UNITED STATES

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

For Quarterly Period Ended September 30, 2000

Commission File Number 0-14773

NATIONAL BANCSHARES CORPORATION

112 West Market Street, Orrville, Ohio 44667

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 November 1, 2000:

Common Stock, Without Par Value: 2,243,482 Shares Outstanding

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National Bancshares Corporation

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NATIONAL BANCSHARES CORPORATION

See note to consolidated financial statements

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NATIONAL BANCSHARES CORPORATION

See note to consolidated financial statements

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NATIONAL BANCSHARES CORPORATION

See note to consolidated financial statements.

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National Bancshares Corporation

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, 2000, the consolidated statements of income for the three and nine month periods ended September 30, 2000 and 1999, and the consolidated statements of cash flows for the nine month periods ended September 30, 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 nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000.

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

      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.

     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. 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 increased $4.1 million or 2.1% over 12/31/99. Cash and due from banks decreased approximately $2.2 million, which was mainly the result of a lower outgoing check letter and lower cash balances on 9/30/00 as compared to 12/31/99. Federal funds sold decreased $4.7 million or 53.9% due to strong loan demand. Net loans increased $10.5 million or 10.5% due to increased demand for commercial loans. Commercial loans increased $9.5 million or 25.8% over 12/31/99. One large commercial loan, closed during the third quarter of 2000, accounted for a substantial portion of the growth this year.

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

      The activity in the allowance for loan losses for the first nine 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. The allowance is maintained at a level that is considered adequate to absorb all estimated inherent 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 inherent 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 inherent loss that exists on past due loans is estimated using past loan loss experience. All other loans are pooled by loan type and evaluated for inherent risk 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 judgement, should be charged-off. Management reviews the allowance for loan losses on a regular basis to determine the adequacy of the reserve.

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      The allowance for loan losses to total loans outstanding was 1.22% and 1.30% as of September 30, 2000 and December 31, 1999, respectively. On an annualized basis, net charge-offs to total loans was .02% for the first nine months of 2000 and .11% for 1999. The ratio of non-performing loans to total loans was .53% ($595,000) for September 30, 2000 compared to .25% ($250,000) for December 31, 1999. The increase is due mainly to one loan that was placed on non-accrual during 2000. Non-performing loans consist of loans that have been placed on nonaccrual status.

      Impaired loans at September 30, 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.

      Total deposits increased $1.9 million or approximately 1.2% from 12/31/99. Non-interest bearing demand accounts decreased 3.3%, savings and N.O.W. accounts decreased 8.8% and time deposits increased 16.9%. The time deposit increase was due mainly to a special promotion on a 15-month certificate of deposit (CD). The decrease in saving balances was related to the CD promotion, as some customers shifted their funds into the CD special. Securities sold under repurchase agreements increased $2.5 million from 12/31/99 as certain customers moved their liquid funds into this short-term product. Federal Home Loan advances decreased $1.9 million or 33.2% from 12/31/99, due mainly to a $2.0 million advance that matured. Total shareholders’ equity increased $1.3 million or 4.8% from 12/31/99.

     Statements of Cash Flows

     Net cash provided by operating activities for the first nine months of 2000 was $2.0 million compared to $1.6 million for the first nine months of 1999. Net cash used in investing activities for the first nine months of 2000 was $10.5 million, down $7.8 million from the first nine months of 1999 due primarily to lower investment purchases. The strong loan growth during the first nine months of 2000 was funded by increases in deposits and short-term borrowings and a decrease in federal funds sold. Net cash of $1.6 million was provided by financing activities compared to $4.2 million for the first nine months of 1999. The decline was due mainly to lower growth in short-term borrowings and repayment of Federal Home Loan advances. Total cash and cash equivalents decreased $7.0 million during the first nine months of 2000. With total cash and cash equivalents of $10.4 million as of 9/30/00, 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 9/30/00.

      RESULTS OF OPERATIONS

      Interest and dividend income totaled $3.7 million or $306 thousand higher for the three-months ended 9/30/00 as compared to the same period in 1999. Interest expense was $1.5 million for the three months ended 9/30/00 or $296 thousand higher than 1999. This resulted in an increase of $10 thousand or 0.5% in net interest income for the three-month period ended 9/30/00 as compared to 9/30/99. The nine months results for the periods ended 9/30/00 and 9/30/99 were an increase in interest and dividend income of $618 thousand and an increase in interest expense of $447 thousand. This resulted in a net interest income increase of $171 thousand or 2.7% for the nine months ended 9/30/00 compared to 9/30/99. The increase in interest income was due mainly to the growth in higher yielding commercial loans. Interest expense increased due to a certificate of deposit promotion and higher reliance on Federal Home Loan advances.

      Net interest rate margins were 5.17% and 5.14% for the first nine months of 2000 and 1999, respectively. Interest income yields increased 32 basis points as compared to interest costs, which increased 29 basis points in 2000 compared to 1999.

      Provision for loan losses was $0 for the three months ended 9/30/00 compared to $30,000 for the same period in 1999. The provision for loan losses was $62,500 and $90,000 for the nine months ended 9/30/00 and 9/30/99. Net charge offs for the nine months ended 9/30/00 were $14 thousand as compared to $73 thousand for the same period in 1999. Based upon an analysis of the allowance for loan losses, management determined that a provision for loan losses was not necessary during the third quarter of 2000.

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      Noninterest income was $219 thousand for the three months ended 9/30/00 or approximately 4.3% above the same period in 1999. Noninterest income was $628 thousand for the nine months ended 9/30/00 or approximately 0.7% above the same period in 1999. There were no significant fluctuations in the items comprising this category.

      Noninterest expense was $1.6 million for the three months ended 9/30/00 or approximately 1.3% above the same period in 1999. Year to date noninterest expense for 2000 was $4.8 million or 4.4% above the same period in 1999, due mainly to normal salary increases and higher employee benefit, legal, marketing, dues and fees, and postage expenses, partially offset by lower occupancy expenses.

      Net income was $661 thousand for the three months ended 9/30/00 or 2.0% above the same quarter of 1999. Net income was approximately $1.8 million for the nine months ended 9/30/00 or 1.4% below the first nine months of 1999. The decrease was due primarily to higher noninterest expenses and a higher tax provision, partially offset by a $200 thousand increase in net interest income after the provision for loan losses.

      Unrealized appreciation (depreciation) on securities available for sale was $369 thousand for the three months ended 9/30/00 compared to ($91) thousand for the three months ended 9/30/99. Year to date unrealized appreciation (depreciation) was $165 thousand compared to ($306) thousand for the same period last year. Stable interest rates and economic conditions have had a positive impact on the market value of the securities in the available for sale portfolio.

      Comprehensive income was $1.0 million for the three months ended 9/30/00 or 84.9% above the same period in 1999. Comprehensive income was $2.0 million for the nine months ended 9/30/00 or 28.7% above the first nine months of 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.

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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 September 30, 2000 from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999. The Company monitors and manages interest rate risk in order to maintain an acceptable level of possible change in net interest income as a result of changes in interest rates. As of September 30, 2000 the Company’s interest rate risk position was within Board approved policy limits.

PART II. OTHER INFORMATION

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

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