10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended: December 31, 2012

Commission File Number: 0-14773

National Bancshares Corporation

(Exact name of registrant as specified in its charter)

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

112 West Market Street, Orrville, Ohio 44667

330-682-1010

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

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

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: Based on the average of the bid and asked prices on June 30, 2012, the aggregate market value of National Bancshares Corporation stock held by non-affiliates was $27,599,473.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: National Bancshares Corporation’s only class is common stock, without par value, of which 2,219,965 shares were outstanding on March 1, 2013.

Documents Incorporated by Reference

Portions of the registrant’s annual report to shareholders for the fiscal year ended December 31, 2012 are incorporated by reference in Part II. Portions of the registrant’s definitive proxy statements for the 2013 Annual Meeting of Shareholders are incorporated by reference in Part III of this report.

Table of Contents

			Page
Part I
	Item 1	Business		2
	Item 1B	Unresolved Staff Comments		17
	Item 2	Properties		18
	Item 3	Legal Proceedings		19
	Item 4	[Removed and Reserved]		20
Part II
	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		20
	Item 6	Selected Financial Data		21
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk		21
	Item 8	Financial Statements and Supplementary Data		21
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		21
	Item 9A	Controls and Procedures		21
	Item 9B	Other Information		21
Part III
	Item 10	Directors, Executive Officers and Corporate Governance		22
	Item 11	Executive Compensation		23
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		23
	Item 13	Certain Relationships and Related Transactions, and Director Independence		23
	Item 14	Principal Accountant Fees and Services		23
Part IV
	Item 15	Exhibits and Financial Statement Schedules		24
Signatures				26

1

ITEM 1 – BUSINESS

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

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

• the strength of the United States economy in general and the strength of the local economies in which we conduct our operations; general economic conditions, either nationally or regionally, may be less favorable than we expect, resulting in a deterioration in the credit quality of our loan assets, among other things

• the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest-rate policies of the Federal Reserve Board

• inflation, interest rate, market, and monetary fluctuations

• the development and acceptance of new products and services of National Bancshares and its subsidiary and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors’ products and services

• the willingness of users to substitute our products and services for those of competitors

• the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities, and insurance)

• changes in consumer spending and saving habits

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

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

1881     First National Bank is chartered under the name “Orrville Banking Company”

1902     the Bank’s name is changed to “Orrville National Bank”

1933     the Bank is reorganized and renamed the “National Bank of Orrville”

1965     the Bank opens its first branch at 1320 West High Street, Orrville, Ohio

1968     the Bank merges with the First National Bank of Dalton, becoming “First National Bank Orrville-Dalton”

1969     the Bank merges with the Bank of Mt. Eaton Company

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1972     the Bank merges with the Farmers and Merchants Bank Company of Smithville and renamed to “First National Bank”

1975     the Bank opens its Midway office in Apple Creek

1986     National Bancshares Corporation becomes the holding company for First National Bank on June 2

1989     the Bank enters Medina County with the purchase of its Lodi office

1994     the Bank establishes its second Medina County office with the purchase of the Seville office

1999     the Bank opens its Cleveland Road office in the city of Wooster

2002     the acquisition of Peoples Financial Corporation and its subsidiary, Peoples Federal Savings and Loan Association of Massillon, is completed, adding three more banking offices, our first offices in Stark County

2005     the Bank closes its Marketplace office in Massillon and opens its Burbank Road office in Wooster

2006     First National Bank celebrates its 125 year anniversary

2009     the Bank opens an office in Summit County, located at 3085 West Market Street in Fairlawn, Ohio

Market Area. National Bancshares’ sole banking subsidiary is First National Bank (“Bank”). The Bank operates 14 offices in Wayne, Medina, Stark and Summit Counties and a loan production office in Columbiana County. Wayne County generally, and more specifically the city of Orrville and its other municipalities in the northeastern quadrant of Wayne County, constitutes the geographic center of the Bank’s market, extending from there to most of Wayne County, the southern portion of Medina County and southwestern part of Summit County to the north, western Stark County to the east, and the northeastern portion of Holmes County to the south. With their dense urban populations and wide-ranging industries, including many service, manufacturing, retail and other establishments of all sizes, the cities of Cleveland in Cuyahoga County, Akron in Summit County, and Canton in Stark County lie in a crescent just beyond the northern and eastern ends of the Bank’s market area. The Bank occupies a much more rural area with a significantly lower population density and less industrial diversity, and with a significantly higher proportion of small farm and related agricultural enterprises. Wayne County is largely rural. Holmes County is virtually entirely rural. The portions of Stark and Medina Counties occupied by the Bank are somewhat less urban than the remainder of the historically urban and industrial Stark County and the remainder of Medina County, which has been growing very rapidly for many years because of its increasingly close association with urban centers in Cleveland and Akron.

Massillon is the largest urban center in the Bank’s market, with a population of slightly more than 32,100 according to the 2010 Census by Ohio Department of Development (www.odod.state.oh.us/research) data, followed by Wooster in Wayne County, with a population of approximately 26,000, and the city of Orrville in Wayne County, with a population just under 8,400. The total population of the Bank’s market area is estimated to be between 175,000 and 225,000, but a more precise figure is difficult to determine because the Bank’s market area does not necessarily correspond with the geographic and political boundaries employed when population data are compiled and reported. Of the counties that make up the Bank’s market area, Holmes, Medina, Summit and Wayne benefit from an unemployment rate that is less than the state average, which was 6.6% according to 2012 Ohio Department of Job and Family Services (available at lmi.state.oh.us). The unemployment rates at December 2012 are 6.2% in Summit County, 5.6% in Medina County, 5.5% in Wayne County, and 4.2% in Holmes County. Meanwhile, Stark County had an unemployment rate of 6.7% at December 2012.

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

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Competition. The banking industry in the Bank’s market areas is highly competitive. In addition to competing with other commercial and savings banks and savings and loan associations, the Bank competes with credit unions, finance companies, leasing companies, mortgage companies, insurance companies, brokerage and investment banking firms, asset-based non-bank lenders and many other financial service firms. Competition is based on interest rates offered on deposit accounts, interest rates charged on loans and leases, fees and service charges, the quality and scope of the services rendered, the convenience of banking facilities and, in the case of loans to commercial borrowers, relative lending limits, as well as other factors.

A substantial number of the commercial banks operating in the Bank’s market area are branches or subsidiaries of much larger organizations affiliated with statewide, regional or national banking companies and as a result may have greater resources and lower costs of funds than the Bank. Additionally the Bank faces competition from a large number of community banks. Despite the highly competitive environment, management believes the Bank will continue to be competitive because of its strong commitment to quality customer service, convenient local branches, active community involvement and competitive products and pricing.

The share of deposits held by a particular banking institution relative to all other banking institutions in a particular market is not the only, but it is perhaps the most readily identifiable, indicator of a Bank’s market share. As a percent of all deposits held by Federal Deposit Insurance Corporation (FDIC)-insured banks and savings associations in the county, according to FDIC data available on the FDIC’s website (www.fdic.gov) one institution had a market share exceeding 18% in all four counties as of June 30, 2012. Based on the FDIC’s June 30, 2012 deposit data, First National Bank had a 16.29% share of deposits in Wayne County (ranking 3rd of 13 FDIC-insured institutions), 0.86% in Stark County (11^th of 18), and 0.99% in Medina County (15^th of 17), and 0.15% in Summit County (21^st of 23). We have no offices in Holmes County.

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

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

First National Bank makes commercial real estate loans, commercial loans, residential real estate and home equity loans, and consumer loans. A significant portion of the Bank’s lending consists of origination of conventional loans secured by 1-4 family real estate located in the Bank’s market area. The Bank’s residential mortgage loans generally are originated with loan documentation permitting sale to Federal Home Loan Mortgage Corporation.

The Bank’s commercial loan services include –

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

Commercial real estate loans include commercial properties occupied by the proprietor of the business conducted on the premises and income-producing or farm properties. Agricultural loans secured by farmland are a subset of our commercial real estate loan products, whereas we also categorize loans for agricultural production and other loans to farmers as commercial loans (not secured by real estate). The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property or the inability of the market to sustain rent levels.

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Although commercial and commercial real estate loans generally bear somewhat more credit risk than single-family residential mortgage loans, commercial and commercial real estate loans tend to be higher yielding, tend to have shorter terms, and commonly provide for interest-rate adjustments as prevailing rates change. Accordingly, commercial and commercial real estate loans enhance a lender’s interest rate risk management and, in management’s opinion, promote more rapid asset and income growth than a loan portfolio comprised strictly of residential real estate mortgage loans.

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

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

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

• residential construction loans to borrowers who will occupy the premises upon completion of construction,

• residential construction loans to builders,

• commercial construction loans, and

• real estate acquisition and land development loans.

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

Our consumer loans include secured and unsecured loans to individual borrowers for a variety of purposes, including personal, home improvement, revolving credit lines, autos, boats, and recreational vehicles. Historically, we have had minimal indirect lending activity. Unsecured consumer loans generally carry significantly higher interest rates than secured loans.

Loans and extensions of credit to a single borrower may not exceed 15% of capital, often referred to as the “legal lending limit” or “loans-to-one-borrower limit.” But an additional margin of 10% of capital is permitted for loans fully secured by readily marketable collateral. The Bank can accommodate loan volumes exceeding the legal lending limit by selling participation interests in loans to other banks. As of December 31, 2012, the Bank’s legal lending limit for loans to a single borrower was approximately $5.5 million.

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

When a loan request is made, the Bank reviews the application, credit bureau reports, property appraisals or evaluations, financial information, verifications of income, and other documentation concerning the creditworthiness of the borrower, as applicable to each loan type. The Bank’s underwriting guidelines are set by senior management and approved by the board. The loan policy specifies officers’ loan approval authority, requiring approval by the board’s Directors Loan Committee or the full board for any aggregate borrowing to one customer or related customers of $1.0 million or more or if a loan is rated substandard or below.

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

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

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

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

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

Borrowings. Deposits, repayment of mortgage-backed securities and repayment of loan principal are the Bank’s primary sources of funds for lending activities and other general business purposes. However, when the supply of lendable funds or funds available for general business purposes cannot satisfy the demand for loans or general business purposes, the Bank can obtain funds from the Federal Home Loan Bank (FHLB) of Cincinnati. In addition to borrowing from the FHLB on a term-loan basis, the Bank has a line of credit with the FHLB that allows the Bank to borrow in an amount based on a percentage of the Bank’s pledged eligible mortgages. All or substantially all of the Bank’s mortgage loans are pledged to the FHLB. As of December 31, 2012, the Bank had additional borrowing capacity of approximately $38.1 million from the FHLB. Interest is payable monthly, and the line of credit is secured by a blanket pledge collateral agreement. First National Bank also has access to credit through the Federal Reserve Bank (FRB) of Cleveland and other funding sources.

Personnel – As of December 31, 2012, First National Bank had 113 full-time equivalent employees. A collective bargaining group represents none of the employees. Management considers its relations with employees to be excellent.

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

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

Supervision and Regulation

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

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

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

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

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

• directly or indirectly acquiring ownership or control of any voting shares of another bank or bank holding company, if after the acquisition the acquiring company would own or control more than 5% of the shares of the other bank or bank holding company (unless the acquiring company already owns or controls a majority of the shares),

• acquiring all or substantially all of the assets of another bank, or

• merging or consolidating with another bank holding company.

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

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

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

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

• financial in nature or incidental to that financial activity, or

• complementary to a financial activity and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

  Activities that are financial in nature include –

• acting as principal, agent, or broker for insurance,

• underwriting, dealing in, or making a market in securities, and

• providing financial and investment advice.

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

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

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

Deposit Insurance. The FDIC insures the deposits of the Bank to the extent provided by law. Prior to 2007, under the FDIC’s risk-based insurance system, depository institutions were assessed premiums based upon the institution’s capital position and other supervisory factors. Effective January 1, 2007, the FDIC began using a new approach to assess premiums. The FDIC places each depository institution in one of four risk categories using a two-step process based first on capital ratios (the capital group assignment) and then on other relevant information (the supervisory group assignment). Within the lowest risk category, known as Risk Category I, rates will vary based on each institution’s CAMELS component ratings, certain financial ratios (for most institutions), and long-term debt issuer ratings (for large institutions that have such a rating).

In light of the 2007-2009 decline in the Deposit Insurance Fund (DIF) reserve ratio and continuing concerns regarding the number of bank failures and the solvency of the DIF, the FDIC continued to evaluate and impose additional deposit insurance assessments. In October 2008, the FDIC established the Federal Deposit Insurance Corporation Restoration Plan (the “Restoration Plan”). The Restoration Plan was initially a five-year recapitalization plan for the DIF. The Restoration Plan was subsequently amended to extend the period of the Restoration Plan until September 30, 2020.

Throughout 2009, the FDIC amended the Restoration Plan. Under the amended Restoration Plan, the FDIC initially extended the target date from 2013 to 2016 to raise the DIF reserve ratio to 1.15%. The amended Restoration Plan was accompanied by a final rule that set assessment rates and made adjustments to recognize how the assessment system differentiates for risk. Under the final rule, beginning in April 2009 banks in Risk Category I were subject to initial base assessment rates ranging from 12 cents per $100 to 16 cents per $100 on an annual basis. Banks in Risk Categories II, III and IV were subject to initial base assessment rates of 22 cents per $100, 32 cents per $100 and 45 cents per $100, respectively, on an annual basis. These initial base assessment rates were subject to adjustments for unsecured debt, secured liabilities and brokered deposits. After such adjustments, banks in Risk Categories I, II, III and IV paid total base assessment rates in the range of 7 cents to 24 cents per $100, 17 cents to 43 cents per $100, 27 cents to 58 cents per $100 and 40 cents to 77.5 cents per $100, respectively, on an annual basis. In a December 2010 regulation, the FDIC set the DIF’s designated reserve ratio, or long-term target, at 2%.

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Effective April 1, 2011, the FDIC further revised its risk-based deposit insurance system by, among other things, redefining and broadening the definition of assessment base and by establishing new initial base assessment rates and total base assessment rates. The assessment rate schedules continue to include Risk Categories I, II, III and IV but now also include a new category specific to large and highly complex institutions in which rates will be based on a scorecard approach utilizing CAMELS ratings and considering specific financial measurements. Additionally, the assessment rate schedules are forward-looking in that, although the FDIC retains authority to adjust the rate schedules up or down by no more than 2% without resorting to an additional formal rulemaking process, such rate schedules now automatically reset to apply new rates once the DIF reserve ratio for the prior assessment period is (i) equal to or greater than 1.15% but less than 2% (ii) equal to or greater than 2% but less than 2.5%, and (iii) equal or greater to 2.5%. As of April 2011, the FDIC projected that the DIF reserve ratio would not hit 1.15% until 2018. Effective April 1, 2011 Risk Categories I, II, III and IV (i) were subject to initial base assessment rates in the rage of 5 cents to 9 cents per $100, 14 cents per $100, 23 cents per $100 and 35 cents per $100, respectively, on an annual basis and (ii) paid total base assessment rates of 2.5 cents to 9 cents per $100, 9 cents to 24 cents per $100, 18 cents to 33 cents per $100, and 30 cents to 45 cents per $100 respectively, on an annual basis. For large and highly complex institutions, assessment rates were also instituted such that the initial base rate ranged from 5 cents to 35 cents per $100 and the total base rate ranged from 2.5 cents to 45 cents, respectively, on an annual basis.

In November 2009, the FDIC adopted a final rule requiring insured depository institutions to prepay on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012, along with each institution’s risk-based deposit insurance assessment for the third quarter of 2009. The prepaid amount is recorded as an asset with a zero risk weight and the institution will continue to record quarterly expenses for deposit insurance. For purposes of calculating the prepaid amount, assessments were measured at the institution’s assessment rate as of September 30, 2009, with a uniform increase of three basis points effective January 1, 2011, and were based on the institution’s assessment base for the third quarter of 2009, with growth assumed quarterly at an annual rate of 5%. If events cause actual assessments during the prepayment period to vary from the prepaid amount, institutions will pay excess assessments in cash or receive a rebate of prepaid amounts not exhausted after collection of assessments due on June 30, 2013, as applicable. The FDIC’s December 2009 collection of the assessment prepayment does not preclude the FDIC from changing assessment rates or revising the risk-based assessment system in the future.

Insured depository institutions are further assessed premiums for Financing Corporation (“FICO”) bond debt service. The FICO assessment rate for DIF was 0.66 basis points for each quarter of 2012. For the first quarter of 2013, the FICO assessment rate for the DIF is 0.64 basis points resulting in a premium of $0.0064 per $100 of DIF-eligible deposits.

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

Branching between states may be accomplished by merging commonly controlled banks located in different states into one legal entity. Branching may also be accomplished by establishing de novo branches or acquiring branches in another state. Under section 24(j) of the Federal Deposit Insurance Act, a branch of a bank operating out-of-state – in a “host state” in other words – is subject to the law of the host state regarding community

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reinvestment, fair lending, consumer protection, and establishment of branches. The Riegle-Neal Act authorizes the FDIC to approve interstate branching de novo by state-chartered banks solely in states that specifically allow it. Ohio bank law allows de novo branching in Ohio by an out-of-state bank. The FDIC has adopted regulations under the Riegle-Neal Act to prohibit an out-of-state bank from using the new interstate branching authority primarily for the purpose of deposit production. These regulations include guidelines to ensure that interstate branches operated by an out-of-state bank in a host state are reasonably helping to satisfy the credit needs of the communities served by the out-of-state bank.

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

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

Current risk-based capital guidelines require bank holding companies with more than $500 million in total assets and all banks to maintain a minimum risk-based total capital ratio equal to 8% and a Tier 1 capital ratio of 4%. Intangibles other than readily marketable mortgage servicing rights are generally deducted from capital. Tier 1 capital includes stockholders’ equity, qualifying perpetual preferred stock (within limits and subject to conditions, particularly if the preferred stock is cumulative preferred stock), and minority interests in equity accounts of consolidated subsidiaries, less intangibles, identified losses, investments in securities subsidiaries, and certain other assets. Tier 2 capital includes the allowance for loan losses, up to a maximum of 1.25% of risk-weighted assets, any qualifying perpetual preferred stock exceeding the amount includable in Tier 1 capital, mandatory convertible securities, and subordinated debt and intermediate term preferred stock, up to 50% of Tier 1 capital. The OCC’s evaluation of an institution’s capital adequacy takes into account a variety of other factors as well, including interest rate risks to which the institution is subject, the level and quality of an institution’s earnings, loan and investment portfolio characteristics and risks, risks arising from the conduct of nontraditional activities, and a variety of other factors.

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

The banking agencies have also established a minimum leverage ratio of 3%, which represents Tier 1 capital as a percentage of total assets, less intangibles. However, for all but the most highly rated banks and bank holding companies, the banking agencies expect an additional margin of at least 100 to 200 basis points. At December 31, 2012 the bank was in compliance with all regulatory capital requirements. Actual and required capital amounts and ratios are presented elsewhere, specifically in Note 15 of National Bancshares’s audited financial statements for the year ended December 31, 2012.

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

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

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

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

• limit the extent to which a bank or its subsidiaries may lend to or engage in various other kinds of transactions with any one affiliate to an amount equal to 10% of the bank’s capital and surplus, limiting the aggregate of covered transactions with all affiliates to 20% of capital and surplus,

• impose restrictions on investments by a subsidiary bank in the stock or securities of its holding company,

• impose restrictions on the use of a holding company’s stock as collateral for loans by the subsidiary bank, and

• require that affiliate transactions be on terms substantially the same or at least as favorable to the institution or subsidiary as those provided to a non-affiliate.

The Bank’s authority to extend credit to insiders – meaning executive officers, directors and greater than 10% stockholders – or to entities those persons control, is subject to section 22(g) and section 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these laws require insider loans to be made on terms substantially similar to those offered to unaffiliated individuals, place limits on the amount of loans a bank may make to insiders based in part on the Bank’s capital position, and require that specified approval procedures be followed. Loans to an individual insider may not exceed the legal limit on loans to any one borrower, which in general terms is 15% of capital but can be higher in some circumstances. And the aggregate of all loans to all insiders may not exceed the Bank’s unimpaired capital and surplus. Insider loans exceeding the greater of 5% of capital or $25,000 must be approved in advance by a majority of the board, with any “interested” director not

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participating in the voting. Lastly, loans to executive officers are subject to special limitations. Executive officers may borrow in unlimited amounts to finance their children’s education or to finance the purchase or improvement of their residence, and they may borrow no more than $100,000 for most other purposes. But loans to executive officers exceeding $100,000 may be allowed if the loan is fully secured by government securities or a segregated deposit account.

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

Although CRA examinations occur on a regular basis, CRA performance evaluations have been used principally in the evaluation of regulatory applications submitted by an institution. CRA performance evaluations are considered in evaluating applications for such things as mergers, acquisitions, and applications to open branches. A bank holding company cannot elect to be a “financial holding company” – with the expanded securities, insurance and other powers that designation entails – unless all of the depository institutions owned by the holding company have a CRA rating of satisfactory or better. Following a CRA examination as of April 25, 2011, the Bank’s most recent examination, the Bank received a rating of “Satisfactory.”

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

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

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

Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The goals of the Dodd-Frank Act include restoring public confidence in the financial system following the financial and credit crises, preventing another financial crisis and allowing regulators to identify failings in the system before another crisis can occur. Further, the Dodd-Frank Act is intended to effect a fundamental restructuring of federal banking regulation by taking a systemic view of regulation rather than focusing

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on prudential regulation of individual financial institutions. However, the Dodd-Frank Act itself may be more appropriately considered as a blueprint for regulatory change, as many of the provisions in the Dodd-Frank Act require that regulatory agencies draft implementing regulations. In many cases, such implementing regulations have not yet been promulgated and it may be, in some cases, years before the study and rulemaking processes called for by the Dodd-Frank Act are concluded. Among other significant developments, the Dodd-Frank Act creates a new Financial Stability Oversight Council to identify systemic risks in the financial system, and in an effort to end the notion that any financial institution is “too big to fail,” gives federal regulators new authority to take control of and liquidate systemically important but distressed financial firms. The Dodd-Frank Act additionally creates a new independent federal regulator, the Consumer Financial Protection Bureau (the “CFPB”), which will exclusively draft rules for designated federal consumer protection laws and which will share examination, supervision and enforcement authority with other federal regulators. Despite its broad scope, the Dodd-Frank Act generally does not provide significant regulatory reform regarding Fannie Mae, Freddie Mac or the Federal Home Loan Bank System. The Dodd-Frank Act is expected to have a significant impact on the Corporation’s business operations as its provisions take effect. Among the provisions that are likely to affect the Corporation or the Bank are the following:

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

Corporate Governance. The Dodd-Frank Act and the implementing regulations thereunder require publicly traded companies to give shareholders a non-binding vote on (i) executive compensation, commonly referred to as a “say-on-pay” vote, at their first annual meeting taking place after January 21, 2011 and at least once every three years thereafter and (ii) on so-called “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders. On January 25, 2011, the SEC adopted a temporary exemption for smaller reporting companies from having to conduct “say on pay” and “say on pay frequency” votes. Smaller reporting companies are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21, 2013. The new legislation also authorizes the SEC to promulgate rules that would allow shareholders to nominate their own candidates using a company’s proxy materials. As of August 2010, the SEC has adopted such a rule, which would require public companies to provide shareholders with access to the proxy statement for their nominees; however, the SEC has agreed to an indefinite stay of the effectiveness of the rule until litigation surrounding its implementation has been resolved. Additionally, the Dodd-Frank Act directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded or not. During April 2011, federal banking and other regulators issued a proposed rule which would prohibit covered financial institutions from having incentive compensation arrangements which provide excessive compensation or which could expose the institution to inappropriate risks that could lead to material financial loss. However, as of February 2013 no final rule has yet been adopted. The Dodd-Frank Act also prohibits broker discretionary voting on elections of directors and executive compensation matters.

Consumer Financial Protection Bureau; Mortgage Origination. The Dodd-Frank Act creates a new, independent federal agency, the CFPB, which is granted broad rulemaking, supervisory and enforcement powers under various designated federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. The CFPB is

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charged with protecting consumers from unfair or deceptive financial products, acts or practices and the Corporation expects that the CFPB, once it is fully operational, will take an aggressive stance in consumer protection matters. For purposing of assessing compliance with designated federal consumer financial protection laws, the CFPB has exclusive examination and primary enforcement authority with respect to depository institutions with $10 billion or more in total assets. Following the June 30, 2011 initial determination of whether an institution has $10 billion or more in total assets, such $10 billion threshold will be determined by regulators on the basis of whether an institution has reported $10 billion or more in total assets in its quarterly call report for four consecutive quarters. Smaller institutions, including the Bank, are subject to rules promulgated by the CFPB but continue to be examined and supervised by the federal banking regulators responsible for such institutions prior to July 21, 2011. On July 21, 2011, enforcement and rulemaking authority for consumer financial protection was officially transferred from other federal regulators to the CFPB.

The Dodd-Frank Act prohibits creditors from making residential mortgage loans unless the creditor makes a good faith determination, based on verified and documented information that, at the time loan was consummated, the consumer had the reasonable ability to repay the loan, according to its terms, as well as all applicable taxes, insurance and assessments and further authorizes the CFPB to establish certain minimum standards regarding same. In April 2011, the FRB proposed ability to repay regulations and the CFPB, which now has responsibility for drafting regulations under the Truth In Lending Act of 1968, as amended (“TILA”), adopted final implementing regulations on January 10, 2013, to be effective January 10, 2014. In addition, the Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” to exclude, among other things, loans with negative amortization (i.e. where the principal amount due increases over time), interest-only loans, loans that involve a balloon payment (subject to certain exceptions), loans with terms exceeding 30 years, and loans where the creditor does not verify income or assets.

The Dodd-Frank Act also contains a series of new mortgage loan origination standards including prohibiting mortgage originators, which includes loan officers of banks, from receiving from any person, or any person from paying such mortgage originator, directly or indirectly, compensation that varies based on terms of a loan other than the principal amount of the loan. In addition, the CFPB is required to prescribe regulations prohibiting mortgage originators from (i) steering any consumer to a loan that (a) the consumer lacks the reasonable ability to repay, or (b) has predatory characteristics or effects such as equity stripping, excessive fees or abusive terms; (ii) steering any consumer from a “qualified mortgage” to a non-qualified mortgage when the consumer qualifies for a qualified mortgage; (iii) abusive or unfair lending practices that promote disparities among consumers of equal creditworthiness but of different race, ethnicity, gender, or age, and (iv) engaging in certain other conduct. In September 2010 and independent of the Dodd-Frank Act’s requirements, the FRB enacted similar regulations regarding anti-steering and loan originator compensation, and these regulations will eventually be supplemented or revised by the rules to be promulgated pursuant to the Dodd-Frank Act. Although there are many elements of a “qualified mortgage,” and the CFPB has the authority to revise the definition of a qualified mortgage as it deems appropriate, one element which must be satisfied to be a qualified mortgage is that total points and fees payable in connection with a loan may not exceed 3% of the total loan amount. The Dodd-Frank Act also prohibits prepayment penalties for all loans that are not qualified mortgages and, for qualified mortgages, prepayment penalties must be phased out over a three-year period following consummation of the loan. Lenders will also be required to offer a loan without a prepayment penalty if they offer a loan with a prepayment penalty.

The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations. Under amendments to the Fair Credit Reporting Act of 1978 (the “FCRA”), effective January 1, 2011, a creditor is required to either provide (i) a notice (a “Risk-Based Pricing Notice”) to a consumer when, based in whole or part on information in a consumer report, the creditor provides credit to the consumer on material terms that were materially less favorable than the most favorable terms available from that creditor to a substantial proportion of other consumers or (ii) in lieu of providing a Risk-Based Pricing Notice to a consumer receiving worse credit terms, a creditor may provide a credit score exception notice to the consumer who requested credit. Effective July 21, 2011, the Dodd-Frank Act amended the FCRA to require that if a consumer is to receive a Risk-Based Pricing Notice, the creditor must disclose the consumer’s credit score and certain additional information relating to the credit score in its Risk-Based Pricing Notice. During 2011, the FRB and the Federal Trade Commission jointly published additional final rules requiring that additional information be disclosed in Risk-Based Pricing Notices and provided model Risk-Based Pricing Notices containing the additional information required for disclosure.

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

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

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

Debit Card Interchange Fees; Expansion of TILA Requirements. The Dodd-Frank Act established a “reasonable and proportional” standard concerning debit card interchange fees. Debit card interchange fees are established by payment card networks and ultimately paid by merchants to debit card issuers for each electronic debit transaction. The FRB adopted a final rule providing that, effective October 1, 2011, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction plus five basis points multiplied by the value of the transaction. An additional upward adjustment of no more than one cent to an issuer’s debit card interchange fee is available if the issuer certifies that it has developed and implemented policies and procedures reasonably designed to achieve the fraud-prevention standards set out in an accompanying interim final rule. Although the final rule’s restrictions on debit card interchange fees apply only to debit card issuers who, when combined with affiliates, have $10 billion or more in assets, it is not clear what, if any, the long-term market effects will be on debit card issuers having assets below $10 billion, such as the Bank.

Whistleblower Provisions. As part of its Dodd-Frank mandate, the SEC has adopted a regulation to incentivize and protect individuals, commonly referred to as whistleblowers, to report violations of federal securities laws. Among other things, the rule provides that if an individual voluntarily provides original information to the SEC which relates to a possible violation of the federal securities laws and such report leads to a successful enforcement action in which the SEC or other authorities obtain monetary sanctions totaling more than $1,000,000, then the whistleblower is eligible for a monetary award. The amount of the award is in the discretion of the SEC but, if all eligibility criteria are met and a whistleblower claim is properly submitted to the SEC by the individual, the SEC will pay an award equal to at least ten percent but no more than 30 percent of the monetary sanctions that the SEC and the other authorities are able to collect. The SEC’s whistleblower rule became effective August 12, 2011.

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

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ITEM 1B – UNRESOLVED STAFF COMMENTS

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

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ITEM 2 – PROPERTIES

First National Bank operates fourteen full service offices in a market area comprising most of Wayne County, western Stark County, northeastern Holmes County, southern Medina County and southwestern Summit County. The Bank’s offices, all of which are owned by First National Bank except as indicated, are –

		Net Book Value
Location	County	(Dollars in Thousands)
Main Office:
112 West Market Street	Wayne	$1,044
Orrville, Ohio 44667
Other Full-service Offices:
12 West Main Street	Wayne	$420
Dalton, Ohio 44618
1320 West High Street	Wayne	$614
Orrville, Ohio 44667
4950 Kidron Road	Wayne	$698
Kidron, Ohio 44636
153 East Main Street	Wayne	$469
Smithville, Ohio 44677
15974 East Main Street	Wayne	$266
Mt. Eaton, Ohio 44659
7227 Lincoln Way East	Wayne	$83
Apple Creek, Ohio 44606
1725 Cleveland Road	Wayne	$652
Wooster, Ohio 44691
4192 Burbank Road	Wayne	$1,041
Wooster, Ohio 44691

18

		Net Book Value
Location	County	(Dollars in Thousands)
211 Lincoln Way East	Stark	$1,215
Massillon, Ohio 44646
2312 Lincoln Way N.W.	Stark	$602
Massillon, Ohio 44647
106 Ainsworth Street	Medina	$240
Lodi, Ohio 44254
4885 Atlantic Drive	Medina	$939
Seville, Ohio 44667
3085 West Market Street	Summit	$2,665(1)
Fairlawn, OH 44303
Cash ATM Only:
1720 North Main Street	Wayne	$119
Orrville, OH 44667
51 Massillon Marketplace Drive S.W.	Stark	$0
Massillon, OH 44646
(leased location)
Loan Production Office:
1020 East State Street	Columbiana	$3
Salem, OH 44460
(leased location)
Operations Center:
1444 North Main Street
Orrville, OH 44667	Wayne	$373

(1) $347 thousand represents the leasehold improvements and equipment of the Bank. $2,318 represents the investment in the land and buildings by NBOH Properties, LLC.

At December 31, 2012 the net book value of the Bank’s investment in premises and equipment totaled $11.4 million. The full-service in Fairlawn, Ohio is located in a multi-tenant building owned by NBOH Properties, LLC. The Bank’s electronic data processing functions are performed under contract with an electronic data processing services firm that performs services for financial institutions throughout the Midwest.

On February 1, 2013, the Bank and NBOH Properties, LLC entered into a Purchase and Assumption Agreement (“Agreement”) with Premier Bank and Trust (“Premier”) that provides for the sale of certain assets and assumption of certain liabilities relative to the Bank’s retail office location in Fairlawn, Ohio. Under the terms of the Agreement, Premier will purchase the multi-tenant commercial building located at 3085 West Market Street for $1,100.

ITEM 3 – LEGAL PROCEEDINGS

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

19

ITEM 4 – [REMOVED AND RESERVED]

Part II

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

Incorporated by reference to “Price Range of Common Stock” appearing on page 66 of National Bancshares’s 2012 Annual Report. National Bancshares had 799 shareholders of record as of March 1, 2013.

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

Incorporated by reference to “Comparison of Five-Year Cumulative Total Return Of National Bancshares Corporation, S&P 500 Stock Index, and S&P 500 Bank Index” appearing on page 65 of National Bancshares Corporation’s 2012 Annual Report.

EQUITY COMPENSATION PLAN INFORMATION

as of December 31, 2012

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights			Restricted stock awards issued			Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by the security holders		131,200	(1)		16,097	(2)		76,151
Equity compensation plans not approved by the security holders		0			0			0
Total		131,200			16,097			76,151

(1) Weighted-average exercise price of outstanding options is $15.06

(2) The fair value of a restricted stock award issued on December 23, 2009 for 3,605 shares was $14.01; the fair value of a restricted stock award issued on January 3, 2011 for 3,744 shares was $13.00 per share; the fair value of a restricted stock award issued on July 1, 2011 for 3,552 shares was $13.70 per share; the fair value of a restricted stock award issued on January 3, 2012 for 3,330 shares was $14.60 per share; the fair value of a restricted stock award issued on July 2, 2012 for 1,866 shares was $15.21 per share. Fair value was determined using the closing market price of National Bancshares’ common stock on the date of the grant.

A description of the equity compensation plan is incorporated by reference to “Note 14 – Stock-Based Compensation” appearing on pages 49 and 50 of National Bancshares’s 2012 Annual Report.

Issuer Purchase and Sales of Equity Securities

No equity securities of National Bancshares were repurchased or sold by it during 2012.

20

ITEM 6 – SELECTED FINANCIAL DATA

Incorporated by reference to “Selected Financial Data” appearing on pages 6 and 7 of National Bancshares’s 2012 Annual Report.

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Incorporated by reference appearing on pages 8 through 26 of National Bancshares’s 2012 Annual Report.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information concerning the interest-rate risks to which First National Bank’s assets and liabilities are exposed is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing on pages 20 through 22 of National Bancshares’s 2012 Annual Report.

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm are incorporated by reference from pages 27 through 61 of National Bancshares’s 2012 Annual Report.

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

No changes in or disagreements with the independent accountants have occurred in the two most recent fiscal years or since the end of December 31, 2012.

ITEM 9A – CONTROLS AND PROCEDURES

The Corporation’s management is responsible for establishing and monitoring adequate internal controls over financial reporting of the Corporation. With the participation of the President and Chief Executive Officer, and the Chief Financial Officer, management carried out an evaluation of the effectiveness of the design and operation of National Bancshares’s disclosure controls and procedures as of the end of 2012. Based upon that evaluation, the President and Chief Executive Officer, and the Chief Financial Officer concluded that as of December 31, 2012 National Bancshares’s disclosure controls and procedures were effective to ensure that information required to be disclosed by National Bancshares in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

During the fourth quarter of 2012 there were no changes in National Bancshares’s internal controls over financial reporting that have materially affected or are reasonably likely to affect National Bancshares’s internal controls over financial reporting.

The report of Management on the Corporations’ Internal Control Over Financial Reporting is incorporated by reference on page 63 of National Bancshares’s 2012 Annual Report.

ITEM 9B – OTHER INFORMATION

None

21

Part III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning the directors of National Bancshares is incorporated by reference from pages 4 through 7 of the definitive proxy statement for the 2013 annual meeting of shareholders, filed or to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2012. Disclosure by National Bancshares about directors’ and executive officers’ compliance with Section 16(a) of the Securities Exchange Act of 1934 appears on page 20 of the proxy statement for the 2013 annual meeting, and it is incorporated herein by reference.

