##### 



EXHIBIT 13




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##### 



TABLE OF CONTENTS
 03
    
    MESSAGE TO SHAREHOLDERSFINANCIAL HIGHLIGHTS04
    
    Financial Position05
    
    SELECTED FINANCIAL DATAFINANCIAL REVIEW07
    
    Forward Looking Statement07
    
    Financial Condition22
    
    Results of Operations23
    
    2006 versus 200524
    
    2005 versus 200425
    
    Critical Accounting Policies25
    
    New Accounting Pronouncements26
    
    CONSOLIDATED BALANCE SHEETS27
    
    CONSOLIDATED STATEMENTS OF INCOME28
    
    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY29
    
    CONSOLIDATED STATEMENTS OF CASH FLOWS30
    
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2006, 2005, 200448
    
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMCOMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN OF NATIONAL BANCSHARES CORPORATION,
S&P 500 STOCK INDEX, AND S&P 500 BANK INDEX49
    
    Performance GraphPRICE RANGE OF COMMON STOCK50
    
    Shareholder Information51
    
    OFFICERS52
    
    FIRST NATIONAL BANK OFFICES
 National Bancshares Corporation 2006 Annual Report 01




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##### 



02 National Bancshares Corporation 2006 Annual Report




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##### 



MESSAGE TO SHAREHOLDERS
        
 National Bancshares Corporation 2006 Annual Report 03




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##### 



FINANCIAL HIGHLIGHTS
  FINANCIAL POSITION
 Percentage(Year End Balances)
    
    
    2006
    
    
    2005
    
    ChangeTotal assets
    
    
    $
    308,358,053
    
    
    
    $
    306,881,008
    
    
    
    0.48
    %Deposits
    
    
    
    247,680,697
    
    
    
    
    249,487,821
    
    
    
    (0.72
    )%Loans  net
    
    
    
    184,481,374
    
    
    
    
    191,538,419
    
    
    
    (3.68
    )%Investment securities
    
    
    
    85,999,869
    
    
    
    
    77,009,046
    
    
    
    11.68
    %Shareholders equity
    
    
    
    34,680,270
    
    
    
    
    34,653,425
    
    
    
    0.08
    %Summary of Operations:Net interest income
    
    
    $
    11,161,394
    
    
    
    $
    11,946,806
    
    
    
    (6.57
    )%Net income
    
    
    
    1,163,896
    
    
    
    
    2,099,810
    
    
    
    (44.57
    )%Cash dividends declared
    
    
    
    1,430,072
    
    
    
    
    1,430,072
    
    
    
    Net income per share
    
    
    
    0.52
    
    
    
    
    0.94
    
    
    
    (44.68
    )%Cash dividends per share
    
    
    
    0.64
    
    
    
    
    0.64
    
    
    
    Book value per share
    
    
    
    15.52
    
    
    
    
    15.51
    
    
    
    0.06
    %
  04 National Bancshares Corporation 2006 Annual Report




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##### 



SELECTED FINANCIAL DATA
  AS OF OR FOR THE YEARS ENDED DECEMBER 31,2006
    
    
    2005
    
    2004
    
    2003
    
    2002Income Statement Data:Interest income
    
    
    $
    17,156,547
    
    
    
    $
    16,075,195
    
    
    $
    15,311,999
    
    
    $
    15,043,809
    
    
    $
    15,941,153Interest expense
    
    
    
    5,995,153
    
    
    
    
    4,128,389
    
    
    
    3,346,322
    
    
    
    3,740,016
    
    
    
    4,927,774Net interest income
    
    
    
    11,161,394
    
    
    
    
    11,946,806
    
    
    
    11,965,677
    
    
    
    11,303,793
    
    
    
    11,013,379Provision for loan losses
    
    
    
    160,000
    
    
    
    
    159,233
    
    
    
    177,500
    
    
    
    245,000
    
    
    
    1,569,402Net interest income after
provision for loan losses
    
    
    
    11,001,394
    
    
    
    
    11,787,573
    
    
    
    11,788,177
    
    
    
    11,058,793
    
    
    
    9,443,977Noninterest income
    
    
    
    1,653,262
    
    
    
    
    1,801,200
    
    
    
