National Bancshares 10-Q 2006 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2006

OR

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

Commission File Number 0-14773

NATIONAL BANCSHARES CORPORATION

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

112WestMarketStreet,Orrville,Ohio44667
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.

Yesþ Noo

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

Yeso Noþ

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

     Large accelerated filero                               Accelerated filero                               Non-accelerated filerþ          

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yeso Noþ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 5, 2006.

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

1

National Bancshares Corporation

Index

		Page
		Number
Part I. Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2006 (Unaudited) and December 31, 2005		3
	Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2006 and 2005 (Unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (Unaudited)		5
	Notes to Consolidated Financial Statements (Unaudited)		6 - 8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9 - 11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		11
Item 4.	Controls and Procedures		11
Part II. Other Information			12
Item 1.	Legal Proceedings – None
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds - None
Item 3.	Defaults Upon Senior Securities - None
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information - None
Item 6.	Exhibits
Signatures			13
Exhibits			14 - 16

2

NATIONAL BANCSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)

	3/31/06			12/31/05
ASSETS
Cash and due from banks	$	10,365,467		$	10,985,160
Federal funds sold		10,435,000			8,780,000
Total cash and cash equivalents		20,800,467			19,765,160
Securities available for sale		61,296,624			60,091,913
Securities held to maturity (fair value: March 31, 2006 - $17,106,642; December 31, 2005 - $17,115,020)		16,906,977			16,917,133
Federal bank stock		3,018,950			2,987,050
Loans, net of allowance for loan losses: March 31, 2006 - $1,857,807; December 31, 2005 - $1,902,828		187,285,971			191,538,419
Premises and equipment, net		5,155,549			5,201,211
Other real estate owned		161,621			103,334
Goodwill		4,722,775			4,722,775
Identified intangible assets		1,075,118			1,136,613
Accrued interest receivable		1,690,698			1,621,306
Cash surrender value of life insurance		2,435,718			2,415,910
Other assets		740,798			380,184
	$	305,291,266		$	306,881,008
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest-bearing	$	43,333,498		$	47,143,340
Interest-bearing		201,846,228			202,344,481
Total deposits		245,179,726			249,487,821
Repurchase agreements		5,625,185			2,359,521
Federal Reserve note account		69,128			592,763
Federal Home Loan Bank advances		17,000,000			17,000,000
Accrued expenses and other liabilities		2,878,531			2,787,478
Total liabilities		270,752,570			272,227,583
Shareholders’ equity
Common stock, no par value; 6,000,000 shares authorized; 2,289,528 shares issued		11,447,640			11,447,640
Additional paid-in capital		4,689,800			4,689,800
Retained earnings		20,217,942			20,067,339
Treasury stock, at cost (55,040 shares)		(1,189,493	)		(1,189,493	)
Accumulated other comprehensive loss		(627,193	)		(361,861	)
Total shareholders’ equity		34,538,696			34,653,425
	$	305,291,266		$	306,881,008

See accompanying notes to consolidated financial statements.

3

NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (Unaudited)