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

Name	Age	Position
Mark R. Witmer	48	President and Chief Executive Officer of National Bancshares and the Bank since January 1, 2012. Mr. Witmer served as Senior Vice President, Agribusiness and Community Banking from August 16, 2011 until December 31, 2011. Mr. Witmer served as Vice President, Agribusiness and Community Banking from July 26, 2010 until August 21, 2011. Mr. Witmer served as Dealer/Manager, Executive Vice President and Chief Credit Officer at Farm Credit, Kentucky and Pennsylvania from July 2007 until July 2010. Prior to his duties with Farm Credit, Mr. Witmer was Senior Vice President at Sky Bank, Salineville, Ohio from September 2000 until July 2007.
Myron Filarski	64	Executive Vice President and Chief Operating Officer for First National Bank from January 1, 2012 until January 11, 2013, when he left employment with the company. Mr. Filarski served as Senior Vice President, Retail Banking, Mortgage and Consumer Lending for First National Bank from July 2010 until December 31, 2011. Prior to joining the Bank, Mr. Filarski was President of Keybank Mortgage. He was the Senior Vice President for mortgage lending at Fifth Third Bank, N.E. Ohio, Senior Vice President, Second National Bank, Warren, Ohio and President of Mortgage Banking for Signal Bank in Wooster, Ohio. Mr. Filarski was Executive Vice President of the Leader Mortgage Company from 1992 to 1996. Mr. Filarski began his banking career at Transohio Savings Bank, Cleveland, Ohio, a $6.6 billion bank, where he moved from management trainee to branch manager then Vice President. From 1984 to 1991 he was President and CEO of Transohio.
Thomas R. Poe	58	Executive Vice President and Senior Loan Officer of First National Bank since January 1, 2012. Mr. Poe served as Senior Vice President and Senior Loan Officer of First National Bank from January 2009 until December 31, 2011. Mr. Poe began his banking career with National City Bank, where he spent 27 years. For the last ten years he was President and CEO of National City Commercial Finance Inc. Prior to that he was Senior Vice President and Regional Manager for the middle-market group of the Cleveland Corporate Banking division. Mr. Poe left National City in 2004 to become Managing Director with GMAC Structured Finance Group. In 2008 he joined MidCap Business Credit, L.L.C. He has over 33 years experience in banking focusing on commercial and asset-based lending. He currently serves on the Boards of Cleveland Vicon Corporation and Philpott Rubber Company.
James R. VanSickle	42	Senior Vice President and Chief Financial Officer of National Bancshares Corporation and Senior Vice President and Chief Financial Officer of First National Bank since June 2007. Mr. VanSickle is the principal financial and accounting officer. Prior to joining First National Bank, he worked with Crowe Chizek and Company LLC as an Executive in the firm’s Financial Institutions Group. He joined Crowe in 1992 and was promoted to Executive in 2003.
Richard A. White	50	Senior Vice President and Senior Credit Officer of First National Bank since January 2010. Previously, Mr. White has worked for Grant Thornton, KeyBank and National City Business Credit. He has over 25 years of finance experience as staff auditor, field examination manager, bank operations, asset-based lending and business credit. Prior to joining First National Bank, Mr. White founded Richard Allen Associates, a lender services firm.

22

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

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

National Bancshares’s Board of Directors has determined that it has at least one “audit committee financial expert” serving on the Audit Committee. National Bancshares considers Director John Cook, CPA, Ph. D. to be an Audit Committee Financial Expert, based on his experience as partner in an accounting firm. Information regarding the Audit Committee is incorporated by reference to pages 11 and 12 of National Bancshares’ Proxy Statement for the 2013 annual meeting, under the caption “Audit Committee” and “Audit Committee Report.”

ITEM 11 – EXECUTIVE COMPENSATION

Incorporated by reference from pages 15 and 16 of the definitive Proxy Statement for the 2013 annual meeting of shareholders, filed or to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2012.

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

Incorporated by reference from page 3 of the definitive Proxy Statement for the 2013 annual meeting of shareholders, filed or to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2012.

ITEM 13 – CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Incorporated by reference from pages 19 and 20 of the definitive Proxy Statement for the 2013 annual meeting of shareholders, filed or to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2012.

ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from page 10 of the definitive Proxy Statement for the 2013 annual meeting of shareholders, filed or to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2012.

23

PART IV

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The following financial statements are included in this document in Item 8:

• Report of Independent Registered Public Accounting Firm

• Consolidated Balance Sheets as of December 31, 2012 and 2011

• Consolidated Statements of Income for the Years Ended December 31, 2012, 2011, and 2010

• Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010

• Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011, and 2010

• Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules

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

(a)(3) Exhibits

See the list of exhibits below

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

Exhibit Number	Description	Location
3.1	Amended Articles of Incorporation	Incorporated by reference to the identically numbered exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 26, 2004
3.	Amended By-Laws	Incorporated by reference to the identically numbered exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on March 28, 2008
10.1*	Directors’ Defined Benefit Plan Agreement	Incorporated by reference to the identically numbered exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, filed on March 25, 2001
10.2*	Employment Agreement entered into by David C. Vernon and National Bancshares and First National Bank	Incorporated by reference on Form 8-K dated November 27, 2007.
10.3*	Employment Agreement entered into by James R. VanSickle and National Bancshares and First National Bank	Incorporated by reference on Form 8-K dated June 19, 2007.
10.4*	Special Separation Agreement entered into by Thomas R. Poe and National Bancshares and First National Bank	Incorporated by reference on Quarterly Report 10-Q filed November 16, 2009
10.5*	Special Separation Agreement entered into by Myron Filarski and National Bancshares and First National Bank	Incorporated by reference on Quarterly Report 10-Q filed November 2, 2010
10.6*	Amendment to Employment Agreement entered into by David C. Vernon and National Bancshares Corporation and First National Bank	Incorporated by reference to the identically numbered exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed on March 29, 2011

24

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

Exhibit Number	Description	Location
10.7*	Amendment to Employment Agreement entered into by David C. Vernon and National Bancshares Corporation and First National Bank	Incorporated by reference to the identically numbered exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed on March 27, 2012
10.8*	Amendment to Employment Agreement entered into by David C. Vernon and National Bancshares Corporation and First National Bank	Filed herewith
13	2012 Annual Report to Security Holders	Filed herewith
14.1	Code of Business Conduct and Ethics	Filed herewith
14.2	Code of Ethical Conduct for Finance Officers	Filed herewith
21	Subsidiaries	Filed herewith
23	Consent of Crowe Horwath LLP	Filed herewith
31.1	Certification of Chief Executive Officer under Sarbanes-Oxley Act Section 302	Filed herewith
31.2	Certification of Chief Financial Officer under Sarbanes-Oxley Act Section 302	Filed herewith
32	Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101.1	Instance Document
101.2	Schema Document
101.3	Calculation Linkbase Document
101.4	Labels Linkbase Document
101.5	Presentation Linkbase Document
101.6	Definition Linkbase Document

* Management contract or compensatory plan or arrangement

25

SIGNATURES

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

National Bancshares Corporation
By:	/s/ Mark R. Witmer
	Mark R. Witmer
	President and Chief Executive Officer
Date: March 29, 2013

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

/s/ Mark R. Witmer Mark R. Witmer President, Chief Executive Officer, and Director	March 29, 2013
/s/ James R. VanSickle James R. VanSickle, Sr. Vice President & Chief Financial Officer (Principal Accounting and Financial Officer)	March 29, 2013
/s/ John Cook, CPA, Ph. D. John Cook, CPA, Ph. D., Director	March 29, 2013
/s/ Bobbi E. Douglas Bobbi E. Douglas, Director	March 29, 2013
/s/ John W. Kropf John W. Kropf, Director	March 29, 2013
/s/ John L. Muhlbach, Jr John L. Muhlbach, Jr., Director	March 29, 2013
/s/ Victor B. Schantz Victor B. Schantz, Director	March 29, 2013
/s/ Stephen W. Schmid Stephen W. Schmid, Director	March 29, 2013
/s/ James R. Smail James R. Smail, Director	March 29, 2013
/s/ Howard J. Wenger Howard J. Wenger, Director	March 29, 2013
/s/ Albert W. Yeagley Albert W. Yeagley, Director	March 29, 2013

26

EX-10.8

Exhibit 10.8*

FIFTH AMENDMENT TO EMPLOYMENT AGREEMENT NATIONAL BANCSHARES

CORPORATION AND FIRST NATIONAL BANK

This FIFTH AMENDMENT TO EMPLOYMENT AGREEMENT (this “Amendment”) is entered into and made effective as of December 15, 2012 between National Bancshares Corporation, an Ohio Corporation, and First National Bank, a federally chartered National Bank, Orrville, Ohio (collectively, the “Bank”), and David C. Vernon, an individual (“Employee”).

A. The Bank and the Employee entered into an Employment Agreement (the “Agreement”) on December 6, 2006, which provided for a fixed term of employment of twelve full months, beginning November 14, 2006. The Agreement has been amended four times and was last amended on September 20, 2011. By that last amendment, the Employment Period was extended through April 24, 2014.

B. The Parties agree that the Employment Agreement presently requires that the Bank pay Employee Nine Thousand Five Hundred Dollars ($9,500.00) per month for the Employment Period which ends on April 24, 2014;

C. The Bank and Employee have agreed to accelerate the payment schedule set forth above.

D. The Employee has voluntarily agreed to terminate his relationship with the Bank as both a Consultant and Director.

NOW, THEREFORE, in consideration of the mutual covenants and promises set forth in this Fifth Amendment, the Bank and the Employee agree as follows:

1. Section 1. Term of Employment. Section 1 of the Agreement, as last amended on September 20, 2011, is hereby amended a fifth time by deleting “The Employment Period will end on April 24, 2014 and substituting “The Employment Period shall expire on December 31, 2012.”

2. Section 2. Duties. Section 2 of the Agreement, as last amended on September 20, 2011, is hereby amended again by deleting the current text in its entirety and substituting in all of the following text: From January 1, 2012 through December 31, 2012, Employee shall serve the Bank, the Board and successor management to consult with regard to his banking and financial services expertise and make it available to those parties,

3. Section 3.1 Salary. Section 3.1 of the Agreement, which was last amended on September 20, 2011, is hereby amended again by adding the following text:

On or before fifteen (15) days after the execution of this agreement, Bank shall pay employee sixteen (16) months of his compensation at the rate of Nine Thousand Five Hundred Dollars ($9,500) per month in one lump sum for a total of One Hundred Fifty Two Thousand Dollars ($152,000).

4. Section 4.1 Retirement as Director. On or before December 31, 2012 Employee will resign as a Director of Bank.

Section 4.2 Expenses. The Bank shall reimburse Employee for reasonable expenses incurred by him on behalf of the Bank in the performance of his duties provided Employee furnishes the Bank with the appropriate documentation required by the Internal Revenue Code and the regulations thereunder in connection with such expenses.

5. All provisions of the Agreement, other than as modified in the First Amendment dated November 20, 2007, the Second Amendment dated November 18, 2009, the Third Amendment dated December 21, 2010, the Fourth Amendment dated September 20, 2011 and this Fifth Amendment are hereby ratified and shall remain in full force and effect.

Intending to be legally bound, the Parties have executed this Fourth Amendment effective as of the date first above written.

NATIONAL BANCSHARES CORPORATION
By:	/s/ John W. Kropf
Its:	Chair

Date: 12/06/2012

FIRST NATIONAL BANK
By:	/s/ John W. Kropf
Its:	Chair

Date: 12/06/2012

DAVID C. VERNON

/s/ David C. Vernon

Date: 12/06/2012

EX-13

Exhibit 13

National Bancshares Corporation

Annual Report to Security Holders

for the year ended

December 31, 2012

(See Attached)

TABLE OF CONTENTS

3	Message to Shareholders
5	Financial Highlights
6	Selected Financial Data
8	Management’s Discussion and Analysis of Financial Condition and Results of Operations
27	Consolidated Balance Sheets
28	Consolidated Statements of Income
29	Consolidated Statements of Comprehensive Income
30	Consolidated Statements of Changes in Shareholders’ Equity
31	Consolidated Statements of Cash Flows
32	Notes to Consolidated Financial Statements December 31, 2012, 2011 and 2010
62	Report of Independent Registered Public Accounting Firm
64	Report of Management on the Corporation’s Internal Control Over Financial Reporting
65	Comparison of Five-Year Cumulative Total Return of National Bancshares Corporation, S&P 500 Stock Index, and S&P 500 Bank Index
66	Price Range of Common Stock
66	Shareholder Information
67	Officers
68	Directors
68	First National Bank Offices

1

(This page left intentionally blank)

2

Dear Shareholders;

I am pleased to present our 2012 Annual Report. This report will show 2012 was a year of growth and outstanding performance by National Bancshares Corporation.

Our Bank’s Directors and staff continue to focus on providing our communities with a first class banking experience. We pride ourselves on being able to provide solutions for the financial challenges facing our customers. Whether a growing business needs a new facility, a farmer wants to upgrade his equipment or a family is looking for an attractive interest rate on a checking account, First National Bank can deliver.

Agriculture and small business continue to perform well and provide a strong foundation for our local economy. The Agribusiness and Community Banking Group focuses on agriculture lending, small business lending and cash management services. The Business Banking Group focuses on lending and cash management services for larger businesses and corporations. Total loans increased $51.8 million or 23.9% from $217.1 million as of December 31, 2011 to $268.9 million as of December 31, 2012. The loan-to-asset ratio increased from 53% as of year end 2011 to 61% as of year end 2012.

Net income rose to $2.8 million in 2012, compared to $2.6 million in 2011. Basic and diluted earnings per share increased from $1.18 in 2011 to $1.27 in 2012. Earnings in 2012 were positively impacted by increases in net interest income and mortgage banking activities and lower noninterest expense.

Total assets increased to $440.8 million as of December 31, 2012 from $406.1 million as of December 31, 2011. Total deposits increased from $340.7 million as of year end 2011 to $367.1 million as of year end 2012. Shareholders’ equity increased 6.0% to $45.3 million at the end of 2012, compared to $42.7 million at the end of 2011.

We expect continued growth in loans and deposits in 2013 as we focus on serving our customers and building new banking relationships. I am excited about the opportunities we have to share the First National Bank experience with our current and future customers.

On behalf of the Board of Directors and our staff, I would like to thank you for your continued confidence in National Bancshares Corporation and First National Bank.

Mark R. Witmer

President and CEO

3

CHARITABLE GIVING COMMITTEE

In 2012, the Charitable Giving Committee of the Board of Directors approved gifts to the following organizations.

Every Woman’s House	Orrville-Dalton YMCA
Fairlawn Chamber of Commerce	Orrville Public Library
First National Bank Scholarship	Orrville Salvation Army
(Wayne County Community Foundation)	Orrville United Way, Inc.
Heartland Education Community, Inc.	Paint Township Area Fireworks
HOPE Fund	Smithville Community Historical Society
Hospice of Wayne County	Stark County Development Board
Kidron Community Historical Society	STEPS (FKA Wayne County Alcoholism Services)
Main Street Orrville	United Way of Wayne and Holmes Counties
Main Street Wooster, Inc.	United Way of Western Stark County
Massillon Boys and Girls Club	Village Network (FKA Boy’s Village)
Massillon Chamber of Commerce	Wayne County Capital Campaign
Newspapers in Education	Wayne Development Council
Ohio Funding for Independent Colleges	Wayne/Holmes Soap Box Derby
Orr Views	Wee Care Center, Inc.
Orrville Area Boys and Girls Club	Wooster Chamber of Commerce
Orrville Booster Club/Turf Fund
Orrville Chamber of Commerce

4

FINANCIAL HIGHLIGHTS

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

Financial Position

(Dollar amounts in thousands, except per share data)

					Percentage
	2012		2011		Change
At December 31,
Total assets	$	440,834	$	406,086		8.6	%
Deposits		367,069		340,664		7.7	%
Loans, net		265,539		213,952		24.1	%
Securities		121,650		150,175		(19.0	)%
Shareholders’ equity		45,321		42,745		6.0	%
Book value per share		20.42		19.31		5.7	%
Year ended December 31,
Net interest income	$	14,227	$	13,363		6.5	%
Income before income taxes		3,362		3,056		19.8	%
Net income		2,811		2,612		7.6	%
Cash dividends declared		711		706		0.7	%
Net income per share		1.27		1.18		7.6	%
Cash dividends per share		0.32		0.32		0.0	%

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

5

SELECTED FINANCIAL DATA

(Dollar amounts in thousands, except per share data)

				As of or for the years ended December 31,
	2012			2011			2010			2009			2008
Income statement data:
Interest income	$	15,989		$	15,413		$	15,501		$	16,465		$	17,071
Interest expense		1,762			2,050			3,219			4,237			5,785
Net interest income		14,227			13,363			12,282			12,228			11,286
Provision for loan losses		1,374			600			2,229			1,829			482
Net interest income after provision for loan losses		12,853			12,763			10,053			10,399			10,804
Noninterest income		2,897			3,032			3,190			2,972			2,333
Noninterest expense		12,388			12,739			11,847			11,364			10,173
Income before income taxes		3,362			3,056			1,396			2,007			2,964
Income taxes		551			444			71			398			770
Net income		2,811			2,612			1,325			1,609			2,194
Balance sheet data:
Cash and due from banks	$	27,624		$	15,213		$	12,837		$	8,124		$	11,001
Securities		121,650			150,175			138,033			130,241			127,248
Loans, net		265,539			213,952			190,685			194,071			179,831
Deposits		367,069			340,664			309,134			291,373			263,642
Borrowings		23,633			18,168			23,471			36,720			34,285
Shareholders’ equity		45,321			42,745			38,981			38,903			36,881
Total assets		440,834			406,086			374,096			370,228			338,002
Share and per share data:
Net income	$	1.27		$	1.18		$	0.60		$	0.73		$	1.00
Cash dividends		0.32			0.32			0.32			0.32			0.64
Book value at period end		20.42			19.31			17.67			17.64			16.75
Weighted average number of shares outstanding		2,219,965			2,211,508			2,205,973			2,202,457			2,203,218
Performance ratios:
Return on average equity		6.39	%		6.39	%		3.34	%		4.21	%		6.20	%
Return on average assets		0.65	%		0.66	%		0.35	%		0.46	%		0.70	%
Dividend payout percentage		25.29	%		27.03	%		53.28	%		43.82	%		64.00	%
Efficiency ratio (1)		72.34	%		77.70	%		76.56	%		74.76	%		74.70	%
Full-time equivalent staff		113			115			113			101			108
Average total assets to full-time equivalent staff	$	3,857		$	3,463		$	3,370		$	3,491		$	2,916
Asset quality ratios:
Allowance for loan losses to ending total loans		1.26	%		1.46	%		1.34	%		1.48	%		0.95	%
Net loan charge-offs to average loans		0.48	%		0.01	%		1.30	%		0.35	%		0.41	%
Capital ratios:
Average equity to average assets		10.09	%		10.26	%		10.40	%		10.84	%		11.24	%
Leverage ratio (2)		7.59	%		7.78	%		7.46	%		7.40	%		7.78	%
Total risk-based capital ratio (2)		12.53	%		13.85	%		13.59	%		12.46	%		12.60	%

(1) The efficiency ratio is calculated by dividing noninterest expenses by the sum of net interest income and noninterest income.

(2) First National Bank ratios computed in accordance with regulatory guidelines.

6

SELECTED FINANCIAL DATA

The following table shows quarterly results of operations for 2012 and 2011.

							Income				Basic and
	Interest		Net interest		Provision for		(loss) before				diluted earnings
	income		income		loan losses		income taxes		Net income		per share
			(Dollar amounts in thousands, except per share data)
2012
First quarter	$	3,850	$	3,397	$	149	$	838	$	700	$	0.32
Second quarter		3,954		3,483		981		258		317		0.14
Third quarter		4,108		3,669		209		1,081		857		0.39
Fourth quarter		4,077		3,678		35		1,185		937		0.42
2011
First quarter	$	3,675	$	3,097	$	147	$	536	$	487	$	0.22
Second quarter		3,892		3,370		150		693		589		0.27
Third quarter		3,920		3,439		150		950		762		0.34
Fourth quarter		3,926		3,457		153		877		774		0.35

7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

This section of the annual report is intended to assist the reader in evaluating the performance of National Bancshares Corporation for the years ended December 31, 2012, 2011 and 2010. This information should be read in conjunction with the consolidated financial statements and accompanying notes to the financial statements.

Forward Looking Statement

The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. Forward-looking statements can be identified by terminology such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “should,” “will,” “plans,” “potential” and similar words. Forward-looking statements are also statements that are not statements of historical fact. Forward-looking statements necessarily involve risks and uncertainties. They are merely predictive or statements of probabilities, involving known and unknown risks, uncertainties and other factors. If one or more of these risks or uncertainties occurs or if the underlying assumptions prove incorrect, actual results in 2012 and beyond could differ materially from those expressed in or implied by the forward-looking statements.

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

Management Strategy

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

During 2012, the Corporation operated under a strategic plan which is updated, modified and adopted annually by the Board of Directors. The plan calls for achieving an above peer return on equity, achieving a loan to asset ratio of 60%, reducing the net overhead ratio to 2.3%, maintaining cash-type deposits above 70%, achieving a net interest margin of at least 3.50%, maintaining a risk based capital ratio of at least 12% and holding the classification ratio at 20% or less.

Historically, the Corporation’s low loans-to-assets ratio has been detrimental to the net interest margin and return on equity. In 2010, the Board and Management established a goal of changing the Corporation’s asset mix by increasing the loan to asset ratio to 60%. The Bank formed a new Agribusiness and Community Banking Group in 2010 to focus on agriculture lending and cash management services. Business bankers and mortgage originators were added and office managers underwent increased consumer loan training. The Bank added a new senior credit officer and two credit analysts to its underwriting staff. These additions have increased the credit administration staff to five and the result is improved credit underwriting and loan monitoring. These initiatives have been successful and are the primary reason total loans increased $75.4 million, or 38.9% over the past two years. On December 31, 2012, the loan-to-asset ratio was 61.0%.

The net overhead ratio is calculated by netting total non-interest expense (excluding gains/losses) and total non-interest income and dividing by the period’s average total assets. A lower ratio indicates a higher degree of efficiency. The net overhead ratio for 2012 was 2.18%, compared to 2.52% and 2.44% in 2011 and 2010. Reducing the net overhead ratio was accomplished as the Bank was able to grow assets without significantly adding to expenses.

The Corporation benefits from a cash-type deposit ratio of 83.4%. The goal of maintaining cash type deposits above 70% will be challenging but can be accomplished through the increased productivity of the Corporation’s retail office system which generates core funding cash-type deposits. The Corporation benefits from its strong core deposit base which is much higher than peer and its strong core deposit base significantly enhances value and makes it possible for assets to be supported by stable and relatively low cost funding. While the Corporation enjoys low cost of funds, this cost advantage comes at the price of increased overhead expenses discussed above which is a result of the relatively small size of many of its offices.

8

The Corporation’s net interest margin for 2012 was 3.69%. Maintaining a net interest margin of at least 3.50% in a falling rate environment, will be accomplished through loan growth which will result in the reduction of securities as a percentage of assets. The banking business starts with loans. Loans are supported by deposits and capital is needed to support the volume of loans and deposits. Without loans there is no need for deposits and certainly there is no need for capital. The Corporation has historically relied too heavily on income from its securities portfolio and that was a reasonable plan when the term structure of interest rates accommodated such a business plan. Unfortunately that reliance is misplaced in a nearly zero interest rate environment. In this low rate environment one way to increase yield with securities is by extending the duration of the securities portfolio which is exactly the wrong action to take since longer duration securities will decline in value significantly should interest rates rise. Securities are of course needed for liquidity and income but the overreliance on securities as a source of interest income is inappropriate.

A Strong capital ratio is critical to the subsidiary Bank’s safety and soundness. A bank must have a risk-based capital ratio over 10% to be considered well capitalized by its regulators. The Corporation’s Board of Directors has established a goal of maintaining a risk-based capital ratio of 12% to protect the financial stability of the organization. The risk-based capital ratio was 12.53% as of December 31, 2012.

The classification ratio is calculated using total adversely classified assets (excluding special mention loans) divided by Tier 1 capital plus allowance for loan losses. The classification ratio was 17.7%, 21.1% and 32.0% as of December 31, 2012, 2011 and 2010. Prior to 2009, the classification ratio was consistently less than 20%. As the economy improves and the current number of classified loans is reduced through monitoring and working with borrowers, the classification ratio is expected to improve.

In 2012, loans, net of allowance for loan losses increased $51.6 million from year-end 2011. The Bank has been taking advantage of the opportunity to lend to businesses in search of a bank that will be responsive to their credit needs as other banks have tightened lending requirements. Loans secured by farmland and agricultural production loans increased $19.9 million, or 130.1% during 2012. One-to-four family real estate loans increased $13.1 million, or 23.3% during the year ended December 31, 2012. Commercial and commercial real estate loans increased $10.9 million, or 12.8% during 2012.

The securities portfolio is a significant source of income. However income from securities will decline unless interest rates rise significantly, as cash flow from maturing securities and cash flow from mortgage backed securities is reinvested at lower interest rates. Changing market conditions could affect the profitability of the portfolio, as well as the level of interest rate risk exposure. The Bank invests in securities it believes offer good relative value at the time of purchase, and it will reposition its securities portfolio as needed. In making its decisions to sell or purchase securities, the Bank considers credit ratings, call features, maturity dates, relative yields, current market factors, interest rate risk and other relevant factors. The Bank’s loan growth in 2012 has enabled management to invest most of the proceeds from the maturities and repayment of securities in loans.

The average yield of the securities portfolio was 2.94% as of December 31, 2012. The portfolio duration was 2.1 years and based on current interest rates and payment assumptions, cash flows of $21.6 million are projected over the next twelve months. The yield on securities is expected to decline in 2013 as cash flows are reinvested in the current low interest rate environment. The Bank will continue to monitor market conditions and invest in securities with good relative value.

Platinum Checking, a high-interest checking account for clients with balances above $10 thousand accounted for $73.5 million or 20.0% of total deposits at December 31, 2012. Bonus Checking, an account that pays bonus interest to clients that use the Bank’s Visa debit card, receive their account statement online, and make at least one electronic direct deposit accounted for $25.4 million of deposits at December 31, 2012. In 2012 these two accounts grew 13.6% and 12.6% respectively. In March 2010, the Corporation introduced “Bonus Savings”, a high-yield savings account that is available to customers that have a Bonus Checking account. Bonus Savings accounted for $12.5 million as of December 31, 2012 an increase of $8.5 million since year end 2010. In 2012 total deposits grew $26.4 million or 7.8%.

Office of the Comptroller of the Currency (“OCC”) regulations require banks to maintain certain minimum levels of regulatory capital. Additionally, the regulations establish a framework for the classification of banks into five categories: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Generally, an institution is considered well-capitalized if it has a core (Tier 1) capital ratio of at least 5.0% (based on adjusted total assets); a core (Tier 1) risk-based capital ratio of a least 6.0%; and a total risk-based capital ratio of at least 10.0%. At December 31, 2012 the Bank is categorized as well capitalized under the regulatory framework for prompt corrective action and capital ratios were well above regulatory minimums.

9

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

Financial Condition

Total assets increased 8.6% to $440.8 million as of December 31, 2012, from $406.1 million at December 31, 2011. Securities available for sale totaled $121.7 million as of December 31, 2012, compared to $150.2 million at December 31, 2011. Loans, net of allowance for loan losses increased $51.6 million to $265.5 million as of December 31, 2012, compared to $214.0 million at December 31, 2011. Deposits increased 7.7% to $367.1 million as of December 31, 2012, compared to $340.7 million at December 31, 2011. Shareholders’ equity increased 6.0% to $45.3 million at the end of 2012, from $42.7 million at the end of 2011. Accumulated other comprehensive income increased to $3.9 million as of December 31, 2012, compared to $3.6 million as of December 31, 2011. The change in accumulated other comprehensive income was a result of an increase in unrealized gains on securities available for sale.

Loans

Total loans increased by $51.6 million or 23.7% from year-end 2012 to year-end 2011. The Bank continues to focus its efforts on attracting commercial loan business. Average loans, net of allowance for loan losses increased from $200.8 million in 2011 to $238.6 million in 2012.

First National Bank’s loan policy limits the balances of loans of certain loan categories as follows: up to 60% of total loans for commercial loans, up to 40% of total loans for consumer loans, up to 60% of total loans for residential real estate loans and up to 200% of total capital for commercial real estate loans. The loan to deposit ratio will not exceed 90%.

10

	Loan portfolio composition at December 31,
	2012			2011			2010			2009			2008
	(Dollar amounts in thousands)
Commercial real estate:
Commercial real estate	$	59,484		$	55,520		$	58,047		$	54,787		$	43,972
Secured by farmland		23,161			11,609			0			0			0
Construction and land development		8,682			4,822			9,942			11,797			11,725
Commercial:
Commercial and industrial		37,138			30,165			26,158			30,621			27,241
Agricultural production		12,107			3,721			0			0			0
Residential real estate:
One-to-four family		69,364			56,261			47,204			50,390			54,924
Multifamily		18,660			17,041			14,397			10,353			4,062
Construction and land development		959			683			301			598			1,121
Home equity		31,218			30,086			27,766			26,526			24,442
Consumer:
Auto:
Direct		5,436			3,866			2,474			3,171			3,171
Indirect		1,087			2,740			6,401			8,605			10,923
Other		1,780			980			989			567			260
Total loans		269,076			217,494			193,679			197,415			181,841
Less:
Unearned and deferred income		(137	)		(379	)		(409	)		(438	)		(292	)
Allowance for loan losses		(3,400	)		(3,163	)		(2,585	)		(2,906	)		(1,718	)
Net loans	$	265,539		$	213,952		$	190,685		$	194,071		$	179,831
Net loans as a percent of total assets		60.24	%		52.69	%		50.97	%		52.42	%		53.20	%

Ranked by North American Industry Classification System – or NAICS – codes, the industries most represented by First National Bank’s commercial borrowers include lessors of non-residential buildings, lessors of residential buildings and dwellings and dairy cattle farming, in that order, accounting for 10.9%, 8.9%, and 6.2% of the total loans at year-end 2012, respectively.

Approximately 59.5% of the conventional mortgage loans secured by one-to-four family and multifamily real estate are long term fixed interest rate loans. Approximately 40.5% of the portfolio of conventional mortgage loans secured by one-to-four family and multifamily real estate at year-end 2012 consisted of adjustable rate loans. First National Bank’s fixed-rate conventional mortgage loans are originated with loan documentation that permits their sale in the secondary market. The Bank’s policy is to classify all thirty year fixed-rate mortgage loans as “Held for Sale” or “Held for Portfolio” at the time the loans are originated within various scenarios and classifications set by the Bank. The classification is based upon several factors such as the Bank’s interest rate risk position, the loan’s interest rate and term, the Bank’s liquidity position, the interest rate environment and general economic conditions.

Allowance for Loan Losses

As explained in Note 1 of the consolidated financial statements, the allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and recoveries, and decreased by charge-offs. The allowance for loan losses is the sum of components recognized and measured either: (1) according to Accounting Standards Codification (ASC) 450-10-05, “Accounting for Contingencies,” for pools of homogenous loans, or (2) according to ASC 310-10-35, “Accounting by Creditors for Impairment of a Loan,” for loans the Bank considers impaired based upon individual loan review. Management determines the necessary allowance balance using the Bank’s loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Loans Analyzed Individually

Determining the loan loss allowance begins with the Bank’s assessment of credit risk for loans analyzed individually. Individual loans are assigned credit-risk grades based on the Bank’s assessment of conditions affecting a borrower’s ability to satisfy its contractual obligation under the loan agreement. The assessment process includes reviewing a borrower’s current financial information, historical payment experience, credit documentation, public information, current economic trends and other information specific to each borrower. Loans reviewed individually are reviewed at

11

least annually or more frequently if management becomes aware of information affecting a borrower’s ability to fulfill its obligation. All loans over $250 thousand or to borrower’s whose aggregate total borrowing exceeds $250 thousand are reviewed individually, except for first and second mortgage loans on a borrower’s personal residence. Loans or borrowers with balances under $250 thousand may also be reviewed individually if considered necessary by the board and management. A borrower’s risk rating may be downgraded at any point during the year if the creditworthiness of a borrower deteriorates. In addition, risk ratings are reviewed annually by a qualified independent third party. The independent third party reviews all aggregate loan relationships of $300 thousand or greater along with a sampling of loan relationships under $300 thousand. Loans analyzed individually are ranked as follows:

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

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

Loans Graded 6 (“Special Mention”) have more than average risk, with identified potential weaknesses that deserve management’s close attention. Left uncorrected, the potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. In the case of a commercial borrower, for example, potential weaknesses could include adverse trends in the borrower’s operations or adverse economic or market conditions that could affect the borrower in the future.

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

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

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

If it is probable that the Bank will be unable to collect all principal and interest due on a commercial or non-homogenous loan then that loan is considered impaired. The measure of impairment is based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the value of collateral less estimated costs to sell for collateral dependent loans, compared to the recorded investment in the loan (including accrued interest, net deferred loans fees or costs, and unamortized premium or discount). The Bank considers commercial or non-homogenous loans graded doubtful or loss to be impaired. Some loans graded substandard are considered impaired. Special mention and watch loans are not considered to be impaired. Impairment is evaluated in total for smaller-balance loans of similar type and purpose – such as residential mortgage and consumer, – and on an individual loan basis for other loans (other loans consists of loans to non-profit organizations and loans collateralized with cash). If a loan is impaired, a portion of the loan loss allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Increases in the allowance for loan losses are made by expensing a provision for loan losses. No specific provision for loan losses expense would result if an individually reviewed loan is graded higher than “watch”, but such loans are included in the pools of loans analyzed under ASC 450-10-05. Loans classified “special mention” or “substandard”, and smaller-balance loans classified “doubtful” are assigned a provision based upon a historical migration analysis performed on classified loans. The migration analysis identifies the percentage of classified loans by category that has historically been ultimately charged-off. The migration percentages are reviewed and adjusted by management to reflect various factors such as the growth and change in mix of the loan portfolio and the regulator’s guidelines. Loans ranked “loss” are charged off in their entirety because at that point the unconfirmed loss that the loan loss allowance is intended to approximate is considered to be confirmed.

12

As of December 31, 2012, 2011 and 2010 classified assets were as follows:

	Classified assets at December 31,
	2012					2011					2010
			Percent of					Percent of					Percent of
	Amount		total loans			Amount		total loans			Amount		total loans
	(Dollar amounts in thousands)
Classified loans:
Special mention	$	3,028		1.1	%	$	4,887		2.3	%	$	2,667		1.4	%
Substandard		5,689		2.1	%		7,242		3.3	%		9,878		5.1	%
Doubtful		0		0.0	%		0		0.0	%		0		0.0	%
Loss		0		0.0	%		0		0.0	%		0		0.0	%
Total classified loans		8,717		3.2	%		12,129		5.6	%		12,545		6.5	%
Other real estate owned		860		0.3	%		18		0.0	%		58		0.0	%
Total classified assets	$	9,577		3.5	%	$	12,147		5.6	%	$	12,603		6.5	%

Total classified loans decreased from $12.1 million at December 31, 2011 to $8.7 million at December 31, 2012. The Bank’s classification ratio was 17.7% and 21.1% as of December 31, 2012 and December 31, 2011. The classification ratio is calculated using total adversely classified assets (excluding special mention loans) divided by Tier 1 capital plus allowance for loan losses.

Pools of Loans Analyzed under ASC 450

The total loan loss allowance is derived both from analysis of individual impaired loans under ASC 310-10-35 and analysis of aggregated pools of loans under ASC 450. Smaller balance loans (such as automobile or home equity loans, for example), groups of loans (such as residential mortgage loans), and less severely classified loans reviewed individually may be analyzed on an aggregated or pooled basis under ASC 450.

Under ASC 450, loans are segmented into groups of loans having similar risk characteristics based on purpose, loan type, and collateral, for example residential mortgage loans, home equity loans, and consumer loans. Losses inherent in pools of loans are estimated using average historical losses over a period of years for loans of those types, but with adjustments to account for changes in loan policies, changes in underwriting or loan recovery practices, changes in prevailing economic conditions, changes in the nature or volume of the loan portfolio, and changes in other internal and external factors. Loans secured by real estate – particularly residential mortgage loans – generally have less credit risk than other types of loans.

Changes in the Allowance for Loan Losses and Classified Assets

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

The allowance for loan losses increased from $3,163,000 as of December 31, 2011 to $3,400,000 at December 31, 2012. The allowance for loans losses to total loans decreased from 1.46% at year-end 2011 to 1.26% at December 31, 2012. Net charge-offs increased from $22,000 in 2011 to $1,137,000 in 2012. The provision for loan losses for 2012 was $1,374,000, compared to $600,000 in 2011. The increase in the allowance for loan losses in 2012 was primarily related to the increase in loan balances outstanding.

Total nonperforming loans decreased from $4.0 million as of December 31, 2011 to $1.2 million at December 31, 2012. Non-performing loans consist of loans placed on non-accrual status and loans past due 90 or more days and still accruing interest. Loans past due between 30 and 89 days still accruing decreased to $339 thousand at December 31, 2012 from $634 thousand as of December 31, 2011. In 2012, total classified loans decreased from $12.1 million to $8.7 million. Management believes the allowance for loan losses is adequate as of December 31, 2012.

13

Loan review and monitoring is integral to effective credit administration and risk management. In order to minimize the credit risk inherent in the lending process, management and the Board of Directors has adopted a more formal and systematic approach with credit administration and loan review. As part of this systematic approach, a qualified independent third party was engaged to perform loan reviews in 2012, 2011 and 2010. Management intends to continue this practice on an annual basis.

