National Bancshares 10-Q 2003 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended September 30, 2003

Commission File Number 0-14773

NATIONAL BANCSHARES CORPORATION

Ohio	34-1518564
State of incorporation	IRS Employer Identification No.

112 West Market Street, Orrville, Ohio 44667

Address of principal executive offices

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      X        No            

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes              No      X        

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of November 6, 2003:

Common Stock, Without Par Value: 2,234,488 Shares Outstanding

1

TABLE OF CONTENTS

EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

EX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER

EX-32 906 CERTIFICATIONS

National Bancshares Corporation

Index

			Page
			Number
Part I. Financial Information
	Item 1. Financial Statements
		Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 (Unaudited)	3
		Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2003 and 2002 (Unaudited)	4
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 (Unaudited)	5
		Note to Consolidated Financial Statements (Unaudited)	6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		7 - 11
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		11
	Item 4. Controls and Procedures		12
Part II. Other Information			12
	Item 1. Legal Proceedings — None
	Item 2. Changes in Securities and use of proceeds — None
	Item 3. Defaults Upon Senior Securities — None
	Item 4. Submission of matters to a vote of security holders — None
	Item 5. Other Information — None
	Item 6. Exhibits and Reports on Form 8-K
Signatures			13
Exhibits			14-16

2

NATIONAL BANCSHARES CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

					9/30/03			12/31/02
ASSETS
Cash and due from banks					$	8,728,672		$	10,010,654
Federal funds sold						21,000,000			6,315,000
		Total cash and cash equivalents				29,728,672			16,325,654
Interest bearing deposits with banks						998,446			997,185
Securities available for sale (at fair value)						59,686,147			52,364,712
Securities held to maturity						17,162,474			18,441,685
			Fair value September 30, 2003 - $17,749,000 December 31, 2002 - $18,986,000
Federal bank stock						2,751,050			2,689,450
Loans:
	Commercial					73,655,803			62,693,450
	Real estate mortgage					103,635,851			122,394,895
	Installment					7,535,259			7,442,374
Total loans						184,826,913			192,530,719
Less: Unearned income						374,185			366,856
				Allowance for loan losses		1,743,424			1,604,200
Loans, net						182,709,304			190,559,663
Accrued interest receivable						1,715,472			1,495,506
Premises and equipment						4,622,061			4,816,253
Goodwill						4,475,165			4,475,465
Identified intangible assets						1,722,799			1,929,734
Other assets						2,527,129			2,407,248
TOTAL					$	308,098,719		$	296,502,555
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
	Demand				$	35,533,561		$	35,852,184
	Savings and N.O.W.s					134,591,538			116,488,042
	Time					80,402,620			86,957,001
Total deposits						250,527,719			239,297,227
Securities sold under repurchase agreements						2,123,297			3,006,221
Federal Reserve note account						157,534			1,000,000
Federal Home Loan Bank advances						17,068,581			17,205,743
Accrued interest payable						481,191			532,007
Other liabilities						2,985,685			2,271,307
Total liabilities						273,344,007			263,312,505
SHAREHOLDERS’ EQUITY
	Common stock — without par value; 6,000,000 shares authorized; 2,289,528 shares issued					11,447,640			11,447,640
	Additional paid-in capital					4,689,800			4,689,800
	Retained earnings					17,784,740			16,502,352
	Accumulated other comprehensive income					2,022,025			1,739,751
	Less: Treasury shares (at cost): 55,040 shares as of September 30, 2003 and December 31, 2002					(1,189,493	)		(1,189,493	)
Total shareholders’ equity						34,754,712			33,190,050
TOTAL					$	308,098,719		$	296,502,555

See notes to consolidated financial statements

3

NATIONAL BANCSHARES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (Unaudited)