	Three months ended
	3/31/06			3/31/05
INTEREST AND DIVIDEND INCOME:
Loans, including fees	$	3,123,577		$	2,887,041
Federal funds sold		75,520			8,059
Securities:
Taxable		765,529			722,401
Nontaxable		201,074			210,790
Total interest and dividend income		4,165,700			3,828,291
INTEREST EXPENSE:
Deposits		1,026,690			628,426
Short-term borrowings		25,327			13,404
Federal Home Loan Bank advances		219,033			222,439
Total interest expense		1,271,050			864,269
Net interest income		2,894,650			2,964,022
PROVISION FOR LOAN LOSSES		—			80,000
Net interest income after provision for loan losses		2,894,650			2,884,022
NONINTEREST INCOME:
Checking account fees		226,728			191,526
Visa check card interchange fees		47,136			40,158
Deposit and miscellaneous service fees		45,916			58,464
Securities gains, net		38,060			103,432
Gain (loss) on sale of loans		10,236			(15,079	)
Other		65,914			70,868
Total noninterest income		433,990			449,369
NONINTEREST EXPENSE:
Salaries and employee benefits		1,429,080			1,474,075
Data processing		224,454			212,614
Marketing		129,628			67,195
Franchise tax		93,000			96,167
Depreciation — furniture and fixtures		78,289			79,896
Net occupancy		62,434			79,604
Amortization of intangibles		61,495			62,491
Telephone		60,494			54,285
Dues, subscriptions and fees		57,998			52,492
Maintenance and repairs		56,096			70,568
Stationery, printing and office supplies		46,090			43,148
Utilities		44,495			37,821
Postage, express and freight		43,083			40,664
Other		330,083			317,575
Total noninterest expense		2,716,719			2,688,595
INCOME BEFORE INCOME TAXES		611,921			644,796
Income tax expense		103,801			123,997
NET INCOME		508,120			520,799
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized depreciation in fair value of securities available for sale, net of tax		(240,212	)		(906,856	)
Reclassification adjustment for realized losses included in earnings, net of tax		(25,120	)		(68,265	)
		(265,332	)		(975,121	)
COMPREHENSIVE INCOME (LOSS)	$	242,788		$	(454,322	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING		2,234,488			2,234,488
BASIC AND DILUTED EARNINGS PER COMMON SHARE	$	0.23		$	0.23
DIVIDENDS DECLARED PER COMMON SHARE	$	0.16		$	0.16

See accompanying notes to consolidated financial statements.

4

NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended
	3/31/06			3/31/05
Net Cash From Operating Activities	$	448,903		$	522,519
Cash Flows From Investing Activities:
Securities Available for Sale
Proceeds from Maturities and Repayments		1,092,175			1,570,186
Proceeds from Sales		278,313			1,695,607
Purchases		(2,960,312	)		(1,994,545	)
Capital Expenditures		(68,023	)		(849,569	)
Proceeds on the sale of Other Real Estate Owned		75,876			—
Net Change in Loans to Customers		4,091,959			(1,606,242	)
Net Cash From Investing Activities		2,509,988			(1,184,563	)
Cash Flows from Financing Activities:
Net Change in Demand and Savings Accounts		(8,965,057	)		(6,390,303	)
Net Change in Time Deposits		4,656,962			(468,292	)
Net Change in Short-Term Borrowings		2,742,029			187,571
Proceeds from Federal Home Loan Bank Advances		—			3,000,000
Dividends Paid		(357,518	)		(357,518	)
Net Cash From Financing Activities		(1,923,584	)		(4,028,542	)
Net Change in Cash and Cash Equivalents		1,035,307			(4,690,586	)
Beginning Cash and Cash Equivalents		19,765,160			17,826,454
Ending Cash and Cash Equivalents	$	20,800,467		$	13,135,868
Supplemental Disclosures
Cash Paid for Interest	$	1,197,816		$	855,023
Cash Paid for Income Taxes, net	$	13,372		$	320,000
Non-cash transfer from Loans to Other Real Estate Owned	$	134,163		$	—

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 March 31, 2006, the consolidated statements of income and comprehensive income for the three-month periods ended March 31, 2006 and 2005, and the condensed consolidated statements of cash flows for the three-month periods ended March 31, 2006 and 2005 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 U.S. generally accepted accounting principles 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, 2005. Operating results for the three months ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

     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 actual 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.