Loans deemed uncollectible are charged against the allowance for loan losses. After a loan is charged off, the Bank continues its efforts to recover the loss. Recoveries of previously charged-off amounts are credited to the allowance for loan losses. The charge-offs in 2012 relate primarily to two commercial real estate loans totaling $763 thousand. The charge-offs in 2010 relate primarily to two commercial loans totaling $1.7 million. The Bank recorded a $400 thousand partial charge-off of a $1.6 million commercial real estate loan in 2009. The Bank recorded a $676 thousand partial charge-off of a $1.7 million commercial real estate loan in 2008. Transactions in the allowance for loan losses are summarized in following table:

	Year ended December 31,
	2012			2011			2010			2009			2008
	(Dollar amounts in thousands)
Balance, beginning of period	$	3,163		$	2,585		$	2,906		$	1,718		$	2,028
Loans charged off:
Commercial real estate:
Commercial real estate		481			0			340			0			688
Construction land development		44			0			272			400			0
Commercial:
Commercial and industrial		282			0			1,797			0			42
Residential real estate:
One-to-four family		250			28			82			38			16
Multifamily		0			0			0			0			0
Construction and land development		0			0			0			0			0
Home equity		91			26			45			25			9
Consumer		41			17			40			195			69
Credit cards		0			0			0			1			21
Total loans charged off		1,189			71			2,576			659			845
Recoveries of loans previously charged off:
Commercial real estate:
Commercial real estate		0			0			0			0			5
Construction land development		1			1			0			0			0
Commercial:
Commercial and industrial		10			25			0			1			20
Real estate construction:
One-to-four family		5			0			0			0			14
Multifamily		0			0			0			0			0
Construction land development		0			0			0			0			0
Home equity		9			1			2			2			2
Consumer		27			22			24			15			11
Credit cards		0			0			0			0			1
Total recoveries		52			49			26			18			53
Net loans charged off		(1,137	)		(22	)		(2,550	)		(641	)		(792	)
Provision charged to operations		1,374			600			2,229			1,829			482
Balance, end of period	$	3,400		$	3,163		$	2,585		$	2,906		$	1,718
Loans outstanding:
Average	$	241,980		$	203,669		$	195,730		$	184,965		$	192,472
End of period		268,939			217,115			193,270			196,977			181,549
Ratio of allowance for loan losses to total loans outstanding at end of period		1.26	%		1.46	%		1.34	%		1.48	%		0.95	%
Net charge offs to average loans		0.47	%		0.01	%		1.30	%		0.35	%		0.41	%

14

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

	Allocation of the allowance for loan losses at December 31,
	2012					2011					2010					2009					2008
	Amount		Percent(1)			Amount		Percent(1)			Amount		Percent(1)			Amount		Percent(1)			Amount		Percent(1)
	(Dollar amounts in thousands)
Commercial real estate:
Commercial real estate	$	1,267		22	%	$	1,185		26	%	$	1,019		30	%	$	1,142		28	%	$	501		24	%
Secured by farmland		345		9	%		146		5	%		0		0	%		0		0	%		0		0	%
Construction and land development		181		3	%		149		2	%		248		5	%		424		6	%		42		6	%
Commercial:
Commercial and industrial		744		14	%		801		14	%		460		14	%		929		16	%		579		15	%
Agricultural production		182		4	%		55		2	%		0		0	%		0		0	%		0		0	%
Residential real estate:
One-to-four family		292		26	%		487		26	%		510		24	%		163		26	%		283		30	%
Multifamily		282		7	%		225		8	%		164		8	%		29		5	%		41		2	%
Construction and land development		10		0	%		9		0	%		1		0	%		2		0	%		4		1	%
Home equity		65		12	%		66		14	%		100		14	%		73		13	%		74		14	%
Consumer:
Auto:
Direct		17		2	%		21		2	%		13		1	%		37		2	%		43		2	%
Indirect		3		0	%		14		1	%		35		3	%		100		4	%		147		6	%
Other		12		1	%		5		0	%		5		1	%		7		0	%		4		0	%
Unallocated		0		0	%		0		0	%		30		0	%		0		0	%		0		0	%
Total	$	3,400		100	%	$	3,163		100	%	$	2,585		100	%	$	2,906		100	%	$	1,718		100	%

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

15

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

	Problem assets at December 31,
	2012			2011			2010			2009			2008
	(Dollar amounts in thousands)
Nonaccrual loans	$	733		$	3,836		$	4,373		$	4,716		$	1,752
Past due 90 days or more and still accruing		463			177			487			458			261
Restructured loans and leases(1)		0			0			0			0			0
Total nonperforming loans		1,196			4,013			4,860			5,174			2,013
Other real estate owned		860			18			58			104			354
Total nonperforming assets	$	2,056		$	4,031		$	4,918		$	5,278		$	2,367
Loans outstanding, net	$	265,539		$	213,952		$	190,685		$	194,071		$	179,831
Nonperforming loans to total net loans		0.45	%		1.88	%		2.55	%		2.67	%		1.12	%
Nonperforming assets to total assets		0.47	%		0.99	%		1.31	%		1.43	%		0.70	%
Allowance for loan losses to total loans		1.26	%		1.46	%		1.34	%		1.48	%		0.95	%
Allowance for loan losses to nonperforming loans		284.28	%		78.82	%		53.19	%		56.17	%		85.35	%

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

16

Securities

Total securities decreased $28.5 million or 19% at December 31, 2012 when compared to December 31, 2011. Securities are primarily comprised of mortgage-backed securities, municipal securities and securities issued by corporations. The Bank actively purchases bonds issued by local municipalities, school systems and other public entities when opportunities arise. Securities are classified either as held to maturity or as available for sale. The Bank does not hold any securities for trading purposes. If management has the intent and the Bank has the ability at the time of purchase to hold a security until maturity, the security is classified as held to maturity and it is reflected on the balance sheet at amortized cost. Securities to be held for indefinite periods and not intended to be held to maturity or on a long-term basis are classified as available for sale, and they are reflected on the balance sheet at their fair value. Management generally believes that all securities should be classified as available for sale but makes that determination at the time of purchase. In order to more effectively manage securities and to be in a better position to react to market conditions, at December 31, 2012, all securities were classified as available for sale. At year-end 2012 and 2011 there was no single issuer of securities where the total book value of such securities exceeded 10% of shareholders’ equity except for U.S. government and agency obligations.

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

			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(Dollar amounts in thousands)
December 31, 2012
Available for sale:
U.S. Government and federal agency	$	1,794	$	8	$	0		$	1,802
State and municipal		50,946		4,241		(8	)		55,179
Mortgage-backed: residential		62,903		1,755		(20	)		64,638
Equity securities		23		8		0			31
Total securities	$	115,666	$	6,012	$	(28	)	$	121,650
December 31, 2011
Available for sale:
U.S. Government and federal agency	$	2,430	$	16	$	0		$	2,446
State and municipal		53,841		3,592		(10	)		57,423
Mortgage-backed: residential		88,362		2,060		(136	)		90,286
Equity securities		23		0		(3	)		20
Total securities	$	144,656	$	5,668	$	(149	)	$	150,175
December 31, 2010
Available for sale:
U.S. Government and federal agency	$	2,954	$	21	$	0		$	2,975
State and municipal		44,656		833		(484	)		45,005
Corporate bonds and notes		1,487		29		0			1,516
Mortgage-backed: residential		86,001		2,766		(240	)		88,527
Equity securities		23		0		(13	)		10
Total securities	$	135,121	$	3,649	$	(737	)	$	138,033

17

The contractual maturity of securities available for sale at December 31, 2012 is shown below.

	One year or less			More than one to five years			More than five to ten years			More than ten years			Total securities
	Amortized Cost			Amortized Cost			Amortized Cost			Amortized Cost			Amortized Cost			Fair
	Average yield			Average yield			Average yield			Average yield			Average yield			value
	(Dollar amounts in thousands)
U.S. Government and	$	0		$	1,179		$	615		$	0		$	1,794		$	1,802
federal agency		0	%		1.38	%		4.54	%		0	%		2.46	%
State and municipal		1,340			3,495			20,393			25,718			50,946			55,179
		1.66	%		3.63	%		3.56	%		3.30	%		3.38	%
Mortgage-backed:
residential		164			3,171			52,779			6,789			62,903			64,638
		1.12	%		2.31	%		2.58	%		2.87	%		2.59	%
Total	$	1,504		$	7,845		$	73,787		$	32,507		$	115,643		$	121,619
		1.60	%		2.76	%		2.87	%		3.21	%		2.94	%

Restricted Equity Securities

As of December 31, 2012, the Bank held 24,855 shares of $100 par value Federal Home Loan Bank of Cincinnati (FHLB) stock, which are restricted-equity securities. FHLB stock represents an equity interest in the FHLB, but it does not have a readily determinable fair value. The stock can be sold at its par value only, and only to the FHLB or to another member institution. Member institutions are required to maintain a minimum stock investment in the FHLB, based on total assets, total mortgages, and total mortgage-backed securities.

As of December 31, 2012, the Bank held 14,714 shares of Federal Reserve Bank stock, with a carrying value of $736 thousand, which are restricted equity securities. The capital stock represents an equity interest in the Federal Reserve Bank, but does not have a readily determinable fair value. Member institutions are required to hold 6% of capital and surplus in Federal Reserve Bank stock at all times.

Total Liabilities

Total liabilities increased by $32.2 million or 8.9% from 2011 to 2012. This increase is primarily a result of a $26.4 million increase in deposits and a $8.5 million increase in repurchase agreements, partially offset by a decrease of $3.0 million in Federal Home Loan Bank advances.

Deposits

Deposits increased during 2012 by $26.4 million or 7.8%. The increase is primarily attributed to a growth in interest-bearing demand deposits of $9.4 million or 6.1% and noninterest-bearing demand deposits of $8.2 million or 11.6%. Much of the increase in this category is attributed to the Bank’s success in marketing our “Platinum Checking” and “Bonus Checking” accounts. Savings accounts increased by $6.3 million or 11.2% from the end of 2011 to the end of 2012. Time deposits increased by $2.5 million or 4.2%.

	Maturity of time deposits of $100,000 or more at December 31, 2012
	(Dollar amounts in thousands)
	Amount		Percent of Total
Time remaining to maturity:
Three months or less	$	2,936		16	%
Over three through 12 months		8,187		43	%
Over one year through 3 years		6,417		34	%
Over 3 years		1,410		7	%
	$	18,950		100	%

Liquidity and Capital Resources

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

18

The most liquid assets are cash and cash equivalents, which at year-end 2012 consisted of $27.6 million in cash and due from banks. At year-end 2011 cash and cash equivalents consisted of $15.2 million in cash and due from banks. Federal funds sold are overnight investments with correspondent banks, an investment and liquidity tool used to maximize earning assets. Securities classified as available for sale that are not pledged are another source of liquidity. We consider the Bank’s loans-to-deposits ratio to assess liquidity, seeking to cap the ratio of loans to deposits at 90%. The ratio of total loans to deposits at year-end 2012 was 73.3%. At the end of 2012 the fair value of securities available for sale was approximately $121.7 million, while the fair value of securities pledged was approximately $66.5 million, representing securities pledged to secure public deposits and repurchase agreements.

The Corporation’s operating activities, as described in the Consolidated Statements of Cash Flows in the attached consolidated financial statements, include net cash provided of $7.4 million in 2012, $6.3 million in 2011 and $5.1 million in 2010, generated principally from net income in those years. The Bank reported $17.0 and $17.6 million in originations and proceeds from sales of mortgage loans held for sale as operating activities in 2012.

The Corporation’s investing activities, as described in the Consolidated Statements of Cash Flows in the attached consolidated financial statements, consist primarily of loan originations and repayments, along with securities purchases, sales and maturities. In 2012, net cash used in investing activities was $26.1 million. Proceeds from the maturities and repayments securities, offset by purchases of securities provided $27.3 million. The increase in loans over the year utilized $53.8 million of cash. In 2011, net cash used in investing activities was $29.4 million. The purchase of securities, offset by maturities, repayments and sales accounted for the use of $10.6 million. Proceeds from the maturities and repayments of time deposits with other financial institutions provided $5.5 million.

The Corporation’s financing activities, as described in the Consolidated Statements of Cash Flows in the attached consolidated financial statements, include the solicitation and repayment of customer deposits, borrowings and repayments, treasury stock activity, and the payment of dividends. In 2012, net cash provided by financing activities was $31.2 million. The increase in deposits over the year provided $26.4 million of cash. The increase in short-term borrowings over the year provided $8.5 million of cash. At December 31, 2012, the Bank had $5.0 million of borrowings outstanding with FHLB, maturing in the year 2014. This amount represents a $3.0 million decrease from the $8.0 million that was owed at the end of 2011. Net cash provided by financing activities was $25.5 million in 2011. The increase in deposits during 2011 provided $31.5 million of cash. The maturity of FHLB borrowings used $12.0 million of cash during the year.

First National Bank has approximately $14.0 million available in short-term funding arrangements with its correspondent banks and the FHLB as of December 31, 2012. Additional information concerning FHLB borrowings and bank obligations under repurchase agreements is contained in Notes 9 and 10 of the consolidated financial statements of National Bancshares Corporation. The outstanding balances and related information about short-term borrowings, which consists almost entirely of securities sold under agreements to repurchase are summarized as follows:

	Year ended December 31,
	2012			2011			2010
	(Dollar amounts in thousands)
Balance at year-end	$	18,633		$	10,168		$	7,747
Average balance outstanding		11,604			9,071			8,032
Maximum month-end balance		18,633			11,114			12,083
Weighted-average rate at year-end		0.15	%		0.15	%		0.15	%
Average rate during the year		0.15	%		0.15	%		0.15	%

The Bank is subject to federal regulations imposing minimum capital requirements. Total risk-based capital, tier I risk-based capital, and tier I leverage capital ratios are monitored to assure compliance with regulatory capital requirements. At December 31, 2012, the Bank exceeded minimum risk-based and leverage capital ratio requirements. The Bank’s ratio of total capital to risk-based assets was 12.53% on December 31, 2012. The minimum required ratio to be considered adequately capitalized is 8%. Additional information concerning capital ratios at year-end 2012 and 2011 is contained in Note 15 of the consolidated financial statements.

19

Contractual Obligations

As discussed in the notes to National Bancshares Corporation’s consolidated financial statements, obligations exist to make payments under contracts, including borrowings. At December 31, 2012, the aggregate contractual obligations are outlined below:

					Payment due by period
			(Dollar amounts in thousands)
			One year		More than one		More than three		More than
	Total		or less		to three years		to five years		five years
Time deposits	$	62,174	$	34,180	$	23,343	$	4,651	$	0
Deposits without a stated maturity		304,895		304,895		0		0		0
Long-term obligations		5,000		0		5,000		0		0
Information system contract obligations		2,108		1,027		1,081		0		0
Operating lease obligations		145		51		94		0		0
	$	374,322	$	340,153	$	29,518	$	4,651	$	0

Off-Balance Sheet and Contingent Liabilities

Financial instruments, such as loan commitments, credit lines, and letters of credit are issued to satisfy customers’ financing needs. Ordinarily having fixed expiration dates, these commitments are agreements to provide credit or to support the credit of others, as long as conditions established in the contracts are satisfied. Off-balance-sheet risk in the form of potential credit loss exists up to the face amount of these instruments, although we do not expect losses. Since these commitments are viewed as loans, the same credit policies used for loans are used to evaluate making the commitments. These funding commitments by expiration period were as follows at year-end 2012:

	Expiration of funding commitments
	One year		More than
	or less		one year		Total
	(Dollar amounts in thousands)
Unused loan commitments	$	28,255	$	33,337	$	61,592
Commitment to make loans		6,996		0		6,996
Overdraft protection		12,264		0		12,264
Letters of credit		288		0		288
	$	47,803	$	33,337	$	81,140

Of the unused loan commitments, $1,992 are fixed-rate commitments, $66,884 are variable-rate commitments and $12,264 are related to automatic overdraft protection for checking accounts. Rates on unused fixed-rate loan commitments range from 3.75% to 7.5%. The funding commitments shown in the table above do not necessarily represent future cash requirements since experience demonstrates that a large percentage of funding commitments expire unused or partially used.

The Bank sells some of the loans it originates, particularly conventional fixed-rate residential mortgage loans. The loans are sold without recourse. The Bank has retained mortgage-servicing rights on approximately $22.6 million of residential mortgage loans sold.

Shareholders’ Equity

The $2.6 million or 6.0% increase in shareholders’ equity from year-end 2011 to year-end 2012 was caused by an increase in retained earnings of $2.1 million, and a $306 thousand increase in accumulated other comprehensive income, which resulted from an increase in the fair value of securities available for sale. Accumulated other comprehensive income represents the unrealized appreciation or depreciation (net of taxes) in the fair value of securities available for sale. Interest rate volatility, economic and interest rate conditions could cause material fluctuations in accumulated other comprehensive income. The dividend payout ratio for 2012 was 25.29% versus 27.03% in 2011.

National Bancshares Corporation is dependent on the Bank for earnings and funds necessary to pay dividends, and the payment of dividends, by the Bank to National Bancshares Corporation, is subject to bank regulatory restrictions. According to the National Bank Act and Office of the Comptroller of the Currency (OCC) Rule 5.64, a national bank may never pay a cash dividend without advance OCC approval if the amount of the dividend exceeds retained net income for the year and for the two preceding years (after any required transfers to surplus). The Bank could, without prior approval, pay dividends to the holding company of approximately $6.3 million as of December 31, 2012.

20

Interest Rate Sensitivity

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

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

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

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

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

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

Basis risk is the risk that changes in interest rates will cause interest-bearing deposit liabilities to reprice at a different rate than interest-bearing assets, creating an asset-liability mismatch. If for example, a bank lends at a rate which changes as the prime rate changes and finances the loan with deposits not tied to the prime rate as an index; it faces basis risk due to the possibility that the prime rate-deposit rate spread might change.

Economic Value of Equity

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

The Board of Directors has established revised limits on a decline in the economic value of equity (EVE) and earnings at risk (EAR) given changes in interest rates. These limits are that EVE shall not decline by more than 10%, 20%, 30% and 35% given a 1%, 2%, 3% and 4% increase or decrease in interest rates respectively and that EAR shall not be greater than 5%, 10%, 15% or 20% given a 1%, 2%, 3% or 4% increase or decrease in interest rates respectively. The following illustrates our equity at risk in the economic value of equity model.

21

December 31, 2012

Basis Point Change in Rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp	-300 bp	-400 bp
Increase (decrease) in EVE	(15.4	)%	(10.9	)%	(5.1	)%	(1.0	)%	(4.8	)%	nm	nm	nm

December 31, 2011

Basis Point Change in Rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp	-300 bp	-400 bp
Increase (decrease) in EVE	(18.7	)%	(13.3	)%	(6.3	)%	(1.1	)%	(8.2	)%	nm	nm	nm

nm – not meaningful

The Bank is in compliance with the interest rate risk policy limits related to EVE as of December 31, 2012 and 2011.

Earnings at Risk

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

The following illustrates the effect on earnings or EAR given rate increases of 100 to 400 basis points and decreases in interest rates of 100 to 400 basis points.

December 31, 2012

Basis Point Change in Rates	+ 400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp	-300 bp	-400 bp
Increase (decrease) in Earnings	(1.0	)%	(1.0	)%	(0.3	)%	(0.0	)%	(1.0	)%	nm	nm	nm

December 31, 2011

Basis Point Change in Rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp	-300 bp	-400 bp
Increase (decrease) in Earnings	(1.1	)%	(1.0	)%	(0.4	)%	(0.1	)%	(0.4	)%	nm	nm	nm

nm – not meaningful

The Bank is in compliance with the interest rate risk policy limits related to EAR as of December 31, 2012 and 2011.

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

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

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

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

22

Results of Operations

First National Bank derives substantially all of its income from banking and bank-related services, including interest earnings on residential real estate, commercial real estate, commercial and consumer loans and investment securities along with fee income from deposit services. National Bancshares Corporation’s business consists almost exclusively of acting as holding company for the Bank. First National Bank’s business consists primarily of gathering deposits and making loans, principally in Wayne, Stark, Summit, Medina and Holmes counties, Ohio.

Average Balances, Interest Rates and Yields

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

								Year ended December 31,
	2012							2011							2010
	Average				Yield/			Average				Yield/			Average				Yield/
	Balance		Interest		Cost			Balance		Interest		Cost			Balance		Interest		Cost
								(Dollars amounts in thousands)
Assets
Interest earning assets:
Securities:
Taxable	$	84,623	$	2,139		2.59	%	$	91,834	$	3,019		3.38	%	$	99,508	$	3,541		3.70	%
Nontaxable (1)		57,003		2,732		5.17	%		48,973		2,462		5.19	%		35,072		1,839		5.43	%
Interest bearing deposits		30,476		66		0.22	%		25,847		93		0.36	%		25,704		210		0.82	%
Net loans (including nonaccrual loans)		238,601		11,981		5.02	%		200,802		10,676		5.32	%		192,836		10,536		5.46	%
Total interest-earning assets		410,703		16,198		4.12	%		367,456		16,250		4.42	%		353,120		16,126		4.57	%
All other assets		25,109							30,815							27,689
Total assets	$	435,812						$	398,271						$	380,809
Liabilities and Shareholder’s Equity
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	164,537		701		0.43	%	$	148,611		766		0.52	%	$	123,993		683		0.55	%
Savings		57,766		84		0.15	%		53,688		81		0.15	%		48,721		62		0.13	%
Time, $100,000 and over		17,518		173		0.99	%		16,748		212		1.27	%		18,962		357		1.88	%
Time, other		44,137		572		1.30	%		47,471		691		1.46	%		55,742		1,086		1.95	%
Federal Home Loan Bank advances		7,221		188		2.60	%		9,915		256		2.58	%		24,652		984		3.99	%
Other funds purchased		11,621		44		0.38	%		9,661		44		0.46	%		9,115		47		0.52	%
Total interest-bearing liabilities		302,800		1,762		0.58	%		286,094		2,050		0.72	%		281,185		3,219		1.14	%
Demand deposits		84,387							67,968							56,657
Other liabilities		4,643							3,336							3,345
Shareholders’ equity		43,982							40,873							39,622
Total liabilities and shareholders’ equity	$	435,812						$	398,271						$	380,809
Net interest income (1)			$	15,156						$	14,200						$	12,907
Interest rate spread (2)						3.54	%						3.70	%						3.43	%
Net yield on interest-earning assets (3)						3.69	%						3.86	%						3.66	%
Ratio of average interest-earning assets to average interest-bearing liabilities						135.64	%						128.44	%						125.58	%

(1) Tax-equivalent basis

(2) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(3) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.

23

Rate/Volume Analysis

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

	2012 over 2011									2011 over 2010
(Dollar amounts in thousands)	Volume			Rate			Net change			Volume			Rate			Net change
Interest income
Securities:
Taxable	$	(242	)	$	(638	)	$	(880	)	$	(346	)	$	(176	)	$	(522	)
Nontaxable		201			69			270			643			(20	)		623
(tax-equivalent basis)
Interest bearing deposits		10			(37	)		(27	)		1			(118	)		(117	)
Loans (including nonaccrual loans)		1,898			(593	)		1,305			424			(284	)		140
Total interest income (tax-equivalent basis)	$	1,867		$	(1,199	)	$	668		$	722		$	(598	)	$	124
Interest expense
Deposits
Interest bearing checking	$	68		$	(133	)	$	(65	)	$	127		$	(44	)	$	83
Savings		6			(3	)		3			7			12			19
Time, $100,000 and over		8			(47	)		(39	)		(28	)		(117	)		(145	)
Time, other		(43	)		(76	)		(119	)		(120	)		(275	)		(395	)
Federal Home Loan Bank Advances		(70	)		2			(68	)		(381	)		(347	)		(728	)
Other funds purchased		7			(7	)		0			2			(5	)		(3	)
Total interest expense	$	(24	)	$	(264	)	$	(288	)	$	(393	)	$	(776	)	$	(1,169	)
Change in net interest income (tax-equivalent basis)*	$	1,891		$	(935	)	$	956		$	1,115		$	178		$	1,293

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

2012 versus 2011

During 2012, net income increased $199 thousand or 7.6% to $2.8 million. Accordingly, basic and diluted earnings per share increased from $1.18 per share in 2011 to $1.27 per share in 2012. Earnings for 2012 were positively impacted by an increase in net interest income and a decrease in noninterest expense partially offset by an increase in the provision for loan losses and an increase in income tax expense. Returns on average equity and average assets for the year ending December 31, 2012, were 6.39% and 0.65%, respectively, compared to 6.39% and 0.66% for the year ending December 31, 2011.

Interest and fees on loans increased $1,305 thousand or 12.2%, due to an increase in the average balance of loans in 2012, offset by a decrease in the yield on loans. Securities interest and dividend income decreased $702 thousand or 15.1% over 2011. Much of this decrease is attributable to decrease in the average balance of securities.

Interest expense decreased $288 thousand or 14.0% during 2012, as the Bank’s deposits and short-term borrowings were affected by the falling interest rate environment. The cost of interest-bearing liabilities fell from 0.72% in 2011 to 0.58% in 2012. Most of the growth in interest-bearing liabilities occurred in interest-bearing demand deposit accounts. The cost of interest-bearing demand deposits is relatively low compared to other interest-bearing liabilities. Interest expense on deposits decreased $220 thousand or 12.6% in 2012. Federal Home Loan Bank advances interest expense decreased $68 thousand or 26.6% as the amount of advances decreased from $8 million to $5 million during 2012.

The provision for loan losses was $1.4 million in 2012, compared to $600 thousand in 2011. The allowance for loan losses and the related provision for loan losses is based on management’s judgment and evaluation of the loan portfolio. The 2012 provision for loan losses was primarily related to the growth in the loan portfolio. Net charge-offs were $1.1 million for 2012, compared to $22 thousand for 2011. The charge-offs in 2012 relate primarily to changes in the collateral valuations based on information obtained in 2012 for two commercial real estate loan relationships. The properties, which were collateral for these two relationships, were subsequently transferred into other real estate owned after the Bank assumed ownership. The allowance as a percentage of loans decreased from 1.46% at December 31, 2011 to 1.26% at December 31, 2012. Classified loans have decreased from $12.1 million as of December 31, 2011 to $8.7 million as of December 31, 2012. Total nonperforming loans have decreased from $4.0 million as of December 31, 2011 to $1.2 million as of December 31, 2012. Management believes the current allowance for loan losses is adequate, however changing economic and other conditions may require future adjustments to the allowance for loan losses.

24

Noninterest income decreased $135 thousand or 4.5% during 2012. The change is primarily related to the decrease in securities gains (losses), net and gains on the sale of SBA loans partially offset by an increase in mortgage banking activities. In 2012, proceeds from sales of mortgage loans was $17.5 million, compared to $11.4 million in 2011. In 2011, $121,000 of income from the death benefit of an insurance policy was recorded in other noninterest income.

Noninterest expense was $12.4 million for the year ended December 31, 2012 compared to $12.7 million for 2011, a decrease of 2.8%. Professional and consulting expense, amortization of intangibles and Directors pension expense declined in 2012, partially offset by an increase in salaries and employee benefits, compared to 2011 levels.

Income tax expense was $551 thousand for the year ended December 31, 2012, representing an increase of $107 thousand compared to 2011. The change is primarily related to an increase in income before income taxes, partially offset by an increase in interest income derived from nontaxable securities.

2011 versus 2010

During 2011, net income increased $1.3 million or 97.1% to $2.6 million. Accordingly, basic and diluted earnings per share increased from $0.60 per share in 2010 to $1.18 per share in 2011. Earnings for 2011 were positively impacted by an increase in net interest income and a decrease in the provision for loan losses partially offset by an increase in noninterest expense and an increase in income tax expense. Returns on average equity and average assets for the year ending December 31, 2011, were 6.39% and 0.66%, respectively, compared to 3.34% and 0.35% for the year ending December 31, 2010.

Interest and fees on loans increased $140 thousand or 1.3%, due to an increase in the average balance of loans in 2011, offset by a decrease in the yield on loans. Securities interest and dividend income decreased $111 thousand or 2.3% over 2010. Much of this decrease is attributable to a lower yield on securities.

Interest expense decreased $1.2 million or 36.3% during 2011, as the Bank’s deposits and short-term borrowings were affected by the falling interest rate environment. The cost of interest-bearing liabilities fell from 1.14% in 2010 to 0.72% in 2011. Most of the growth in interest-bearing liabilities occurred in interest-bearing demand deposit accounts. The cost of interest-bearing demand deposits is relatively low compared to other interest-bearing liabilities. Interest expense on deposits decreased $438 thousand or 20.0% in 2011. Federal Home Loan Bank advances interest expense decreased $728 thousand or 74.0% as the amount of advances decreased from $15 million to $8 million during 2011.

The provision for loan losses was $600 thousand in 2011, compared to $2.2 million in 2010. The allowance for loan losses and the related provision for loan losses is based on management’s judgment and evaluation of the loan portfolio. The 2011 provision for loan losses was primarily related to the growth in the loan portfolio. Net charge-offs were $22 thousand for 2011, compared to $2.6 million for 2010. The charge-offs in 2010 relate primarily to two commercial loans totaling $1.7 million. One of the aforementioned loans was graded substandard and considered impaired as of December 31, 2009. Management allocated $500 thousand for the loan as of December 31, 2009. The allowance as a percentage of loans increased from 1.34% at December 31, 2010 to 1.46% at December 31, 2011. Classified loans have decreased from $12.5 million as of December 31, 2010 to $12.1 million as of December 31, 2011. Total nonperforming loans have decreased from $4.9 million as of December 31, 2010 to $4.0 million as of December 31, 2011. Management believes the current allowance for loan losses is adequate, however changing economic and other conditions may require future adjustments to the allowance for loan losses.

Noninterest income decreased $158 thousand or 5.0% during 2011. The change is primarily related to the decrease in securities gains (losses), net partially offset by gains on sale of SBA loans and the death benefit of a life insurance policy.

Noninterest expense was $12.7 million for the year ended December 31, 2011 compared to $11.8 million for 2010, an increase of 7.5%. Salaries and employee benefits, data processing and occupancy expense were higher in 2011, compared to 2010 levels. The increase in salaries and employee benefits is primarily related to an expansion of branch hours in late 2010. The increase in data processing is related to the increased customer usage of online banking, including bill-pay. The increase in net occupancy expense is primarily related to depreciation expense from property and equipment purchased in 2009 and 2010 during our office rebranding project.

Income tax expense was $444 thousand for the year ended December 31, 2011, representing an increase of $373 thousand compared to 2010. The change is primarily related to an increase in income before income taxes, partially offset by an increase in interest income derived from nontaxable securities.

25

Critical Accounting Policies

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

Allowance for Loan Losses

An allowance for loan losses recorded under generally accepted accounting principles is a valuation allowance for probable incurred credit losses, based on current information and events, increased by the provision for loan losses and decreased by charge-offs less recoveries. The amount of the allowance is a product of management’s judgment and it is inevitably imprecise. Estimating the allowance requires significant judgment and the use of estimates related to many factors, including the amount and timing of future cash flows on problem loans, estimated losses on pools of loans based on historical loss experience, and consideration of current economic trends and conditions, all of which are susceptible to significant change. Although management believes that the allowance for loan losses was adequate at December 31, 2012, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy and employment could result in increased levels of non-performing assets and charge-offs, increased loan loss provisions, and reductions in income. Additionally, as an integral part of the examination process, bank regulatory agencies periodically review a bank’s loan loss allowance. The Office of the Comptroller of the Currency (OCC) could require the recognition of additions to the loan loss allowance based on the OCC’s judgment of information available to it at the time of its examination of First National Bank.

Valuation of Securities

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

Goodwill

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

The Corporation performed a goodwill impairment analysis as of September 30, 2012. The fair value of the single reporting unit was determined to be greater than the carrying value. The fair value was determined by using estimated sales price multiples based on recent observable market transactions.

New Accounting Pronouncements

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

26

CONSOLIDATED BALANCE SHEETS

December 31, 2012 and 2011

(Dollar amounts in thousands, except per share data)

	2012			2011
ASSETS
Cash and due from banks	$	27,624		$	15,213
Time deposits with other financial institutions		0			246
Securities available for sale		121,650			150,175
Restricted equity securities		3,221			3,220
Loans held for sale		171			207
Loans, net of allowance for loan losses:
2012 – $3,400
2011 – $3,163		265,539			213,952
Premises and equipment, net		11,443			12,173
Goodwill		4,723			4,723
Accrued interest receivable		1,426			1,404
Bank owned life insurance		2,719			2,649
Other real estate owned		860			17
Other assets		1,458			2,107
	$	440,834		$	406,086
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Non-interest bearing	$	78,990		$	70,810
Interest bearing		288,079			269,854
Total deposits		367,069			340,664
Repurchase agreements		18,633			10,168
Federal Home Loan Bank advances		5,000			8,000
Accrued interest payable		206			219
Accrued expenses and other liabilities		4,605			4,290
Total liabilities		395,513			363,341
Commitments and contingent liabilities
Shareholders’ equity
Common stock, no par value; 6,000,000 shares authorized; 2,289,528 shares issued		11,447			11,447
Additional paid-in capital		4,888			4,815
Retained earnings		26,401			24,335
Treasury stock, at cost (69,563 and 76,259 shares)		(1,364	)		(1,495	)
Accumulated other comprehensive income		3,949			3,643
Total shareholders’ equity		45,321			42,745
	$	440,834		$	406,086

See accompanying notes.

27

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

	2012		2011			2010
Interest and dividend income
Loans, including fees	$	11,981	$	10,676		$	10,536
Securities:
Taxable		2,139		3,019			3,541
Nontaxable		1,803		1,625			1,214
Federal funds sold and other		66		93			210
Total interest and dividend income		15,989		15,413			15,501
Interest expense
Deposits		1,530		1,750			2,188
Short-term borrowings		44		44			47
Federal Home Loan Bank advances		188		256			984
Total interest expense		1,762		2,050			3,219
Net interest income		14,227		13,363			12,282
Provision for loan losses		1,374		600			2,229
Net interest income after provision for loan losses		12,853		12,763			10,053
Noninterest income
Checking account fees		1,042		1,085			1,125
Visa check card interchange fees		591		549			442
Deposit and miscellaneous service fees		384		321			338
Mortgage banking activities		560		256			285
Loss on sales of other real estate owned		4		(38	)		(24	)
Securities gains, net		0		214			661
Gain on sale of SBA loans		0		171			0
Death benefit from life insurance policy		0		121			0
Other		316		353			363
Total noninterest income		2,897		3,032			3,190
Noninterest expense
Salaries and employee benefits		6,164		6,025			5,550
Data processing		1,191		1,160			1,033
Net occupancy		1,403		1,480			1,231
FDIC assessment		309		362			520
Professional and consulting fees		432		637			685
Franchise tax		402		360			348
Maintenance and repairs		206		237			203
Amortization of intangibles		0		107			90
Telephone		221		242			237
Marketing		247		240			240
Director fees		201		188			193
Directors pension expense		88		181			98
Software license and maintenance fees		200		245			202
Postage and supplies		304		283			295
Other		1,020		992			922
Total noninterest expense		12,388		12,739			11,847
Income before income taxes		3,362		3,056			1,396
Income tax expense		551		444			71
Net income	$	2,811	$	2,612		$	1,325
Weighted average common shares outstanding		2,217,690		2,211,508			2,205,973
Weighted average diluted common shares outstanding		2,220,047		2,211,508			2,205,973
Basic and diluted earnings per common share	$	1.27	$	1.18		$	0.60

See accompanying notes.

28

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

	2012			2011			2010
Net income	$	2,811		$	2,612		$	1,325
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period		465			2,821			(195	)
Reclassification adjustment for losses (gains) included in net income		0			(214	)		(661	)
Tax effect		(159	)		(887	)		292
Total other comprehensive income (loss)		306			1,720			(564	)
Comprehensive income	$	3,117		$	4,332		$	761

See accompanying notes.

29

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

												Accumulated
			Additional									Other			Total
	Common		Paid-In			Retained			Treasury			Comprehensive			Shareholders’
	Stock		Capital			Earnings			Stock			Income			Equity
Balance at January 1, 2010	$	11,447	$	4,752		$	21,856		$	(1,639	)	$	2,487		$	38,903
Net income							1,325									1,325
Other comprehensive loss, net of tax													(564	)		(564	)
Cash dividends declared ($.32 per share)							(706	)								(706	)
Compensation expense under stock-based compensation plans				23												23
Balance at December 31, 2010		11,447		4,775			22,475			(1,639	)		1,923			38,981
Net income							2,612									2,612
Other comprehensive income, net of tax													1,720			1,720
Cash dividends declared ($.32 per share)							(706	)								(706	)
Stock awards issued from Treasury Shares (7,296 shares)							(46	)		144						98
Compensation expense under stock-based compensation plans				40												40
Balance at December 31, 2011		11,447		4,815			24,335			(1,495	)		3,643			42,745
Net income							2,811									2,811
Other comprehensive income, net of tax													306			306
Cash dividends declared ($.32 per share)							(711	)								(711	)
Stock awards issued from Treasury Shares (5,196 shares)							(25	)		102						77
Exercise of stock options (1,500 shares)							(9	)		29						20
Tax benefit (deficit) on exercise of options				(1	)											(1	)
Compensation expense under stock-based compensation plans				74												74
Balance at December 31, 2012	$	11,447	$	4,888		$	26,401		$	(1,364	)	$	3,949		$	45,321

See accompanying notes.