    1,895,313
    
    
    
    1,532,020
    
    
    
    1,458,031Noninterest expense
    
    
    
    11,353,662
    
    
    
    
    10,985,615
    
    
    
    9,897,462
    
    
    
    9,140,516
    
    
    
    7,998,774Income before income Taxes
    
    
    
    1,300,994
    
    
    
    
    2,603,158
    
    
    
    3,786,028
    
    
    
    3,450,297
    
    
    
    2,903,234Income taxes
    
    
    
    137,098
    
    
    
    
    503,348
    
    
    
    875,288
    
    
    
    806,746
    
    
    
    648,460Net Income
    
    
    $
    1,163,896
    
    
    
    $
    2,099,810
    
    
    $
    2,910,740
    
    
    $
    2,643,551
    
    
    $
    2,254,774Balance Sheet Data:Cash and due from banks
    
    
    $
    8,955,348
    
    
    
    $
    10,985,160
    
    
    $
    11,756,454
    
    
    $
    11,506,999
    
    
    $
    10,010,654Investment securities
    
    
    
    85,999,869
    
    
    
    
    77,009,046
    
    
    
    76,327,029
    
    
    
    83,793,119
    
    
    
    70,806,397Loans, net
    
    
    
    184,481,374
    
    
    
    
    191,538,419
    
    
    
    196,724,596
    
    
    
    187,056,241
    
    
    
    190,559,663Deposits
    
    
    
    247,680,697
    
    
    
    
    249,487,821
    
    
    
    248,522,476
    
    
    
    242,847,291
    
    
    
    239,297,227Borrowings
    
    
    
    22,744,485
    
    
    
    
    19,952,284
    
    
    
    21,679,242
    
    
    
    20,140,702
    
    
    
    21,211,964Shareholders equity
    
    
    
    34,680,270
    
    
    
    
    34,653,425
    
    
    
    35,319,321
    
    
    
    34,804,735
    
    
    
    33,190,050Total assets
    
    
    
    308,358,053
    
    
    
    
    306,881,008
    
    
    
    308,424,929
    
    
    
    301,249,375
    
    
    
    296,502,555Per Common Share Data:Net income
    
    
    $
    0.52
    
    
    
    $
    0.94
    
    
    $
    1.30
    
    
    $
    1.18
    
    
    $
    1.01Cash dividends
    
    
    
    0.64
    
    
    
    
    0.64
    
    
    
    0.61
    
    
    
    0.58
    
    
    
    0.54Book value
    
    
    
    15.52
    
    
    
    
    15.51
    
    
    
    15.81
    
    
    
    15.58
    
    
    
    14.85Weighted Average Number
of Shares Outstanding
    
    
    
    2,234,488
    
    
    
    
    2,234,488
    
    
    
    2,234,488
    
    
    
    2,234,488
    
    
    
    2,228,510
 National Bancshares Corporation 2006 Annual Report 05




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##### 



SELECTED FINANCIAL DATA
 AS OF OR FOR THE YEARS ENDED DECEMBER 31,2006
    
    
    2005
    
    2004
    
    2003
    
    2002Selected Data:Return on average equity
    
    
    
    3.29
    %
    
    
    
    5.90
    %
    
    
    8.29
    %
    
    
    7.58
    %
    
    
    7.01
    %Return on average assets
    
    
    
    0.38
    %
    
    
    
    0.70
    %
    
    
    0.97
    %
    
    
    0.90
    %
    
    
    0.85
    %Dividend payout percentage
    
    
    
    122.87
    %
    
    
    
    68.10
    %
    
    
    46.83
    %
    
    
    49.03
    %
    
    
    53.40
    %Efficiency ratio(1)
    
    
    
    88.60
    %
    
    
    
    79.91
    %
    
    
    71.41
    %
    
    
    71.21
    %
    
    
    64.14
    %Full time equivalent staff
    
    
    
    132
    
    
    
    
    135
    
    
    
    136
    
    
    
    133
    
    
    
    122Average total assets to
full time equivalent staff
    
    
    $
    2,295,763
    
    
    