Note 2. Regulatory Matters

     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 Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
March 31, 2006	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk- weighted assets
Consolidated	$	31,216		14.78	%	$	16,899		8.00	%	$	21,123		N/A
Bank		29,770		14.09			16,899		8.00			21,123		10.00	%
Tier 1 capital to risk- weighted assets
Consolidated		29,358		13.90			8,449		4.00			12,674		N/A
Bank		27,913		13.21			8,449		4.00			12,674		6.00
Tier 1 capital to average assets
Consolidated		29,358		9.93			11,821		4.00			14,776		N/A
Bank		27,913		9.45			11,821		4.00			14,776		5.00

6

(Dollars in thousands)

											To Be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
December 31, 2005	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk- weighted assets
Consolidated	$	31,051		14.45	%	$	17,187		8.00	%	$	21,483		N/A
Bank		29,261		13.62			17,184		8.00			21,480		10.00	%
Tier 1 capital to risk- weighted assets
Consolidated		29,148		13.57			8,593		4.00			12,890		N/A
Bank		27,358		12.74			8,592		4.00			12,888		6.00
Tier 1 capital to average assets
Consolidated		29,148		9.76			11,943		4.00			14,929		N/A
Bank		27,358		9.16			11,941		4.00			14,927		5.00

Note 3. Loans

Loans at March 31, 2006 and December 31, 2005 were as follows:

	3/31/06			12/31/05
Collateralized by real estate:
Commercial		45,664,999			47,638,035
Residential		88,823,684			91,591,798
Home Equity		19,136,364			19,044,581
Construction		8,127,383			6,440,000
		161,752,430			164,714,414
Other:
Consumer		6,209,216			6,205,096
Commercial		18,614,563			20,045,739
Credit Cards		1,337,602			1,405,708
Other		1,713,376			1,565,995
		189,627,187			193,936,952
Unearned and deferred income		(483,409	)		(495,705	)
Allowance for loan losses		(1,857,807	)		(1,902,828	)
Total		187,285,971			191,538,419

The activity in the allowance for loan losses for the first three months of 2006 and 2005 was as follows:

	2006			2005
Beginning balance	$	1,902,828		$	1,763,298
Provision for loan losses		—			80,000
Loans charged-off		(48,124	)		(11,997	)
Recoveries		3,103			1,640
Ending balance	$	1,857,807		$	1,832,941

7

Impaired loans at March 31, 2006 and December 31, 2005 were as follows:

	3/31/06		12/31/05
Loans with no allocated allowance for loan losses	$	110,986	$	—
Loans with allocated allowance for loan losses		1,067,791		1,177,688
Amount of the allowance for loan losses allocated		409,918		273,438

	3/31/06		3/31/05
Average of impaired loans during the first three months of 2006 and 2005	$	1,060,735	$	699,990
Interest income recognized during impairment		7,081		—
Cash-basis interest income recognized		7,081		—

     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.

8

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 decreased $1.6 million or 0.5% from December 31, 2005 principally due to the decrease in total deposits and a slowing in demand for loans. Total securities increased $1.2 million or 1.6% from December 31, 2005 mainly due to loan payoffs during the first three months of 2006. Federal funds sold were $10.4 million at March 31, 2006, representing overnight funds available for loan demand or deposit withdrawals. Net loans decreased $4.3 million or 2.2% from December 31, 2005. Commercial loans decreased $1.4 million, residential real estate mortgages decreased $2.8 million and commercial real estate loans decreased $2.0 million. Meanwhile, construction loans increased by $1.7 million, as a result of increased demand for these loans. The decrease in residential real estate mortgages is due to the sale of approximately $2.0 million in fixed rate mortgages and principal paydowns. The decrease in both the commercial loans and commercial real estate loans is attributed to a combination of loan payoff and our competition pricing loans below our pricing. Management believes there is ample loan opportunities in the markets we serve, however, we are cautious of providing too low of pricing and compromising our credit standards.

     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. 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. Problem loans that are not analyzed individually are assigned a provision based upon a historical migration analysis. The migration analysis identifies the percentage of problem loans that have 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 Comptroller of the Currency regulatory guidance. 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. Historical loan charge-offs are also compared to historical past due loans by loan type. All other loans are pooled by loan type and evaluated based upon past loan loss experience. Loans lacking current financial statements, 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 allowance.