				Three months ended						Nine months ended
				9/30/03			9/30/02			9/30/03			9/30/02
INTEREST AND DIVIDEND INCOME:
	Loans, including fees			$	2,734,207		$	3,309,038		$	8,625,312		$	8,759,793
	Federal funds sold				38,385			47,549			78,837			85,396
	Securities:
		Taxable			741,930			733,857			2,230,583			2,225,375
		Nontaxable			229,671			201,149			710,651			625,878
			Total interest and dividend income		3,744,193			4,291,593			11,645,383			11,696,442
INTEREST EXPENSE:
	Deposits				713,696			1,215,601			2,355,415			3,380,129
	Short-term borrowings				1,667			3,610			5,036			10,548
	Federal Home Loan Bank advances				189,610			160,785			527,238			374,139
			Total interest expense		904,973			1,379,996			2,887,689			3,764,816
			Net interest income		2,839,220			2,911,597			8,757,694			7,931,626
PROVISION FOR LOAN LOSSES					70,000			25,000			155,000			140,000
Net interest income after provision for loan losses					2,769,220			2,886,597			8,602,694			7,791,626
NONINTEREST INCOME
	Checking account fees				187,693			197,406			561,520			560,256
	Gain on sale of loans				26,232			6,460			115,982			8,409
	Securities gains, net				27,358			6,007			37,242			188,331
	Other				143,754			129,449			436,671			362,796
			Total noninterest income		385,037			339,322			1,151,415			1,119,792
NONINTEREST EXPENSE:
	Salaries and employee benefits				1,262,057			1,128,308			3,683,955			3,180,376
	Data processing fees				190,204			175,548			567,462			558,483
	Net occupancy expense				100,738			95,630			304,461			250,018
	Depreciation — furniture and fixtures				87,181			82,868			266,102			242,054
	Franchise taxes				78,750			74,204			236,250			228,675
	Maintenance and repairs				67,528			64,544			202,469			165,522
	Other expenses				541,116			429,811			1,515,784			1,201,813
			Total noninterest expense		2,327,574			2,050,913			6,776,483			5,826,941
INCOME BEFORE INCOME TAXES					826,683			1,175,006			2,977,626			3,084,477
Income tax expense					189,737			300,249			734,408			799,427
NET INCOME					636,946			874,757			2,243,218			2,285,050
OTHER COMPREHENSIVE INCOME:
	Unrealized appreciation (depreciation) in fair value of securities available for sale, net of tax				(574,584	)		337,367			306,854			1,011,451
	Reclassification adjustment for realized (gains), losses included in earnings, net of tax				(18,057	)		(3,964	)		(24,580	)		(124,298	)
					(592,641	)		333,403			282,274			887,153
COMPREHENSIVE INCOME				$	44,305		$	1,208,160		$	2,525,492		$	3,172,203
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING					2,234,488			2,230,267			2,234,488			2,226,894
BASIC EARNINGS PER COMMON SHARE				$	0.29		$	0.39		$	1.00		$	1.03
DIVIDENDS DECLARED PER COMMON SHARE				$	0.15		$	0.14		$	0.43		$	0.40

See notes to consolidated financial statements

4

NATIONAL BANCSHARES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)			Nine Months Ended
			9/30/03			9/30/02
Net Cash From Operating Activities			$	3,060,989		$	1,535,809
Cash Flows From Investing Activities:
	Net change in interest-bearing deposits with banks			(1,261	)		997,397
	Securities Held to Maturity
		Proceeds from Maturities and Repayments		1,552,400			2,139,800
		Purchases		(318,400	)		(796,568	)
Securities Available for Sale
		Proceeds from Maturities and Repayments		5,107,807			8,726,465
		Proceeds from Sales		1,909,439			5,317,609
		Purchases		(13,704,157	)		(5,865,603	)
	Purchases of Federal bank stock			—			(446,050	)
	Net Cash Paid for Acquisition			—			(1,083,198	)
	Capital Expenditures			(212,631	)		(462,869	)
	Proceeds from Sale of Loans			5,432,154			1,195,026
	Net Change in Loans to Customers			2,147,223			1,442,358
Net Cash From Investing Activities				1,912,574			11,164,367
Cash Flows from Financing Activities:
	Net Change in Demand and Savings Accounts			17,784,873			13,478,162
	Net Change in Time Deposits			(6,554,381	)		(13,842,258	)
	Net Change in Short-Term Borrowings			(1,725,390	)		1,071,689
	Repayments on Federal Home Loan Bank Advances			(137,162	)		(4,119,996	)
	Dividends Paid			(938,485	)		(867,406	)
	Dividends Reinvested			—			189,799
Net Cash From Financing Activities				8,429,455			(4,090,010	)
Net Change in Cash and Cash Equivalents				13,403,018			8,610,166
Beginning Cash and Cash Equivalents				16,325,654			10,260,082
Ending Cash and Cash Equivalents			$	29,728,672		$	18,870,248
Supplemental Disclosures
	Cash Paid for Interest		$	2,938,505		$	3,649,150
	Cash Paid for Income Taxes		$	740,000		$	685,000