    $
    2,233,711
    
    
    $
    2,214,226
    
    
    $
    2,209,383
    
    
    $
    2,166,827Asset Quality Ratios:Allowance for loan losses
to ending total loans
    
    
    
    1.07
    %
    
    
    
    0.98
    %
    
    
    0.89
    %
    
    
    0.85
    %
    
    
    0.83
    %Net loan charge-offs
to average loans
    
    
    
    0.03
    %
    
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.13
    %
    
    
    0.89
    %Capital Ratios:Average equity to average assets
    
    
    
    11.66
    %
    
    
    
    11.81
    %
    
    
    11.65
    %
    
    
    11.86
    %
    
    
    12.17
    %Leverage ratio(2)
    
    
    
    8.57
    %
    
    
    
    9.76
    %
    
    
    9.41
    %
    
    
    9.04
    %
    
    
    8.61
    %Total risk-based
capital ratio(2)
    
    
    
    13.26
    %
    
    
    
    14.45
    %
    
    
    13.73
    %
    
    
    13.59
    %
    
    
    13.58
    %
 (1)
    
    The efficiency ratio is calculated by dividing noninterest expenses by the sum of net interest
income and non-interest income.(2)
    
    Computed in accordance with Comptroller of the Currency and FDIC guidelines.  Basic andInterest
    
    Net Interest
    
    Provision for
    
    Income Before
    
    
    
    
    
    Diluted EarningsIncome
    
    Income
    
    Loan Losses
    
    Income Taxes
    
    Net Income
    
    Per Share2006First quarter
    
    $
    4,165,700
    
    
    $
    2,894,650
    
    
    $
    
    
    
    $
    611,921
    
    
    $
    508,120
    
    
    $
    0.23Second quarter
    
    
    4,186,787
    
    
    
    2,721,096
    
    
    
    
    
    
    
    122,607
    
    
    
    158,940
    
    
    
    0.07Third quarter
    
    
    4,378,808
    
    
    
    2,819,792
    
    
    
    40,000
    
    
    
    390,537
    
    
    
    302,621
    
    
    
    0.14Fourth quarter
    
    
    4,425,252
    
    
    
    2,725,856
    
    
    
    120,000
    
    
    
    175,929
    
    
    
    194,215
    
    
    
    0.092005First quarter
    
    $
    3,828,291
    
    
    $
    2,964,022
    
    
    $
    80,000
    
    
    $
    644,796
    
    
    $
    520,799
    
    
    $
    0.23Second quarter
    
    
    3,975,548
    
    
    
    3,012,758
    
    
    
    212,500
    
    
    
    509,134
    
    
    
    431,939
    
    
    
    0.19Third quarter
    
    
    4,035,644
    
    
    
    2,958,723
    
    
    
    44,000
    
    
    
    537,116
    
    
    
    447,916
    
    
    
    0.20Fourth quarter
    
    
    4,235,712
    
    
    
    3,011,303
    
    
    
    (177,267
    )
    
    
    912,112
    
    
    
    699,156
    
    
    
    0.31
   06 National Bancshares Corporation 2006 Annual Report




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##### 



FINANCIAL REVIEW
  Forward Looking Statement
   Financial Condition
 Total Assets:
 Loans:
    National Bancshares Corporation 2006 Annual Report 07




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##### 



FINANCIAL REVIEW
  LOAN PORTFOLIO COMPOSITION AT DECEMBER 31,2006
    


    2005
    
    2004
    
    2003
    
    2002$

    
    %
    
    
    $
    
    %
    
    $
    
    %
    
    $
    
    %
    
    $
    
    %Type of Loan:Collateralized by
real estate:Commercial
    
    
    $
    45,737,347
    
    
    
    
    25
    %
    
    $
    47,638,035
    
    
    
    25
    %
    
    $
    47,080,983
    
    
    
    24
    %
    
    $
    39,349,045
    
    
    
    21
    %
    
    $
    28,747,949
    
    
    
    15
    %Residential
    
    
    
    86,651,803
    
    
    
    
    46
    %
    
    
    91,591,798
    
    
    
    47
    %
    
    
    97,694,011
    
    
    
    49
    %
    
    
    101,291,447
    
    
    
    54
    %
    
    
    118,834,883
    
    
    
