and cash equivalents	$	15,212,797		$	15,213,000		$	17,308,351		$	17,308,000
	Interest-bearing deposits		1,989,440			1,992,000			1,985,122			1,992,000
	Securities available for sale		20,168,513			20,169,000			19,538,195			19,538,000
	Securities held to maturity		47,852,539			48,518,000			50,675,855			50,136,000
	Federal bank stock		975,800			976,000			928,000			928,000
	Loans, net		107,551,674			106,753,000			99,531,223			98,391,000
	Accrued interest receivable		1,492,613			1,493,000			1,344,846			1,345,000
Financial Liabilities:
	Deposits		(162,013,585	)		(161,809,000	)		(160,435,348	)		(160,341,000	)
	Short-term borrowings		(4,564,783	)		(4,565,000	)		(3,057,041	)		(3,057,000	)
	Federal Home Loan Bank advances		(3,446,086	)		(3,443,000	)		(5,606,641	)		(5,645,000	)
	Accrued interest payable		(840,304	)		(840,000	)		(535,898	)		(536,000	)

      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, short-term borrowings, Federal bank stock, accrued interest receivable and payable, demand and savings deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. 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 values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of loans held for sale is based on market quotes. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items, based on the current fees or cost that would be charged to enter into or terminate such arrangements, is not material.

19

14. Other Comprehensive Income

      Other comprehensive income components and related taxes were as follows.

	2000			1999			1998
Unrealized holding gains and losses on available-for-sale securities	$	905,639		$	(833,859	)	$	(403,438	)
Less reclassification adjustment for gains and losses later recognized in income		—			—			—
Net unrealized gains and losses		905,639			(833,859	)		(403,438	)
Tax effect		(307,917	)		283,512			137,169
Other comprehensive income	$	597,722		$	(550,347	)	$	(266,269	)

15. Quarterly Financial Data
(unaudited)

		Interest		Net Interest		Net		Earnings per Share
		Income		Income		Income		Basic and Diluted
2000
	First quarter	$	3,356,065	$	2,138,497	$	571,436	$	0.26
	Second quarter		3,503,382		2,223,594		600,917		0.27
	Third quarter		3,658,595		2,200,604		660,791		0.29
	Fourth quarter		3,696,537		2,241,618		722,127		0.32
1999
	First quarter	$	3,220,453	$	2,066,171	$	619,351	$	0.27
	Second quarter		3,326,359		2,134,813		592,441		0.26
	Third quarter		3,352,683		2,190,244		647,607		0.29
	Fourth quarter		3,483,112		2,242,770		657,587		0.30

16. Parent Company Only Condensed Financial Information

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

BALANCE SHEETS

		December 31,
		2000		1999
Assets
	Cash	$	2,462,067	$	1,350,817
	Investment in Bank subsidiary		24,766,285		24,031,721
	Securities available for sale		1,892,062		1,667,762
	Other assets		132,255		208,517
	Total assets	$	29,252,669	$	27,258,817
Liabilities and shareholders’ equity
	Dividends payable	$	313,340	$	402,622
	Shareholders’ equity		28,939,329		26,856,195
	Total liabilities and shareholders’ equity	$	29,252,669	$	27,258,817

STATEMENTS OF INCOME

		Years Ended December 31,
		2000			1999			1998
Income
	Dividends from Bank subsidiary	$	2,265,174		$	2,255,794		$	2,752,913
	Other dividends		30,000			92,300			12,724
	Total income		2,295,174			2,348,094			2,765,637
Expenses
	Miscellaneous expense		(24,783	)		(25,508	)		(40,571	)
	Undistributed equity in net income of Bank		284,880			194,400			(380,421	)
	Net income	$	2,555,271		$	2,516,986		$	2,344,645