See notes to consolidated financial statements.

5

National Bancshares Corporation

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

     The accompanying consolidated financial statements include the accounts of National Bancshares Corporation (the “Company”) and its wholly owned subsidiary, First National Bank, Orrville, Ohio (the “Bank”). All significant intercompany transactions and balances have been eliminated. The consolidated balance sheet as of September 30, 2003, the consolidated statements of income and comprehensive income for the three and nine month periods ended September 30, 2003 and 2002, and the consolidated statements of cash flows for the nine month periods ended September 30, 2003 and 2002 have been prepared by the Company without audit. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

     The consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q, but do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction with the consolidated financial statements and footnotes in the Company’s annual report on Form 10-K for the year ended December 31, 2002. Operating results for the nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

     To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses and fair values of certain securities are particularly subject to change.

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

     The Financial Accounting Standards Board (FASB) recently issued two new accounting standards, Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, and Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities, both of which generally become effective in the quarter beginning July 1, 2003. Because the Company does not have these instruments or is only nominally involved in these instruments, the new accounting standards will not materially affect the Company’s operating results or financial condition.

6

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations

FORWARD-LOOKING INFORMATION

     The Company cautions that any forward-looking statements contained in this report, in a report incorporated by reference to this report or made by management of the Company, involve risk and uncertainties, and are subject to change based on various important factors. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to the Company or its management are intended to identify such forward looking statements. Actual results could differ materially from those expressed or implied. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.

FINANCIAL CONDITION

Balance Sheets

     Total assets increased $11.6 million or 3.9% from 12/31/02 principally due to an increase in total deposits. Total securities increased $6.0 million or 8.5% from 12/31/02. Federal funds sold increased $14.7 million or 232.5% due mainly to an increase in total deposits. Net loans decreased $7.8 million or 4.1% principally due to payoffs and sales of fixed rate real estate mortgages, offset by commercial loan growth. With interest rates being at historic lows, management felt it was appropriate to sell approximately $5.4 million in fixed rate real estate mortgages. Commercial loans increased $11.0 million or 17.5%, while real estate mortgages decreased $18.8 million or 15.3% and installment loans increased $0.1 million or 1.2%. Recent additions to our commercial loan staff, along with an expanded market due to the acquisition of Peoples Financial Corporation in 2002, has resulted in strong growth in our commercial loan portfolio. The decrease in real estate mortgages has helped diversify the loan portfolio by enabling a redeployment of funds into other types of loans and earning assets carrying a variable rate of interest of shorter maturity.

7

     The carrying amounts and estimated fair values of securities are summarized as follows:

		September 30, 2003
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
Available for Sale:
U.S. Government and federal agency				$	1,148,131	$	15,625	$	24,256,703
State and municipal					183,450		—		2,448,289
Corporate bond and notes					1,881,684		88,712		32,039,811
	Total debt securities				3,213,265		104,337		58,744,803
Equity securities					46,033		91,285		941,344
	Total			$	3,259,298	$	195,622	$	59,686,147
Held to Maturity:
State and municipal		$	17,162,474	$	642,180	$	55,459	$	17,749,195