    62
    %Home equity
    
    
    
    19,383,373
    
    
    
    
    10
    %
    
    
    19,044,581
    
    
    
    10
    %
    
    
    18,272,212
    
    
    
    9
    %
    
    
    14,008,018
    
    
    
    7
    %
    
    
    12,555,738
    
    
    
    6
    %Construction
    
    
    
    6,078,670
    
    
    
    
    3
    %
    
    
    6,440,000
    
    
    
    3
    %
    
    
    6,326,884
    
    
    
    3
    %
    
    
    5,131,685
    
    
    
    3
    %
    
    
    2,065,964
    
    
    
    1
    %157,851,193
    
    
    
    
    84
    %
    
    
    164,714,414
    
    
    
    85
    %
    
    
    169,374,090
    
    
    
    85
    %
    
    
    159,780,195
    
    
    
    85
    %
    
    
    162,204,534
    
    
    
    84
    %Other:Consumer
    
    
    
    7,522,087
    
    
    
    
    4
        %
    
    
    6,205,096
    
    
    
    3
    %
    
    
    5,385,953
    
    
    
    3
    %
    
    
    4,828,644
    
    
    
    3
    %
    
    
    4,847,264
    
    
    
    3
    %Commercial
    
    
    
    18,518,891
    
    
    
    
    10
       %
    
    
    20,045,739
    
    
    
    10
    %
    
    
    21,196,523
    
    
    
    10
    %
    
    
    21,374,911
    
    
    
    11
    %
    
    
    21,631,567
    
    
    
    11
    %Credit Cards 
unsecured
    
    
    
    1,520,995
    
    
    
    
    1
    %
    
    
    1,405,708
    
    
    
    1
    %
    
    
    1,361,726
    
    
    
    1
    %
    
    
    1,263,565
    
    
    
    0
    %
    
    
    1,276,587
    
    
    
    1
    %Other
    
    
    
    1,609,396
    
    
    
    
    1
    %
    
    
    1,565,995
    
    
    
    1
    %
    
    
    1,675,030
    
    
    
    1
    %
    
    
    1,821,016
    
    
    
    1
    %
    
    
    2,570,767
    
    
    
    1
    %Total Loans
    
    
    $
    187,022,562
    
    
    
    
    100
    %
    
    $
    193,936,952
    
    
    
    100
    %
    
    $
    198,993,322
    
    
    
    100
    %
    
    $
    189,068,331
    
    
    
    100
    %
    
    $
    192,530,719
    
    
    
    100
    %Less:Unearned and
deferred income
    
    
    
    (548,111
    )
    
    
    
    
    
    
    
    (495,705
    )
    
    
    
    
    
    
    (505,428
    )
    
    
    
    
    
    
    (408,522
    )
    
    
    
    
    
    
    (366,856
    )Allowance for
loan losses
    
    
    
    (1,993,077
    )
    
    
    
    
    
    
    
    (1,902,828
    )
    
    
    
    
    
    
    (1,763,298
    )
    
    
    
    
    
    
    (1,603,568
    )
    
    
    
    
    
    
    (1,604,200
    )Net loans
    
    
    $
    184,481,374
    
    
    
    
    
    
    
    $
    191,538,419
    
    
    
    
    
    
    $
    196,724,596
    
    
    
    
    
    
    $
    187,056,241
    
    
    
    
    
    
    $
    190,559,663Net loans as
a percent of
total assets
    
    
    
    59.83
    %
    
    
    
    
    
    
    
    62.41
    %
    
    
    
    
    
    
    63.78
    %
    
    
    
    
    
    
    62.09
    %
    
    
    
    
    
    
    64.22
    %
    08 National Bancshares Corporation 2006 Annual Report




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##### 



FINANCIAL REVIEW
 LOAN PORTFOLIO MATURITY AT ENDED DECEMBER 31, 20060 to 1 year*
    
    1 to 5 years
    
    5 years or more
    
    TotalAmount due:Collateralized by real estate:Commercial
    
    $
    2,900,719
    
    
    $
    13,456,162
    
    
    $
    29,380,466
    
    
    $
    45,737,347Residential
    
    
    4,795,897
    
    
    
    17,789,865
    
    
    