30

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

	2012			2011			2010
Cash flows from operating activities
Net income	$	2,811		$	2,612		$	1,325
Adjustments to reconcile net income to net cash from operating activities
Provision for loan losses		1,374			600			2,229
Deferred income taxes		(48	)		25			95
Depreciation, amortization and accretion		2,379			2,338			1,876
Earnings on Bank owned life insurance		(70	)		(87	)		(91	)
Death benefit from life insurance policy		0			(121	)		0
Restricted equity securities dividends		(1	)		(1	)		(1	)
Origination of mortgage loans held for sale		(16,994	)		(11,313	)		(11,889	)
Proceeds from sales of mortgage loans held for sale		17,590			11,362			12,490
Gain on sale of loans		(560	)		(256	)		(285	)
Net security gains		0			(214	)		(661	)
Loss on sale/write-down of other real estate owned		(4	)		38			24
Gain from the sale of loans guaranteed by SBA		0			(171	)		0
Compensation expense under stock-based compensation plans		150			138			23
Change in other assets and liabilities		781			1,331			(68	)
Net cash from operating activities		7,408			6,281			5,067
Cash flows from investing activities
Purchases of time deposits with other financial institutions		0			0			(984	)
Proceeds from time deposits with other financial institutions		246			5,451			8,867
Available for sale securities:
Maturities, repayments and calls		34,626			37,781			38,526
Sales		0			14,980			18,775
Purchases		(7,336	)		(63,364	)		(66,312	)
Purchases of premises and equipment		(165	)		(580	)		(4,241	)
Proceeds from the sale of loans guaranteed by SBA		0			2,360			0
Capitalized expenditures on other real estate owned		(55	)		0			0
Proceeds from sale of other real estate owned		439			56			113
Proceeds from the sale of an impaired loan		0			0			930
Purchase of loans		0			0			(1,184	)
Net change in loans to customers		(53,932	)		(26,110	)		1,350
Net cash from investing activities		(26,177	)		(29,426	)		(4,160	)
Cash flows from financing activities
Net change in deposits		26,405			31,530			17,761
Net change in short-term borrowings		8,465			1,697			(1,249	)
Proceeds from the exercise of stock options		20			0			0
Repayments Federal Home Loan Bank advances		(3,000	)		(7,000	)		(12,000	)
Dividends paid		(710	)		(706	)		(706	)
Net cash from financing activities		31,180			25,521			3,806
Net change in cash and cash equivalents		12,411			2,376			4,713
Beginning cash and cash equivalents		15,213			12,837			8,124
Ending cash and cash equivalents	$	27,624		$	15,213		$	12,837
Supplemental cash flow information:
Interest paid	$	1,775		$	2,143		$	3,315
Income taxes paid		585			420			537
Supplemental noncash disclosures:
Transfer from loans to other real estate owned		1,222			54			91
Issuance of stock awards		77			98			0

See accompanying notes.

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial statements include National Bancshares Corporation and its wholly-owned subsidiaries, First National Bank, Orrville, Ohio (Bank) and NBOH Properties, LLC, together referred to as “the Corporation.” NBOH Properties, LLC owns a multi-tenant commercial building in Fairlawn, Ohio. A portion of this building is utilized as our Fairlawn banking office. This activity is not considered material for segment reporting purposes. Intercompany transactions and balances are eliminated in consolidation.

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

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

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

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

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

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

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

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

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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

Interest income on real estate, real estate construction and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 or more days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to non-accrual status in accordance with the Corporation’s policy, typically after 90 days of non-payment.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is recorded as a reduction in principal, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Concentration of Credit Risk: Most of the Corporation’s business activity is with customers located within Wayne, Stark, Summit, Holmes and Medina Counties. Therefore, the Corporation’s exposure to credit risk is significantly affected by changes in the economy in these counties.

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

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

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

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

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Corporation utilizing weighted amounts applied to the twelve quarter moving average to a blended rate of the twelve quarter moving average and the twenty quarter moving average. This approach enhances the time frame over which we evaluate loss experience and emphasizes the most recent loss experience. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: commercial loans, commercial real estate loans, residential real estate loans, home equity loans and consumer loans.

The majority of the Corporation’s loan portfolio is commercial, commercial real estate, residential real estate, home equity and consumer loans made to individuals and businesses in the Corporation’s market area. Repayment of these loans is dependent on general economic conditions and unemployment levels in the Corporation’s market area.

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

Servicing Rights: When mortgage loans are sold, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Corporation compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

At December 31, 2012 and 2011, the servicing assets of the Corporation totaled $124 and $47, respectively, and are included with other assets on the consolidated balance sheets. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of the assets compared to carrying amount. Any impairment is reported as a valuation allowance, to the extent that fair value is less than the capitalized amount for a grouping. There was no valuation allowance impairment against servicing assets as of December 31, 2012, 2011 and 2010.

Servicing fee income is recorded when earned for servicing loans based on a contractual percentage of the outstanding principal or a fixed amount per loan. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $67, $92 and $76 for the years ended December 31, 2012, 2011 and 2010, respectively. Late fees and ancillary fees related to loan servicing are not material.

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

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

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

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

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

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

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

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

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

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

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

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

Earnings Per Common Share: Earnings per common share is net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options. 96,000, 84,500 and 89,000 stock options were not considered in computing diluted earnings per common share for 2012, 2011 and 2010 because they were antidilutive.

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

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

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank of $100 was required to meet regulatory reserve and clearing requirements at year-end 2012 and 2011. These balances do not earn interest.

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

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

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

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Adoption of New Accounting Standards: In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholder’s equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment changed the presentation of the components of comprehensive income for the Corporation as part of the consolidated statement of shareholder’s equity.

In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The effect of adopting this standard did not have a material effect on the Corporation’s operating results or financial condition.

NOTE 2 – SECURITIES

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

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
2012
U.S. Treasury and federal agency	$	1,794	$	8	$	0		$	1,802
State and municipal		50,946		4,241		(8	)		55,179
Mortgage-backed: residential		62,903		1,755		(20	)		64,638
Equity securities		23		8		0			31
Total securities available for sale	$	115,666	$	6,012	$	(28	)	$	121,650

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 2 – SECURITIES (continued)

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
2011
U.S. Treasury and federal agency	$	2,430	$	16	$	0		$	2,446
State and municipal		53,841		3,592		(10	)		57,423
Mortgage-backed: residential		88,362		2,060		(136	)		90,286
Equity securities		23		0		(3	)		20
Total securities available for sale	$	144,656	$	5,668	$	(149	)	$	150,175

	2012		2011			2010
Sales of available for sale securities were as follows:
Proceeds	$	0	$	14,980		$	18,775
Gross gains		0		216			679
Gross losses		0		(2	)		(26	)
Gross gains from calls		0		0			8

The tax provision (benefit) related to these net realized gains and losses was $0, $73 and $225, respectively.

The amortized cost and fair value of securities at year-end 2012 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities, are shown separately.

	Amortized
	Cost		Fair Value
Due in one year or less	$	1,340	$	1,351
Due from one to five years		4,674		4,862
Due from five to ten years		21,008		22,902
Due after ten years		25,718		27,866
Mortgage-backed: residential		62,903		64,638
Equity securities		23		31
	$	115,666	$	121,650

Securities pledged at year-end 2012 and 2011 had a fair value of $66,528 and $63,941 and were pledged to secure public deposits and repurchase agreements.

At year-end 2012 and 2011, there were no holdings of securities of any one issuer, other than the U.S. Government, and its agencies and corporations, in an amount greater than 10% of shareholders’ equity.

All mortgage-backed securities are issued by the United States government or any agency or corporation thereof as of December 31, 2012 and 2011.

Securities with unrealized losses at year-end 2012 and 2011, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Less Than 12 Months					12 Months or More				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Loss			Value		Loss		Value		Loss
2012
State and municipal	$	1,325	$	(8	)	$	0	$	0	$	1,325	$	(8	)
Mortgage-backed: residential		2,772		(20	)		0		0		2,772		(20	)
Total temporarily impaired	$	4,097	$	(28	)	$	0	$	0	$	4,097	$	(28	)

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 2 – SECURITIES (continued)

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
2011
State and municipal	$	366	$	(3	)	$	891	$	(7	)	$	1,257	$	(10	)
Mortgage-backed: residential		22,639		(136	)		0		0			22,639		(136	)
Equity		20		(3	)		0		0			20		(3	)
Total temporarily impaired	$	23,025	$	(142	)	$	891	$	(7	)	$	23,916	$	(149	)

Unrealized losses have not been recognized into income because the securities are of high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in market interest rates or normally expected market pricing fluctuations. The fair value of debt securities is expected to recover as the securities approach their maturity date.

National Bancshares Corporation equity securities are comprised of FHLMC preferred stock. An other than temporary impairment charge was taken on this investment in 2008, reducing the cost basis to $23. The fair value of these securities at December 31, 2012 and 2011 was $31 and $20, respectively.

NOTE 3 – LOANS

Loans at year end were as follows:

	2012			2011
Commercial real estate:
Commercial real estate	$	59,484		$	55,520
Secured by farmland		23,161			11,609
Construction and land development		8,682			4,822
Commercial:
Commercial and industrial		37,138			30,165
Agricultural production		12,107			3,721
Residential real estate:
One-to-four family		69,364			56,261
Multifamily		18,660			17,041
Construction and land development		959			683
Home equity		31,218			30,086
Consumer:
Auto:
Direct		5,436			3,866
Indirect		1,087			2,740
Other		1,780			980
		269,076			217,494
Unearned and deferred income		(137	)		(379	)
Allowance for loan losses		(3,400	)		(3,163	)
	$	265,539		$	213,952

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 3 – LOANS (Continued)

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending December 31, 2012:

				Commercial			Residential			Home
	Commercial			Real Estate			Real Estate			Equity			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	856		$	1,480		$	721		$	66		$	40		$	0	$	3,163
Provision for loan losses		342			837			108			81			6			0		1,374
Loans charged-off		(282	)		(525	)		(250	)		(91	)		(41	)		0		(1,189	)
Recoveries		10			1			5			9			27			0		52
Total ending allowance balance	$	926		$	1,793		$	584		$	65		$	32		$	0	$	3,400

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending December 31, 2011:

			Commercial		Residential			Home
	Commercial		Real Estate		Real Estate			Equity			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	460	$	1,267	$	675		$	100		$	53		$	30		$	2,585
Provision for loan losses		371		212		74			(9	)		(18	)		(30	)		600
Loans charged-off		0		0		(28	)		(26	)		(17	)		0			(71	)
Recoveries		25		1		0			1			22			0			49
Total ending allowance balance	$	856	$	1,480	$	721		$	66		$	40		$	0		$	3,163

Activity in the allowance for loan losses was as follows:

	2012			2011			2010
Beginning balance	$	3,163		$	2,585		$	2,906
Provision for loan losses		1,374			600			2,229
Loans charged-off		(1,189	)		(71	)		(2,576	)
Recoveries		52			49			26
Ending balance	$	3,400		$	3,163		$	2,585

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 3 – LOANS (Continued)

The recorded investment in loans includes the principal balance outstanding, net of unearned and deferred income and including accrued interest receivable. The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2012 and 2011:

			Commercial		Residential		Home
December 31, 2012	Commercial		Real Estate		Real Estate		Equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	0	$	33	$	0	$	0	$	0	$	0	$	33
Collectively evaluated for impairment		926		1,760		584		65		32		0		3,367
Total ending allowance balance	$	926	$	1,793	$	584	$	65	$	32	$	0	$	3,400
Recorded investment in loans:
Loans individually evaluated for impairment	$	20	$	1,478	$	43	$	0	$	0	$	0	$	1,541
Loans collectively evaluated for impairment		49,455		89,868		88,910		31,499		8,366		0		268,098
Total ending loans balance	$	49,475	$	91,346	$	88,953	$	31,499	$	8,366	$	0	$	269,639
			Commercial		Residential		Home
December 31, 2011	Commercial		Real Estate		Real Estate		Equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	151	$	183	$	182	$	0	$	0	$	0	$	516
Collectively evaluated for impairment		705		1,297		539		66		40		0		2,647
Total ending allowance balance	$	856	$	1,480	$	721	$	66	$	40	$	0	$	3,163
Recorded investment in loans:
Loans individually evaluated for impairment	$	597	$	2,420	$	320	$	0	$	0	$	0	$	3,337
Loans collectively evaluated for impairment		33,399		69,535		73,570		30,288		7,698		0		214,490
Total ending loans balance	$	33,996	$	71,955	$	73,890	$	30,288	$	7,698	$	0	$	217,827

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 3 – LOANS (Continued)

The following table presents loans individually evaluated for impairment by class of loans as of, and for the year ended December 31, 2012:

	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
December 31, 2012	Balance		Investment		Allocated		Investment
With no related allowance recorded:
Commercial real estate:
Commercial real estate	$	378	$	378	$	0	$	389
Construction and land development		1,154		1,057		0		1,375
Commercial:
Commercial and industrial		20		20		0		433
Residential real estate:
One-to-four family		43		43		0		44
With an allowance recorded:
Commercial real estate:
Construction and land development		43		43		33		43
Commercial:
Commercial and industrial		0		0		0		0
	$	1,638	$	1,541	$	33	$	2,284

For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.

The impact to interest income on impaired loans was not significant to the consolidated statements of income for the year ended December 31, 2012.

The following table presents loans individually evaluated for impairment by class of loans as of, and for the year ended December 31, 2011:

	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
December 31, 2011	Balance		Investment		Allocated		Investment
With no related allowance recorded:
Commercial real estate:
Commercial real estate	$	406	$	406	$	0	$	426
Construction and land development		1,252		1,252		0		1,923
Commercial:
Commercial and industrial		29		29		0		31
Residential real estate:
One-to-four family		46		46		0		49
With an allowance recorded:
Commercial real estate:
Commercial real estate		762		762		183		902
Commercial:
Commercial and industrial		568		568		151		509
Residential real estate:
One-to-four family		274		274		182		283
	$	3,337	$	3,337	$	516	$	4,123

The impact to interest income on impaired loans was not significant to the consolidated statements of income for the year ended December 31, 2011.

The average of individually impaired loans as of, and for the year ended December 31, 2010 was $3,888. The impact to interest income on impaired loans was not significant to the consolidated statements of income for the year ended December 31, 2010.

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 3 – LOANS (Continued)

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

The following table presents the recorded investment in nonaccrual and loans past due 90 or more days still on accrual by class of loans as of December 31, 2012 and 2011:

					Loans Past Due 90 or
	Nonaccrual				More Days Still Accruing
	2012		2011		2012		2011
Commercial real estate:
Commercial real estate	$	421	$	1,168	$	0	$	0
Construction and land development		249		1,252		0		0
Commercial:
Commercial and industrial		20		596		0		0
Residential real estate:
One-to-four family		43		438		469		181
Home equity		0		382		0		0
Consumer:
Auto:
Direct		0		0		2		0
	$	733	$	3,836	$	471	$	181

The following table presents the aging of the recorded investment in past due loans as of December 31, 2012 by class of loans:

	30 - 59		60 - 89		90 or More
	Days		Days		Days		Total		Loans Not
	Past Due		Past Due (1)		Past Due (2)		Past Due		Past Due (3)		Total
Commercial real estate:
Commercial real estate	$	38	$	217	$	204	$	459	$	59,001	$	59,460
Secured by farmland		0		0		0		0		23,218		23,218
Construction and land development		0		0		0		0		8,668		8,668
Commercial:
Commercial and industrial		156		0		20		176		37,090		37,266
Agricultural production		9		0		0		9		12,200		12,209
Residential real estate:
One-to-four family		191		0		491		682		68,663		69,345
Multifamily		0		0		0		0		18,650		18,650
Construction and land development		0		0		0		0		958		958
Home equity		14		40		0		54		31,445		31,499
Consumer:
Auto:
Direct		57		0		2		59		5,400		5,459
Indirect		0		10		0		10		1,114		1,124
Other		1		0		0		1		1,782		1,783
	$	466	$	267	$	717	$	1,450	$	268,189	$	269,639

(1) Includes $217 thousand of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $471 thousand of loans past due 90 or more days still on accrual.

(3) Includes $270 thousand of loans on nonaccrual status.

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 3 – LOANS (Continued)

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

	30 - 59		60 - 89		90 or More
	Days		Days		Days		Total		Loans Not
	Past Due (1)		Past Due		Past Due (2)		Past Due		Past Due (3)		Total
Commercial real estate:
Commercial real estate	$	0	$	30	$	922	$	952	$	54,557	$	55,509
Secured by farmland		0		0		0		0		11,628		11,628
Construction and land development		856		0		396		1,252		3,566		4,818
Commercial:
Commercial and industrial		37		0		597		634		29,581		30,215
Agricultural production		0		0		0		0		3,781		3,781
Residential real estate:
One-to-four family		245		297		572		1,114		55,094		56,208
Multifamily		0		0		0		0		17,001		17,001
Construction and land development		0		0		0		0		681		681
Home equity		0		0		382		382		29,906		30,288
Consumer:
Auto:
Direct		1		0		0		1		3,896		3,897
Indirect		17		0		0		17		2,804		2,821
Other		14		0		0		14		966		980
	$	1,170	$	327	$	2,869	$	4,366	$	213,461	$	217,827

(1) Includes $856 thousand of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $181 thousand of loans past due 90 or more days still on accrual.

(3) Includes $292 thousand of loans on nonaccrual status.

Troubled Debt Restructuring

As of period ending December 31, 2012, certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The Corporation has two commercial loans with a balance of $1,082 that were individually evaluated for impairment whose loan terms have been modified in troubled debt restructurings as of December 31, 2012. There is $42 in specific reserves that have been allocated for these loans as of December 31, 2012. The Corporation has not committed to lend any additional amounts as of December 31, 2012 to customers with outstanding loans that are classified as troubled debt restructurings. The Corporation had commercial loans with balances of $2,517 that were individually evaluated for impairment whose loan terms have been modified in troubled debt restructurings as of December 31, 2011. $300 of specific reserve was allocated for these loans.

There were no loans modified as troubled debt restructurings that experienced payment default following the modification within the last twelve months. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Corporation’s internal underwriting policy.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 3 – LOANS (Continued)

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

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial real estate:
Commercial real estate	$	54,057	$	1,891	$	3,512	$	0	$	59,460
Secured by farmland		23,218		0		0		0		23,218
Construction and land development		7,854		190		624		0		8,668
Commercial:
Commercial and industrial		34,827		929		1,510		0		37,266
Agricultural production		12,209		0		0		0		12,209
Residential real estate:
One-to-four family		0		18		43		0		61
	$	132,165	$	3,028	$	5,689	$	0	$	140,882

As of December 31, 2011, the risk category of loans by class of loans is as follows:

			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial real estate:
Commercial real estate	$	50,080	$	2,229	$	3,200	$	0	$	55,509
Secured by farmland		11,628		0		0		0		11,628
Construction and land development		2,729		196		1,893		0		4,818
Commercial:
Commercial and industrial		25,965		2,442		1,808		0		30,215
Agricultural production		3,781		0		0		0		3,781
Residential real estate:
One-to-four family		0		20		341		0		361
	$	94,183	$	4,887	$	7,242	$	0	$	106,312

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 3 – LOANS (Continued)

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2012:

	Consumer						Residential Real Estate
											One-to-four		Home
	Direct		Indirect		Other		Construction		Multifamily		Family		Equity		Total
Performing	$	5,457	$	1,124	$	1,783	$	958	$	18,650	$	68,793	$	31,499	$	128,264
Nonperforming		2		0		0		0		0		491		0		493
	$	5,459	$	1,124	$	1,783	$	958	$	18,650	$	69,284	$	31,499	$	128,757

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2011:

	Consumer						Residential Real Estate
											One-to-four		Home
	Direct		Indirect		Other		Construction		Multifamily		Family		Equity		Total
Performing	$	3,897	$	2,821	$	980	$	681	$	17,001	$	55,275	$	29,906	$	110,561
Nonperforming		0		0		0		0		0		572		382		954
	$	3,897	$	2,821	$	980	$	681	$	17,001	$	55,847	$	30,288	$	111,515

NOTE 4 – LOAN SERVICING

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

	2012		2011
Mortgage loan portfolios serviced for:
FHLMC	$	22,623	$	16,373

There were no custodial escrow balances maintained in connection with serviced loans at year-end 2012 and 2011.

Activity for mortgage servicing rights follows:

	2012			2011			2010
Servicing rights:
Beginning of year	$	47		$	76		$	115
Additions		112			4			5
Amortized to expense		(35	)		(33	)		(44	)
End of year	$	124		$	47		$	76

NOTE 5 – PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

	2012			2011
Land	$	1,758		$	1,758
Buildings		11,914			11,893
Furniture, fixtures and equipment		5,319			5,242
		18,991			18,893
Less: Accumulated depreciation		(7,548	)		(6,720	)
	$	11,443			12,173

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 5 – PREMISES AND EQUIPMENT (Continued)

Depreciation expense was $895, $932 and $748 in 2012, 2011 and 2010.

Rent expense under operating leases included in occupancy was $11, $21 and $37 for the years ended December 31, 2012, 2011 and 2010. Future lease payments are not material.

NOTE 6 – GOODWILL

During 2002, the Corporation acquired Peoples Financial Corporation and merged the Corporation’s banking operations into the Bank. Goodwill of $4,723 was realized from this transaction.

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

Our annual impairment analysis as of September 30, 2012, indicated that the Step 2 analysis was not necessary. Step 2 of the goodwill impairment test is performed to measure the impairment loss. Step 2 requires that the implied fair value of the reporting unit goodwill be compared to the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

NOTE 7 – REAL ESTATE OWNED

Real estate owned activity was as follows:

	2012			2011			2010
Beginning balance	$	18		$	58		$	104
Loans transferred to real estate owned		1,222			54			91
Capitalized expenditures		55			0			0
Sales of real estate owned		(435	)		(94	)		(137	)
End of year	$	860		$	18		$	58

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 8 – DEPOSITS

	2012		2011
Demand, noninterest-bearing	$	78,990	$	70,810
Demand, interest-bearing		163,852		154,410
Savings		62,053		55,781
Time, $100,000 and over		18,950		15,305
Time, other		43,224		44,358
	$	367,069	$	340,664

A summary of time deposits at year-end 2012 by maturity follows:

2013	$	34,180
2014		18,298
2015		5,045
2016		4,588
2017		63
	$	62,174

NOTE 9 – FEDERAL HOME LOAN BANK ADVANCES

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

	2012		2011
Maturities in 2012, fixed rate at 2.00%	$	0	$	3,000
Maturities in 2014, fixed rate at 2.86% to 2.88%		5,000		5,000
	$	5,000	$	8,000

Each advance is payable at its maturity date; advances may be paid prior to maturity subject to a prepayment penalty. As collateral for the advances, the Bank has approximately $66,324 and $52,779 of first mortgage loans available under a blanket lien arrangement at year-end 2012 and 2011.

Required payments over the next five years are:

2014 2.86% to 2.88% $ 5,000

NOTE 10 – REPURCHASE AGREEMENTS

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

	2012			2011			2010
Average balance during the year	$	11,604		$	9,071		$	8,032
Average interest rate during the year		0.15	%		0.15	%		0.15	%
Maximum month-end balance during the year	$	18,633		$	11,114		$	12,083
Weighted average rate at year-end		0.15	%		0.15	%		0.15	%

NOTE 11 – BENEFIT PLANS

The Corporation has a 401(k) retirement plan that covers substantially all employees. The plan allows employees to contribute up to a predetermined amount, subject to certain limitations. Matching contributions may be made in amounts and at times determined by the Corporation. Total matching discretionary contributions made by the Corporation during 2012, 2011 and 2010 amounted to $65, $54 and $57.

The Corporation has an Employee Stock Purchase Incentive Plan for full-time and most part-time employees. Under the Plan, each employee is entitled to receive a cash payment equal to 20% of the purchase price of Corporation common stock acquired by the employee on the open market, up to a maximum of 500 shares per calendar year. Expenses recognized in 2012, 2011 and 2010 amounted to $3, $1 and $2.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 11 – BENEFIT PLANS (Continued)

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

Interest credited to participant accounts associated with the deferrals was $6, $8 and $8 in 2012, 2011 and 2010. The deferred directors’ fee liability was $131 at December 31, 2012 and $164 at December 31, 2011. Expense recognized in 2012, 2011 and 2010 for the director retirement and death benefit plan was $88, $172 and $79. The liability related to the plan was $900 at December 31, 2012 and $849 at December 31, 2011.

NOTE 12 – INCOME TAXES

The components of deferred taxes were as follows:

	2012			2011
Deferred tax assets:
Bad debts	$	996		$	915
Deferred compensation		361			348
FHLMC preferred stock impairment loss		151			151
Nonaccrual loan interest income		87			112
Deferred loan fees		84			165
Stock-based compensation		67			43
Accrued bonus		37			23
Deferred income		33			33
Real estate owned write-down		0			38
Total	$	1,816		$	1,831
Deferred tax liabilities:
Unrealized security gains, net	$	2,035		$	1,876
Depreciation		829			911
Federal Home Loan Bank stock dividends		542			542
Purchase accounting adjustments		64			66
Mortgage servicing rights		45			26
Prepaid expenses		14			9
Partnership income		0			3
Total		3,529			3,433
Net deferred tax liability	$	(1,713	)	$	(1,602	)

Federal income tax laws provided that the 2002 acquired entity could claim additional bad debt deductions through 1987, totaling $1.9 million. Accounting standards do not require a deferred tax liability to be recorded on this amount, which liability otherwise would total $646 at December 31, 2012. If the Bank were liquidated or otherwise ceases to be a bank or if tax laws were to change, this amount would be expensed.

The components of income tax expense are as follows:

	2012			2011		2010
Current	$	599		$	419	$	(24	)
Deferred		(48	)		25		95
	$	551		$	444	$	71

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 12 – INCOME TAXES (Continued)

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

	2012						2011						2010
	Rate			Amount			Rate			Amount			Rate			Amount
Tax at federal statutory rate		34	%	$	1,143			34	%	$	1,039			34	%	$	475
Tax-exempt income		(17	)		(580	)		(17	)		(513	)		(29	)		(399	)
Other		0			(12	)		(2	)		(82	)		0			(5	)
Income tax expense		17	%	$	551			15	%	$	444			5	%	$	71

As of December 31, 2012 and December 31, 2011, the Corporation had no unrecognized tax benefits or accrued interest and penalties recorded. The Corporation does not expect the amount of unrecognized tax benefits to significantly increase within the next twelve months. The Corporation records interest and penalties as a component of income tax expense.

The Corporation and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of Ohio for National Bancshares. The Bank is subject to tax in Ohio based upon its net worth. The Corporation is no longer subject to examination by state taxing authorities for years prior to 2009.

NOTE 13 – RELATED-PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates during 2012 were as follows:

Beginning balance	$	2,148
Effect of changes in composition of related parties		120
New loans		113
Repayments		(1,036	)
Ending balance	$	1,345

Unused commitments to these related parties totaled $2,326 and $1,729 at year-end 2012 and 2011. Related party deposits totaled $5,545 and $3,697 at year-end 2012 and 2011.

The Corporation has minority ownership in a title agency affiliated with a Director resulting in fee income to the Corporation of $0, $4 and $35 for 2012, 2011 and 2010, respectively.

NOTE 14 – STOCK-BASED COMPENSATION

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

Stock Option Awards

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

In May 2008, the Corporation granted options to purchase 58,000 shares of stock to directors and certain key officers, 40,000 of which remained outstanding at December 31, 2012. The exercise price of the options is $18.03 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. None of these options have been exercised as of December 31, 2012.

In October 2010, the Corporation granted options to purchase 43,000 shares of stock to directors and certain key officers, of which 35,200 remained outstanding at December 31, 2012. The exercise price of the options is $13.22 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. 1,500 of these options have been exercised as of December 31, 2012.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 14 – STOCK-BASED COMPENSATION (Continued)

In January 2012, the Corporation granted options to purchase 58,000 shares of stock to directors and certain key officers, of which 56,000 remained outstanding at December 31, 2012. The exercise price of the options is $14.10 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. None of these options have been exercised as of December 31, 2012.

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

The fair value of options granted and the assumptions used for grants in 2012 and 2010 were as follows:

	2012			2010
Fair value of options granted	$	1.77		$	2.53
Risk-free interest rate		1.39	%		1.49	%
Expected term (years)		7.0			6.5
Expected stock price volatility		16.40	%		24.67	%
Dividend yield		2.27	%		2.42	%

A summary of the activity in the stock option plan for 2012 follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at beginning of year		84,500		$	15.70
Granted		58,000			14.10
Exercised		(1,500	)		13.22
Forfeited or expired		(9,800	)		14.88
Outstanding at end of year		131,200		$	15.06		7.6	$	131
Fully expected to vest		82,800		$	14.19		7.7	$	102
Exercisable at end of year		48,400		$	16.56		6.2	$	29

Information related to the exercise of stock options follows:

	2012
Intrinsic value of options exercised	$	3
Cash received from option exercises		20
Tax benefit (deficit) realized from option exercises		(1	)

The total compensation cost that has been charged against income for the plan was $74, $40 and $23 for 2012, 2011 and 2010. The total income tax benefit was $25, $14 and $8 for 2012, 2011 and 2010. There was $79, $60 and $117 of total unrecognized compensation cost related to nonvested stock options granted under the Plan as of December 31, 2012, 2011 and 2010. The cost is expected to be recognized over a weighted-average period of 3.6 years.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 14 – STOCK-BASED COMPENSATION (Continued)

Restricted Stock Awards

On January 3, 2011, the Corporation granted restricted stock awards for 3,744 shares of the Corporation’s common stock to certain directors in lieu of cash payment of fees. The awards vested immediately and the compensation expense related to the awards of $50 was recorded in 2010. The fair value of the stock was determined using closing market price of the Corporation’s common stock on the date of the grant.

On July 1, 2011, the Corporation granted restricted stock awards for 3,552 shares of the Corporation’s common stock to certain directors in lieu of cash payment of fees. The awards vested immediately and the compensation expense related to the awards of $48 was recorded in 2011. The fair value of the stock was determined using closing market price of the Corporation’s common stock on the date of the grant.

On January 3, 2012, the Corporation granted restricted stock awards for 3,330 shares of the Corporation’s common stock to certain directors in lieu of cash payment of fees. The awards vested immediately and the compensation expense related to the awards of $49 was recorded in 2011. The fair value of the stock was determined using closing market price of the Corporation’s common stock on the date of the grant.

On July 2, 2012, the Corporation granted restricted stock awards for 1,866 shares of the Corporation’s common stock to certain directors in lieu of cash payment of fees. The awards vested immediately and the compensation expense related to the awards of $28 was recorded in 2012. The fair value of the stock was determined using closing market price of the Corporation’s common stock on the date of the grant.

NOTE 15 – REGULATORY CAPITAL MATTERS

Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of December 31, 2012, the Bank meets all capital adequacy requirements to which it is subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2012 and 2011, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

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

											To Be Well
						Required					Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2012
Total capital to risk weighted assets	$	36,989		12.53	%	$	23,626		8.00	%	$	29,532		10.00	%
Tier 1 capital to risk weighted assets		33,589		11.37	%		11,813		4.00	%		17,719		6.00	%
Tier 1 capital to average assets		33,589		7.59	%		17,713		4.00	%		22,142		5.00	%

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 15 – REGULATORY CAPITAL MATTERS (Continued)

											To Be Well
						Required					Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2011
Total capital to risk weighted assets	$	34,367		13.85	%	$	19,847		8.00	%	$	24,809		10.00	%
Tier 1 capital to risk weighted assets		31,256		12.60	%		9,923		4.00	%		14,885		6.00	%
Tier 1 capital to average assets		31,256		7.78	%		16,069		4.00	%		20,086		5.00	%

Dividend Restrictions—The Corporation’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. The Bank could, without prior approval, pay dividends to the holding Corporation of approximately $6,298 as of December 31, 2012.

NOTE 16 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

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

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

	2012		2011
Commitments to make loans	$	6,996	$	3,376
Unused lines of credit		61,592		46,862
Overdraft protection		12,264		11,664
Letters of credit		288		266

Of the above unused instruments at December 31, 2012, approximately $1,992 pertains to fixed-rate commitments, variable-rate commitments account for approximately $66,884 and $12,264 are related to automatic overdraft protection for checking accounts. At year-end 2011, approximately $2,256 of total commitments were fixed-rate, approximately $48,248 were variable rate and $11,664 were related to automatic overdraft protection for checking accounts. Rates on fixed-rate unused lines of credit ranged from 3.75% to 7.5% at December 31, 2012 and 5.00% to 6.75% at December 31, 2011.

NOTE 17 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

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

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

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

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 17 – FAIR VALUE (Continued)

The Corporation used the following methods and significant assumptions to estimate fair value:

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

Interest Rate Swaps: The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2).

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

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Corporation. Once received, a member of the Credit Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

Assets and Liabilities Measured on a Recurring Basis

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

	Fair Value Measurements
	At December 31, 2012 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Securities available for sale:
U.S. Government and federal agency	$	0	$	1,802	$	0
State and municipal		0		55,179		0
Mortgage-backed securities—residential		0		64,638		0
Equity securities		31		0		0
Interest rate swaps		0		29		0

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 17 – FAIR VALUE (Continued)

	Fair Value Measurements
	At December 31, 2012 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Liabilities:
Interest rate swaps	$	0	$	29	$	0

	Fair Value Measurements
	At December 31, 2011 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Securities available for sale:
U.S. Government and federal agency	$	0	$	2,446	$	0
State and municipal		0		53,937		3,486
Mortgage-backed securities—residential		0		90,270		16
Equity securities		20		0		0
Interest rate swaps		0		46		0

	Fair Value Measurements
	At December 31, 2011 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Liabilities:
Interest rate swaps	$	0	$	46	$	0

The following table presents the activity in security pricing using significant unobservable inputs (Level 3) during 2012:

	2012			2011
Beginning Balance	$	3,502		$	320
State and Municipal:
Purchases		0			2,588
Maturities		(2,984	)		0
Transfers from Level 2 to Level 3		0			898
Transfers from Level 3 to Level 2		(502	)		(300	)
Mortgage-backed securities:
Principal repayments		(3	)		(4	)
Transfers from Level 3 to Level 2		(13	)		0
Ending balance	$	0		$	3,502

Two state and municipal securities with a fair value of $502 as of December 31, 2012 were transferred from Level 3 to Level 2 because observable market data became available for securities with similar characteristics. The Company’s policy is to recognize transfers into or out of a level as of the end of the reporting period.

The Company’s state and municipal security valuations were supported by analysis prepared by an independent third party. The third party uses Interactive Data Corporation (IDC) as the primary source for security valuations. IDC’s evaluations are based on market data. IDC utilizes evaluated pricing models that vary based by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. IDC evaluators follow multiple review processes to assess the available market, credit, and deal level information to support the evaluation process. If they determine sufficient objectively verifiable information is not available to support a valuation, they will discontinue evaluating that security. Given this approach, the state and municipal security with the pricing source of IDC is considered level 2.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 17 – FAIR VALUE (Continued)

For level 3 investments, the Company uses significant unobservable inputs that reflect a reporting entity’s own assumptions that market participants would use in pricing an asset or liability. The Company uses different valuation processes such as market approach, income approach, or the cost approach.

Assets and Liabilities Measured on a Non-Recurring Basis

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

	Fair Value Measurements
	At December 31, 2012 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Commercial	$	0	$	0	$	0
Commercial and land development		0		0		10
One-to-four family		0		0		0
Other real estate owned		0		0		0
Loan servicing rights		0		0		0

	Fair Value Measurements
	At December 31, 2011 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Commercial	$	0	$	0	$	417
Commercial and land development		0		0		974
One-to-four family		0		0		92
Other real estate owned		0		0		18
Loan servicing rights		0		0		47

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal amount of $43, with a valuation allowance of $33 at December 31, 2012. Impaired loans had an additional provision for loan loss of $584 for the year ended December 31, 2012.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal amount of $1,999, with a valuation allowance of $516 at December 31, 2011, resulting in an additional provision for loan loss of $247 for the year ended December 31, 2011.