		December 31, 2002
				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
Available for Sale:
U.S. Government and federal agency				$	1,244,835	$	317	$	21,019,263
State and municipal					146,698		—		2,420,694
Corporate bond and notes					1,589,612		158,648		26,902,346
	Total debt securities				2,981,145		158,965		50,342,303
Equity securities					85,573		271,766		2,022,409
	Total			$	3,066,718	$	430,731	$	52,364,712
Held to Maturity:
State and municipal		$	18,441,685	$	688,144	$	144,264	$	18,985,565

     The activity in the allowance for loan losses for the first nine months of 2003 and 2002 was as follows:

	2003			2002
Beginning balance	$	1,604,200		$	1,321,152
Provision for loan losses		155,000			140,000
Loans charged-off		(26,528	)		(35,817	)
Recoveries		10,752			12,924
Transfer of allowance from merged entity		—			244,529
Ending balance	$	1,743,424		$	1,682,788

8

     The allowance for loan losses is a valuation allowance for probable credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. The allowance is maintained at a level that is considered adequate to absorb all estimated losses. Management estimates the allowance balance required using the following methodology. All problem, past due and non-performing loans are closely monitored and analyzed by management on a regular basis. Management assigns a classification rating to these loans based on information about specific borrower situations and estimated collateral values. Management determines the loss that exists on each significant problem, past due and non-performing loan. Other past due loans that are not analyzed individually are pooled and evaluated by loan type. The probable loss that exists on past due loans is estimated using past loan loss experience. All other loans are pooled by loan type and evaluated based upon past loan loss experience. National and local economic conditions and other factors are also considered in determining an adequate level for the allowance for loan losses. 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. Management reviews the allowance for loan losses on a regular basis to determine the adequacy of the reserve.

     The allowance for loan losses to total loans outstanding was .94% for September 30, 2003 compared to 0.83% for December 31, 2002. On an annualized basis, net charge-offs to total average loans were .01% for the first nine months of 2003 and 0.02% for the first nine months of 2002. The ratio of non-performing loans to total loans was 0.33% ($612,838) for September 30, 2003 compared to 0.84% ($1,612,778) for December 31, 2002. Non-performing loans consist of loans that have been placed on nonaccrual status. One large commercial loan was taken off of nonaccrual status during 2003.

Impaired loans at September 30, 2003 and December 31, 2002 were as follows:

	9/30/03		12/31/02
Loans with no allocated allowance for loan losses	$	—	$	—
Loans with allocated allowance for loan losses		1,103,294		1,436,332
Amount of the allowance for loan losses allocated		243,235		215,450

	9/30/03		9/30/02
Average of impaired loans during the first nine months of 2003 and 2002	$	771,071	$	239,915
Interest income recognized during impairment		362		5,264
Cash-basis interest income recognized		—		5,264

     A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller balance loans of similar nature such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

     Total deposits increased $11.2 million or approximately 4.7% from 12/31/02. Non-interest bearing demand accounts decreased 0.9%, savings and N.O.W. accounts increased 15.5% and time deposits decreased 7.5%. The majority of the deposit growth was temporary, as a few customers made large deposits during the month of September 2003 and withdrew the funds in October 2003. Time deposit balances are affected by the interest rates offered by competitors in our market area. In this low interest rate environment, some customers have moved their funds into liquid savings products and other customers have found higher rates elsewhere. Securities sold under repurchase agreements decreased $0.9 million or 29.4% from 12/31/02. These represent short-term funds that commercial customers can use to meet their operating and liquidity needs. Other liabilities increased $0.7 million or 31.5% mainly due to an increase in accrued expenses and deferred taxes. Total shareholders’ equity increased $1.6 million or 4.7% from 12/31/02 due to retained earnings and an increase in accumulated other comprehensive income.