    64,066,041
    
    
    
    86,651,803Home equity
    
    
    
    
    
    
    52,776
    
    
    
    19,330,597
    
    
    
    19,383,373Construction
    
    
    554,632
    
    
    
    1,614,708
    
    
    
    3,909,330
    
    
    
    6,078,670Consumer loans
    
    
    2,412,078
    
    
    
    4,976,733
    
    
    
    133,276
    
    
    
    7,522,087Commercial
    
    
    6,584,781
    
    
    
    6,688,343
    
    
    
    5,245,767
    
    
    
    18,518,891Credit cards
    
    
    1,520,995
    
    
    
    
    
    
    
    
    
    
    
    1,520,995Other
    
    
    223,659
    
    
    
    1,112,649
    
    
    
    273,088
    
    
    
    1,609,396Total
    
    $
    18,992,761
    
    
    $
    45,691,236
    
    
    $
    122,338,565
    
    
    $
    187,022,562
 
 *
    
    Loans due on demand and overdrafts are included in the amount due in one year or less. Fixed Rate
    
    Adjustable Rate
    
    TotalCollateralized by real estate:Commercial
    
    $
    6,188,488
    
    
    $
    39,548,859
    
    
    $
    45,737,347Residential
    
    
    49,531,493
    
    
    
    37,120,310
    
    
    
    86,651,803Home equity
    
    
    
    
    
    
    19,383,373
    
    
    
    19,383,373Construction
    
    
    506,624
    
    
    
    5,572,046
    
    
    
    6,078,670Consumer loans
    
    
    7,382,554
    
    
    
    139,533
    
    
    
    7,522,087Commercial
    
    
    5,507,560
    
    
    
    13,011,331
    
    
    
    18,518,891Credit cards
    
    
    1,129,453
    
    
    
    391,542
    
    
    
    1,520,995Other
    
    
    920,325
    
    
    
    689,071
    
    
    
    1,609,396Total
    
    $
    71,166,497
    
    
    $
    115,856,065
    
    
    $
    187,022,562
 Allowance for Loan Losses.
  National Bancshares Corporation 2006 Annual Report 09




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##### 



FINANCIAL REVIEW
  Loan Grade 1, 2, 3 and 4
 Loan Grade 5 (Watch)
 Loan Grade 6 (Special-Mention)
 Loan Grade 7 (Substandard)
 Loan Grade 8 (Doubtful)
 Loans classified as Loan Grade 9 (Loss)
   10 National Bancshares Corporation 2006 Annual Report




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##### 



FINANCIAL REVIEW
  Classified assets at December 31,2006
    
    
    2005
    
    2004Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent ofAmount
    
    total loans
    
    
    Amount
    
    total loans
    
    Amount
    
    total loansClassified Loans:Special mention
    
    
    $
    6,475,670
    
    
    
    4.2
    %
    
    
    $
    5,421,909
    
    
    
    2.8
    %
    
    $
    6,189,953
    
    
    
    3.1
    %Substandard
    
    
    
    5,350,182
    
    
    
    4.7
    %
    
    
    $
    4,838,160
    
    
    
    2.5
    %
    
    $
    3,340,416
    
    
    
    1.7
    %Doubtful
    
    
    
    161,539
    
    
    
    0.0
    %
    
    
    $
    1,185,504
    
    
    
    0.6
    %
    
    $
    731,900
    
    
    
    0.4
    %Loss
    
    
    
    152,048
    
    
    
    0.2
    %
    
    
    $
    
    
    
    
    0.0
    %
    
    $
    
    
    
    
    0.0
    %Total classified loans
    
    
    $
    12,139,439
    
    
    
    9.1
    %
    
    
    $
    11,445,573
    
    
    
    5.9
    %
    
    $
    10,262,269
    
    
    
    5.2
    %Other classified assets
    
    
    
    
    
    
    
    0.0
    %
    
    
    $
    
    
    
    
    0.0
    %
    
    $
    
    
    
    
    0.0
    %Total classified assets
    
    
    $
    12,139,439
    
    
    
    9.1
    %
    
    
    $
    11,445,573
    
    
    
    5.9
    %
    
    $
    10,262,269
    
    
    