There was no valuation allowance related to other real estate property at December 31, 2012. There were no write-downs of other real estate in 2012. Other real estate owned measured at fair value less costs to sell, had a net carrying amount of $18, which is made up of the outstanding balance of $131, net of a valuation allowance of $113 at December 31, 2011. The property was written-down $38 in 2011.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 17 – FAIR VALUE (Continued)

The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2012:

					Range
			Valuation	Unobservable	(Weighted
	Fair value		Technique(s)	Input(s)	Average)
Impaired loans – Commercial and land development	$	10	Sales comparison approach	Adjustment for differences between comparable sales		30	%

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

	Carrying
	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	27,624	$	27,624	$	0	$	0	$	27,624
Securities available for sale		121,650		31		121,619		0		121,650
Restricted equity securities		3,221		na		na		na		na
Loans, net		265,539		0		0		267,080		267,080
Loans held for sale		171		0		171		0		171
Accrued interest receivable		1,426		0		704		722		1,426
Interest rate swaps		29		0		29		0		29
Financial liabilities
Deposits	$	367,069	$	304,895	$	62,749	$	0	$	367,644
Short-term borrowings		18,633		0		18,633		0		18,633
Federal Home Loan Bank advances		5,000		0		5,182		0		5,182
Accrued interest payable		206		35		171		0		206
Interest rate swaps		29		0		29		0		29

December 31, 2011	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	15,213	$	15,213
Time deposits with other financial institutions		246		246
Securities available for sale		150,175		150,175
Restricted equity securities		3,220		na
Loans, net		213,952		215,490
Accrued interest receivable		1,404		1,404
Interest rate swaps		46		46

	Carrying		Fair
	Amount		Value
Financial liabilities
Deposits	$	340,664	$	341,356
Short-term borrowings		10,168		10,168
Federal Home Loan Bank advances		8,000		8,299
Accrued interest payable		219		219
Interest rate swaps		46		46

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 17 – FAIR VALUE (Continued)

The methods and assumptions used to estimate fair value on the preceding tables are described as follows:

(a) Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified Level 1.

(b) Restricted Equity Securities: It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(c) Loans: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

(d) Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(e) Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

(f) Federal Home Loan Bank advances: The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

(g) Accrued interest receivable/payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification that is consistent with the associated asset or liability.

(h) Off-balance sheet instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

NOTE 18 – DERIVATIVES

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

The Corporation implemented a program in 2009 whereby it lends to its borrowers at a fixed rate with the loan agreement containing a two-way yield maintenance provision. The program has one participant as of December 31, 2012. If the borrower prepays the loan, the yield maintenance provision will result in a prepayment penalty or benefit depending on the interest rate environment at the time of the prepayment. This provision represents an embedded derivative which is required to be bifurcated from the host loan contract. As a result of bifurcating the embedded derivative, the Corporation records the transaction with the borrower as a floating rate loan and a pay floating / receive fixed interest-rate swap. To offset the risk of the interest-rate swap with the borrower, the Corporation enters into an interest-rate swap with an outside counterparty that mirrors the terms of the interest-rate swap between the Corporation and the borrower. Both interest-rate swaps are carried as freestanding derivatives with their changes in fair value reported in current earnings. The interest-rate swaps are not designated as hedges. The change in the fair value of the interest-rate swap between the Corporation and its borrower was a decrease of $17 for the year ended December 31, 2012, which was offset by an equal increase in value during the year ended December 31, 2012 on the interest-rate swap with an outside counterparty, with the result that there was no net impact on income in 2012.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 18 – DERIVATIVES (Continued)

Summary information about the interest-rate swaps not designated as hedges between the Corporation and its borrower is as follows:

	2012			2011
Notional amount	$	1,358		$	1,423
Weighted average receive rate		5.33	%		5.33	%
Weighted average pay rate		3.47	%		3.31	%
Weighted average maturity (years)		1.0			2.0
Fair value of interest-rate swap	$	29		$	46

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

	2012			2011
Notional amount	$	1,358		$	1,423
Weighted average pay rate		5.33	%		5.33	%
Weighted average receive rate		3.47	%		3.31	%
Weighted average maturity (years)		1.0			2.0
Fair value of interest-rate swap	$	(29	)	$	(46	)

The fair value of the interest-rate swaps at year-end is reflected in other assets and other liabilities with a corresponding offset to noninterest income.

NOTE 19 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following is a summary of the accumulated other comprehensive income balances, net of tax:

	Balance at		Current		Balance at
	December 31,		Year		December 31,
	2011		Change		2012
Unrealized gains on securities
Available for sale	$	3,643	$	306	$	3,949

NOTE 20 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

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

CONDENSED BALANCE SHEETS

	December 31,
	2012		2011
ASSETS
Cash and cash equivalents	$	510	$	520
Investment in bank subsidiary		42,278		39,645
Investment in real estate subsidiary		2,393		2,466
Securities available for sale		31		20
Other assets		304		271
Total assets	$	45,516	$	42,922
LIABILITIES AND SHAREHOLDERS’ EQUITY
Dividends payable	$	178	$	177
Other Liabilities		17		0
Shareholders’ equity		45,321		42,745
Total liabilities and shareholders’ equity	$	45,516	$	42,922

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 20 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Years ended December 31,
	2012			2011			2010
INCOME
Dividends from bank subsidiary	$	600		$	0		$	0
Dividends from real estate subsidiary		90			0			0
Total income		690			0			0
EXPENSES
Miscellaneous expense		(101	)		(60	)		(48	)
Income (loss) before income tax benefit and undistributed subsidiary income		589			(60	)		(48	)
Income tax benefit		34			21			16
Undistributed equity in net income of bank subsidiary		2,261			2,652			1,385
Undistributed equity in (distributions in excess of) net income (loss) of real estate subsidiary		(73	)		(1	)		(28	)
Net income	$	2,811		$	2,612		$	1,325
Comprehensive income	$	3,117		$	4,332		$	761

CONDENSED STATEMENTS OF CASH FLOWS

	Years ended December 31,
	2012			2011			2010
Cash flows from operating activities
Net income	$	2,811		$	2,612		$	1,325
Adjustments to reconcile net income to net cash from operating activities:
Equity in undistributed net income of bank subsidiary		(2,261	)		(2,652	)		(1,385	)
Equity in undistributed net loss of real estate subsidiary		0			1			28
Distributions in excess of net income of real estate subsidiary		73			0			0
Change in other assets and liabilities		58			76			(16	)
Net cash from operating activities		681			37			(48	)
Cash flows from investing activities
Investment in real estate subsidiary		0			(125	)		(2,370	)
Net cash from investing activities		0			(125	)		(2,370	)
Cash flows from financing activities
Proceeds from the exercise of stock options		20			0			0
Dividends paid		(711	)		(706	)		(706	)
Net cash from financing activities		(691	)		(706	)		(706	)
Net change in cash		(10	)		(794	)		(3,124	)
Beginning cash and cash equivalents		520			1,314			4,438
Ending cash and cash equivalents	$	510		$	520		$	1,314

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2012, 2011 and 2010

(Dollar amounts in thousands, except per share data)

NOTE 21 – SUBSEQUENT EVENTS

On February 1, 2013, the Bank and NBOH Properties, LLC entered into a Purchase and Assumption Agreement (“Agreement”) with Premier Bank and Trust (“Premier”) that provides for the sale of certain assets and assumption of certain liabilities relative to the Bank’s retail office location in Fairlawn, Ohio. Under the terms of the Agreement, Premier will purchase the multi-tenant commercial building owned by NBOH Properties, LLC, with a carrying value of $2,300, for $1,100. Premier will also purchase certain assets of the branch, including lease hold improvements and fixtures and equipment and loans with a carrying value of approximately $10,000 and a fair value of approximately $9,922, while assuming certain deposits with a carrying value of approximately $16,000. Premier will also pay a premium of 5.25% based on the average amount of assumed deposits during a specified period. The transaction, which is subject to regulatory approvals and other customary closing conditions, is expected to be completed in June, 2013. The aggregate asset disposal group is expected to result in a loss recorded in 2013.

61

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

National Bancshares Corporation

Orrville, Ohio

We have audited the accompanying consolidated balance sheets of National Bancshares Corporation as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2012. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012 in conformity with U.S. generally accepted accounting principles.

Crowe Horwath LLP

Cleveland, Ohio

March 18, 2013

62

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63

REPORT OF MANAGEMENT ON THE CORPORATION’S

INTERNAL CONTROL OVER FINANCIAL REPORTING

March 18, 2013

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

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

Management of National Bancshares Corporation, including the Chief Executive Officer and the Chief Financial Officer, has assessed the Corporation’s internal control over financial reporting as of December 31, 2012, based on criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that the Corporation’s internal control over financial reporting was effective as of December 31, 2012, based on the specified criteria.

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

Mark R. Witmer	James R. VanSickle
Chief Executive Officer	Chief Financial Officer

64

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

Set forth below is a line graph comparing the yearly percentage change in the cumulative total shareholder return on National Bancshares’ Common Stock against the cumulative return of the S&P 500 Stock Index and the S&P 500 Bank Index for the period of five fiscal years commencing December 31, 2007 and ended December 31, 2012. The graph assumes that the value of the investment in National Bancshares Common Stock and each index was $100 of December 31, 2007 and that all dividends were reinvested.

	2007		2008		2009		2010		2011		2012
National Bancshares Corp	$	100.00		81.73		94.51		88.34		101.39		107.77
S&P 500 Stock Index*	$	100.00		63.00		79.67		91.68		93.61		108.59
S&P 500 Banks Index*	$	100.00		52.51		49.05		58.78		52.48		65.19

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

65

PRICE RANGE OF COMMON STOCK

National Bancshares Corporation common stock is traded on the OTC Bulletin Board under the symbol “NBOH.” The OTC Bulletin Board is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter equity securities. A summary of the high and low prices of and cash dividends paid on National Bancshares Corporation common stock in 2012 and 2011 follows. This information does not reflect retail mark-up, markdown or commissions, and does not necessarily represent actual transactions.

	High		Low		Dividends per share
2012
First Quarter	$	15.40	$	13.81	$	.08
Second Quarter		16.65		14.70		.08
Third Quarter		15.83		14.94		.08
Fourth Quarter		15.27		14.42		.08
2011
First Quarter	$	15.65	$	12.52	$	.08
Second Quarter		14.65		13.39		.08
Third Quarter		14.92		13.35		.08
Fourth Quarter		14.92		13.49		.08

SHAREHOLDER INFORMATION

Corporate Office

National Bancshares Corporation

112 West Market Street, PO Box 57

Orrville, OH 44667

www.discoverfirstnational.com

Stock Trading Information

The shares of common stock of National Bancshares

Corporation are traded on the OTC Bulletin Board. The

ticker symbol for National Bancshares Corporation

is “NBOH.” The Corporation had 799 shareholders of

Record as of December 31, 2012.

Form 10-K

A copy of the Corporation’s 2012 Annual Report on Form

10-K as filed with the SEC will be furnished free of charge

to shareholders upon written request to the Corporation.

Shareholder Assistance

National Bancshares Corporation

Shareholder Services Department

Ellen Gerber, Shareholder Relations

330-765-0609

ellengerber@discoverfirstnational.com

Transfer Agent

Registrar and Transfer Company

10 Commerce Drive

Cranford, NJ 07016

1-800-368-5948

info@rtco.com

www.rtco.com

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

66

CURRENT OFFICERS

NATIONAL BANCSHARES CORPORATION

Mark R. Witmer, President and Chief Executive Officer

James R. VanSickle, Senior Vice President and Chief Financial Officer

FIRST NATIONAL BANK

Mark R. Witmer, President and Chief Executive Officer

Business Banking

Thomas R. Poe, Executive Vice President, Senior Loan Officer

John L. Falatok, Senior Vice President

Andrew J. Estock, Vice President

John R. Macks, Vice President

John D. Shultz, Jr., Vice President

Darrell L. Smucker, Vice President

Amy R. Holbrook, Assistant Vice President

Credit Administration, Managed Assets, Consumer Lending and Loan Operations

Richard A. White, Senior Vice President, Senior Credit Officer

Kathryn J. Barnes, Assistant Vice President, Credit Officer

Dallas W. Falb, Credit Officer

Mindy L. Henderson, Assistant Vice President, Loan Operations Officer, CRA Officer

Patricia Massaro, Consumer Credit Officer

Lisa M. West, Consumer Credit Officer

Agribusiness and Community Banking

Thomas R. Stocksdale, Senior Vice President

Harold D. Berkey, Vice President

Dean M. Karhan, Assistant Vice President

Retail Banking, Mortgage and Consumer Lending and Loan Operations

John P. Hall, Senior Vice President, Retail Sales and Business Development

Michael J. Marzich, Vice President, Mortgage and Consumer Lending

Cynthia A. Wagner, Vice President, Office Manager II

Kimberly A. Wolfe, Vice President, Mortgage Operations

Heather L. Kiner, Assistant Vice President, Office Manager II

Jill R. Wachtel, Assistant Vice President, Office Manager II

Amberly M. Wolf, Assistant Vice President, Retail Banking, Security Officer

Corporate

James R. VanSickle, Senior Vice President, Chief Financial Officer

Michael G. Oberhaus, Senior Vice President, Chief Risk Officer

James T. Griffith, Vice President, Information Technology

Pamela S. Null, Vice President, Auditor

Maria A. Roush, Vice President, Compliance & BSA Officer

Angela L. Smith, Controller

Jodi R. Blair, Deposit Operations Officer

Ellen L. Gerber, Administrative Officer, Assistant Secretary, Human Resource Manager

67

CURRENT BOARD OF DIRECTORS	FIRST NATIONAL BANK OFFICES
NATIONAL BANCSHARES CORPORATION &
FIRST NATIONAL BANK
John P. Cook, CPA, Ph.D Partner/Shareholder, Long, Cook & Samsa, Inc. Bobbi E. Douglas Executive Director, STEPS at Liberty Center Every Woman’s House John W. Kropf Chairman of the Board, National Bancshares Corporation First National Bank Attorney, Kropf, Wagner, L.L.P. John L. Muhlbach, Jr. Vice President, A.A. Hammersmith, Inc. Victor B. Schantz President, Schantz Organ Company Steve Schmid President, Schmid Incorporated Dairy Enterprises, Inc. PVD LLC James R. Smail Chairman/Director J.R. Smail, Inc. Poulson Drilling, Inc. Monitor Ranch, Inc. Monitor Bancorp, Inc. Mark R. Witmer President & CEO National Bancshares Corporation First National Bank Howard J. Wenger President Wenger Excavating, Inc. Lake Region Oil, Inc. Northstar Asphalt, Inc. Massillon Materials, Inc. Stark Materials, Inc. Albert W. Yeagley Retired, Vice President, Industry & Government Affairs The J. M. Smucker Company	Orrville 112 West Market Street 330-682-1010 1320 West High Street 330-682-2881 1720 North Main Street CASH ATM ONLY Apple Creek 7227 East Lincoln Way 330-264-8070 Dalton 12 West Main Street 330-828-2227 Fairlawn 3085 West Market Street 330-475-1363 Kidron 4950 Kidron Road 330-857-3101 Lodi 106 Ainsworth Street 330-948-1414 Massillon 211 Lincoln Way East 330-832-7441 2312 Lincoln Way N.W. 330-833-1622 Mt. Eaton 15974 East Main Street 330-359-3105 or 330-857-4301 Seville 4885 Atlantic Drive 330-769-3105 Smithville 153 East Main Street 330-669-2611 Wooster 4192 Burbank Road 330-263-5303 1725 Cleveland Road 330-263-1725

68

EX-14.1

Exhibit 14.1

NATIONAL BANCSHARES CORPORATION

CODE OF BUSINESS CONDUCT AND ETHICS

PURPOSE

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

GENERAL OBJECTIVE

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

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

POLICY ELEMENTS

AUTHORITY

Personal Responsibility

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

SPECIFIC GOALS

Reporting Ethical, Legal or Financial Integrity Concerns

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

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

Integrity of Recording and Reporting our Financial Results

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

Avoiding Conflicts of Interest

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

Insider Trading

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

Obeying the Law

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

Offering/Accepting Gifts, Entertainment, Bribes or Kickbacks

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

Protecting Our Assets and Confidentiality

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

Selling to Governments

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

Political Contributions

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

Competing Ethically

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

Respecting Diversity and Fair Employment Practices

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

RISK MANAGEMENT

Waivers of the Code

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

EX-14.2

Exhibit 14.2

CODE OF ETHICAL CONDUCT

FOR FINANCE PERSONNEL AND OFFICERS

PURPOSE

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

DEFINITIONS

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

SPECIFIC GOALS

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

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

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

• Comply with applicable financial rules and regulations.

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

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

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

EX-21

Exhibit 21

Subsidiaries of National Bancshares Corporation

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

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 033-63005 on Form S-3 of National Bancshares Corporation of our report dated March 18, 2013 relating to the consolidated financial statements, which report is incorporated by reference in Form 10-K for the National Bancshares Corporation for the year ended December 31, 2012.

/s/ Crowe Horwath LLP

Crowe Horwath LLP

Cleveland, Ohio

March 29, 2013

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Mark R. Witmer, certify that:

1. I have reviewed this Annual Report on Form 10-K of National Bancshares Corporation (the “registrant”);

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

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

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

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 29, 2013	/s/ Mark R. Witmer
	Mark R. Witmer
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, James R. VanSickle, certify that:

1. I have reviewed this Annual Report on Form 10-K of National Bancshares Corporation (the “registrant”);

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

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

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

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 29, 2013	/s/ James R. VanSickle
	James R. VanSickle
	Senior Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ENACTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of National Bancshares Corporation (the “Corporation”) for the period ending December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Mark R. Witmer, President and Chief Executive Officer of the Corporation, and James R. VanSickle, Senior Vice President and Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

This Certification is executed as of March 29, 2013.

/s/ Mark R. Witmer

Mark R. Witmer

President and Chief Executive Officer

/s/ James R. VanSickle

James R. VanSickle

Sr. Vice President and Chief Financial Officer

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Schedule of components of deferred taxes

	2012			2011
Deferred tax assets:
Bad debts	$	996		$	915
Deferred compensation		361			348
FHLMC preferred stock impairment loss		151			151
Nonaccrual loan interest income		87			112
Deferred loan fees		84			165
Stock-based compensation		67			43
Accrued bonus		37			23
Deferred income		33			33
Real estate owned write-down		0			38
Total	$	1,816		$	1,831
Deferred tax liabilities:
Unrealized security gains, net	$	2,035		$	1,876
Depreciation		829			911
Federal Home Loan Bank stock dividends		542			542
Purchase accounting adjustments		64			66
Mortgage servicing rights		45			26
Prepaid expenses		14			9
Partnership income		0			3
Total		3,529			3,433
Net deferred tax liability	$	(1,713	)	$	(1,602	)

Schedule of components of income tax expense

	2012			2011		2010
Current	$	599		$	419	$	(24	)
Deferred		(48	)		25		95
	$	551		$	444	$	71

Schedule of reconciliation of income tax at federal statutory rate to effective rate of tax on financial statements

	2012						2011						2010
	Rate			Amount			Rate			Amount			Rate			Amount
Tax at federal statutory rate		34	%	$	1,143			34	%	$	1,039			34	%	$	475
Tax-exempt income		(17	)		(580	)		(17	)		(513	)		(29	)		(399	)
Other		0			(12	)		(2	)		(82	)		0			(5	)
Income tax expense		17	%	$	551			15	%	$	444			5	%	$	71

XML

Loans (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Loans at year end
Loans and Leases Receivable, Gross	$ 269,076	$ 217,494
Unearned and deferred income	(137)	(379)
Allowance for loan losses	(3,400)	(3,163)	(2,585)	(2,906)
Loans and leases receivable, net amount	265,539	213,952
Commercial real estate [Member] | Commercial real estate [Member]
Loans at year end
Loans and Leases Receivable, Gross	59,484	55,520
Secured by farm land [Member] | Commercial real estate [Member]
Loans at year end
Loans and Leases Receivable, Gross	23,161	11,609
Construction and Land Development [Member] | Commercial real estate [Member]
Loans at year end
Loans and Leases Receivable, Gross	8,682	4,822
Construction and Land Development [Member] | Residential real estate [Member]
Loans at year end
Loans and Leases Receivable, Gross	959	683
Commercial and industrial [Member] | Commercial [Member]
Loans at year end
Loans and Leases Receivable, Gross	37,138	30,165
Agricultural production [Member] | Commercial [Member]
Loans at year end
Loans and Leases Receivable, Gross	12,107	3,721
One-to-four Family [Member] | Residential real estate [Member]
Loans at year end
Loans and Leases Receivable, Gross	69,364	56,261
Multifamily [Member] | Residential real estate [Member]
Loans at year end
Loans and Leases Receivable, Gross	18,660	17,041
Home Equity [Member] | Residential real estate [Member]
Loans at year end
Loans and Leases Receivable, Gross	31,218	30,086
Auto Direct [Member] | Consumer [Member]
Loans at year end
Loans and Leases Receivable, Gross	5,436	3,866
Auto Indirect [Member] | Consumer [Member]
Loans at year end
Loans and Leases Receivable, Gross	1,087	2,740
Other [Member] | Consumer [Member]
Loans at year end
Loans and Leases Receivable, Gross	$ 1,780	$ 980

XML

Summary of Significant Accounting Policies (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summary of Significant Accounting Policies (Textual) [Abstract]
Maturity of cash and deposits with other banks	90 days
Maturity period of interest bearing deposits	8 months
Real estate construction and Commercial loans discontinued	90 days
Consumer loans past due	120 days
Accrual loans and loans past due	90 days
Commercial and commercial real estate loans	$ 250
Servicing assets of the Corporation	124	47
Servicing fees	67	92	76
Income tax benefit	50.00%
Stock options excluded from computing of diluted earnings per common share	96,000	84,500	89,000
Cash on hand or on deposit with the Federal Reserve Bank	100	100
Period of discontinuation of interest on loan	90 days
Valuation allowance impairment against servicing assets	0	0	0
Minimum [Member]
Property, Plant and Equipment [Line Items]
Aggregate total borrowing exceeds	$ 250
Buildings and related components [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Premises and Equipment Useful lives	39 years
Buildings and related components [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Premises and Equipment Useful lives	7 years
Furniture, fixtures and equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Premises and Equipment Useful lives	7 years
Furniture, fixtures and equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Premises and Equipment Useful lives	3 years

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Real Estate Owned (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summary of real estate owned activity
Beginning balance	$ 18	$ 58	$ 104
Loans transferred to real estate owned	1,222	54	91
Capitalized expenditures	55	0	0
Sales of real estate owned	(435)	(94)	(137)
End of year	$ 860	$ 18	$ 58

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Loans (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Activity in the allowance for loan losses by portfolio segment
Beginning balance	$ 3,163	$ 2,585
Provision for loan losses	1,374	600
Loans charged-off	(1,189)	(71)
Recoveries	52	49
Ending balance	3,400	3,163
Commercial [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	856	460
Provision for loan losses	342	371
Loans charged-off	(282)	0
Recoveries	10	25
Ending balance	926	856
Residential real estate [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	721	675
Provision for loan losses	108	74
Loans charged-off	(250)	(28)
Recoveries	5	0
Ending balance	584	721
Home Equity [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	66	100
Provision for loan losses	81	(9)
Loans charged-off	(91)	(26)
Recoveries	9	1
Ending balance	65	66
Consumer [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	40	53
Provision for loan losses	6	(18)
Loans charged-off	(41)	(17)
Recoveries	27	22
Ending balance	32	40
Unallocated [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	0	30
Provision for loan losses	0	(30)
Loans charged-off	0	0
Recoveries	0	0
Ending balance	0	0
Commercial real estate [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	1,480	1,267
Provision for loan losses	837	212
Loans charged-off	(525)	0
Recoveries	1	1
Ending balance	$ 1,793	$ 1,480

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Benefit Plans (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 Age	Dec. 31, 2011	Dec. 31, 2010
Benefit Plans (Textual) [Abstract]
Total matching discretionary contributions	$ 65	$ 54	$ 57
Percentage of cash payment under Employee Stock	20.00%
Retirement benefit provided to each director	1
Maximum age of getting annual retirement benefit	70
Directors fees until retirement by option of deferring	5
Interest credited	6	8	8
Expense recognized for director retirement and death benefit plan	88	172	79
Deferred directors fee liability	131	164
Liability related to plan	900	849
Employee Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock acquisition	500
Expenses	$ 3	$ 1	$ 2

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Parent Company Only Condensed Financial Information (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities
Net income	$ 2,811	$ 2,612	$ 1,325
Adjustments to reconcile net income to net cash from operating activities
Change in other assets and liabilities	781	1,331	(68)
Net cash from operating activities	7,408	6,281	5,067
Cash flows from investing activities
Net cash from investing activities	(26,177)	(29,426)	(4,160)
Cash flows from financing activities
Proceeds from the exercise of stock options	20	0	0
Dividends paid	(710)	(706)	(706)
Net cash from financing activities	31,180	25,521	3,806
Net change in cash	12,411	2,376	4,713
Beginning cash and cash equivalents	15,213	12,837	8,124
Ending cash and cash equivalents	27,624	15,213	12,837
Parent Company [Member]
Cash flows from operating activities
Net income	2,811	2,612	1,325
Adjustments to reconcile net income to net cash from operating activities
Equity in undistributed net income of bank subsidiary	(2,261)	(2,652)	(1,385)
Equity in undistributed net loss of real estate subsidiary	73	1	28
Distributions in excess of net income of real estate subsidiary	73	0	0
Change in other assets and liabilities	58	76	(16)
Net cash from operating activities	681	37	(48)
Cash flows from investing activities
Investment in real estate subsidiary	0	(125)	(2,370)
Net cash from investing activities	0	(125)	(2,370)
Cash flows from financing activities
Proceeds from the exercise of stock options	20	0	0
Dividends paid	(711)	(706)	(706)
Net cash from financing activities	(691)	(706)	(706)
Net change in cash	(10)	(794)	(3,124)
Beginning cash and cash equivalents	520	1,314	4,438
Ending cash and cash equivalents	$ 510	$ 520	$ 1,314

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Accumulated Other Comprehensive Income (Loss) (Tables)

12 Months Ended

Dec. 31, 2012

Accumulated Other Comprehensive Income (Loss) [Abstract]

Summary of the accumulated other comprehensive income balances net of tax

	Balance at		Current		Balance at
	December 31,		Year		December 31,
	2011		Change		2012
Unrealized gains on securities
Available for sale	$	3,643	$	306	$	3,949

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Loan Servicing (Tables)

12 Months Ended

Dec. 31, 2012

Loans / Loan Servicing / Loan Commitments and Other Related Activities [Abstract]

Mortgage loans serviced for others

	2012		2011
Mortgage loan portfolios serviced for:
FHLMC	$	22,623	$	16,373

Summary of mortgage servicing rights

	2012			2011			2010
Servicing rights:
Beginning of year	$	47		$	76		$	115
Additions		112			4			5
Amortized to expense		(35	)		(33	)		(44	)
End of year	$	124		$	47		$	76

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deferred tax assets:
Bad debts	$ 996	$ 915
Deferred compensation	361	348
FHLMC preferred stock impairment loss	151	151
Nonaccrual loan interest income	87	112
Deferred loan fees	84	165
Stock-based compensation	67	43
Accrued bonus	37	23
Deferred income	33	33
Real estate owned write-down	0	38
Total	1,816	1,831
Deferred tax liabilities:
Unrealized security gains, net	2,035	1,876
Depreciation	829	911
Federal Home Loan Bank stock dividends	542	542
Purchase accounting adjustments	64	66
Mortgage servicing rights	45	26
Prepaid expenses	14	9
Partnership income	0	3
Total	3,529	3,433
Net deferred tax liability	$ (1,713)	$ (1,602)

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Federal Home Loan Bank Advances (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Advances from the Federal Home Loan Bank
Maturities in 2012, fixed rate at 2.00%	$ 0	$ 3,000
Maturities in 2014, fixed rate at 2.86% to 2.88%	5,000	5,000
Total	$ 5,000	$ 8,000

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Regulatory Capital Matters (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Actual and required capital amounts and ratios for the Bank
Capital to risk weighted assets, Actual Amount	$ 36,989	$ 34,367
Capital to risk weighted assets, Actual Ratio	12.53%	13.85%
Capital to risk weighted assets, Capital Adequacy Amount	23,626	19,847
Capital to risk weighted assets, Capital Adequacy Ratio	8.00%	8.00%
Capital to risk weighted assets, To Be Well Capitalized Amount	29,532	24,809
Capital to risk weighted assets, To Be Well Capitalized Ratio	10.00%	10.00%
Tier 1 capital to risk weighted assets, Actual Amount	33,589	31,256
Tier 1 capital to risk weighted assets, Actual Ratio	11.37%	12.60%
Tier 1 capital to risk weighted assets, Capital Adequacy Amount	11,813	9,923
Tier 1 capital to risk weighted assets, Capital Adequacy Ratio	4.00%	4.00%
Tier 1 capital to risk weighted assets to Be Well Capitalized Amount	17,719	14,885
Tier 1 capital to risk weighted assets to Be Well Capitalized Ratio	6.00%	6.00%
Tier 1 capital to average assets, Actual Amount	33,589	31,256
Tier 1 capital to average assets, Actual Ratio	7.59%	7.78%
Tier 1 capital to average assets, Capital Adequacy Amount	17,713	16,069
Tier 1 capital to average assets, Capital Adequacy Ratio	4.00%	4.00%
Tier 1 capital to average assets, To Be Well Capitalized Amount	$ 22,142	$ 20,086
Tier 1 capital to average assets, To Be Well Capitalized Ratio	5.00%	5.00%

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Loans (Details 3) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$ 33	$ 516
Collectively evaluated for impairment	3,367	2,647
Total ending allowance balance	3,400	3,163	2,585
Recorded investment in loans:
Loans individually evaluated for impairment	1,541	3,337
Loans collectively evaluated for impairment	268,098	214,490
Total ending loans balance	269,639	217,827
Commercial [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0	151
Collectively evaluated for impairment	926	705
Total ending allowance balance	926	856	460
Recorded investment in loans:
Loans individually evaluated for impairment	20	597
Loans collectively evaluated for impairment	49,455	33,399
Total ending loans balance	49,475	33,996
Residential real estate [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0	182
Collectively evaluated for impairment	584	539
Total ending allowance balance	584	721	675
Recorded investment in loans:
Loans individually evaluated for impairment	43	320
Loans collectively evaluated for impairment	88,910	73,570
Total ending loans balance	88,953	73,890
Home Equity [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	65	66
Total ending allowance balance	65	66	100
Recorded investment in loans:
Loans individually evaluated for impairment	0	0
Loans collectively evaluated for impairment	31,499	30,288
Total ending loans balance	31,499	30,288
Consumer [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	32	40
Total ending allowance balance	32	40	53
Recorded investment in loans:
Loans individually evaluated for impairment	0	0
Loans collectively evaluated for impairment	8,366	7,698
Total ending loans balance	8,366	7,698
Unallocated [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	0	0
Total ending allowance balance	0	0	30
Recorded investment in loans:
Loans individually evaluated for impairment	0	0
Loans collectively evaluated for impairment	0	0
Total ending loans balance	0	0
Commercial real estate [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	33	183
Collectively evaluated for impairment	1,760	1,297
Total ending allowance balance	1,793	1,480	1,267
Recorded investment in loans:
Loans individually evaluated for impairment	1,478	2,420
Loans collectively evaluated for impairment	89,868	69,535
Total ending loans balance	$ 91,346	$ 71,955

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Repurchase Agreement (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Repurchase agreements
Average balance during the year	$ 11,604	$ 9,071	$ 8,032
Average interest rate during the year	0.15%	0.15%	0.15%
Maximum month-end balance during the year	$ 18,633	$ 11,114	$ 12,083
Weighted average rate at year-end	0.15%	0.15%	0.15%

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Stock-Based Compensation (Details 1) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Activity in the stock option plan
Outstanding at beginning of year, Shares	84,500
Granted, Shares	58,000
Exercised, Shares	(1,500)
Forfeited or expired, Shares	(9,800)
Outstanding at end of year, Shares	131,200
Fully expected to vest, Shares	82,800
Exercisable at end of year, Shares	48,400
Outstanding at beginning of year, Weighted Average Exercise Price	$ 15.70
Granted, Weighted Average Exercise Price	$ 14.10
Exercised, Weighted Average Exercise Price	$ 13.22
Forfeited or expired, Weighted Average Exercise Price	$ 14.88
Outstanding at end of year, Weighted Average Exercise Price	$ 15.06
Fully expected to vest, Weighted Average Exercise Price	$ 14.19
Exercisable at end of year, Weighted Average Exercise Price	$ 16.56
Outstanding at end of year, Weighted Average Remaining Contractual Term	7 years 7 months 6 days
Fully expected to vest, Weighted Average Remaining Contractual Term	7 years 8 months 12 days
Exercisable at end of year, Weighted Average Remaining Contractual Term	6 years 2 months 12 days
Outstanding at end of year, Aggregate Intrinsic Value	$ 131
Fully expected to vest value, Aggregate Intrinsic Value	102
Exercisable at end of year value, Aggregate Intrinsic Value	$ 29

XML

Income Taxes (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Schedule of reconciliation of income tax at federal statutory rate to effective rate of tax on financial statements
Tax at federal statutory rate	34.00%	34.00%	34.00%
Tax-exempt income	(17.00%)	(17.00%)	(29.00%)
Other	0.00%	(2.00%)	0.00%
Income tax expense, Rate, Total	17.00%	15.00%	5.00%
Tax at federal statutory rate, Amount	$ 1,143	$ 1,039	$ 475
Tax-exempt income, Amount	(580)	(513)	(399)
Other, Amount	(12)	(82)	(5)
Income Tax Expense Total	$ 551	$ 444	$ 71

XML

Stock-Based Compensation (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Exercise of stock options
Intrinsic value of options exercised	$ 3
Cash received from option exercises	20
Tax benefit (deficit) realized from option exercises	$ (1)

XML

Repurchase Agreement (Details Textual)	12 Months Ended
	Dec. 31, 2012
Repurchase Agreements (Textual) [Abstract]
Maturity period of Repurchase agreements	30 days

XML

Deposits (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deposits
Demand, noninterest-bearing	$ 78,990	$ 70,810
Demand, interest-bearing	163,852	154,410
Savings	62,053	55,781
Time, $100,000 and over	18,950	15,305
Time, other	43,224	44,358
Total deposits	$ 367,069	$ 340,664

XML

Fair Value

12 Months Ended

Dec. 31, 2012

Fair Value [Abstract]

FAIR VALUE

NOTE 17 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

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

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

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

The Corporation used the following methods and significant assumptions to estimate fair value:

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

Interest Rate Swaps: The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2).

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

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Corporation. Once received, a member of the Credit Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

Assets and Liabilities Measured on a Recurring Basis

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

	Fair Value Measurements
	At December 31, 2012 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Securities available for sale:
U.S. Government and federal agency	$	0	$	1,802	$	0
State and municipal		0		55,179		0
Mortgage-backed securities—residential		0		64,638		0
Equity securities		31		0		0
Interest rate swaps		0		29		0

	Fair Value Measurements
	At December 31, 2012 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Liabilities:
Interest rate swaps	$	0	$	29	$	0

	Fair Value Measurements
	At December 31, 2011 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Securities available for sale:
U.S. Government and federal agency	$	0	$	2,446	$	0
State and municipal		0		53,937		3,486
Mortgage-backed securities—residential		0		90,270		16
Equity securities		20		0		0
Interest rate swaps		0		46		0

	Fair Value Measurements
	At December 31, 2011 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Liabilities:
Interest rate swaps	$	0	$	46	$	0

The following table presents the activity in security pricing using significant unobservable inputs (Level 3) during 2012:

	2012			2011
Beginning Balance	$	3,502		$	320
State and Municipal:
Purchases		0			2,588
Maturities		(2,984	)		0
Transfers from Level 2 to Level 3		0			898
Transfers from Level 3 to Level 2		(502	)		(300	)
Mortgage-backed securities:
Principal repayments		(3	)		(4	)
Transfers from Level 3 to Level 2		(13	)		0
Ending balance	$	0		$	3,502

Two state and municipal securities with a fair value of $502 as of December 31, 2012 were transferred from Level 3 to Level 2 because observable market data became available for securities with similar characteristics. The Company’s policy is to recognize transfers into or out of a level as of the end of the reporting period.

The Company’s state and municipal security valuations were supported by analysis prepared by an independent third party. The third party uses Interactive Data Corporation (IDC) as the primary source for security valuations. IDC’s evaluations are based on market data. IDC utilizes evaluated pricing models that vary based by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. IDC evaluators follow multiple review processes to assess the available market, credit, and deal level information to support the evaluation process. If they determine sufficient objectively verifiable information is not available to support a valuation, they will discontinue evaluating that security. Given this approach, the state and municipal security with the pricing source of IDC is considered level 2.

For level 3 investments, the Company uses significant unobservable inputs that reflect a reporting entity’s own assumptions that market participants would use in pricing an asset or liability. The Company uses different valuation processes such as market approach, income approach, or the cost approach.

Assets and Liabilities Measured on a Non-Recurring Basis

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

	Fair Value Measurements
	At December 31, 2012 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Commercial	$	0	$	0	$	0
Commercial and land development		0		0		10
One-to-four family		0		0		0
Other real estate owned		0		0		0
Loan servicing rights		0		0		0

	Fair Value Measurements
	At December 31, 2011 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Commercial	$	0	$	0	$	417
Commercial and land development		0		0		974
One-to-four family		0		0		92
Other real estate owned		0		0		18
Loan servicing rights		0		0		47

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal amount of $43, with a valuation allowance of $33 at December 31, 2012. Impaired loans had an additional provision for loan loss of $584 for the year ended December 31, 2012.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal amount of $1,999, with a valuation allowance of $516 at December 31, 2011, resulting in an additional provision for loan loss of $247 for the year ended December 31, 2011.

There was no valuation allowance related to other real estate property at December 31, 2012. There were no write-downs of other real estate in 2012. Other real estate owned measured at fair value less costs to sell, had a net carrying amount of $18, which is made up of the outstanding balance of $131, net of a valuation allowance of $113 at December 31, 2011. The property was written-down $38 in 2011.