Statements of Cash Flows

     Net cash from operating activities for the first nine months of 2003 was $3.1 million compared to $1.5 million for the first nine months of 2002. The increase was due primarily to changes in other liabilities. Net cash from investing activities for the first nine months of 2003 was $1.9 million, compared to $11.2 million for the first nine months of 2002. The decrease was due primarily to an increase in securities purchases, and a decrease in proceeds from security maturities, repayments and sales in 2003. Net cash from financing activities was $8.4

9

million for the first nine months of 2003 compared to ($4.1) million for the first nine months of 2002. The change was primarily due to the net change in demand, savings and time deposits, plus a decrease in repayments on Federal Home Loan Bank Advances. Total cash and cash equivalents increased $13.4 million during the first nine months of 2003. With total cash and cash equivalents of $29.7 million as of 9/30/03, the Company’s liquidity ratios continue to remain favorable.

Analysis of Equity

     The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. The following is a summary of the actual and required regulatory capital amounts and ratios.

(Dollars in thousands)													To Be Well Capitalized
							For Capital					Under Prompt Corrective
September 30, 2003		Actual					Adequacy Purposes						Action Provisions
		Amount		Ratio			Amount		Ratio				Amount		Ratio
Total capital to risk-weighted assets
	Consolidated	$	28,269		13.98	%	$	16,174		8.00	%		$	20,218		10.00	%
	Bank		26,871		13.34	%		16,114		8.00	%			20,142		10.00	%
Tier 1 (core) capital to risk-weighted assets
	Consolidated		26,505		13.11	%		8,087		4.00	%			12,131		6.00	%
	Bank		25,127		12.47	%		8,057		4.00	%			12,085		6.00	%
Tier 1 (core) capital to average assets
	Consolidated		26,505		9.18	%		11,552		4.00	%			14,440		5.00	%
	Bank		25,127		8.72	%		11,521		4.00	%			14,401		5.00	%

(Dollars in thousands)													To Be Well Capitalized
							For Capital					Under Prompt Corrective
December 31, 2002		Actual					Adequacy Purposes						Action Provisions
		Amount		Ratio			Amount		Ratio				Amount		Ratio
Total capital to risk-weighted assets
	Consolidated	$	26,527		13.58	%	$	15,628		8.00	%		$	19,535		10.00	%
	Bank		24,362		12.59	%		15,482		8.00	%			19,353		10.00	%
Tier 1 (core) capital to risk-weighted assets
	Consolidated		24,923		12.76	%		7,814		4.00	%			11,721		6.00	%
	Bank		22,758		11.76	%		7,741		4.00	%			11,612		6.00	%
Tier 1 (core) capital to average assets
	Consolidated		24,923		8.61	%		11,574		4.00	%			14,468		5.00	%
	Bank		22,758		7.91	%		11,503		4.00	%			14,379		5.00	%

10

RESULTS OF OPERATIONS

     Interest income totaled $3.7 million or $547 thousand lower for the three-months ended 9/30/03 as compared to the same period in 2002. Interest expense was $0.9 million for the three months ended 9/30/03 or $475 thousand lower than 2002. This resulted in a decrease of $72 thousand or 2.5% in net interest income for the three-month period ended 9/30/03 as compared to 9/30/02. The nine months results for the periods ended 9/30/03 and 9/30/02 were a decrease in interest income of $51 thousand and a decrease in interest expense of $877 thousand. Interest income decreased due to lower yields on earning assets, which declined from 6.81% to 5.91%. Volume of average-earning assets increased from $236.0 million to $271.7 million. Interest expense decreased due to lower average costs, which declined from 2.64% to 1.74%. The higher volume of earning assets was mainly due to the acquisition of Peoples Financial Corporation, which occurred in April 2002. Net interest rate margins were 4.49% and 4.68% for the first nine months of 2003 and 2002, respectively.

     Provision for loan losses was $70 thousand for the three months ended 9/30/03 compared to $25 thousand for the same period in 2002. The provision for loan losses was $155 thousand and $140 thousand for the nine months ended 9/30/03 and 9/30/02. Net charge offs for the nine months ended 9/30/03 were $16 thousand compared to $23 thousand for the same period in 2002.

     Each quarter, management reviews the adequacy of the allowance for loan losses by reviewing the overall risk profile of the Company’s loan portfolio, by reviewing specific problem credits and assessing the incurred losses based on expected cash flows or collateral values, by reviewing trends in problem loan levels, by updating loss history for the Company’s loans and comparing to the overall banking industry, and by analyzing economic trends that are believed to impact the Company’s borrowers.