    5.2
    %
      National Bancshares Corporation 2006 Annual Report 11




---



##### 



FINANCIAL REVIEW
  Year Ended December 31,2006
    
    
    2005
    
    2004
    
    2003
    
    2002Loan loss allowance,
beginning of period
    
    
    $
    1,902,828
    
    
    
    $
    1,763,298
    
    
    $
    1,603,568
    
    
    $
    1,604,200
    
    
    $
    1,321,152Loans charged off:Collateralized by real estate:Commercial
    
    
    
    39,149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    
    41,729
    
    
    
    
    
    
    
    
    24,003
    
    
    
    
    
    
    
    Home equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,475,906Consumer
    
    
    
    42,797
    
    
    
    
    7,928
    
    
    
    24,605
    
    
    
    9,923
    
    
    
    21,943Commercial
    
    
    
    17,417
    
    
    
    
    33,608
    
    
    
    
    
    
    
    237,526
    
    
    
    23,431Credit cards
    
    
    
    20,961
    
    
    
    
    16,058
    
    
    
    20,154
    
    
    
    20,036
    
    
    
    24,706Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total loans
charged off
    
    
    
    162,053
    
    
    
    
    57,594
    
    
    
    68,762
    
    
    
    267,485
    
    
    
    1,545,986Recoveries of loans
previously charged off:Collateralized by real estate:Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    
    14,127
    
    
    
    
    326
    
    
    
    
    
    
    
    
    
    
    
    Home equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    
    55,260
    
    
    
    
    31,555
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    16,206
    
    
    
    
    5,144
    
    
    
    1,772
    
    
    
    8,840
    
    
    
    12,151Commercial
    
    
    
    1,413
    
    
    
    
    600
    
    
    
    41,230
    
    
    
    7,320
    
    
    
    2,300Credit cards
    
    
    
    5,296
    
    
    
    
    266
    
    
    
    7,990
    
    
    
    5,693
    
    
    
    652Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoveries
    
    
    
    92,302
    
    
    
    
    37,891
    
    
    
    50,992
    
    
    
    21,853
    
    
    
    15,103Net loans recovered
(charged off)
    
    
    
    (69,751
    )
    
    
    
    (19,703
    )
    
    
    (17,770
    )
    
    
    (245,632
    )
    
    
    (1,530,883
    )Provision charged to operations
    
    
    
    160,000
    
    
    
    
    159,233
    
    
    
    177,500
    
    
    
    245,000
    
    
    
    1,569,402Allowance of
acquired institution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244,529Loan loss allowance,
end of period
    
    
    $
    1,993,077
    
    
    
    $
    1,902,828
    
    
    $
    1,763,298
    
    
    $
    1,603,568
    
    
    $
    1,604,200Loans outstanding:Average
    
    
    
    186,146,000
    
    
    
    
    197,064,000
    
    
    
    194,032,000
    
    
    
    187,180,000
    
    
    
    172,159,000End of period
    
    
    
    187,022,562
    
    
    
    
    193,936,952
    
    
    
    198,993,322
    
    
    
    189,068,331
    
    
    
    192,530,719Ratio of allowance for loan
losses to total loans
outstanding at end of period
    
    
    
    1.07
    %
    
    
    
    0.98
    %
    
    
    0.89
    %
    
    
    0.85
    %
    
    
    0.83
    %Net recoveries (charge offs)
to average loans
    
    
    
    (0.04
    )%
    
    
    
    (0.01
    )%
    
    
    (0.01
    )%
    
    
    (0.13
    )%
    
    
    (0.89
    )%
  12 National Bancshares Corporation 2006 Annual Report




---



##### 



FINANCIAL REVIEW
 Allocation of the Allowance for Loan Losses at December 31,2006
    
    
    2005
    
    2004
    
    2003
    
    2002Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent ofloans in each
    
    
    
    
    
    
    loans in each
    
    
    
    
    
    loans in each
    
    
    
    
    
    loans in each
    
    
    
    
    
    loans in eachcategory to
    
    
    
    
    
    
    category to
    
    
    
    
    
    category to
    
    
    
    
    
    category to
    
    
    
