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 March 31, 2000

Commission File Number 0-14773

NATIONAL BANCSHARES CORPORATION

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 the number of shares outstanding of each of the registrant’s classes of common stock, as of May 1, 2000:

Common Stock, Without Par Value: 2,243,094 Shares Outstanding

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National Bancshares Corporation

Index

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NATIONAL BANCSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)

See note to consolidated financial statements

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

See note to consolidated financial statements

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NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Cash and Cash Equivalents include Cash and Due From Banks and Federal Funds Sold

See note to consolidated financial statements.

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National Bancshares Corporation
Note 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, 2000, the consolidated statements of income for the three-month periods ended March 31, 2000 and 1999, and the consolidated statements of cash flows for the three-month periods ended March 31, 2000 and 1999 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 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, 1999. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000.

      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.

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 involves risk and uncertainties and are subject to change based on various important factors. Actual results could differ materially from those expressed or implied. Additionally, the Company claims no notification responsibilities should their opinions change from those expressed herein.

      FINANCIAL CONDITION

      Balance Sheets

      Total assets decreased $4.1 million or 2.1% from 12/31/99. Cash and due from banks decreased approximately $1.0 million compared to 12/31/99. Federal funds sold decreased $6.1 million due to loan demand and a decline in total deposits. Securities available for sale decreased $0.4 million or 1.8% and securities held to maturity decreased $0.5 million or 0.9% from 12/31/99. Net loans increased $3.2 million or 3.2% due to the demand for commercial loans.

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      The carrying amounts and approximate fair values of the investment securities are summarized as follows:

      The activity in the allowance for loan losses for the first three months of 2000 was as follows:

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

      The allowance for loan losses to total loans percentage was 1.30% for both March 31, 2000 and December 31, 1999. On an annualized basis, net charge-offs (recoveries) to total loans percentages were (.04%) for the first three months of 2000 and .11% for 1999. The ratio of non-performing loans to total loans was    .46% for March 31, 2000 compared to .25% for December 31, 1999. Non-performing loans consist of loans that have been placed on nonaccrual status. Management reviews the allowance for loan losses on a regular basis to determine the adequacy of the reserve.

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Impaired loans at March 31, 2000 were as follows:

      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.

      Financial instruments with off-balance-sheet risk were as follows at March 31, 2000:

      Total deposits decreased $4.8 million or approximately 3.0% from 12/31/99. Non-interest bearing demand accounts decreased by 3.8%, savings and N.O.W. accounts decreased by 2.7% and time deposits decreased by 2.8%. Deposit balances fluctuate based upon the liquidity needs of our customers. Federal funds purchased and securities sold under repurchase agreements increased $0.2 million from 12/31/99. The Federal Reserve note account decreased $0.5 million or 47.3%. Advances from the Federal Home Loan Bank increased $0.7 million or 12.8% from December 31, 1999. Total shareholders’ equity increased $0.1 million or 0.5% from 12/31/99.

      Statements of Cash Flows

      Net cash from operating activities for the first three months of 2000 was $0.3 million compared to $0.2 million for 1999. Net cash used in investing activities for the first three months of 2000 was $2.8 million due primarily to loan growth. Net cash of $4.6 million was used by financing activities mainly as a result of the decline in deposits. Total cash and cash equivalents decreased $7.1 million during the first three months of 2000. With total cash and cash equivalents of $10.2 million as of 3/31/00, the Company’s liquidity ratios continue to remain favorable.

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      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 at 3/31/00.

      RESULTS OF OPERATIONS

      Interest income totaled $3.4 million or $135 thousand higher for the three-months ended 3/31/00 as compared to the same period in 1999. Interest expense was $1.2 million for the three months ended 3/31/00 or $63 thousand over 1999. This resulted in an increase of $72 thousand or 3.5% in net interest income for the three-month period ended 3/31/00 as compared to 3/31/99.

      Net interest rate margins were 5.20% and 5.13% for the first three months of 2000 and 1999, respectively. Interest income yields increased 17 basis points as compared to interest costs, which increased 10 basis points in 2000 compared to 1999.

      The provision for loan losses was $37,500 for the three months ended 3/31/00 compared to $30,000 for the three months ended 3/31/99. Net recoveries for the three months ended 3/31/00 were $10 thousand as compared to net charge-offs of $59 thousand for the same period in 1999.

      Noninterest income was $203 thousand for the three months ended 3/31/00 or approximately 5.9% below the same period in 1999, due mainly to the proceeds received in the first quarter of 1999 on a director’s life insurance policy.

      Noninterest expense was $1.6 million for the three months ended 3/31/00 or approximately 7.3% above the same period in 1999 due to normal salary increases, higher data processing costs, marketing and other expenses. In addition, costs of operating our Cleveland Road office in Wooster, Ohio, which opened in April 1999, are not reflected in the first quarter of 1999’s expenses.

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      Net income was $571 thousand for the three months ended 3/31/00 or 7.7% below the same quarter of 1999. The decrease was due primarily to lower noninterest income and higher operating costs. Unrealized appreciation (depreciation) on securities available for sale was ($237) thousand for the three months ended 3/31/00 compared to ($151) thousand for the three months ended 3/31/99. A general decline in the market value of debt and equity investments owned, due to depressed stock market levels and higher interest rates, has decreased the market value of securities in the available for sale portfolio. Comprehensive income was $335 thousand for the three months ended 3/31/00 or 28.6% below the same period in 1999.

      YEAR 2000 COMPLIANCE

      The Company successfully completed its Year 2000 changeover without significant problems in its core business processes. Management has confirmed normal operations across all products and markets on a sustained basis.

      While management believes it is unlikely, problems associated with non-compliant third parties could still occur. Management will continue to monitor all business processes and relationships with third parties during 2000 to ensure that all processes continue to function properly.

      The Company spent approximately $90 thousand on the Year 2000 project, which includes operating expenses and equipment purchases.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      There have been no material changes in the quantitative and qualitative disclosures about market risks as of March 31, 2000 from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

PART II. OTHER INFORMATION

      Item 1. Legal Proceedings — None

      Item 2. Changes in Securities — 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 24, 2000 was previously filed with the SEC on March 22, 2000.

      Item 5. Other Information — None

      Item 6. Exhibits and Reports on Form 8-K

	a. Exhibits

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

	b. There were no reports on Form 8-K filed for the quarter ended 3/31/00.

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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.

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