     For the third quarter of 2003, management reviewed all of these factors and did not find any additional significant risks or losses that had not been previously identified and reflected in the allowance for loan losses. For this reason, management determined that the $70 thousand provision provided in the third quarter was adequate.

     Noninterest income was $385 thousand for the three months ended 9/30/03 or approximately 13.5% above the same period in 2002, due mainly to the gain on sale of loans and securities during the third quarter of 2003. Noninterest income was $1.2 million for the nine months ended 9/30/03 or 2.8% above the same period in 2002, due mainly to the gains on sale of loans.

     Noninterest expense was $2.3 million for the three months ended 9/30/03 or approximately 13.5% above the same period in 2002. Year to date noninterest expense for 2003 was $6.8 million or 16.3% above the same period in 2002, due mainly to higher salary and employee benefits and other expenses related to the acquisition of Peoples Financial Corporation.

     Net income was $637 thousand for the three months ended 9/30/03 or 27.2% below the same quarter of 2002. Net income was approximately $2.2 million for the nine months ended 9/30/03 or 1.8% below the first nine months of 2002. The decrease was due primarily to higher operating expenses.

     Net unrealized appreciation (depreciation) on securities available for sale was ($593) thousand for the three months ended 9/30/03 compared to $333 thousand for the three months ended 9/30/02. Year to date unrealized appreciation was $282 thousand compared to $887 thousand for the same period last year. The market value of securities in the available for sale portfolio decreased during the third quarter of 2003 due to an increase in long-term rates. Comprehensive income was $44 thousand for the three months ended 9/30/03 compared to $1.2 million for the same period in 2002. Comprehensive income was $2.5 million for the nine months ended 9/30/03 or 20.4% below the first nine months of 2002.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     There have been no material changes in the quantitative and qualitative disclosures about market risk as of September 30, 2003 from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

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Item 4. Controls and Procedures

     As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s President and Treasurer (Principal Financial Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the President and Treasurer concluded that the Company’s disclosure controls and procedures were effective as of the date of their evaluation in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this Quarterly Report.

     There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings — None
Item 2.	Changes in Securities and use of proceeds — None
Item 3.	Defaults Upon Senior Securities — None
Item 4.	Submission of matters to a vote of security holders – None
Item 5.	Other Information — None
Item 6.	Exhibits and Reports on Form 8-K
	a. Exhibits

Exhibit No.		If incorporated by Reference,
Under Reg.		Documents with Which Exhibit
S-K, Item 601	Description of Exhibits	Was Previously Filed with SEC
(3)(i)	Amended Articles of Incorporation	Registration Statement S-4 filed 3/31/86 File No. 33-03711
(3)(ii)	Code of Regulations	Registration Statement S-4 filed 3/31/86 File No. 33-03711
(10.1)	Directors Defined Benefit Plan Agreement	Annual Report 10-K filed 3/29/01 File No. 000-14773
(10.2)	Special Separation Agreement	Annual Report 10-K filed 3/29/01 File No. 000-14773
(10.3)	Agreement and Plan of Merger, dated as of October 2, 2001, between National Bancshares Corporation and Peoples Financial Corporation	Form 8-K filed 10/3/01 File No. 000-14773
(11)	Computation of Earnings per Share	See Consolidated Statements of Income and Comprehensive Income, Page 4
(31.1)	Certification
(31.2)	Certification
(32)	Certification

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

     b. Form 8-K Current Report was filed or furnished to the SEC after June 30, 2003 as follows:

     1) On July 18, 2003, to provide a copy of the July 18, 2003 press release announcing second quarter 2003 financial results.

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Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	National Bancshares Corporation
Date: November 10, 2003	/s/Charles J. Dolezal Charles J. Dolezal, President
Date: November 10, 2003	/s/Lawrence M. Cardinal, Jr. Lawrence M. Cardinal, Jr., Treasurer (Principal Financial Officer)

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