    
    
    category toAmount
    
    total loans
    
    
    Amount
    
    total loans
    
    Amount
    
    total loans
    
    Amount
    
    total loans
    
    Amount
    
    total loansCollateralized by
real estate:Commercial
    
    
    $
    653,701
    
    
    
    25
    %
    
    
    $
    719,888
    
    
    
    25
    %
    
    $
    372,597
    
    
    
    24
    %
    
    $
    462,667
    
    
    
    21
    %
    
    $
    277,776
    
    
    
    15
    %Residential
    
    
    
    87,699
    
    
    
    46
    %
    
    
    
    185,805
    
    
    
    47
    %
    
    
    114,364
    
    
    
    49
    %
    
    
    56,624
    
    
    
    54
    %
    
    
    258,377
    
    
    
    62
    %Home equity
    
    
    
    9,288
    
    
    
    10
    %
    
    
    
    8,340
    
    
    
    10
    %
    
    
    12,755
    
    
    
    9
    %
    
    
    5,592
    
    
    
    7
    %
    
    
    14,623
    
    
    
    6
    %Construction
    
    
    
    
    
    
    
    3
    %
    
    
    
    
    
    
    
    3
    %
    
    
    
    
    
    
    3
    %
    
    
    
    
    
    
    3
    %
    
    
    40,789
    
    
    
    1
    %Consumer
    
    
    
    89,415
    
    
    
    4
    %
    
    
    
    40,201
    
    
    
    3
    %
    
    
    16,293
    
    
    
    3
    %
    
    
    7,976
    
    
    
    3
    %
    
    
    20,497
    
    
    
    3
    %Commercial
    
    
    
    1,064,341
    
    
    
    10
    %
    
    
    
    825,709
    
    
    
    10
    %
    
    
    1,226,638
    
    
    
    10
    %
    
    
    964,121
    
    
    
    11
    %
    
    
    967,182
    
    
    
    11
    %Credit cards
    
    
    
    31,067
    
    
    
    1
    %
    
    
    
    46,980
    
    
    
    1
    %
    
    
    20,651
    
    
    
    1
    %
    
    
    21,760
    
    
    
    0
    %
    
    
    24,956
    
    
    
    1
    %Other
    
    
    
    57,566
    
    
    
    1
    %
    
    
    
    75,904
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %Unallocated
    
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    N/A
    
    
    
    84,828
    
    
    
    N/A
    
    
    
    
    
    
    
    N/ATotal
    
    
    $
    1,993,077
    
    
    
    100
    %
    
    
    $
    1,902,828
    
    
    
    100
    %
    
    $
    1,763,298
    
    
    
    100
    %
    
    $
    1,603,568
    
    
    
    100
    %
    
    $
    1,604,200
    
    
    
    100
    %
  Problem Assets at December 31,2006
    
    
    2005
    
    2004
    
    2003
    
    2002Collateralized by real estate:Commercial:Non-accrual
    
    
    $
    454,711
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Past due 90 days or more
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential:Non-accrual
    
    
    
    222,908
    
    
    
    
    598,905
    
    
    
    394,970
    
    
    
    567,590
    
    
    
    171,482Past due 90 days or more
    
    
    
    216,758
    
    
    
    
    197,831
    
    
    
    51,549
    
    
    
    28,577
    
    
    
    76,752Home equity:Non-accrual
    
    
    
    7,923
    
    
    
    
    4,680
    
    
    
    
    
    
    
    
    
    
    
    Past due 90 days or more
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,172
    
    
    
    Construction:Non-accrual
    
    
    
    275,593
    
    
    
    
    
    
    
    
    125,502
    
    
    
    125,502
    
    
    
    140,000Past due 90 days or more
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Not collateralized by real estate:Consumer:Non-accrual
    
    
    
    
    
    
    
    
    3,854
    
    
    
    8,041
    
    
    
    
    
    
    
    4,964Past due 90 days or more
    
    
    
    7,947
    
    
    
    
    5,116
    
    
    
    4,099
    
    
    
    
    
    
    
    Commercial:Non-accrual
    
    
    
    1,099,526
    
    
    
    
    1,471,934
    
    
    
    899,082
    
    
    
    677,777
    
    
    