STATEMENTS OF CASH FLOWS

					Years Ended December 31,
					2000			1999			1998
Cash flows from operating activities:
	Net income				$	2,555,271		$	2,516,986		$	2,344,645
	Adjustments to reconcile net income to net cash provided by operating activities:
			Undistributed earnings of Bank			(284,880	)		(194,400	)		380,421
			Change in dividends receivable			—			—			600,294
				Net cash from operating activities		2,270,391			2,322,586			3,325,360
Cash flows from investing activities:
	Purchase of securities					—			(651,250	)		(434,999	)
	Return of capital					—			90,000			—
		Net cash from investing activities				—			(561,250	)		(434,999	)
Cash flows from financing activities:
	Dividends paid					(1,208,979	)		(1,063,000	)		(980,647	)
	Dividends reinvested					224,452			154,664			182,906
	Purchase of treasury shares					(174,614	)		(1,379,788	)		(244,450	)
		Net cash from financing activities				(1,159,141	)		(2,288,124	)		(1,042,191	)
Net increase (decrease) in cash						1,111,250			(526,788	)		1,848,170
Cash, beginning of year						1,350,817			1,877,605			29,435
Cash, end of year					$	2,462,067		$	1,350,817		$	1,877,605

20

CROWE CHIZEK

Report of Independent Auditors

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, 2000 and 1999, 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, 2000. 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 generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with generally accepted accounting principles.

/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP

Columbus, Ohio
January 26, 2001

21

Analysis of Net Interest Earnings

      Rate spread and effective rate differential (on a tax equivalent basis). The following table presents an analysis of net interest earning assets and interest bearing liabilities.

			2000							1999
			Daily							Daily
			Average				Average			Average				Average
(Dollars in Thousands)			Balance		Interest		Rate			Balance		Interest		Rate
Assets
Interest earning assets:
Investment securities:
	Taxable		$	49,488	$	3,297		6.53	%	$	50,052	$	3,327		6.56	%
	Nontaxable (tax equivalent basis)*			20,658		1,769		8.55	%		21,542		1,840		8.54	%
Federal funds sold				5,506		348		6.32	%		10,002		488		4.88	%
Interest-bearing deposits				1,987		122		6.14	%		1,119		68		6.08	%
Net loans (including nonaccrual loans)				104,856		9,280		8.85	%		97,438		8,285		8.50	%
Total interest earning assets				182,495		14,816		8.12	%		180,153		14,008		7.78	%
All other assets				13,413							13,505
Total Assets			$	195,908						$	193,658
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
	Deposits:
		Interest bearing checking	$	29,914	$	530		1.77	%	$	30,837	$	568		1.84	%
		Savings		41,306		1,072		2.60	%		43,630		1,130		2.59	%
		Time, $100,000 and over		13,726		835		6.08	%		15,125		680		4.50	%
		Time, other		46,700		2,461		5.27	%		42,385		2,093		4.94	%
	Other funds purchased			8,637		512		5.93	%		6,335		278		4.39	%
Total interest bearing liabilities				140,283		5,410		3.86	%		138,312		4,749		3.43	%
Demand deposits				26,470							27,132
Other liabilities				1,020							910
Shareholders’ equity				28,135							27,304
Total Liabilities and Shareholders’ Equity			$	195,908						$	193,658
Net interest income (tax equivalent basis)*					$	9,406						$	9,259
Net interest spread								4.26	%						4.35	%
Net yield on total earning assets*								5.15	%						5.14	%

[Additional columns below]

[Continued from above table, first column(s) repeated]

			1998
			Daily
			Average				Average
(Dollars in Thousands)			Balance		Interest		Rate
Assets
Interest earning assets:
Investment securities:
	Taxable		$	54,565	$	3,570		6.54	%
	Nontaxable (tax equivalent basis)*			21,493		1,848		8.60	%
Federal funds sold				11,692		622		5.32	%
Interest-bearing deposits
Net loans (including nonaccrual loans)				84,610		7,823		9.25	%
Total interest earning assets				172,360		13,863		8.04	%
All other assets				12,389
Total Assets			$	184,749
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
	Deposits:
		Interest bearing checking	$	29,376	$	676		2.30	%
		Savings		41,657		1,245		2.99	%
		Time, $100,000 and over		14,082		768		5.45	%
		Time, other		40,196		2,119		5.27	%
	Other funds purchased			4,350		191		4.39	%
Total interest bearing liabilities				129,661		4,999		3.86	%
Demand deposits				27,030
Other liabilities				1,132
Shareholders’ equity				26,926
Total Liabilities and Shareholders’ Equity			$	184,749
Net interest income (tax equivalent basis)*					$	8,864
Net interest spread								4.18	%
Net yield on total earning assets*								5.14	%