The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2012:

					Range
			Valuation	Unobservable	(Weighted
	Fair value		Technique(s)	Input(s)	Average)
Impaired loans – Commercial and land development	$	10	Sales comparison approach	Adjustment for differences between comparable sales		30	%

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

	Carrying
	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	27,624	$	27,624	$	0	$	0	$	27,624
Securities available for sale		121,650		31		121,619		0		121,650
Restricted equity securities		3,221		na		na		na		na
Loans, net		265,539		0		0		267,080		267,080
Loans held for sale		171		0		171		0		171
Accrued interest receivable		1,426		0		704		722		1,426
Interest rate swaps		29		0		29		0		29
Financial liabilities
Deposits	$	367,069	$	304,895	$	62,749	$	0	$	367,644
Short-term borrowings		18,633		0		18,633		0		18,633
Federal Home Loan Bank advances		5,000		0		5,182		0		5,182
Accrued interest payable		206		35		171		0		206
Interest rate swaps		29		0		29		0		29

December 31, 2011	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	15,213	$	15,213
Time deposits with other financial institutions		246		246
Securities available for sale		150,175		150,175
Restricted equity securities		3,220		na
Loans, net		213,952		215,490
Accrued interest receivable		1,404		1,404
Interest rate swaps		46		46

	Carrying		Fair
	Amount		Value
Financial liabilities
Deposits	$	340,664	$	341,356
Short-term borrowings		10,168		10,168
Federal Home Loan Bank advances		8,000		8,299
Accrued interest payable		219		219
Interest rate swaps		46		46

The methods and assumptions used to estimate fair value on the preceding tables are described as follows:

(a) Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified Level 1.

(b) Restricted Equity Securities: It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(c) Loans: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

(d) Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(e) Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

(f) Federal Home Loan Bank advances: The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

(g) Accrued interest receivable/payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification that is consistent with the associated asset or liability.

(h) Off-balance sheet instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

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Securities (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Available for sale Securities
Proceeds	$ 0	$ 14,980	$ 18,775
Gross gains	0	216	679
Gross losses	0	(2)	(26)
Gross gains from calls	$ 0	$ 0	$ 8

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Regulatory Capital Matters (Tables)

12 Months Ended

Dec. 31, 2012

Deposits / Federal Home Loan Bank Advances / Regulatory Capital Matters [Abstract]

Actual and required capital amounts and ratios for the Bank

											To Be Well
						Required					Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2012
Total capital to risk weighted assets	$	36,989		12.53	%	$	23,626		8.00	%	$	29,532		10.00	%
Tier 1 capital to risk weighted assets		33,589		11.37	%		11,813		4.00	%		17,719		6.00	%
Tier 1 capital to average assets		33,589		7.59	%		17,713		4.00	%		22,142		5.00	%

											To Be Well
						Required					Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2011
Total capital to risk weighted assets	$	34,367		13.85	%	$	19,847		8.00	%	$	24,809		10.00	%
Tier 1 capital to risk weighted assets		31,256		12.60	%		9,923		4.00	%		14,885		6.00	%
Tier 1 capital to average assets		31,256		7.78	%		16,069		4.00	%		20,086		5.00	%

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Federal Home Loan Bank Advances (Details Textual) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Federal Home Loan Bank Advances (Textual) [Abstract]
First mortgage loans	$ 66,324	$ 52,779
Maximum [Member]
Federal Home Loan Bank Advances Branch Of F H L B Bank [Line Items]
Maturities in 2014, fixed rate	2.88%
Maximum [Member] | Maturities in 2014 [Member]
Federal Home Loan Bank Advances Branch Of F H L B Bank [Line Items]
Maturities in 2014, fixed rate	2.88%
Minimum [Member]
Federal Home Loan Bank Advances Branch Of F H L B Bank [Line Items]
Maturities in 2014, fixed rate	2.86%
Minimum [Member] | Maturities in 2013 [Member]
Federal Home Loan Bank Advances Branch Of F H L B Bank [Line Items]
Maturities in 2013, fixed rate	2.00%
Minimum [Member] | Maturities in 2014 [Member]
Federal Home Loan Bank Advances Branch Of F H L B Bank [Line Items]
Maturities in 2014, fixed rate	2.86%

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Fair Value (Details 4) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Financial assets
Cash and cash equivalents	$ 27,624
Securities available for sale	121,650
Loans, net	267,080
Loans held for sale	171
Accrued interest receivable	1,426
Interest rate swaps	29
Financial liabilities
Deposits	367,644
Short-term borrowings	18,633
Federal Home Loan Bank advances	5,182
Accrued interest payable	206
Interest rate swaps	29
Level 1 [Member]
Financial assets
Cash and cash equivalents	27,624
Securities available for sale	31
Loans, net	0
Loans held for sale	0
Accrued interest receivable	0
Interest rate swaps	0
Financial liabilities
Deposits	304,895
Short-term borrowings	0
Federal Home Loan Bank advances	0
Accrued interest payable	35
Interest rate swaps	0
Level 2 [Member]
Financial assets
Cash and cash equivalents	0
Securities available for sale	121,619
Loans, net	0
Loans held for sale	171
Accrued interest receivable	704
Interest rate swaps	29
Financial liabilities
Deposits	62,749
Short-term borrowings	18,633
Federal Home Loan Bank advances	5,182
Accrued interest payable	171
Interest rate swaps	29
Level 3 [Member]
Financial assets
Cash and cash equivalents	0
Securities available for sale	0
Loans, net	267,080
Loans held for sale	0
Accrued interest receivable	722
Interest rate swaps	0
Financial liabilities
Deposits	0
Short-term borrowings	0
Federal Home Loan Bank advances	0
Accrued interest payable	0
Interest rate swaps	0
Carrying Amount [Member]
Financial assets
Cash and cash equivalents	27,624	15,213
Time deposits with other financial institutions		246
Securities available for sale	121,650	150,175
Restricted equity securities	3,221	3,220
Loans, net	265,539	213,952
Loans held for sale	171
Accrued interest receivable	1,426	1,404
Interest rate swaps	29	46
Financial liabilities
Deposits	367,069	340,664
Short-term borrowings	18,633	10,168
Federal Home Loan Bank advances	5,000	8,000
Accrued interest payable	206	219
Interest rate swaps	29	46
Fair Value [Member]
Financial assets
Cash and cash equivalents		15,213
Time deposits with other financial institutions		246
Securities available for sale		150,175
Loans, net		215,490
Accrued interest receivable		1,404
Interest rate swaps		46
Financial liabilities
Deposits		341,356
Short-term borrowings		10,168
Federal Home Loan Bank advances		8,299
Accrued interest payable		219
Interest rate swaps		$ 46

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Federal Home Loan Bank Advances (Tables)

12 Months Ended

Dec. 31, 2012

Deposits / Federal Home Loan Bank Advances / Regulatory Capital Matters [Abstract]

Advances from the Federal Home Loan Bank

	2012		2011
Maturities in 2012, fixed rate at 2.00%	$	0	$	3,000
Maturities in 2014, fixed rate at 2.86% to 2.88%		5,000		5,000
	$	5,000	$	8,000

Required payments over the next years

2014 2.86% to 2.88% $ 5,000

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Securities (Details 3) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Unrealized losses of securities
Fair value	$ 4,097	$ 23,916
Unrealized Loss	(28)	(149)
Less than 12 months [Member]
Unrealized losses of securities
Fair value	4,097	23,025
Unrealized Loss	(28)	(142)
12 months or more [Member]
Unrealized losses of securities
Fair value	0	891
Unrealized Loss	0	(7)
State and municipal [Member]
Unrealized losses of securities
Fair value	1,325	1,257
Unrealized Loss	(8)	(10)
State and municipal [Member] | Less than 12 months [Member]
Unrealized losses of securities
Fair value	1,352	366
Unrealized Loss	(8)	(3)
State and municipal [Member] | 12 months or more [Member]
Unrealized losses of securities
Fair value	0	891
Unrealized Loss	0	(7)
Mortgage-backed - residential [Member]
Unrealized losses of securities
Fair value	2,772	22,639
Unrealized Loss	(20)	(136)
Mortgage-backed - residential [Member] | Less than 12 months [Member]
Unrealized losses of securities
Fair value	2,772	22,639
Unrealized Loss	(20)	(136)
Mortgage-backed - residential [Member] | 12 months or more [Member]
Unrealized losses of securities
Fair value	0	0
Unrealized Loss	0	0
Equity [Member]
Unrealized losses of securities
Fair value		20
Unrealized Loss		(3)
Equity [Member] | Less than 12 months [Member]
Unrealized losses of securities
Fair value		20
Unrealized Loss		(3)
Equity [Member] | 12 months or more [Member]
Unrealized losses of securities
Fair value		0
Unrealized Loss		$ 0

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Premises and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Year-end premises and equipment
Premises and equipment, gross	$ 18,991	$ 18,893
Less: Accumulated depreciation	(7,548)	(6,720)
Premises and equipment, net	11,443	12,173
Land [Member]
Year-end premises and equipment
Premises and equipment, gross	1,758	1,758
Building [Member]
Year-end premises and equipment
Premises and equipment, gross	11,914	11,893
Furniture, fixtures and equipment [Member]
Year-end premises and equipment
Premises and equipment, gross	$ 5,319	$ 5,242

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Loans (Details 7) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Pass [Member]
Summary of risk category of loans
Risk category of loans	$ 132,165	$ 94,183
Special Mention [Member]
Summary of risk category of loans
Risk category of loans	3,028	4,887
Substandard [Member]
Summary of risk category of loans
Risk category of loans	5,689	7,242
Doubtful [Member]
Summary of risk category of loans
Risk category of loans	0	0
Commercial real estate [Member] | Commercial real estate [Member]
Summary of risk category of loans
Risk category of loans	59,460	55,509
Commercial real estate [Member] | Commercial real estate [Member] | Pass [Member]
Summary of risk category of loans
Risk category of loans	54,057	50,080
Commercial real estate [Member] | Commercial real estate [Member] | Special Mention [Member]
Summary of risk category of loans
Risk category of loans	1,891	2,229
Commercial real estate [Member] | Commercial real estate [Member] | Substandard [Member]
Summary of risk category of loans
Risk category of loans	3,512	3,200
Commercial real estate [Member] | Commercial real estate [Member] | Doubtful [Member]
Summary of risk category of loans
Risk category of loans	0	0
Commercial real estate [Member] | Secured by farm land [Member]
Summary of risk category of loans
Risk category of loans	23,218	11,628
Commercial real estate [Member] | Secured by farm land [Member] | Pass [Member]
Summary of risk category of loans
Risk category of loans	23,218	11,628
Commercial real estate [Member] | Secured by farm land [Member] | Special Mention [Member]
Summary of risk category of loans
Risk category of loans	0	0
Commercial real estate [Member] | Secured by farm land [Member] | Substandard [Member]
Summary of risk category of loans
Risk category of loans	0	0
Commercial real estate [Member] | Secured by farm land [Member] | Doubtful [Member]
Summary of risk category of loans
Risk category of loans	0	0
Commercial real estate [Member] | Construction and Land Development [Member]
Summary of risk category of loans
Risk category of loans	8,668	4,818
Commercial real estate [Member] | Construction and Land Development [Member] | Pass [Member]
Summary of risk category of loans
Risk category of loans	7,854	2,729
Commercial real estate [Member] | Construction and Land Development [Member] | Special Mention [Member]
Summary of risk category of loans
Risk category of loans	190	196
Commercial real estate [Member] | Construction and Land Development [Member] | Substandard [Member]
Summary of risk category of loans
Risk category of loans	624	1,893
Commercial real estate [Member] | Construction and Land Development [Member] | Doubtful [Member]
Summary of risk category of loans
Risk category of loans	0	0
Commercial [Member] | Commercial and industrial [Member]
Summary of risk category of loans
Risk category of loans	37,266	30,215
Commercial [Member] | Commercial and industrial [Member] | Pass [Member]
Summary of risk category of loans
Risk category of loans	34,827	25,965
Commercial [Member] | Commercial and industrial [Member] | Special Mention [Member]
Summary of risk category of loans
Risk category of loans	929	2,442
Commercial [Member] | Commercial and industrial [Member] | Substandard [Member]
Summary of risk category of loans
Risk category of loans	1,510	1,808
Commercial [Member] | Commercial and industrial [Member] | Doubtful [Member]
Summary of risk category of loans
Risk category of loans	0	0
Commercial [Member] | Agricultural production [Member]
Summary of risk category of loans
Risk category of loans	12,209	3,781
Commercial [Member] | Agricultural production [Member] | Pass [Member]
Summary of risk category of loans
Risk category of loans	12,209	3,781
Commercial [Member] | Agricultural production [Member] | Special Mention [Member]
Summary of risk category of loans
Risk category of loans	0	0
Commercial [Member] | Agricultural production [Member] | Substandard [Member]
Summary of risk category of loans
Risk category of loans	0	0
Commercial [Member] | Agricultural production [Member] | Doubtful [Member]
Summary of risk category of loans
Risk category of loans	0	0
Residential real estate [Member]
Summary of risk category of loans
Risk category of loans	140,882	106,312
Residential real estate [Member] | One-to-four Family [Member]
Summary of risk category of loans
Risk category of loans	61	361
Residential real estate [Member] | One-to-four Family [Member] | Pass [Member]
Summary of risk category of loans
Risk category of loans	0	0
Residential real estate [Member] | One-to-four Family [Member] | Special Mention [Member]
Summary of risk category of loans
Risk category of loans	18	20
Residential real estate [Member] | One-to-four Family [Member] | Substandard [Member]
Summary of risk category of loans
Risk category of loans	43	341
Residential real estate [Member] | One-to-four Family [Member] | Doubtful [Member]
Summary of risk category of loans
Risk category of loans	$ 0	$ 0

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Parent Company Only Condensed Financial Information (Tables)

12 Months Ended

Dec. 31, 2012

Parent Company Only Condensed Financial Information [Abstract]

Condensed Balance Sheets

	December 31,
	2012		2011
ASSETS
Cash and cash equivalents	$	510	$	520
Investment in bank subsidiary		42,278		39,645
Investment in real estate subsidiary		2,393		2,466
Securities available for sale		31		20
Other assets		304		271
Total assets	$	45,516	$	42,922
LIABILITIES AND SHAREHOLDERS’ EQUITY
Dividends payable	$	178	$	177
Other Liabilities		17		0
Shareholders’ equity		45,321		42,745
Total liabilities and shareholders’ equity	$	45,516	$	42,922

Condensed Statements of Income and Comprehensive Income

	Years ended December 31,
	2012			2011			2010
INCOME
Dividends from bank subsidiary	$	600		$	0		$	0
Dividends from real estate subsidiary		90			0			0
Total income		690			0			0
EXPENSES
Miscellaneous expense		(101	)		(60	)		(48	)
Income (loss) before income tax benefit and undistributed subsidiary income		589			(60	)		(48	)
Income tax benefit		34			21			16
Undistributed equity in net income of bank subsidiary		2,261			2,652			1,385
Undistributed equity in (distributions in excess of) net income (loss) of real estate subsidiary		(73	)		(1	)		(28	)
Net income	$	2,811		$	2,612		$	1,325
Comprehensive income	$	3,117		$	4,332		$	761

Condensed Statements of Cash Flows

	Years ended December 31,
	2012			2011			2010
Cash flows from operating activities
Net income	$	2,811		$	2,612		$	1,325
Adjustments to reconcile net income to net cash from operating activities:
Equity in undistributed net income of bank subsidiary		(2,261	)		(2,652	)		(1,385	)
Equity in undistributed net loss of real estate subsidiary		0			1			28
Distributions in excess of net income of real estate subsidiary		73			0			0
Change in other assets and liabilities		58			76			(16	)
Net cash from operating activities		681			37			(48	)
Cash flows from investing activities
Investment in real estate subsidiary		0			(125	)		(2,370	)
Net cash from investing activities		0			(125	)		(2,370	)
Cash flows from financing activities
Proceeds from the exercise of stock options		20			0			0
Dividends paid		(711	)		(706	)		(706	)
Net cash from financing activities		(691	)		(706	)		(706	)
Net change in cash		(10	)		(794	)		(3,124	)
Beginning cash and cash equivalents		520			1,314			4,438
Ending cash and cash equivalents	$	510		$	520		$	1,314

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial statements include National Bancshares Corporation and its wholly-owned subsidiaries, First National Bank, Orrville, Ohio (Bank) and NBOH Properties, LLC, together referred to as “the Corporation.” NBOH Properties, LLC owns a multi-tenant commercial building in Fairlawn, Ohio. A portion of this building is utilized as our Fairlawn banking office. This activity is not considered material for segment reporting purposes. Intercompany transactions and balances are eliminated in consolidation.

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

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

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

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

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

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

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

Management evaluates securities for other than temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) other-than-temporary impairment (OTTI) related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of other-than-temporary impairment is recognized through earnings.

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

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

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

Interest income on real estate, real estate construction and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 or more days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to non-accrual status in accordance with the Corporation’s policy, typically after 90 days of non-payment.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is recorded as a reduction in principal, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Concentration of Credit Risk: Most of the Corporation’s business activity is with customers located within Wayne, Stark, Summit, Holmes and Medina Counties. Therefore, the Corporation’s exposure to credit risk is significantly affected by changes in the economy in these counties.

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

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

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

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

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

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

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Corporation utilizing weighted amounts applied to the twelve quarter moving average to a blended rate of the twelve quarter moving average and the twenty quarter moving average. This approach enhances the time frame over which we evaluate loss experience and emphasizes the most recent loss experience. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: commercial loans, commercial real estate loans, residential real estate loans, home equity loans and consumer loans.

The majority of the Corporation’s loan portfolio is commercial, commercial real estate, residential real estate, home equity and consumer loans made to individuals and businesses in the Corporation’s market area. Repayment of these loans is dependent on general economic conditions and unemployment levels in the Corporation’s market area.

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

Servicing Rights: When mortgage loans are sold, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Corporation compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

At December 31, 2012 and 2011, the servicing assets of the Corporation totaled $124 and $47, respectively, and are included with other assets on the consolidated balance sheets. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of the assets compared to carrying amount. Any impairment is reported as a valuation allowance, to the extent that fair value is less than the capitalized amount for a grouping. There was no valuation allowance impairment against servicing assets as of December 31, 2012, 2011 and 2010.

Servicing fee income is recorded when earned for servicing loans based on a contractual percentage of the outstanding principal or a fixed amount per loan. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $67, $92 and $76 for the years ended December 31, 2012, 2011 and 2010, respectively. Late fees and ancillary fees related to loan servicing are not material.

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

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

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

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

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

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

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

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

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

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

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

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

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

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

Earnings Per Common Share: Earnings per common share is net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options. 96,000, 84,500 and 89,000 stock options were not considered in computing diluted earnings per common share for 2012, 2011 and 2010 because they were antidilutive.

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

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

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank of $100 was required to meet regulatory reserve and clearing requirements at year-end 2012 and 2011. These balances do not earn interest.

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

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

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

Adoption of New Accounting Standards: In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholder’s equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment changed the presentation of the components of comprehensive income for the Corporation as part of the consolidated statement of shareholder’s equity.

In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The effect of adopting this standard did not have a material effect on the Corporation’s operating results or financial condition.

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Loans (Details 8) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	$ 128,757	$ 111,515
Consumer [Member] | Direct [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	5,459	3,897
Consumer [Member] | Indirect [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	1,124	2,821
Consumer [Member] | Other [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	1,783	980
Residential real estate [Member] | Construction [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	958	681
Residential real estate [Member] | Multifamily [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	18,650	17,001
Residential real estate [Member] | One-to-four Family [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	69,284	55,847
Residential real estate [Member] | Home Equity [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	31,499	30,288
Performing [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	128,264	110,561
Performing [Member] | Consumer [Member] | Direct [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	5,457	3,897
Performing [Member] | Consumer [Member] | Indirect [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	1,124	2,821
Performing [Member] | Consumer [Member] | Other [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	1,783	980
Performing [Member] | Residential real estate [Member] | Construction [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	958	681
Performing [Member] | Residential real estate [Member] | Multifamily [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	18,650	17,001
Performing [Member] | Residential real estate [Member] | One-to-four Family [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	68,793	55,275
Performing [Member] | Residential real estate [Member] | Home Equity [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	31,499	29,906
Nonperforming [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	493	954
Nonperforming [Member] | Consumer [Member] | Direct [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	2	0
Nonperforming [Member] | Consumer [Member] | Indirect [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	0	0
Nonperforming [Member] | Consumer [Member] | Other [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	0	0
Nonperforming [Member] | Residential real estate [Member] | Construction [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	0	0
Nonperforming [Member] | Residential real estate [Member] | Multifamily [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	0	0
Nonperforming [Member] | Residential real estate [Member] | One-to-four Family [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	491	572
Nonperforming [Member] | Residential real estate [Member] | Home Equity [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	$ 0	$ 382

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Loan Commitments and Other Related Activities (Tables)

12 Months Ended

Dec. 31, 2012

Loans / Loan Servicing / Loan Commitments and Other Related Activities [Abstract]

Contractual amounts of financial instruments

	2012		2011
Commitments to make loans	$	6,996	$	3,376
Unused lines of credit		61,592		46,862
Overdraft protection		12,264		11,664
Letters of credit		288		266

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Subsequent Events

12 Months Ended

Dec. 31, 2012

Subsequent Events [Abstract]

Subsequent Events

NOTE 21 – SUBSEQUENT EVENTS

On February 1, 2013, the Bank and NBOH Properties, LLC entered into a Purchase and Assumption Agreement (“Agreement”) with Premier Bank and Trust (“Premier”) that provides for the sale of certain assets and assumption of certain liabilities relative to the Bank’s retail office location in Fairlawn, Ohio. Under the terms of the Agreement, Premier will purchase the multi-tenant commercial building owned by NBOH Properties, LLC, with a carrying value of $2,300, for $1,100. Premier will also purchase certain assets of the branch, including lease hold improvements and fixtures and equipment and loans with a carrying value of approximately $10,000 and a fair value of approximately $9,922, while assuming certain deposits with a carrying value of approximately $16,000. Premier will also pay a premium of 5.25% based on the average amount of assumed deposits during a specified period. The transaction, which is subject to regulatory approvals and other customary closing conditions, is expected to be completed in June, 2013. The aggregate asset disposal group is expected to result in a loss recorded in 2013.

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Parent Company Only Condensed Financial Information

12 Months Ended

Dec. 31, 2012

Parent Company Only Condensed Financial Information [Abstract]

PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

NOTE 20 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

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

CONDENSED BALANCE SHEETS

	December 31,
	2012		2011
ASSETS
Cash and cash equivalents	$	510	$	520
Investment in bank subsidiary		42,278		39,645
Investment in real estate subsidiary		2,393		2,466
Securities available for sale		31		20
Other assets		304		271
Total assets	$	45,516	$	42,922
LIABILITIES AND SHAREHOLDERS’ EQUITY
Dividends payable	$	178	$	177
Other Liabilities		17		0
Shareholders’ equity		45,321		42,745
Total liabilities and shareholders’ equity	$	45,516	$	42,922

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Years ended December 31,
	2012			2011			2010
INCOME
Dividends from bank subsidiary	$	600		$	0		$	0
Dividends from real estate subsidiary		90			0			0
Total income		690			0			0
EXPENSES
Miscellaneous expense		(101	)		(60	)		(48	)
Income (loss) before income tax benefit and undistributed subsidiary income		589			(60	)		(48	)
Income tax benefit		34			21			16
Undistributed equity in net income of bank subsidiary		2,261			2,652			1,385
Undistributed equity in (distributions in excess of) net income (loss) of real estate subsidiary		(73	)		(1	)		(28	)
Net income	$	2,811		$	2,612		$	1,325
Comprehensive income	$	3,117		$	4,332		$	761

CONDENSED STATEMENTS OF CASH FLOWS

	Years ended December 31,
	2012			2011			2010
Cash flows from operating activities
Net income	$	2,811		$	2,612		$	1,325
Adjustments to reconcile net income to net cash from operating activities:
Equity in undistributed net income of bank subsidiary		(2,261	)		(2,652	)		(1,385	)
Equity in undistributed net loss of real estate subsidiary		0			1			28
Distributions in excess of net income of real estate subsidiary		73			0			0
Change in other assets and liabilities		58			76			(16	)
Net cash from operating activities		681			37			(48	)
Cash flows from investing activities
Investment in real estate subsidiary		0			(125	)		(2,370	)
Net cash from investing activities		0			(125	)		(2,370	)
Cash flows from financing activities
Proceeds from the exercise of stock options		20			0			0
Dividends paid		(711	)		(706	)		(706	)
Net cash from financing activities		(691	)		(706	)		(706	)
Net change in cash		(10	)		(794	)		(3,124	)
Beginning cash and cash equivalents		520			1,314			4,438
Ending cash and cash equivalents	$	510		$	520		$	1,314

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Derivatives (Details Textual) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Interest-rate swaps [Member]
Derivatives (Textual) [Abstract]
Decrease in fair value of the interest-rate swap	$ 0
Not designated as hedging instrument [Member]
Derivatives (Textual) [Abstract]
Decrease in fair value of the interest-rate swap	$ 17

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Loans (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Allowances for loan losses activity
Beginning balance	$ 3,163	$ 2,585	$ 2,906
Provision for loan losses	1,374	600	2,229
Loans charged-off	(1,189)	(71)	(2,576)
Recoveries	52	49	26
Ending balance	$ 3,400	$ 3,163	$ 2,585

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Fair Value (Tables)

12 Months Ended

Dec. 31, 2012

Fair Value [Abstract]

Assets and liabilities measured at fair value on a recurring basis

	Fair Value Measurements
	At December 31, 2012 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Securities available for sale:
U.S. Government and federal agency	$	0	$	1,802	$	0
State and municipal		0		55,179		0
Mortgage-backed securities—residential		0		64,638		0
Equity securities		31		0		0
Interest rate swaps		0		29		0

	Fair Value Measurements
	At December 31, 2012 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Liabilities:
Interest rate swaps	$	0	$	29	$	0

	Fair Value Measurements
	At December 31, 2011 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Securities available for sale:
U.S. Government and federal agency	$	0	$	2,446	$	0
State and municipal		0		53,937		3,486
Mortgage-backed securities—residential		0		90,270		16
Equity securities		20		0		0
Interest rate swaps		0		46		0

	Fair Value Measurements
	At December 31, 2011 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Liabilities:
Interest rate swaps	$	0	$	46	$	0

Reconciliation of all assets measured at fair value on a recurring basis

	2012			2011
Beginning Balance	$	3,502		$	320
State and Municipal:
Purchases		0			2,588
Maturities		(2,984	)		0
Transfers from Level 2 to Level 3		0			898
Transfers from Level 3 to Level 2		(502	)		(300	)
Mortgage-backed securities:
Principal repayments		(3	)		(4	)
Transfers from Level 3 to Level 2		(13	)		0
Ending balance	$	0		$	3,502

Assets and liabilities measured at fair value on a non-recurring basis

	Fair Value Measurements
	At December 31, 2012 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Commercial	$	0	$	0	$	0
Commercial and land development		0		0		10
One-to-four family		0		0		0
Other real estate owned		0		0		0
Loan servicing rights		0		0		0

	Fair Value Measurements
	At December 31, 2011 Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Commercial	$	0	$	0	$	417
Commercial and land development		0		0		974
One-to-four family		0		0		92
Other real estate owned		0		0		18
Loan servicing rights		0		0		47

Quantitative information about fair value measurements of financial instruments

					Range
			Valuation	Unobservable	(Weighted
	Fair value		Technique(s)	Input(s)	Average)
Impaired loans – Commercial and land development	$	10	Sales comparison approach	Adjustment for differences between comparable sales		30	%

Carrying amount and estimated fair values of financial instruments

	Carrying
	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	27,624	$	27,624	$	0	$	0	$	27,624
Securities available for sale		121,650		31		121,619		0		121,650
Restricted equity securities		3,221		na		na		na		na
Loans, net		265,539		0		0		267,080		267,080
Loans held for sale		171		0		171		0		171
Accrued interest receivable		1,426		0		704		722		1,426
Interest rate swaps		29		0		29		0		29
Financial liabilities
Deposits	$	367,069	$	304,895	$	62,749	$	0	$	367,644
Short-term borrowings		18,633		0		18,633		0		18,633
Federal Home Loan Bank advances		5,000		0		5,182		0		5,182
Accrued interest payable		206		35		171		0		206
Interest rate swaps		29		0		29		0		29

December 31, 2011	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	15,213	$	15,213
Time deposits with other financial institutions		246		246
Securities available for sale		150,175		150,175
Restricted equity securities		3,220		na
Loans, net		213,952		215,490
Accrued interest receivable		1,404		1,404
Interest rate swaps		46		46

	Carrying		Fair
	Amount		Value
Financial liabilities
Deposits	$	340,664	$	341,356
Short-term borrowings		10,168		10,168
Federal Home Loan Bank advances		8,000		8,299
Accrued interest payable		219		219
Interest rate swaps		46		46

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Nature of Operations and Principles of Consolidation

Nature of Operations and Principles of Consolidation: The consolidated financial statements include National Bancshares Corporation and its wholly-owned subsidiaries, First National Bank, Orrville, Ohio (Bank) and NBOH Properties, LLC, together referred to as “the Corporation.” NBOH Properties, LLC owns a multi-tenant commercial building in Fairlawn, Ohio. A portion of this building is utilized as our Fairlawn banking office. This activity is not considered material for segment reporting purposes. Intercompany transactions and balances are eliminated in consolidation.

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

Segments

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

Use of Estimates

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

Cash Flows

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

Time deposits with other financial institutions

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

Securities

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

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

Management evaluates securities for other than temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) other-than-temporary impairment (OTTI) related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of other-than-temporary impairment is recognized through earnings.

Loans Held for Sale

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

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

Loans

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

Interest income on real estate, real estate construction and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 or more days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to non-accrual status in accordance with the Corporation’s policy, typically after 90 days of non-payment.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is recorded as a reduction in principal, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Concentration of Credit Risk

Concentration of Credit Risk: Most of the Corporation’s business activity is with customers located within Wayne, Stark, Summit, Holmes and Medina Counties. Therefore, the Corporation’s exposure to credit risk is significantly affected by changes in the economy in these counties.

Purchased Loans

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

Allowance for Loan Losses

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

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

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

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

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

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Corporation utilizing weighted amounts applied to the twelve quarter moving average to a blended rate of the twelve quarter moving average and the twenty quarter moving average. This approach enhances the time frame over which we evaluate loss experience and emphasizes the most recent loss experience. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: commercial loans, commercial real estate loans, residential real estate loans, home equity loans and consumer loans.

The majority of the Corporation’s loan portfolio is commercial, commercial real estate, residential real estate, home equity and consumer loans made to individuals and businesses in the Corporation’s market area. Repayment of these loans is dependent on general economic conditions and unemployment levels in the Corporation’s market area.

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

Servicing Rights

Servicing Rights: When mortgage loans are sold, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Corporation compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

At December 31, 2012 and 2011, the servicing assets of the Corporation totaled $124 and $47, respectively, and are included with other assets on the consolidated balance sheets. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of the assets compared to carrying amount. Any impairment is reported as a valuation allowance, to the extent that fair value is less than the capitalized amount for a grouping. There was no valuation allowance impairment against servicing assets as of December 31, 2012, 2011 and 2010.

Servicing fee income is recorded when earned for servicing loans based on a contractual percentage of the outstanding principal or a fixed amount per loan. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $67, $92 and $76 for the years ended December 31, 2012, 2011 and 2010, respectively. Late fees and ancillary fees related to loan servicing are not material.

Other Real Estate Owned

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

Premises and Equipment

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

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB)

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

Bank owned life insurance

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

Goodwill

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

Long-term Assets

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

Repurchase Agreements

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

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

Stock-Based Compensation

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

Income Taxes

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

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

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

Transfers of Financial Asset

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

Loan Commitments and Related Financial Instruments

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

Earnings Per Common Share

Earnings Per Common Share: Earnings per common share is net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options. 96,000, 84,500 and 89,000 stock options were not considered in computing diluted earnings per common share for 2012, 2011 and 2010 because they were antidilutive.

Comprehensive Income

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

Restrictions on Cash

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank of $100 was required to meet regulatory reserve and clearing requirements at year-end 2012 and 2011. These balances do not earn interest.

Dividend Restriction

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

Fair Value of Financial Instruments

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

Reclassifications

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

Adoption of New Accounting Standards

Adoption of New Accounting Standards: In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholder’s equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment changed the presentation of the components of comprehensive income for the Corporation as part of the consolidated statement of shareholder’s equity.

In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The effect of adopting this standard did not have a material effect on the Corporation’s operating results or financial condition.