     The allowance for loan losses to total loans outstanding was 0.98% as of March 31, 2006 and 0.98% for December 31, 2005. On an annualized basis, net charge-offs (recoveries) to total average loans were 0.09% for the first three months of 2006 and 0.02% for the first three months of 2005. The ratio of non-performing loans to total loans was 0.66% ($1,244,693) for March 31, 2006 compared to 1.20% ($2,324,484) for December 31, 2005. Non-performing loans consist of loans that have been placed on nonaccrual status and loans past due over 90 days and still accruing interest.

9

     Total deposits decreased $4.3 million or approximately 1.7% from December 31, 2005. Noninterest-bearing demand accounts decreased $3.8 million or 8.1%, savings and N.O.W. accounts decreased $5.2 million or 2.4% and time deposits increased $4.7 million or 5.9%. Noninterest-bearing demand accounts will fluctuate based upon the liquidity needs of our customers. Historically, there has been fluctuation in the level of these accounts during first quarter due to customers paying taxes and/or reducing debt. Compounding this even further, as interest rates increase, more and more customers move funds from noninterest-bearing accounts to interest-bearing accounts, specifically time deposits. Regarding the decrease in savings and N.O.W accounts, much of this money has moved to time deposits and repurchase agreements, while some of this money has left the bank to be utilized in investments realizing higher earnings than a savings, N.O.W or time deposit account. The increase in time deposits is attributed to market driven rates. Recently, the Bank has been offering very competitive short-term time deposits. The increase in repurchase agreements of $3.3 million or 138.4% is primarily attributable to one commercial customer moving funds from savings to a sweep account. Total shareholders’ equity decreased $115 thousand or 0.3% from December 31, 2005 due mainly to a decrease in accumulated other comprehensive income.

     Statements of Cash Flows

     Net cash from operating activities for the first three months of 2006 was $449 thousand compared to $523 thousand for the first three months of 2005. The decrease was due primarily to changes in other assets and liabilities. Current year’s operating activities includes originations of mortgage loans held for sale and proceeds from the sale of mortgage loans held for sale of approximately $2.0 million. Net cash from investing activities for the first three months of 2006 was $2.5 million, compared to ($1.2) million for the first three months of 2005. The increase is due to the net decrease in loans to customers, which was partially offset by the purchases of various investment securities. Net cash from financing activities was ($1.9) million for the first three months of 2006 compared to ($4.0) million for the first three months of 2005. The change was primarily due to the net change in demand and savings, offset by growth in time deposits and proceeds from Federal Loan Home Bank advances. Total cash and cash equivalents increased $1.0 million during the first three months of 2006. With total cash and cash equivalents of $20.8 million as of March 31, 2006, the Company’s liquidity ratios continue to remain favorable.

     COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2006 AND 2005

     Net income was $508 thousand for the three months ended March 31, 2006. When compared to the same period for 2005, net income was $13 thousand or 2.4% below the quarter ending March 31, 2005. The decrease is due to the combination of decreased non-interest income and increased non-interest expenses.

     Interest and dividend income totaled $4.2 million or $337 thousand higher for the three-months ended March 31, 2006 as compared to the same period in 2005. Interest expense was $1.3 million for the three months ended March 31, 2006 or $407 thousand higher than 2005. This resulted in a decrease of $69 thousand, or 2.3% in net interest income for the three-month period ended March 31, 2006 as compared to March 31, 2005. This decrease is due to deposit mix and the effect of rising interests rates on the deposit products. As a result, net interest margin declined from 4.45% to 4.37% as of March 31, 2005 and March 31, 2006.

     There was no provision for loan losses for the three months ended March 31, 2006 compared to $80 thousand for the same period in 2005. Although the portion of the provision that is directly associated with classified loans has increased since December 31, 2005, the need to increase the balance of the allowance for loan losses was negated by a decline in our loan portfolio. Commercial loan volume decreased during the first quarter of 2006. This category carries a higher risk than other types of loans. Additionally, real estate loan volume declined during the first quarter of 2006. Non-performing loans also decreased during the first quarter of 2006 compared to the first quarter of 2005. Each quarter, management reviews the adequacy of the allowance for loan losses by reviewing the overall quality and 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, by analyzing the growth and change in mix of the portfolio, and by analyzing economic trends that are believed to impact the Company’s borrowers. For the first quarter of 2006, management reviewed all of these factors and determined the quarterly allowance for loan losses was adequate, without any additional provision.