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

22

Historical Financial Summary

Financial Position
(Year End Balances)	2000			1999			1998			1997*			1996*
Total Assets	$	200,792,706		$	197,402,543		$	190,203,604		$	182,982,332		$	180,631,014
Cash and Due from Banks		7,077,797			8,538,351			7,675,122			8,068,623			8,194,813
Investment Securities		68,021,052			70,214,050			69,808,933			80,940,781			76,719,305
Loans-Net		107,551,674			99,531,223			92,037,075			78,257,778			78,149,995
Deposits		162,013,585			160,435,348			157,714,551			151,081,856			149,824,321
Borrowings		8,010,869			8,663,682			4,043,859			4,576,966			4,910,436
Shareholders’ Equity		28,939,329			26,856,195			27,192,882			26,177,793			24,804,248
Book Value Per Share	$	12.93		$	12.01		$	11.93		$	11.48		$	10.86
Summary of Operations
Total Interest Income	$	14,214,579		$	13,382,607		$	13,235,138		$	13,157,905		$	12,730,539
Total Interest Expense		5,410,266			4,748,609			4,999,452			5,071,870			4,860,197
Net Interest Income		8,804,313			8,633,998			8,235,686			8,086,035			7,870,342
Provision for Loan Losses		62,500			120,000			120,000			120,000			180,000
Net Interest Income After Provision for Loan Losses		8,741,813			8,513,998			8,115,686			7,966,035			7,690,342
Total Noninterest Income		849,467			836,598			874,699			745,380			795,444
Total Noninterest Expense		6,318,759			6,199,427			6,051,569			5,680,885			5,620,865
Income Before Income Taxes		3,272,521			3,151,169			2,938,816			3,030,530			2,864,921
Income Taxes Expense		717,250			634,183			594,171			680,943			628,469
Net Income	$	2,555,271		$	2,516,986		$	2,344,645		$	2,349,587		$	2,236,452
Net Income Per Share	$	1.14		$	1.12		$	1.03		$	1.03		$	0.98
Cash Dividends	$	1,119,697		$	1,078,202		$	1,001,743		$	948,651		$	900,103
Cash Dividends Per Share	$	0.50		$	0.48		$	0.44		$	0.42		$	0.40
Dividend Payout Percentage		43.82	%		42.84	%		42.72	%		40.38	%		40.25	%
Weighted Average Number of Shares Outstanding		2,240,534			2,253,650			2,281,166			2,285,812			2,280,686
Return on Average Assets		1.30	%		1.30	%		1.27	%		1.31	%		1.30	%
Return on Average Equity		9.08	%		9.22	%		8.71	%		9.23	%		9.24	%
Average Equity to Average Assets		14.36	%		14.10	%		14.57	%		14.21	%		14.08	%
Risk-Based Capital Percentage		22.22	%		21.81	%		23.80	%		23.75	%		22.30	%
Full Time Equivalent Staff		103			101			96			96			95
Average Total Assets to Full Time Equivalent Staff	$	1,902,022		$	1,917,411		$	1,924,474		$	1,866,035		$	1,810,186

*All share and per share data restated for 100% stock dividend on May 29, 1998.

23

Directors

Charles J. Dolezal
Chairman, President,
Chief Executive Officer

Sara Balzarini
Member of Management
Committee, Contours, Ltd.

Bobbi Douglas
Executive Director
STEPS at Liberty Center
Every Woman’s House

John W. Kropf
Attorney
Kropf, Wagner, Hohenberger & Lutz, L.L.P.