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Securities (Tables)

12 Months Ended

Dec. 31, 2012

Securities [Abstract]

Fair value of Securities

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
2012
U.S. Treasury and federal agency	$	1,794	$	8	$	0		$	1,802
State and municipal		50,946		4,241		(8	)		55,179
Mortgage-backed: residential		62,903		1,755		(20	)		64,638
Equity securities		23		8		0			31
Total securities available for sale	$	115,666	$	6,012	$	(28	)	$	121,650

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
2011
U.S. Treasury and federal agency	$	2,430	$	16	$	0		$	2,446
State and municipal		53,841		3,592		(10	)		57,423
Mortgage-backed: residential		88,362		2,060		(136	)		90,286
Equity securities		23		0		(3	)		20
Total securities available for sale	$	144,656	$	5,668	$	(149	)	$	150,175

Available for sale securities

	2012		2011			2010
Sales of available for sale securities were as follows:
Proceeds	$	0	$	14,980		$	18,775
Gross gains		0		216			679
Gross losses		0		(2	)		(26	)
Gross gains from calls		0		0			8

Fair value of held to maturity securities

	Amortized
	Cost		Fair Value
Due in one year or less	$	1,340	$	1,351
Due from one to five years		4,674		4,862
Due from five to ten years		21,008		22,902
Due after ten years		25,718		27,866
Mortgage-backed: residential		62,903		64,638
Equity securities		23		31
	$	115,666	$	121,650

Unrealized losses of securities

	Less Than 12 Months					12 Months or More				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Loss			Value		Loss		Value		Loss
2012
State and municipal	$	1,325	$	(8	)	$	0	$	0	$	1,325	$	(8	)
Mortgage-backed: residential		2,772		(20	)		0		0		2,772		(20	)
Total temporarily impaired	$	4,097	$	(28	)	$	0	$	0	$	4,097	$	(28	)

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
2011
State and municipal	$	366	$	(3	)	$	891	$	(7	)	$	1,257	$	(10	)
Mortgage-backed: residential		22,639		(136	)		0		0			22,639		(136	)
Equity		20		(3	)		0		0			20		(3	)
Total temporarily impaired	$	23,025	$	(142	)	$	891	$	(7	)	$	23,916	$	(149	)

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities
Net income	$ 2,811	$ 2,612	$ 1,325
Adjustments to reconcile net income to net cash from operating activities
Provision for loan losses	1,374	600	2,229
Deferred income taxes	(48)	25	95
Depreciation, amortization and accretion	2,379	2,338	1,876
Earnings on Bank owned life insurance	(70)	(87)	(91)
Death benefit from life insurance policy	0	(121)	0
Restricted equity securities dividends	(1)	(1)	(1)
Origination of mortgage loans held for sale	(16,994)	(11,313)	(11,889)
Proceeds from sales of mortgage loans held for sale	17,590	11,362	12,490
Gain on sale of loans	(560)	(256)	(285)
Net security gains	0	(214)	(661)
Loss on sale/write-down of other real estate owned	(4)	38	24
Gain from the sale of loans guaranteed by SBA	0	(171)	0
Compensation expense under stock-based compensation plans	150	138	23
Change in other assets and liabilities	781	1,331	(68)
Net cash from operating activities	7,408	6,281	5,067
Cash flows from investing activities
Purchases of time deposits with other financial institutions	0	0	(984)
Proceeds from time deposits with other financial institutions	246	5,451	8,867
Available for sale securities:
Maturities, repayments and calls	34,626	37,781	38,526
Sales	0	14,980	18,775
Purchases	(7,336)	(63,364)	(66,312)
Purchases of premises and equipment	(165)	(580)	(4,241)
Proceeds from the sale of loans guaranteed by SBA	0	2,360	0
Capitalized expenditures on other real estate owned	(55)	0	0
Proceeds from sale of other real estate owned	439	56	113
Proceeds from the sale of an impaired loan	0	0	930
Purchase of loans	0	0	(1,184)
Net change in loans to customers	(53,932)	(26,110)	1,350
Net cash from investing activities	(26,177)	(29,426)	(4,160)
Cash flows from financing activities
Net change in deposits	26,405	31,530	17,761
Net change in short-term borrowings	8,465	1,697	(1,249)
Proceeds from the exercise of stock options	20	0	0
Repayments Federal Home Loan Bank advances	(3,000)	(7,000)	(12,000)
Dividends paid	(710)	(706)	(706)
Net cash from financing activities	31,180	25,521	3,806
Net change in cash and cash equivalents	12,411	2,376	4,713
Beginning cash and cash equivalents	15,213	12,837	8,124
Ending cash and cash equivalents	27,624	15,213	12,837
Supplemental cash flow information:
Interest paid	1,775	2,143	3,315
Income taxes paid	585	420	537
Supplemental noncash disclosures:
Transfer from loans to other real estate owned	1,222	54	91
Issuance of stock awards	$ 77	$ 98	$ 0

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Loans (Tables)

12 Months Ended

Dec. 31, 2012

Loans / Loan Servicing / Loan Commitments and Other Related Activities [Abstract]

Loans at year end

	2012			2011
Commercial real estate:
Commercial real estate	$	59,484		$	55,520
Secured by farmland		23,161			11,609
Construction and land development		8,682			4,822
Commercial:
Commercial and industrial		37,138			30,165
Agricultural production		12,107			3,721
Residential real estate:
One-to-four family		69,364			56,261
Multifamily		18,660			17,041
Construction and land development		959			683
Home equity		31,218			30,086
Consumer:
Auto:
Direct		5,436			3,866
Indirect		1,087			2,740
Other		1,780			980
		269,076			217,494
Unearned and deferred income		(137	)		(379	)
Allowance for loan losses		(3,400	)		(3,163	)
	$	265,539		$	213,952

Activity in the allowance for loan losses by portfolio segment

				Commercial			Residential			Home
	Commercial			Real Estate			Real Estate			Equity			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	856		$	1,480		$	721		$	66		$	40		$	0	$	3,163
Provision for loan losses		342			837			108			81			6			0		1,374
Loans charged-off		(282	)		(525	)		(250	)		(91	)		(41	)		0		(1,189	)
Recoveries		10			1			5			9			27			0		52
Total ending allowance balance	$	926		$	1,793		$	584		$	65		$	32		$	0	$	3,400

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending December 31, 2011:

			Commercial		Residential			Home
	Commercial		Real Estate		Real Estate			Equity			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	460	$	1,267	$	675		$	100		$	53		$	30		$	2,585
Provision for loan losses		371		212		74			(9	)		(18	)		(30	)		600
Loans charged-off		0		0		(28	)		(26	)		(17	)		0			(71	)
Recoveries		25		1		0			1			22			0			49
Total ending allowance balance	$	856	$	1,480	$	721		$	66		$	40		$	0		$	3,163

Allowances for loan losses activity

	2012			2011			2010
Beginning balance	$	3,163		$	2,585		$	2,906
Provision for loan losses		1,374			600			2,229
Loans charged-off		(1,189	)		(71	)		(2,576	)
Recoveries		52			49			26
Ending balance	$	3,400		$	3,163		$	2,585

Allowance for loan losses and the recorded investment in loans

			Commercial		Residential		Home
December 31, 2012	Commercial		Real Estate		Real Estate		Equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	0	$	33	$	0	$	0	$	0	$	0	$	33
Collectively evaluated for impairment		926		1,760		584		65		32		0		3,367
Total ending allowance balance	$	926	$	1,793	$	584	$	65	$	32	$	0	$	3,400
Recorded investment in loans:
Loans individually evaluated for impairment	$	20	$	1,478	$	43	$	0	$	0	$	0	$	1,541
Loans collectively evaluated for impairment		49,455		89,868		88,910		31,499		8,366		0		268,098
Total ending loans balance	$	49,475	$	91,346	$	88,953	$	31,499	$	8,366	$	0	$	269,639
			Commercial		Residential		Home
December 31, 2011	Commercial		Real Estate		Real Estate		Equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	151	$	183	$	182	$	0	$	0	$	0	$	516
Collectively evaluated for impairment		705		1,297		539		66		40		0		2,647
Total ending allowance balance	$	856	$	1,480	$	721	$	66	$	40	$	0	$	3,163
Recorded investment in loans:
Loans individually evaluated for impairment	$	597	$	2,420	$	320	$	0	$	0	$	0	$	3,337
Loans collectively evaluated for impairment		33,399		69,535		73,570		30,288		7,698		0		214,490
Total ending loans balance	$	33,996	$	71,955	$	73,890	$	30,288	$	7,698	$	0	$	217,827

Loans individually evaluated for impairment by class of loans

	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
December 31, 2012	Balance		Investment		Allocated		Investment
With no related allowance recorded:
Commercial real estate:
Commercial real estate	$	378	$	378	$	0	$	389
Construction and land development		1,154		1,057		0		1,375
Commercial:
Commercial and industrial		20		20		0		433
Residential real estate:
One-to-four family		43		43		0		44
With an allowance recorded:
Commercial real estate:
Construction and land development		43		43		33		43
Commercial:
Commercial and industrial		0		0		0		0
	$	1,638	$	1,541	$	33	$	2,284

	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
December 31, 2011	Balance		Investment		Allocated		Investment
With no related allowance recorded:
Commercial real estate:
Commercial real estate	$	406	$	406	$	0	$	426
Construction and land development		1,252		1,252		0		1,923
Commercial:
Commercial and industrial		29		29		0		31
Residential real estate:
One-to-four family		46		46		0		49
With an allowance recorded:
Commercial real estate:
Commercial real estate		762		762		183		902
Commercial:
Commercial and industrial		568		568		151		509
Residential real estate:
One-to-four family		274		274		182		283
	$	3,337	$	3,337	$	516	$	4,123

Recorded investment in nonaccrual and loans past due

					Loans Past Due 90 or
	Nonaccrual				More Days Still Accruing
	2012		2011		2012		2011
Commercial real estate:
Commercial real estate	$	421	$	1,168	$	0	$	0
Construction and land development		249		1,252		0		0
Commercial:
Commercial and industrial		20		596		0		0
Residential real estate:
One-to-four family		43		438		469		181
Home equity		0		382		0		0
Consumer:
Auto:
Direct		0		0		2		0
	$	733	$	3,836	$	471	$	181

Recorded investment in past due loans

	30 - 59		60 - 89		90 or More
	Days		Days		Days		Total		Loans Not
	Past Due		Past Due (1)		Past Due (2)		Past Due		Past Due (3)		Total
Commercial real estate:
Commercial real estate	$	38	$	217	$	204	$	459	$	59,001	$	59,460
Secured by farmland		0		0		0		0		23,218		23,218
Construction and land development		0		0		0		0		8,668		8,668
Commercial:
Commercial and industrial		156		0		20		176		37,090		37,266
Agricultural production		9		0		0		9		12,200		12,209
Residential real estate:
One-to-four family		191		0		491		682		68,663		69,345
Multifamily		0		0		0		0		18,650		18,650
Construction and land development		0		0		0		0		958		958
Home equity		14		40		0		54		31,445		31,499
Consumer:
Auto:
Direct		57		0		2		59		5,400		5,459
Indirect		0		10		0		10		1,114		1,124
Other		1		0		0		1		1,782		1,783
	$	466	$	267	$	717	$	1,450	$	268,189	$	269,639

(1) Includes $217 thousand of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $471 thousand of loans past due 90 or more days still on accrual.

(3) Includes $270 thousand of loans on nonaccrual status.

	30 - 59		60 - 89		90 or More
	Days		Days		Days		Total		Loans Not
	Past Due (1)		Past Due		Past Due (2)		Past Due		Past Due (3)		Total
Commercial real estate:
Commercial real estate	$	0	$	30	$	922	$	952	$	54,557	$	55,509
Secured by farmland		0		0		0		0		11,628		11,628
Construction and land development		856		0		396		1,252		3,566		4,818
Commercial:
Commercial and industrial		37		0		597		634		29,581		30,215
Agricultural production		0		0		0		0		3,781		3,781
Residential real estate:
One-to-four family		245		297		572		1,114		55,094		56,208
Multifamily		0		0		0		0		17,001		17,001
Construction and land development		0		0		0		0		681		681
Home equity		0		0		382		382		29,906		30,288
Consumer:
Auto:
Direct		1		0		0		1		3,896		3,897
Indirect		17		0		0		17		2,804		2,821
Other		14		0		0		14		966		980
	$	1,170	$	327	$	2,869	$	4,366	$	213,461	$	217,827

(1) Includes $856 thousand of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $181 thousand of loans past due 90 or more days still on accrual.

(3) Includes $292 thousand of loans on nonaccrual status.

Summary of risk category of loans

			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial real estate:
Commercial real estate	$	54,057	$	1,891	$	3,512	$	0	$	59,460
Secured by farmland		23,218		0		0		0		23,218
Construction and land development		7,854		190		624		0		8,668
Commercial:
Commercial and industrial		34,827		929		1,510		0		37,266
Agricultural production		12,209		0		0		0		12,209
Residential real estate:
One-to-four family		0		18		43		0		61
	$	132,165	$	3,028	$	5,689	$	0	$	140,882

As of December 31, 2011, the risk category of loans by class of loans is as follows:

			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial real estate:
Commercial real estate	$	50,080	$	2,229	$	3,200	$	0	$	55,509
Secured by farmland		11,628		0		0		0		11,628
Construction and land development		2,729		196		1,893		0		4,818
Commercial:
Commercial and industrial		25,965		2,442		1,808		0		30,215
Agricultural production		3,781		0		0		0		3,781
Residential real estate:
One-to-four family		0		20		341		0		361
	$	94,183	$	4,887	$	7,242	$	0	$	106,312

Recorded investment in residential and consumer loans based on payment activity

	Consumer						Residential Real Estate
											One-to-four		Home
	Direct		Indirect		Other		Construction		Multifamily		Family		Equity		Total
Performing	$	5,457	$	1,124	$	1,783	$	958	$	18,650	$	68,793	$	31,499	$	128,264
Nonperforming		2		0		0		0		0		491		0		493
	$	5,459	$	1,124	$	1,783	$	958	$	18,650	$	69,284	$	31,499	$	128,757

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2011:

	Consumer						Residential Real Estate
											One-to-four		Home
	Direct		Indirect		Other		Construction		Multifamily		Family		Equity		Total
Performing	$	3,897	$	2,821	$	980	$	681	$	17,001	$	55,275	$	29,906	$	110,561
Nonperforming		0		0		0		0		0		572		382		954
	$	3,897	$	2,821	$	980	$	681	$	17,001	$	55,847	$	30,288	$	111,515

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Related Party Transactions (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Schedule of Loans to principal officers, directors, and their affiliates
Beginning balance	$ 2,148
Effect of changes in composition of related parties	120
New loans	113
Repayments	(1,036)
Ending Balance	$ 1,345

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Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

Schedule of Loans to principal officers, directors, and their affiliates

Beginning balance	$	2,148
Effect of changes in composition of related parties		120
New loans		113
Repayments		(1,036	)
Ending balance	$	1,345

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Securities (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Schedule of Trading Securities and Other Trading Assets [Line Items]
Fair Value of Preferred stock	$ 23
Securities (Textual) [Abstract]
The tax provision related to net realized gains and losses	0	73	225
Fair value of pledged securities	66,528	63,941
Securities held by one issuer	0	0
Share holdings of U.S. government and its agencies	Greater than 10%	Greater than 10%
FHLMC [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Fair Value of Preferred stock	$ 31	$ 20

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Deposits (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Summary of time deposits by maturities
2013	$ 34,180
2014	18,298
2015	5,045
2016	4,588
2017	63
Total deposits	$ 367,069	$ 340,664

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
ASSETS
Cash and due from banks	$ 27,624	$ 15,213
Time deposits with other financial institutions	0	246
Securities available for sale	121,650	150,175
Restricted equity securities	3,221	3,220
Loans held for sale	171	207
Loans, net of allowance for loan losses: 2012 - 3,400; 2011 - 3,163	265,539	213,952
Premises and equipment, net	11,443	12,173
Goodwill	4,723	4,723
Accrued interest receivable	1,426	1,404
Bank owned life insurance	2,719	2,649
Other real estate owned	860	17
Other assets	1,458	2,107
Total assets	440,834	406,086
Deposits
Non-interest bearing	78,990	70,810
Interest bearing	288,079	269,854
Total deposits	367,069	340,664
Repurchase agreements	18,633	10,168
Federal Home Loan Bank advances	5,000	8,000
Accrued interest payable	206	219
Accrued expenses and other liabilities	4,605	4,290
Total liabilities	395,513	363,341
Commitments and contingent liabilities
Shareholders' equity
Common stock, no par value; 6,000,000 shares authorized; 2,289,528 shares issued	11,447	11,447
Additional paid-in capital	4,888	4,815
Retained earnings	26,401	24,335
Treasury stock, at cost (69,563 and 76,259 shares)	(1,364)	(1,495)
Accumulated other comprehensive income	3,949	3,643
Total shareholders' equity	45,321	42,745
Total liabilities and shareholders' equity	$ 440,834	$ 406,086

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Derivatives (Tables)

12 Months Ended

Dec. 31, 2012

Derivatives [Abstract]

Schedule of interest rate swaps not designated as hedges and interest rate swaps

	2012			2011
Notional amount	$	1,358		$	1,423
Weighted average receive rate		5.33	%		5.33	%
Weighted average pay rate		3.47	%		3.31	%
Weighted average maturity (years)		1.0			2.0
Fair value of interest-rate swap	$	29		$	46

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

	2012			2011
Notional amount	$	1,358		$	1,423
Weighted average pay rate		5.33	%		5.33	%
Weighted average receive rate		3.47	%		3.31	%
Weighted average maturity (years)		1.0			2.0
Fair value of interest-rate swap	$	(29	)	$	(46	)

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Fair Value (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Financial instruments measured at fair value on a non-recurring basis
Valuation Technique(s)	Sales comparison approach
Unobservable Input(s)	Adjustment for differences between comparable sales
Commercial and land development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair Value	10
Range (Weighted Average)	30.00%

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Consolidated Statements of Changes in Shareholders' Equity (USD $) In Thousands	Total	Common Stock	Additional Paid-In Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Income
Balance at beginning of period at Dec. 31, 2009	$ 38,903	$ 11,447	$ 4,752	$ 21,856	$ (1,639)	$ 2,487
Net income	1,325			1,325
Other comprehensive loss / income, net of tax	(564)					(564)
Cash dividends declared ($0.32 per share)	(706)			(706)
Compensation expense under stock-based compensation plans	23		23
Balance at end of period at Dec. 31, 2010	38,981	11,447	4,775	22,475	(1,639)	1,923
Net income	2,612			2,612
Other comprehensive loss / income, net of tax	1,720					1,720
Cash dividends declared ($0.32 per share)	(706)			(706)
Stock awards issued from Treasury Shares (7,296/5,196 shares)	98			(46)	144
Compensation expense under stock-based compensation plans	40		40
Balance at end of period at Dec. 31, 2011	42,745	11,447	4,815	24,335	(1,495)	3,643
Net income	2,811			2,811
Other comprehensive loss / income, net of tax	306					306
Cash dividends declared ($0.32 per share)	(711)			(711)
Stock awards issued from Treasury Shares (7,296/5,196 shares)	77			(25)	102
Exercise of stock options (1,500 shares)	20			(9)	29
Tax benefit (deficit) on exercise of options	(1)		(1)
Compensation expense under stock-based compensation plans	74		74
Balance at end of period at Dec. 31, 2012	$ 45,321	$ 11,447	$ 4,888	$ 26,401	$ (1,364)	$ 3,949

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Fair Value (Details 1) (USD $) In Thousands, unless otherwise specified				12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012 State and municipal [Member]	Dec. 31, 2011 State and municipal [Member]	Dec. 31, 2012 Mortgage-backed - residential [Member]	Dec. 31, 2011 Mortgage-backed - residential [Member]
Reconciliation of all Assets Measured at Fair Value on a Recurring Basis
Beginning Balance	$ 0	$ 3,502	$ 320
State and Municipal:
Purchases				0	2,588
Maturities				(2,984)	0
Transfers from Level 2 to Level 3				0	898
Transfers from Level 3 to Level 2				(502)	(300)	(13)	0
Mortgage Backed Securities:
Principal repayments						(3)	(4)
Transfers from Level 3 to Level 2				(502)	(300)	(13)	0
Ending balance	$ 0	$ 3,502	$ 320

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Loans (Details 5) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Recorded investment in nonaccrual and loans past due
Nonaccrual	$ 733	$ 3,836
Loans Past Due 90 or More Days Still Accruing	471	181
Auto Direct [Member]
Recorded investment in nonaccrual and loans past due
Nonaccrual	0	0
Loans Past Due 90 or More Days Still Accruing	2	0
Commercial real estate [Member] | Commercial real estate [Member]
Recorded investment in nonaccrual and loans past due
Nonaccrual	421	1,168
Loans Past Due 90 or More Days Still Accruing	0	0
Commercial real estate [Member] | Construction and Land Development [Member]
Recorded investment in nonaccrual and loans past due
Nonaccrual	249	1,252
Loans Past Due 90 or More Days Still Accruing	0	0
Commercial [Member] | Commercial and industrial [Member]
Recorded investment in nonaccrual and loans past due
Nonaccrual	20	596
Loans Past Due 90 or More Days Still Accruing	0	0
Residential real estate [Member] | One-to-four Family [Member]
Recorded investment in nonaccrual and loans past due
Nonaccrual	43	438
Loans Past Due 90 or More Days Still Accruing	469	181
Residential real estate [Member] | Home Equity [Member]
Recorded investment in nonaccrual and loans past due
Nonaccrual	0	382
Loans Past Due 90 or More Days Still Accruing	$ 0	$ 0

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Derivatives (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Interest-rate swaps between the Corporation and outside parties [Member]
Interest rate swaps not designated as hedges and interest rate swaps
Notional amount	$ 1,358	$ 1,423
Weighted average receive rate	5.33%	5.33%
Weighted average pay rate	3.47%	3.31%
Weighted average maturity (years)	1 year	2 years
Fair value of interest-rate swaps	(29)	(46)
Hedges between the Corporation and its borrower [Member]
Interest rate swaps not designated as hedges and interest rate swaps
Notional amount	1,358	1,423
Weighted average receive rate	5.33%	5.33%
Weighted average pay rate	3.47%	3.31%
Weighted average maturity (years)	1 year	2 years
Fair value of interest-rate swaps	$ 29	$ 46

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Real Estate Owned (Tables)

12 Months Ended

Dec. 31, 2012

Real Estate Owned [Abstract]

Summary of real estate owned activity

	2012			2011			2010
Beginning balance	$	18		$	58		$	104
Loans transferred to real estate owned		1,222			54			91
Capitalized expenditures		55			0			0
Sales of real estate owned		(435	)		(94	)		(137	)
End of year	$	860		$	18		$	58

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Loan Servicing (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Activity for mortgage servicing rights
Beginning of year	$ 47	$ 76	$ 115
Additions	112	4	5
Amortized to expense	(35)	(33)	(44)
End of year	$ 124	$ 47	$ 76

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2012

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

NOTE 14 – STOCK-BASED COMPENSATION

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

Stock Option Awards

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

In May 2008, the Corporation granted options to purchase 58,000 shares of stock to directors and certain key officers, 40,000 of which remained outstanding at December 31, 2012. The exercise price of the options is $18.03 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. None of these options have been exercised as of December 31, 2012.

In October 2010, the Corporation granted options to purchase 43,000 shares of stock to directors and certain key officers, of which 35,200 remained outstanding at December 31, 2012. The exercise price of the options is $13.22 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. 1,500 of these options have been exercised as of December 31, 2012.

In January 2012, the Corporation granted options to purchase 58,000 shares of stock to directors and certain key officers, of which 56,000 remained outstanding at December 31, 2012. The exercise price of the options is $14.10 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. None of these options have been exercised as of December 31, 2012.

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

The fair value of options granted and the assumptions used for grants in 2012 and 2010 were as follows:

	2012			2010
Fair value of options granted	$	1.77		$	2.53
Risk-free interest rate		1.39	%		1.49	%
Expected term (years)		7.0			6.5
Expected stock price volatility		16.40	%		24.67	%
Dividend yield		2.27	%		2.42	%

A summary of the activity in the stock option plan for 2012 follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at beginning of year		84,500		$	15.70
Granted		58,000			14.10
Exercised		(1,500	)		13.22
Forfeited or expired		(9,800	)		14.88
Outstanding at end of year		131,200		$	15.06		7.6	$	131
Fully expected to vest		82,800		$	14.19		7.7	$	102
Exercisable at end of year		48,400		$	16.56		6.2	$	29

Information related to the exercise of stock options follows:

	2012
Intrinsic value of options exercised	$	3
Cash received from option exercises		20
Tax benefit (deficit) realized from option exercises		(1	)

The total compensation cost that has been charged against income for the plan was $74, $40 and $23 for 2012, 2011 and 2010. The total income tax benefit was $25, $14 and $8 for 2012, 2011 and 2010. There was $79, $60 and $117 of total unrecognized compensation cost related to nonvested stock options granted under the Plan as of December 31, 2012, 2011 and 2010. The cost is expected to be recognized over a weighted-average period of 3.6 years.

Restricted Stock Awards

On January 3, 2011, the Corporation granted restricted stock awards for 3,744 shares of the Corporation’s common stock to certain directors in lieu of cash payment of fees. The awards vested immediately and the compensation expense related to the awards of $50 was recorded in 2010. The fair value of the stock was determined using closing market price of the Corporation’s common stock on the date of the grant.

On July 1, 2011, the Corporation granted restricted stock awards for 3,552 shares of the Corporation’s common stock to certain directors in lieu of cash payment of fees. The awards vested immediately and the compensation expense related to the awards of $48 was recorded in 2011. The fair value of the stock was determined using closing market price of the Corporation’s common stock on the date of the grant.

On January 3, 2012, the Corporation granted restricted stock awards for 3,330 shares of the Corporation’s common stock to certain directors in lieu of cash payment of fees. The awards vested immediately and the compensation expense related to the awards of $49 was recorded in 2011. The fair value of the stock was determined using closing market price of the Corporation’s common stock on the date of the grant.

On July 2, 2012, the Corporation granted restricted stock awards for 1,866 shares of the Corporation’s common stock to certain directors in lieu of cash payment of fees. The awards vested immediately and the compensation expense related to the awards of $28 was recorded in 2012. The fair value of the stock was determined using closing market price of the Corporation’s common stock on the date of the grant.

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Deposits (Tables)

12 Months Ended

Dec. 31, 2012

Deposits / Federal Home Loan Bank Advances / Regulatory Capital Matters [Abstract]

Deposits

	2012		2011
Demand, noninterest-bearing	$	78,990	$	70,810
Demand, interest-bearing		163,852		154,410
Savings		62,053		55,781
Time, $100,000 and over		18,950		15,305
Time, other		43,224		44,358
	$	367,069	$	340,664

A summary of time deposits by maturities

2013	$	34,180
2014		18,298
2015		5,045
2016		4,588
2017		63
	$	62,174

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Fair Value (Details Textual) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 Securities	Dec. 31, 2011
Fair Value (Textual) [Abstract]
Impaired loans principal amount	$ 43	$ 1,999
Impaired loans valuation allowance	33	516
Increase the provision for loan loss	584	247
Real estate owned carrying amount		18
Outstanding balance		131
Other real estate valuation allowance	0	113
Written-down of other real estate	0	38
Number of securities	2
State and municipal [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Transfers from Level 3 to Level 2	$ 502	$ 300

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Loan Commitments and Other Related Activities

12 Months Ended

Dec. 31, 2012

Loans / Loan Servicing / Loan Commitments and Other Related Activities [Abstract]

LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

NOTE 16 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

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

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

	2012		2011
Commitments to make loans	$	6,996	$	3,376
Unused lines of credit		61,592		46,862
Overdraft protection		12,264		11,664
Letters of credit		288		266

Of the above unused instruments at December 31, 2012, approximately $1,992 pertains to fixed-rate commitments, variable-rate commitments account for approximately $66,884 and $12,264 are related to automatic overdraft protection for checking accounts. At year-end 2011, approximately $2,256 of total commitments were fixed-rate, approximately $48,248 were variable rate and $11,664 were related to automatic overdraft protection for checking accounts. Rates on fixed-rate unused lines of credit ranged from 3.75% to 7.5% at December 31, 2012 and 5.00% to 6.75% at December 31, 2011.

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Premises and Equipment (Details Textual) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Premises and Equipment (Textual) [Abstract]
Depreciation expense	$ 895	$ 932	$ 748
Rent expense under operating leases	$ 11	$ 21	$ 37

XML

Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Stock awards issued from Treasury Shares	5,196	7,296
Options exercised	1,500
Dividends declared per common share	$ 0.32	$ 0.32	$ 0.32
Retained Earnings
Stock awards issued from Treasury Shares	5,196	7,296
Options exercised	1,500
Dividends declared per common share	$ 0.32	$ 0.32	$ 0.32
Treasury Stock
Stock awards issued from Treasury Shares	5,196	7,296
Options exercised	1,500

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Consolidated Balance Sheets [Abstract]
Allowance for loan losses	$ 3,400	$ 3,163
Common stock, par value
Common stock, shares authorized	6,000,000	6,000,000
Common stock, shares issued	2,289,528	2,289,528
Treasury stock, shares	69,563	76,259

XML

Federal Home Loan Bank Advances

12 Months Ended

Dec. 31, 2012

Deposits / Federal Home Loan Bank Advances / Regulatory Capital Matters [Abstract]

FEDERAL HOME LOAN BANK ADVANCES

NOTE 9 – FEDERAL HOME LOAN BANK ADVANCES

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

	2012		2011
Maturities in 2012, fixed rate at 2.00%	$	0	$	3,000
Maturities in 2014, fixed rate at 2.86% to 2.88%		5,000		5,000
	$	5,000	$	8,000

Each advance is payable at its maturity date; advances may be paid prior to maturity subject to a prepayment penalty. As collateral for the advances, the Bank has approximately $66,324 and $52,779 of first mortgage loans available under a blanket lien arrangement at year-end 2012 and 2011.

Required payments over the next five years are:

2014 2.86% to 2.88% $ 5,000

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Parent Company Only Condensed Financial Information (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
EXPENSES
Income (loss) before income tax benefit and undistributed subsidiary income	$ 3,362	$ 3,056	$ 1,396
Income tax expense	551	444	71
Net income	2,811	2,612	1,325
Comprehensive income	3,117	4,332	761
Parent Company [Member]
INCOME
Dividends from bank subsidiary	600	0	0
Dividends from real estate subsidiary	90	0	0
Total income	690	0	0
EXPENSES
Miscellaneous expense	(101)	(60)	(48)
Income (loss) before income tax benefit and undistributed subsidiary income	589	(60)	(48)
Income tax expense	34	21	16
Undistributed equity in net income of bank subsidiary	2,261	2,652	1,385
Undistributed equity in (distributions in excess of) net income (loss) of real estate subsidiary	(73)	(1)	(28)
Net income	2,811	2,612	1,325
Comprehensive income	$ 3,117	$ 4,332	$ 761

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Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets:
Available for sale securities	$ 121,650
Interest rate swaps	29
Liabilities:
Interest rate swaps	29
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Available for sale securities	31
Interest rate swaps	0
Liabilities:
Interest rate swaps	0
Significant Other Observable Inputs (Level 2) [Member]
Assets:
Available for sale securities	121,619
Interest rate swaps	29
Liabilities:
Interest rate swaps	29
Significant Unobservable Inputs (Level 3) [Member]
Assets:
Available for sale securities	0
Interest rate swaps	0
Liabilities:
Interest rate swaps	0
Fair Value Measurements Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Interest rate swaps	0	0
Liabilities:
Interest rate swaps	0	0
Fair Value Measurements Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Interest rate swaps	29	46
Liabilities:
Interest rate swaps	29	46
Fair Value Measurements Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Interest rate swaps	0	0
Liabilities:
Interest rate swaps	0	0
Fair Value Measurements Recurring [Member] | U.S. Government and federal agency [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Available for sale securities	0	0
Fair Value Measurements Recurring [Member] | U.S. Government and federal agency [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Available for sale securities	1,802	2,446
Fair Value Measurements Recurring [Member] | U.S. Government and federal agency [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Available for sale securities	0	0
Fair Value Measurements Recurring [Member] | State and municipal [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Available for sale securities	0	0
Fair Value Measurements Recurring [Member] | State and municipal [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Available for sale securities	55,179	53,937
Fair Value Measurements Recurring [Member] | State and municipal [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Available for sale securities	0	3,486
Fair Value Measurements Recurring [Member] | Mortgage-backed - securities residential [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Available for sale securities	0	0
Fair Value Measurements Recurring [Member] | Mortgage-backed - securities residential [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Available for sale securities	64,638	90,270
Fair Value Measurements Recurring [Member] | Mortgage-backed - securities residential [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Available for sale securities	0	16
Fair Value Measurements Recurring [Member] | Equity securities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Available for sale securities	31	20
Fair Value Measurements Recurring [Member] | Equity securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Available for sale securities	0	0
Fair Value Measurements Recurring [Member] | Equity securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Available for sale securities	$ 0	$ 0

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Loan Commitments and Other Related Activities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Commitments to make loans [Member]
Contractual amounts of financial instruments
Contractual amounts of financial instruments with off-balance-sheet risk	$ 6,996	$ 3,376
Unused lines of Credit [Member]
Contractual amounts of financial instruments
Contractual amounts of financial instruments with off-balance-sheet risk	61,592	46,862
Overdraft protection [Member]
Contractual amounts of financial instruments
Contractual amounts of financial instruments with off-balance-sheet risk	12,264	11,664
Letter of Credit [Member]
Contractual amounts of financial instruments
Contractual amounts of financial instruments with off-balance-sheet risk	$ 288	$ 266

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 01, 2013	Jun. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	NATIONAL BANCSHARES CORP /OH/
Entity Central Index Key	0000790362
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 27,599,473
Entity Common Stock, Shares Outstanding		2,219,965

XML

Repurchase Agreements

12 Months Ended

Dec. 31, 2012

Repurchase Agreement [Abstract]

REPURCHASE AGREEMENT

NOTE 10 – REPURCHASE AGREEMENTS

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

	2012			2011			2010
Average balance during the year	$	11,604		$	9,071		$	8,032
Average interest rate during the year		0.15	%		0.15	%		0.15	%
Maximum month-end balance during the year	$	18,633		$	11,114		$	12,083
Weighted average rate at year-end		0.15	%		0.15	%		0.15	%

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Income Taxes (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Components of income tax expense
Current	$ 599	$ 419	$ (24)
Deferred	(48)	25	95
Income tax expense	$ 551	$ 444	$ 71

XML

Regulatory Capital Matters (Details Textual) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Regulatory Capital Matters (Textual) [Abstract]
Dividends Paid to the Holding Corporation	$ 6,298

XML

Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Interest and dividend income
Loans, including fees	$ 11,981	$ 10,676	$ 10,536
Securities:
Taxable	2,139	3,019	3,541
Nontaxable	1,803	1,625	1,214
Federal funds sold and other	66	93	210
Total interest and dividend income	15,989	15,413	15,501
Interest expense
Deposits	1,530	1,750	2,188
Short-term borrowings	44	44	47
Federal Home Loan Bank advances	188	256	984
Total interest expense	1,762	2,050	3,219
Net interest income	14,227	13,363	12,282
Provision for loan losses	1,374	600	2,229
Net interest income after provision for loan losses	12,853	12,763	10,053
Noninterest income
Checking account fees	1,042	1,085	1,125
Visa check card interchange fees	591	549	442
Deposit and miscellaneous service fees	384	321	338
Mortgage banking activities	560	256	285
Loss on sales of other real estate owned	4	(38)	(24)
Securities gains, net	0	214	661
Gain on sale of SBA loans	0	171	0
Death benefit from life insurance policy	0	121	0
Other	316	353	363
Total noninterest income	2,897	3,032	3,190
Noninterest expense
Salaries and employee benefits	6,164	6,025	5,550
Data processing	1,191	1,160	1,033
Net occupancy	1,403	1,480	1,231
FDIC assessment	309	362	520
Professional and consulting fees	432	637	685
Franchise tax	402	360	348
Maintenance and repairs	206	237	203
Amortization of intangibles	0	107	90
Telephone	221	242	237
Marketing	247	240	240
Director fees	201	188	193
Directors pension expense	88	181	98
Software license and maintenance fees	200	245	202
Postage and supplies	304	283	295
Other	1,020	992	922
Total noninterest expense	12,388	12,739	11,847
Income before income taxes	3,362	3,056	1,396
Income tax expense	551	444	71
Net income	$ 2,811	$ 2,612	$ 1,325
Weighted average common shares outstanding	2,217,690	2,211,508	2,205,973
Weighted average diluted common shares outstanding	2,220,047	2,211,508	2,205,973
Basic and diluted earnings per common share	$ 1.27	$ 1.18	$ 0.60

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Loan Servicing

12 Months Ended

Dec. 31, 2012

Loans / Loan Servicing / Loan Commitments and Other Related Activities [Abstract]

LOAN SERVICING

NOTE 4 – LOAN SERVICING

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

	2012		2011
Mortgage loan portfolios serviced for:
FHLMC	$	22,623	$	16,373

There were no custodial escrow balances maintained in connection with serviced loans at year-end 2012 and 2011.

Activity for mortgage servicing rights follows:

	2012			2011			2010
Servicing rights:
Beginning of year	$	47		$	76		$	115
Additions		112			4			5
Amortized to expense		(35	)		(33	)		(44	)
End of year	$	124		$	47		$	76

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Loans

12 Months Ended

Dec. 31, 2012

Loans / Loan Servicing / Loan Commitments and Other Related Activities [Abstract]

LOANS

NOTE 3 – LOANS

Loans at year end were as follows:

	2012			2011
Commercial real estate:
Commercial real estate	$	59,484		$	55,520
Secured by farmland		23,161			11,609
Construction and land development		8,682			4,822
Commercial:
Commercial and industrial		37,138			30,165
Agricultural production		12,107			3,721
Residential real estate:
One-to-four family		69,364			56,261
Multifamily		18,660			17,041
Construction and land development		959			683
Home equity		31,218			30,086
Consumer:
Auto:
Direct		5,436			3,866
Indirect		1,087			2,740
Other		1,780			980
		269,076			217,494
Unearned and deferred income		(137	)		(379	)
Allowance for loan losses		(3,400	)		(3,163	)
	$	265,539		$	213,952

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending December 31, 2012:

				Commercial			Residential			Home
	Commercial			Real Estate			Real Estate			Equity			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	856		$	1,480		$	721		$	66		$	40		$	0	$	3,163
Provision for loan losses		342			837			108			81			6			0		1,374
Loans charged-off		(282	)		(525	)		(250	)		(91	)		(41	)		0		(1,189	)
Recoveries		10			1			5			9			27			0		52
Total ending allowance balance	$	926		$	1,793		$	584		$	65		$	32		$	0	$	3,400

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ending December 31, 2011:

			Commercial		Residential			Home
	Commercial		Real Estate		Real Estate			Equity			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	460	$	1,267	$	675		$	100		$	53		$	30		$	2,585
Provision for loan losses		371		212		74			(9	)		(18	)		(30	)		600
Loans charged-off		0		0		(28	)		(26	)		(17	)		0			(71	)
Recoveries		25		1		0			1			22			0			49
Total ending allowance balance	$	856	$	1,480	$	721		$	66		$	40		$	0		$	3,163

Activity in the allowance for loan losses was as follows:

	2012			2011			2010
Beginning balance	$	3,163		$	2,585		$	2,906
Provision for loan losses		1,374			600			2,229
Loans charged-off		(1,189	)		(71	)		(2,576	)
Recoveries		52			49			26
Ending balance	$	3,400		$	3,163		$	2,585

The recorded investment in loans includes the principal balance outstanding, net of unearned and deferred income and including accrued interest receivable. The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2012 and 2011:

			Commercial		Residential		Home
December 31, 2012	Commercial		Real Estate		Real Estate		Equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	0	$	33	$	0	$	0	$	0	$	0	$	33
Collectively evaluated for impairment		926		1,760		584		65		32		0		3,367
Total ending allowance balance	$	926	$	1,793	$	584	$	65	$	32	$	0	$	3,400
Recorded investment in loans:
Loans individually evaluated for impairment	$	20	$	1,478	$	43	$	0	$	0	$	0	$	1,541
Loans collectively evaluated for impairment		49,455		89,868		88,910		31,499		8,366		0		268,098
Total ending loans balance	$	49,475	$	91,346	$	88,953	$	31,499	$	8,366	$	0	$	269,639
			Commercial		Residential		Home
December 31, 2011	Commercial		Real Estate		Real Estate		Equity		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	151	$	183	$	182	$	0	$	0	$	0	$	516
Collectively evaluated for impairment		705		1,297		539		66		40		0		2,647
Total ending allowance balance	$	856	$	1,480	$	721	$	66	$	40	$	0	$	3,163
Recorded investment in loans:
Loans individually evaluated for impairment	$	597	$	2,420	$	320	$	0	$	0	$	0	$	3,337
Loans collectively evaluated for impairment		33,399		69,535		73,570		30,288		7,698		0		214,490
Total ending loans balance	$	33,996	$	71,955	$	73,890	$	30,288	$	7,698	$	0	$	217,827

The following table presents loans individually evaluated for impairment by class of loans as of, and for the year ended December 31, 2012:

	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
December 31, 2012	Balance		Investment		Allocated		Investment
With no related allowance recorded:
Commercial real estate:
Commercial real estate	$	378	$	378	$	0	$	389
Construction and land development		1,154		1,057		0		1,375
Commercial:
Commercial and industrial		20		20		0		433
Residential real estate:
One-to-four family		43		43		0		44
With an allowance recorded:
Commercial real estate:
Construction and land development		43		43		33		43
Commercial:
Commercial and industrial		0		0		0		0
	$	1,638	$	1,541	$	33	$	2,284

For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.