10

     Noninterest income was $434 thousand for the three months ended March 31, 2006 or approximately $15 thousand or 3.4% below the same period in 2005, due mainly to the securities gains recognized during the first quarter of 2005. Benefiting noninterest income during first quarter 2006 is the positive results of implementing an overdraft protection service in April 2005 and accordingly is included in the checking account fees. Noninterest expense was $2.7 million for the three months ended March 31, 2006 or approximately $28 thousand or 1.0% above the same period in 2005, due to increased marketing, data processing and other expenses. Marketing expenses have increased due to a concerted effort to increase brand and product identity within the markets the Bank serves. Data processing expenses have increased due to increased volume of the number customer deposit accounts, when compared to first quarter 2005. Other expenses include increases in consulting fees, due to strategic planning, in sundry charge-offs, due to overdraft protection charge-offs, and in software license & maintenance fees, due to timing of purchases from various software vendors.

     Net unrealized depreciation on securities available for sale was $265 thousand for the three months ended March 31, 2006 compared to $975 thousand for the three months ended March 31, 2005. The market value of securities in the available for sale portfolio decreased during the first quarter of 2006 due to economic conditions and an increase in interest rates. Comprehensive income was $243 thousand for the three months ended March 31, 2006 compared to ($0.5) million for the same period in 2005.

     Statement of Financial Accounting Standards Board (SFAS) No. 123, Revised, requires companies to record compensation cost for stock options provided to employees in return for employment services. The Bank does not offer this type of compensation to employees, thus there will be no effect of this pronouncement.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Management uses an earnings simulation model to assess interest rate sensitivity, which estimates the effect on net income assuming various interest rate changes — or “rate shocks” — such as changes of plus 100 or 200 basis points. At year-end 2005, the model estimated the positive impact on net income of a 100 basis point increase in interest rates over a twelve-month period at 0.8%, compared to a negative impact of 3.7% on March 31, 2006. A positive impact on net income of a 200 basis point increase in interest rates was estimated at 10.6% on December 31, 2005 compared to a negative impact of 3.7% on March 31, 2006. In both the 100 and 200 basis “rate shocks”, the unfavorable variance from December 31, 2005 is a result of our short-term assets repricing quicker then short-term liabilities. Specifically, this is due to a decline in loans and a change in mix of the composition of fixed versus variable rate loans.

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.

11

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings — None
Item 1A.	Risk Factors — There have been no significant changes in the Company’s risk factors as outlined in the Company’s Form 10-K for the period ending December 31, 2005.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds — None
Item 3.	Defaults Upon Senior Securities — None
Item 4.	Submission of Matters to a Vote of Security Holders – Notice of Annual Meeting of Shareholders and proxy statement dated March 23, 2006 was previously filed with the SEC on March 23, 2006.
Item 5.	Other Information — None
Item 6.	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
(3.1)	Amended Articles of Incorporation	Annual Report 10-K filed 3/26/04 File No. 000-14773
(3.2)	Code of Regulations	Annual Report 10-K filed 3/26/04 File No. 000-14773
(10.1)	Directors Defined Benefit Plan Agreement	Annual Report 10-K filed 3/29/01 File No. 000-14773
(10.2)	Special Separation Agreement entered into with Charles Dolezal and Kenneth VanSickle	Annual Report 10-K filed 3/29/01 File No. 000-14773
(10.3)	Form of Special Separation Agreement entered into with Marc Valentin	Quarterly Report 10-Q filed 11/15/04 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.

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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: May 9, 2006	/s/ Charles J. Dolezal
	Charles J. Dolezal, President
Date: May 9, 2006	/s/ Marc Valentin
	Marc Valentin, Treasurer
	(Principal Financial Officer)

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