Steve Schmid
President
Smith Dairy Products, Inc.

John E. Sprunger
President
Kidron Auction, Inc.

Howard J. Wenger
President
Wenger Excavating, Inc.
Lake Region Oil, Inc.
Northstar Asphalt, Inc.

James F. Woolley
Chief Executive Officer
R.W. Screw Products, Inc.

Albert Yeagley
Plant Manager
J.M. Smucker Company

Robert F. Gumz
Director Emeritus

Officers
National Bancshares Corporation

Charles J. Dolezal
President

Kenneth R. VanSickle
Senior Vice President, Secretary

Lawrence Cardinal, Jr.
Vice President, Treasurer

First National Bank

Charles J. Dolezal
President

Control
Lawrence Cardinal, Jr.
Vice President & Controller

Angela Smith
Assistant Controller

Lending
Kenneth R. VanSickle
Senior Vice President,
Chief Loan Officer

Scott Holmes
Assistant Vice President,
Manager of Loan Department

Dean Karhan
Assistant Vice President,
Commercial Loan Officer

Sara Martin
Loan Officer

Matthew Miller
Loan Officer

Carol Yoder
Loan Officer

Operations
Robert Woodruff
Vice President & Cashier

Jackie Samsa
Assistant Vice President,
Manager of Human Resources

Jan Zacharias
Operations Officer

Sales and Business Development
Harold Berkey
Vice President of Customer Services

Security/Compliance
Ron Armentrout
Assistant Vice President,
Security Officer, Compliance Officer

Audit
Jim Huntsberger
Auditor

Branch Administration

David Chapman
Assistant Vice President,
Manager Mt. Eaton Office

Carolyn Forrer
Administrative Officer,
Manager Main Office Lobby

Karen Hicks
Assistant Vice President, Manager Smithville Office

Michelle Kieffaber
Loan Officer,
Dalton Office

James Kuschmeader
Assistant Vice President,
Manager Dalton Office

Susan Kutz
Administrative Officer,
Manager West High Office

Larry Kytta
Assistant Vice President,
Manager Lodi Office

Steve Riddick
Assistant Vice President,
Manager Cleveland Road Office

Valerie Stein
Assistant Vice President,
Manager Kidron Office

Rita Tyrrell
Administrative Officer,
Dalton Office

Betty Wyant
Assistant Vice President,
Manager Midway Office

Offices

Main Office
112 West Market St., Orrville
(330)682-1010

Cleveland Road Office
1725 Cleveland Rd., Wooster
(330)263-1725

Dalton Office
12 West Main St., Dalton
(330)828-2227

Kidron Office
4934 Kidron Rd., Kidron
(330)857-3101

Lodi Office
106 Ainsworth St., Lodi
(330)948-1414

Midway Office
U.S. Route 30 at County Rd. 44, Apple Creek
(330)264-8070

Mt. Eaton Office
15974 East Main St., Mt. Eaton
(330)857-4301 or (330)359-5476

Northside Office
1720 North Main St., Orrville
(330)682-2342

Seville Office
121 Greenwich Rd., Seville
(330)769-3105

Smithville Office
153 East Main St., Smithville
(330)669-2611

West High Office
1320 West High St., Orrville
(330)682-2881

©2001 National Bancshares Corporation

National
Bancshares
Corporation

112 West Market Street
Orrville, Ohio 44667
(330) 682-1010
www.fnborrville.com

  EX-23 5 l86945aex23.htm EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS

Exhibit 23

[CROWE CHIZEK LOGO]

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference in Registration Statement No. 33-63005 on Form S-3 of National Bancshares Corporation of our report dated January 26, 2001 on the consolidated balance sheets of National Bancshares Corporation as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000; which report is incorporated by reference in this Annual Report on Form 10-K.

	/s/ Crowe, Chizek and Company LLP
	Crowe, Chizek and Company LLP
Columbus, Ohio March 26, 2001

EX-10.1

EX-10.2

Exhibit 10.2

EX-13

Exhibit 13

EX-23

Exhibit 23