The impact to interest income on impaired loans was not significant to the consolidated statements of income for the year ended December 31, 2012.

The following table presents loans individually evaluated for impairment by class of loans as of, and for the year ended December 31, 2011:

	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
December 31, 2011	Balance		Investment		Allocated		Investment
With no related allowance recorded:
Commercial real estate:
Commercial real estate	$	406	$	406	$	0	$	426
Construction and land development		1,252		1,252		0		1,923
Commercial:
Commercial and industrial		29		29		0		31
Residential real estate:
One-to-four family		46		46		0		49
With an allowance recorded:
Commercial real estate:
Commercial real estate		762		762		183		902
Commercial:
Commercial and industrial		568		568		151		509
Residential real estate:
One-to-four family		274		274		182		283
	$	3,337	$	3,337	$	516	$	4,123

The impact to interest income on impaired loans was not significant to the consolidated statements of income for the year ended December 31, 2011.

The average of individually impaired loans as of, and for the year ended December 31, 2010 was $3,888. The impact to interest income on impaired loans was not significant to the consolidated statements of income for the year ended December 31, 2010.

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

The following table presents the recorded investment in nonaccrual and loans past due 90 or more days still on accrual by class of loans as of December 31, 2012 and 2011:

					Loans Past Due 90 or
	Nonaccrual				More Days Still Accruing
	2012		2011		2012		2011
Commercial real estate:
Commercial real estate	$	421	$	1,168	$	0	$	0
Construction and land development		249		1,252		0		0
Commercial:
Commercial and industrial		20		596		0		0
Residential real estate:
One-to-four family		43		438		469		181
Home equity		0		382		0		0
Consumer:
Auto:
Direct		0		0		2		0
	$	733	$	3,836	$	471	$	181

The following table presents the aging of the recorded investment in past due loans as of December 31, 2012 by class of loans:

	30 - 59		60 - 89		90 or More
	Days		Days		Days		Total		Loans Not
	Past Due		Past Due (1)		Past Due (2)		Past Due		Past Due (3)		Total
Commercial real estate:
Commercial real estate	$	38	$	217	$	204	$	459	$	59,001	$	59,460
Secured by farmland		0		0		0		0		23,218		23,218
Construction and land development		0		0		0		0		8,668		8,668
Commercial:
Commercial and industrial		156		0		20		176		37,090		37,266
Agricultural production		9		0		0		9		12,200		12,209
Residential real estate:
One-to-four family		191		0		491		682		68,663		69,345
Multifamily		0		0		0		0		18,650		18,650
Construction and land development		0		0		0		0		958		958
Home equity		14		40		0		54		31,445		31,499
Consumer:
Auto:
Direct		57		0		2		59		5,400		5,459
Indirect		0		10		0		10		1,114		1,124
Other		1		0		0		1		1,782		1,783
	$	466	$	267	$	717	$	1,450	$	268,189	$	269,639

(1) Includes $217 thousand of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $471 thousand of loans past due 90 or more days still on accrual.

(3) Includes $270 thousand of loans on nonaccrual status.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

	30 - 59		60 - 89		90 or More
	Days		Days		Days		Total		Loans Not
	Past Due (1)		Past Due		Past Due (2)		Past Due		Past Due (3)		Total
Commercial real estate:
Commercial real estate	$	0	$	30	$	922	$	952	$	54,557	$	55,509
Secured by farmland		0		0		0		0		11,628		11,628
Construction and land development		856		0		396		1,252		3,566		4,818
Commercial:
Commercial and industrial		37		0		597		634		29,581		30,215
Agricultural production		0		0		0		0		3,781		3,781
Residential real estate:
One-to-four family		245		297		572		1,114		55,094		56,208
Multifamily		0		0		0		0		17,001		17,001
Construction and land development		0		0		0		0		681		681
Home equity		0		0		382		382		29,906		30,288
Consumer:
Auto:
Direct		1		0		0		1		3,896		3,897
Indirect		17		0		0		17		2,804		2,821
Other		14		0		0		14		966		980
	$	1,170	$	327	$	2,869	$	4,366	$	213,461	$	217,827

(1) Includes $856 thousand of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $181 thousand of loans past due 90 or more days still on accrual.

(3) Includes $292 thousand of loans on nonaccrual status.

Troubled Debt Restructuring

As of period ending December 31, 2012, certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The Corporation has two commercial loans with a balance of $1,082 that were individually evaluated for impairment whose loan terms have been modified in troubled debt restructurings as of December 31, 2012. There is $42 in specific reserves that have been allocated for these loans as of December 31, 2012. The Corporation has not committed to lend any additional amounts as of December 31, 2012 to customers with outstanding loans that are classified as troubled debt restructurings. The Corporation had commercial loans with balances of $2,517 that were individually evaluated for impairment whose loan terms have been modified in troubled debt restructurings as of December 31, 2011. $300 of specific reserve was allocated for these loans.

There were no loans modified as troubled debt restructurings that experienced payment default following the modification within the last twelve months. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Corporation’s internal underwriting policy.

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

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of December 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial real estate:
Commercial real estate	$	54,057	$	1,891	$	3,512	$	0	$	59,460
Secured by farmland		23,218		0		0		0		23,218
Construction and land development		7,854		190		624		0		8,668
Commercial:
Commercial and industrial		34,827		929		1,510		0		37,266
Agricultural production		12,209		0		0		0		12,209
Residential real estate:
One-to-four family		0		18		43		0		61
	$	132,165	$	3,028	$	5,689	$	0	$	140,882

As of December 31, 2011, the risk category of loans by class of loans is as follows:

			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial real estate:
Commercial real estate	$	50,080	$	2,229	$	3,200	$	0	$	55,509
Secured by farmland		11,628		0		0		0		11,628
Construction and land development		2,729		196		1,893		0		4,818
Commercial:
Commercial and industrial		25,965		2,442		1,808		0		30,215
Agricultural production		3,781		0		0		0		3,781
Residential real estate:
One-to-four family		0		20		341		0		361
	$	94,183	$	4,887	$	7,242	$	0	$	106,312

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2012:

	Consumer						Residential Real Estate
											One-to-four		Home
	Direct		Indirect		Other		Construction		Multifamily		Family		Equity		Total
Performing	$	5,457	$	1,124	$	1,783	$	958	$	18,650	$	68,793	$	31,499	$	128,264
Nonperforming		2		0		0		0		0		491		0		493
	$	5,459	$	1,124	$	1,783	$	958	$	18,650	$	69,284	$	31,499	$	128,757

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2011:

	Consumer						Residential Real Estate
											One-to-four		Home
	Direct		Indirect		Other		Construction		Multifamily		Family		Equity		Total
Performing	$	3,897	$	2,821	$	980	$	681	$	17,001	$	55,275	$	29,906	$	110,561
Nonperforming		0		0		0		0		0		572		382		954
	$	3,897	$	2,821	$	980	$	681	$	17,001	$	55,847	$	30,288	$	111,515

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Regulatory Capital Matters

12 Months Ended

Dec. 31, 2012

Deposits / Federal Home Loan Bank Advances / Regulatory Capital Matters [Abstract]

REGULATORY CAPITAL MATTERS

NOTE 15 – REGULATORY CAPITAL MATTERS

Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of December 31, 2012, the Bank meets all capital adequacy requirements to which it is subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2012 and 2011, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

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

											To Be Well
						Required					Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2012
Total capital to risk weighted assets	$	36,989		12.53	%	$	23,626		8.00	%	$	29,532		10.00	%
Tier 1 capital to risk weighted assets		33,589		11.37	%		11,813		4.00	%		17,719		6.00	%
Tier 1 capital to average assets		33,589		7.59	%		17,713		4.00	%		22,142		5.00	%

											To Be Well
						Required					Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
2011
Total capital to risk weighted assets	$	34,367		13.85	%	$	19,847		8.00	%	$	24,809		10.00	%
Tier 1 capital to risk weighted assets		31,256		12.60	%		9,923		4.00	%		14,885		6.00	%
Tier 1 capital to average assets		31,256		7.78	%		16,069		4.00	%		20,086		5.00	%

Dividend Restrictions—The Corporation’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. The Bank could, without prior approval, pay dividends to the holding Corporation of approximately $6,298 as of December 31, 2012.

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Benefit Plans

12 Months Ended

Dec. 31, 2012

Benefit Plans [Abstract]

BENEFIT PLANS

NOTE 11 – BENEFIT PLANS

The Corporation has a 401(k) retirement plan that covers substantially all employees. The plan allows employees to contribute up to a predetermined amount, subject to certain limitations. Matching contributions may be made in amounts and at times determined by the Corporation. Total matching discretionary contributions made by the Corporation during 2012, 2011 and 2010 amounted to $65, $54 and $57.

The Corporation has an Employee Stock Purchase Incentive Plan for full-time and most part-time employees. Under the Plan, each employee is entitled to receive a cash payment equal to 20% of the purchase price of Corporation common stock acquired by the employee on the open market, up to a maximum of 500 shares per calendar year. Expenses recognized in 2012, 2011 and 2010 amounted to $3, $1 and $2.

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

Interest credited to participant accounts associated with the deferrals was $6, $8 and $8 in 2012, 2011 and 2010. The deferred directors’ fee liability was $131 at December 31, 2012 and $164 at December 31, 2011. Expense recognized in 2012, 2011 and 2010 for the director retirement and death benefit plan was $88, $172 and $79. The liability related to the plan was $900 at December 31, 2012 and $849 at December 31, 2011.

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Related Party Transactions (Details Textual) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Related Party Transactions (Textual) [Abstract]
Unused commitments to related parties	$ 2,326	$ 1,729
Related party deposits	5,545	3,697
Fee income	$ 0	$ 4	$ 35

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Real Estate Owned

12 Months Ended

Dec. 31, 2012

Real Estate Owned [Abstract]

REAL ESTATE OWNED

NOTE 7 – REAL ESTATE OWNED

Real estate owned activity was as follows:

	2012			2011			2010
Beginning balance	$	18		$	58		$	104
Loans transferred to real estate owned		1,222			54			91
Capitalized expenditures		55			0			0
Sales of real estate owned		(435	)		(94	)		(137	)
End of year	$	860		$	18		$	58

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Loans (Details 6) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Recorded investment in past due loans
30-59 Days Past Due	$ 466	$ 1,170
60-89 Days Past Due	267	327
90 or More Days Past Due	717	2,869
Total Past Due	1,450	4,366
Loans Not Past Due	268,189	213,461
Total	269,639	217,827
Commercial real estate [Member] | Commercial real estate [Member]
Recorded investment in past due loans
30-59 Days Past Due	38	0
60-89 Days Past Due	217	30
90 or More Days Past Due	204	922
Total Past Due	459	952
Loans Not Past Due	59,001	54,557
Total	59,460	55,509
Commercial real estate [Member] | Secured by farm land [Member]
Recorded investment in past due loans
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
90 or More Days Past Due	0	0
Total Past Due	0	0
Loans Not Past Due	23,218	11,628
Total	23,218	11,628
Commercial real estate [Member] | Construction and Land Development [Member]
Recorded investment in past due loans
30-59 Days Past Due	0	856
60-89 Days Past Due	0	0
90 or More Days Past Due	0	396
Total Past Due	0	1,252
Loans Not Past Due	8,668	3,566
Total	8,668	4,818
Commercial [Member] | Commercial and industrial [Member]
Recorded investment in past due loans
30-59 Days Past Due	156	37
60-89 Days Past Due	0	0
90 or More Days Past Due	20	597
Total Past Due	176	634
Loans Not Past Due	37,090	29,581
Total	37,266	30,215
Commercial [Member] | Agricultural production [Member]
Recorded investment in past due loans
30-59 Days Past Due	9	0
60-89 Days Past Due	0	0
90 or More Days Past Due	0	0
Total Past Due	9	0
Loans Not Past Due	12,200	3,781
Total	12,209	3,781
Residential real estate [Member] | Construction and Land Development [Member]
Recorded investment in past due loans
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
90 or More Days Past Due	0	0
Total Past Due	0	0
Loans Not Past Due	958	681
Total	958	681
Residential real estate [Member] | One-to-four Family [Member]
Recorded investment in past due loans
30-59 Days Past Due	191	245
60-89 Days Past Due	0	297
90 or More Days Past Due	491	572
Total Past Due	682	1,114
Loans Not Past Due	68,663	55,094
Total	69,345	56,208
Residential real estate [Member] | Multifamily [Member]
Recorded investment in past due loans
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
90 or More Days Past Due	0	0
Total Past Due	0	0
Loans Not Past Due	18,650	17,001
Total	18,650	17,001
Residential real estate [Member] | Home Equity [Member]
Recorded investment in past due loans
30-59 Days Past Due	14	0
60-89 Days Past Due	40	0
90 or More Days Past Due	0	382
Total Past Due	54	382
Loans Not Past Due	31,445	29,906
Total	31,499	30,288
Consumer [Member] | Auto Direct [Member]
Recorded investment in past due loans
30-59 Days Past Due	57	1
60-89 Days Past Due	0	0
90 or More Days Past Due	2	0
Total Past Due	59	1
Loans Not Past Due	5,400	3,896
Total	5,459	3,897
Consumer [Member] | Auto Indirect [Member]
Recorded investment in past due loans
30-59 Days Past Due	0	17
60-89 Days Past Due	10	0
90 or More Days Past Due	0	0
Total Past Due	10	17
Loans Not Past Due	1,114	2,804
Total	1,124	2,821
Consumer [Member] | Other [Member]
Recorded investment in past due loans
30-59 Days Past Due	1	14
60-89 Days Past Due	0	0
90 or More Days Past Due	0	0
Total Past Due	1	14
Loans Not Past Due	1,782	966
Total	$ 1,783	$ 980

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Premises and Equipment

12 Months Ended

Dec. 31, 2012

Premises and Equipment [Abstract]

PREMISES AND EQUIPMENT

NOTE 5 – PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

	2012			2011
Land	$	1,758		$	1,758
Buildings		11,914			11,893
Furniture, fixtures and equipment		5,319			5,242
		18,991			18,893
Less: Accumulated depreciation		(7,548	)		(6,720	)
	$	11,443			12,173

Depreciation expense was $895, $932 and $748 in 2012, 2011 and 2010.

Rent expense under operating leases included in occupancy was $11, $21 and $37 for the years ended December 31, 2012, 2011 and 2010. Future lease payments are not material.

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Goodwill

12 Months Ended

Dec. 31, 2012

Goodwill [Abstract]

Goodwill

NOTE 6 – GOODWILL

During 2002, the Corporation acquired Peoples Financial Corporation and merged the Corporation’s banking operations into the Bank. Goodwill of $4,723 was realized from this transaction.

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

Our annual impairment analysis as of September 30, 2012, indicated that the Step 2 analysis was not necessary. Step 2 of the goodwill impairment test is performed to measure the impairment loss. Step 2 requires that the implied fair value of the reporting unit goodwill be compared to the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

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Deposits

12 Months Ended

Dec. 31, 2012

Deposits / Federal Home Loan Bank Advances / Regulatory Capital Matters [Abstract]

DEPOSITS

NOTE 8 – DEPOSITS

	2012		2011
Demand, noninterest-bearing	$	78,990	$	70,810
Demand, interest-bearing		163,852		154,410
Savings		62,053		55,781
Time, $100,000 and over		18,950		15,305
Time, other		43,224		44,358
	$	367,069	$	340,664

A summary of time deposits at year-end 2012 by maturity follows:

2013	$	34,180
2014		18,298
2015		5,045
2016		4,588
2017		63
	$	62,174

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Loan Servicing (Details) (FHLMC [Member], USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
FHLMC [Member]
Mortgage loans serviced for others are not reported as assets
FHLMC	$ 22,623	$ 16,373

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Stock-Based Compensation (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2010
Fair Value assumptions and Option Grants
Fair value of options granted	$ 1.77	$ 2.53
Risk-free interest rate	1.39%	1.49%
Expected term (years)	7 years	6 years 6 months
Expected stock price volatility	16.40%	24.67%
Dividend yield	2.27%	2.42%

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Loan Servicing (Details Textual) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Loan Servicing (Textual) [Abstract]
Custodial escrow balances maintained in connection with serviced loans	$ 0	$ 0

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Parent Company Only Condensed Financial Information (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
ASSETS
Securities available for sale	$ 121,650	$ 150,175
Other assets	1,458	2,107
Total assets	440,834	406,086
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity	45,321	42,745	38,981	38,903
Total liabilities and shareholders' equity	440,834	406,086
Parent Company [Member]
ASSETS
Cash and cash equivalents	510	520
Investment in bank subsidiary	42,278	39,645
Investment in real estate subsidiary	2,393	2,466
Securities available for sale	31	20
Other assets	304	271
Total assets	45,516	42,922
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable	178	177
Other Liabilities	17	0
Shareholders' equity	45,321	42,745
Total liabilities and shareholders' equity	$ 45,516	$ 42,922

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Loans (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012 Contract	Dec. 31, 2011	Dec. 31, 2010
Loans (Textual) [Abstract]
30-59 Days Past Due loans on nonaccrual status	$ 217,000	$ 856,000
90 or more days past due loans still on accrual	471,000	181,000
Loans on nonaccrual status loans not past due	270,000	292,000
Total number of commercial loans	2
Amount of loans after modifying as troubled debt restructuring	1,082,000		2,517,000
Specific reserves allocated for loans	42,000		300,000
Time period for default in payment of loan	30 days
Loans individually evaluated for impairment	1,541,000	3,337,000
Loans individually evaluated for impairment			3,888,000
Loans modified as troubled debt restructuring	$ 0
Period of default of payment of troubled debt restructuring	12 months

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Loan Commitments and Other Related Activities (Details Textual) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Loan Commitments and Other Related Activities (Textual) [Abstract]
Unused Line Of Credit Facility Fixed Interest Rate Percentage Minimum	3.75%	5.00%
Unused Line Of Credit Facility Fixed Interest Rate Percentage Maximum	7.50%	6.75%
Unused lines of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance-sheet risk	61,592	46,862
Overdraft protection [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance-sheet risk	12,264	11,664
Fixed Rate Commitments [Member] | Unused lines of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance-sheet risk	1,992	2,256
Variable Rate Commitments [Member] | Unused lines of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance-sheet risk	66,884	48,248

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2012

Premises and Equipment [Abstract]

Year-end premises and equipment

	2012			2011
Land	$	1,758		$	1,758
Buildings		11,914			11,893
Furniture, fixtures and equipment		5,319			5,242
		18,991			18,893
Less: Accumulated depreciation		(7,548	)		(6,720	)
	$	11,443			12,173

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Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Fair value of held to maturity securities
Amortized Cost	$ 115,666
Fair Value	121,650
Due in one year or less [Member]
Fair value of held to maturity securities
Amortized Cost	1,340
Fair Value	1,351
Due from one to five years [Member]
Fair value of held to maturity securities
Amortized Cost	4,674
Fair Value	4,862
Due from five to ten years [Member]
Fair value of held to maturity securities
Amortized Cost	21,008
Fair Value	22,902
Due after ten years [Member]
Fair value of held to maturity securities
Amortized Cost	25,718
Fair Value	27,866
Mortgage-backed - residential [Member]
Fair value of held to maturity securities
Amortized Cost	62,903
Fair Value	64,638
Equity securities [Member]
Fair value of held to maturity securities
Amortized Cost	23
Fair Value	$ 31

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Related Party Transactions

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 13 – RELATED-PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates during 2012 were as follows:

Beginning balance	$	2,148
Effect of changes in composition of related parties		120
New loans		113
Repayments		(1,036	)
Ending balance	$	1,345

Unused commitments to these related parties totaled $2,326 and $1,729 at year-end 2012 and 2011. Related party deposits totaled $5,545 and $3,697 at year-end 2012 and 2011.

The Corporation has minority ownership in a title agency affiliated with a Director resulting in fee income to the Corporation of $0, $4 and $35 for 2012, 2011 and 2010, respectively.

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Derivatives

12 Months Ended

Dec. 31, 2012

Derivatives [Abstract]

DERIVATIVES

NOTE 18 – DERIVATIVES

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

The Corporation implemented a program in 2009 whereby it lends to its borrowers at a fixed rate with the loan agreement containing a two-way yield maintenance provision. The program has one participant as of December 31, 2012. If the borrower prepays the loan, the yield maintenance provision will result in a prepayment penalty or benefit depending on the interest rate environment at the time of the prepayment. This provision represents an embedded derivative which is required to be bifurcated from the host loan contract. As a result of bifurcating the embedded derivative, the Corporation records the transaction with the borrower as a floating rate loan and a pay floating / receive fixed interest-rate swap. To offset the risk of the interest-rate swap with the borrower, the Corporation enters into an interest-rate swap with an outside counterparty that mirrors the terms of the interest-rate swap between the Corporation and the borrower. Both interest-rate swaps are carried as freestanding derivatives with their changes in fair value reported in current earnings. The interest-rate swaps are not designated as hedges. The change in the fair value of the interest-rate swap between the Corporation and its borrower was a decrease of $17 for the year ended December 31, 2012, which was offset by an equal increase in value during the year ended December 31, 2012 on the interest-rate swap with an outside counterparty, with the result that there was no net impact on income in 2012.

Summary information about the interest-rate swaps not designated as hedges between the Corporation and its borrower is as follows:

	2012			2011
Notional amount	$	1,358		$	1,423
Weighted average receive rate		5.33	%		5.33	%
Weighted average pay rate		3.47	%		3.31	%
Weighted average maturity (years)		1.0			2.0
Fair value of interest-rate swap	$	29		$	46

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

	2012			2011
Notional amount	$	1,358		$	1,423
Weighted average pay rate		5.33	%		5.33	%
Weighted average receive rate		3.47	%		3.31	%
Weighted average maturity (years)		1.0			2.0
Fair value of interest-rate swap	$	(29	)	$	(46	)

The fair value of the interest-rate swaps at year-end is reflected in other assets and other liabilities with a corresponding offset to noninterest income.

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Fair Value (Details 2) (Fair Value Measurements Non-Recurring [Member], USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Commercial [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Impaired loans	$ 0	$ 0
Commercial [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Impaired loans	0	0
Commercial [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Impaired loans	0	417
Commercial and land development [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Impaired loans	0	0
Commercial and land development [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Impaired loans	0	0
Commercial and land development [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Impaired loans	10	974
One-to-four family [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Impaired loans	0	0
One-to-four family [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Impaired loans	0	0
One-to-four family [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Impaired loans	0	92
Other real estate owned [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Impaired loans	0	0
Other real estate owned [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Impaired loans	0	0
Other real estate owned [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Impaired loans	0	18
Loan servicing rights [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Impaired loans	0	0
Loan servicing rights [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Impaired loans	0	0
Loan servicing rights [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Impaired loans	$ 0	$ 47

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Securities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Fair value of Securities
Amortized Cost	$ 115,666	$ 144,656
Gross Unrealized Gains	6,012	5,668
Gross Unrealized Losses	(28)	(149)
Fair Value	121,650	150,175
U.S. Treasury and federal agency [Member]
Fair value of Securities
Amortized Cost	1,794	2,430
Gross Unrealized Gains	8	16
Gross Unrealized Losses	0	0
Fair Value	1,802	2,446
State and municipal [Member]
Fair value of Securities
Amortized Cost	50,946	53,841
Gross Unrealized Gains	4,241	3,592
Gross Unrealized Losses	(8)	(10)
Fair Value	55,179	57,423
Mortgage-backed - residential [Member]
Fair value of Securities
Amortized Cost	62,903	88,362
Gross Unrealized Gains	1,755	2,060
Gross Unrealized Losses	(20)	(136)
Fair Value	64,638	90,286
Equity securities [Member]
Fair value of Securities
Amortized Cost	23	23
Gross Unrealized Gains	8	0
Gross Unrealized Losses	0	(3)
Fair Value	$ 31	$ 20

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Subsequent Events (Details) (Subsequent Event [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Feb. 01, 2013
Subsequent Event [Member]
Subsequent Events (Textual) [Abstract]
Purchase of building		$ 1,100
Purchase of building at carrying value		2,300
Carrying value of assets purchased		10,000
Fair value of assets purchased	9,922
Carrying value of deposits		$ 16,000
Premium on deposits	5.25%

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2012

Stock-Based Compensation [Abstract]

Fair Value assumptions and Option Grants

	2012			2010
Fair value of options granted	$	1.77		$	2.53
Risk-free interest rate		1.39	%		1.49	%
Expected term (years)		7.0			6.5
Expected stock price volatility		16.40	%		24.67	%
Dividend yield		2.27	%		2.42	%

Activity in the stock option plan

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at beginning of year		84,500		$	15.70
Granted		58,000			14.10
Exercised		(1,500	)		13.22
Forfeited or expired		(9,800	)		14.88
Outstanding at end of year		131,200		$	15.06		7.6	$	131
Fully expected to vest		82,800		$	14.19		7.7	$	102
Exercisable at end of year		48,400		$	16.56		6.2	$	29

Exercise of stock options

	2012
Intrinsic value of options exercised	$	3
Cash received from option exercises		20
Tax benefit (deficit) realized from option exercises		(1	)

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Statements of Comprehensive Income [Abstract]
Net income	$ 2,811	$ 2,612	$ 1,325
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	465	2,821	(195)
Reclassification adjustment for losses (gains) included in net income	0	(214)	(661)
Tax effect	(159)	(887)	292
Total other comprehensive income (loss)	306	1,720	(564)
Comprehensive income	$ 3,117	$ 4,332	$ 761

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Stock-Based Compensation (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended						0 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2012 Stock Options Granted One [Member] Installment	Dec. 31, 2012 Stock Options Granted Two [Member] Installment	Dec. 31, 2012 Stock Option Granted Three [Member] Installment	Jan. 03, 2011 Restricted Stock Options Granted One [Member]	Jul. 01, 2011 Restricted Stock Options Granted Two [Member]	Jan. 03, 2012 Restricted Stock Options Granted Three [Member]	Jul. 02, 2012 Restricted Stock Options Granted Four [Member]	Dec. 31, 2012 Maximum [Member]
Stock-Based Compensation (Textual) [Abstract]
Maximum Grant of stock options or restricted stock awards											223,448
Maximum term of vesting period of stock options or restricted stock awards	10 years			10 years	10 years	10 years
Granted options to purchase shares of stock				58,000	43,000	58,000	3,744	3,552	3,330	1,866
Compensation expense related to the awards	$ 74	$ 40	$ 23				$ 50	$ 48	$ 49	$ 28
Outstanding options to purchase shares of stock	131,200	84,500		40,000	35,200	56,000
Exercise price of the options				$ 18.03	$ 13.22	$ 14.10
Options exercised	1,500			0	1,500	0
Vesting period of installments				5 years	5 years	5 years
Number of installments				5	5	5
Stock-Based Compensation (Additional Textual) [Abstract]
Tax benefit (deficit) on exercise of options	25	14	8
Total unrecognized compensation cost related to nonvested stock options granted	$ 79	$ 60	$ 117
Cost expected to be recognized over a weighted-average period	3 years 7 months 6 days

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Securities

12 Months Ended

Dec. 31, 2012

Securities [Abstract]

SECURITIES

NOTE 2 – SECURITIES

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

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
2012
U.S. Treasury and federal agency	$	1,794	$	8	$	0		$	1,802
State and municipal		50,946		4,241		(8	)		55,179
Mortgage-backed: residential		62,903		1,755		(20	)		64,638
Equity securities		23		8		0			31
Total securities available for sale	$	115,666	$	6,012	$	(28	)	$	121,650

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
2011
U.S. Treasury and federal agency	$	2,430	$	16	$	0		$	2,446
State and municipal		53,841		3,592		(10	)		57,423
Mortgage-backed: residential		88,362		2,060		(136	)		90,286
Equity securities		23		0		(3	)		20
Total securities available for sale	$	144,656	$	5,668	$	(149	)	$	150,175

	2012		2011			2010
Sales of available for sale securities were as follows:
Proceeds	$	0	$	14,980		$	18,775
Gross gains		0		216			679
Gross losses		0		(2	)		(26	)
Gross gains from calls		0		0			8

The tax provision (benefit) related to these net realized gains and losses was $0, $73 and $225, respectively.

The amortized cost and fair value of securities at year-end 2012 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities, are shown separately.

	Amortized
	Cost		Fair Value
Due in one year or less	$	1,340	$	1,351
Due from one to five years		4,674		4,862
Due from five to ten years		21,008		22,902
Due after ten years		25,718		27,866
Mortgage-backed: residential		62,903		64,638
Equity securities		23		31
	$	115,666	$	121,650

Securities pledged at year-end 2012 and 2011 had a fair value of $66,528 and $63,941 and were pledged to secure public deposits and repurchase agreements.

At year-end 2012 and 2011, there were no holdings of securities of any one issuer, other than the U.S. Government, and its agencies and corporations, in an amount greater than 10% of shareholders’ equity.

All mortgage-backed securities are issued by the United States government or any agency or corporation thereof as of December 31, 2012 and 2011.

Securities with unrealized losses at year-end 2012 and 2011, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Less Than 12 Months					12 Months or More				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Loss			Value		Loss		Value		Loss
2012
State and municipal	$	1,325	$	(8	)	$	0	$	0	$	1,325	$	(8	)
Mortgage-backed: residential		2,772		(20	)		0		0		2,772		(20	)
Total temporarily impaired	$	4,097	$	(28	)	$	0	$	0	$	4,097	$	(28	)

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
2011
State and municipal	$	366	$	(3	)	$	891	$	(7	)	$	1,257	$	(10	)
Mortgage-backed: residential		22,639		(136	)		0		0			22,639		(136	)
Equity		20		(3	)		0		0			20		(3	)
Total temporarily impaired	$	23,025	$	(142	)	$	891	$	(7	)	$	23,916	$	(149	)

Unrealized losses have not been recognized into income because the securities are of high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in market interest rates or normally expected market pricing fluctuations. The fair value of debt securities is expected to recover as the securities approach their maturity date.

National Bancshares Corporation equity securities are comprised of FHLMC preferred stock. An other than temporary impairment charge was taken on this investment in 2008, reducing the cost basis to $23. The fair value of these securities at December 31, 2012 and 2011 was $31 and $20, respectively.

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Loans (Details 4) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
With an allowance recorded:
Unpaid Principal Balance, Total	$ 1,638	$ 3,337
Recorded Investment, Total	269,639	217,827
Allowance for Loan Losses Allocated, Total	33	516
Average Recorded Investment, Total	2,284	4,123
Commercial real estate [Member]
With an allowance recorded:
Recorded Investment, Total	91,346	71,955
Commercial real estate [Member] | Commercial real estate [Member]
With no related allowance recorded:
With no related allowance recorded, Unpaid Principal Balance	378	406
With no related allowance recorded, Recorded Investment	378	406
With no related allowance recorded, Allowance for Loan Losses Allocated	0	0
With no related allowance recorded, Average Recorded Investment	389	426
With an allowance recorded:
With an allowance recorded, Unpaid Principal Balance		762
With an allowance recorded, Recorded Investment		762
With an allowance recorded, Allowance for Loan Losses Allocated		183
With an allowance recorded, Average Recorded Investment		902
Commercial real estate [Member] | Construction and Land Development [Member]
With no related allowance recorded:
With no related allowance recorded, Unpaid Principal Balance	1,154	1,252
With no related allowance recorded, Recorded Investment	1,057	1,252
With no related allowance recorded, Allowance for Loan Losses Allocated	0	0
With no related allowance recorded, Average Recorded Investment	1,375	1,923
With an allowance recorded:
With an allowance recorded, Unpaid Principal Balance	43
With an allowance recorded, Recorded Investment	43
With an allowance recorded, Allowance for Loan Losses Allocated	33
With an allowance recorded, Average Recorded Investment	43
Commercial real estate [Member] | Commercial and industrial [Member]
With an allowance recorded:
With an allowance recorded, Unpaid Principal Balance	0	568
With an allowance recorded, Recorded Investment	0	568
With an allowance recorded, Allowance for Loan Losses Allocated	0	151
With an allowance recorded, Average Recorded Investment	0	509
Commercial [Member] | Commercial and industrial [Member]
With no related allowance recorded:
With no related allowance recorded, Unpaid Principal Balance	20	29
With no related allowance recorded, Recorded Investment	20	29
With no related allowance recorded, Allowance for Loan Losses Allocated	0	0
With no related allowance recorded, Average Recorded Investment	433	31
Residential real estate [Member] | One-to-four Family [Member]
With no related allowance recorded:
With no related allowance recorded, Unpaid Principal Balance	43	46
With no related allowance recorded, Recorded Investment	43	46
With no related allowance recorded, Allowance for Loan Losses Allocated	0	0
With no related allowance recorded, Average Recorded Investment	44	49
With an allowance recorded:
With an allowance recorded, Unpaid Principal Balance		274
With an allowance recorded, Recorded Investment		274
With an allowance recorded, Allowance for Loan Losses Allocated		182
With an allowance recorded, Average Recorded Investment		$ 283

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Income Taxes (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Income Taxes (Textual) [Abstract]
Additional bad debts deductions	$ 1,900,000
Deferred tax liability	(1,713,000)	(1,602,000)
Unrecognized tax benefits or accrued interest and penalties	$ 0	$ 0

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Goodwill (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Goodwill (Textual) [Abstract]
Goodwill	$ 4,723	$ 4,723

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Accumulated Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2012

Accumulated Other Comprehensive Income (Loss) [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

NOTE 19 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following is a summary of the accumulated other comprehensive income balances, net of tax:

	Balance at		Current		Balance at
	December 31,		Year		December 31,
	2011		Change		2012
Unrealized gains on securities
Available for sale	$	3,643	$	306	$	3,949

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Federal Home Loan Bank Advances (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Federal Home Loan Bank Advances Branch Of F H L B Bank [Line Items]
2014 value	$ 5,000	$ 5,000
Maximum [Member]
Federal Home Loan Bank Advances Branch Of F H L B Bank [Line Items]
2014 in percentage	2.88%
Minimum [Member]
Federal Home Loan Bank Advances Branch Of F H L B Bank [Line Items]
2014 in percentage	2.86%

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Repurchase Agreements (Tables)

12 Months Ended

Dec. 31, 2012

Repurchase Agreement [Abstract]

Repurchase agreements

	2012			2011			2010
Average balance during the year	$	11,604		$	9,071		$	8,032
Average interest rate during the year		0.15	%		0.15	%		0.15	%
Maximum month-end balance during the year	$	18,633		$	11,114		$	12,083
Weighted average rate at year-end		0.15	%		0.15	%		0.15	%

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

INCOME TAXES

NOTE 12 – INCOME TAXES

The components of deferred taxes were as follows:

	2012			2011
Deferred tax assets:
Bad debts	$	996		$	915
Deferred compensation		361			348
FHLMC preferred stock impairment loss		151			151
Nonaccrual loan interest income		87			112
Deferred loan fees		84			165
Stock-based compensation		67			43
Accrued bonus		37			23
Deferred income		33			33
Real estate owned write-down		0			38
Total	$	1,816		$	1,831
Deferred tax liabilities:
Unrealized security gains, net	$	2,035		$	1,876
Depreciation		829			911
Federal Home Loan Bank stock dividends		542			542
Purchase accounting adjustments		64			66
Mortgage servicing rights		45			26
Prepaid expenses		14			9
Partnership income		0			3
Total		3,529			3,433
Net deferred tax liability	$	(1,713	)	$	(1,602	)

Federal income tax laws provided that the 2002 acquired entity could claim additional bad debt deductions through 1987, totaling $1.9 million. Accounting standards do not require a deferred tax liability to be recorded on this amount, which liability otherwise would total $646 at December 31, 2012. If the Bank were liquidated or otherwise ceases to be a bank or if tax laws were to change, this amount would be expensed.

The components of income tax expense are as follows:

	2012			2011		2010
Current	$	599		$	419	$	(24	)
Deferred		(48	)		25		95
	$	551		$	444	$	71

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

	2012						2011						2010
	Rate			Amount			Rate			Amount			Rate			Amount
Tax at federal statutory rate		34	%	$	1,143			34	%	$	1,039			34	%	$	475
Tax-exempt income		(17	)		(580	)		(17	)		(513	)		(29	)		(399	)
Other		0			(12	)		(2	)		(82	)		0			(5	)
Income tax expense		17	%	$	551			15	%	$	444			5	%	$	71

As of December 31, 2012 and December 31, 2011, the Corporation had no unrecognized tax benefits or accrued interest and penalties recorded. The Corporation does not expect the amount of unrecognized tax benefits to significantly increase within the next twelve months. The Corporation records interest and penalties as a component of income tax expense.

The Corporation and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of Ohio for National Bancshares. The Bank is subject to tax in Ohio based upon its net worth. The Corporation is no longer subject to examination by state taxing authorities for years prior to 2009.

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Accumulated Other Comprehensive Income (Loss) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Accumulated Other Comprehensive Income (Loss) [Abstract]
Balance at December 31, 2011	$ 3,643
Current Year Change	306
Balance at December 31, 2012	$ 3,949