    1,841,922Past due 90 days or more
    
    
    
    21,926
    
    
    
    
    35,809
    
    
    
    
    
    
    
    
    
    
    
    252,331Credit cards:Non-accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,988
    
    
    
    Past due 90 days or more
    
    
    
    
    
    
    
    
    6,355
    
    
    
    
    
    
    
    
    
    
    
    5,690Total nonperforming loans
    
    
    
    2,307,292
    
    
    
    
    2,324,484
    
    
    
    1,483,243
    
    
    
    1,431,606
    
    
    
    2,493,141Other real estate owned
    
    
    
    103,334
    
    
    
    
    103,334
    
    
    
    46,000
    
    
    
    
    
    
    
    Total nonperforming assets
    
    
    $
    2,410,626
    
    
    
    $
    2,427,818
    
    
    $
    1,529,243
    
    
    $
    1,431,606
    
    
    $
    2,493,141Loans outstanding, net
    
    
    $
    184,481,374
    
    
    
    $
    191,538,419
    
    
    $
    196,724,596
    
    
    $
    187,056,241
    
    
    $
    190,559,663Nonperforming loans
to total net loans
    
    
    
    1.25
    %
    
    
    
    1.21
    %
    
    
    0.75
    %
    
    
    0.77
    %
    
    
    1.31
    %Nonperforming loans
to total assets
    
    
    
    0.75
    %
    
    
    
    0.76
    %
    
    
    0.48
    %
    
    
    0.48
    %
    
    
    0.84
    %Allowance for loan losses
to total loans
    
    
    
    1.07
    %
    
    
    
    0.98
    %
    
    
    0.89
    %
    
    
    0.85
    %
    
    
    0.83
    %Allowance for loan losses
to nonperforming loans
    
    
    
    86.38
    %
    
    
    
    81.86
    %
    
    
    118.88
    %
    
    
    112.01
    %
    
    
    64.34
    %
 National Bancshares Corporation 2006 Annual Report 13




---



##### 



FINANCIAL REVIEW
 Investment Securities:
  Gross
    
    
    GrossAmortized Cost
    
    
    unrealized gains
    
    
    unrealized losses
    
    
    Fair ValueDecember 31, 2006Available for Sale:U.S. Government and federal agency
    
    $
    29,536,718
    
    
    $
    68,809
    
    
    $
    (225,649
    )
    
    $
    29,379,878State and municipal
    
    
    17,109,745
    
    
    
    330,243
    
    
    
    (45,312
    )
    
    
    17,394,676Corporate bonds and notes
    
    
    27,579,025
    
    
    
    131,836
    
    
    
    (440,930
    )
    
    
    27,269,931Mortgage Backed
    
    
    12,030,199
    
    
    
    3,806
    
    
    
    (78,621
    )
    
    
    11,955,384Total Investment Securities
    
    $
    86,255,687
    
    
    $
    534,694
    
    
    $
    (790,512
    )
    
    $
    85,999,869December 31, 2005Available for Sale:U.S. Government and federal agency
    
    $
    22,397,882
    
    
    $
    26,624
    
    
    $
    (282,131
    )
    
    $
    22,142,375State and municipal
    
    
    2,040,585
    
    
    
    36,699
    
    
    
    (1,929
    )
    
    
    2,075,355Corporate bonds and notes
    
    
    30,992,806
    
    
    
    192,861
    
    
    
    (462,748
    )
    
    
    30,722,919Mortgage Backed
    
    
    4,968,661
    
    
    
    4,599
    
    
    
    (75,230
    )
    
    
    4,898,030Equity securities
    
    
    240,253
    
    
    
    13,285
    
    
    
    (304
    )
    
    
    253,234Total available for sale
    
    
    60,640,187
    
    
    
    274,068
    
    
    
    (822,342
    )
    
    
    60,091,913Held to Maturity:State and municipal
    
    
    16,917,133
    
    
    
    283,969
    
    
    
    (86,082
    )
    
    
    17,115,020Total Investment Securities
    
    $
    77,557,320
    
    
    $
    558,037
    
    
    $
    (908,424
    )
    
    $
    77,206,933December 31, 2004Available for Sale:U.S. Government and federal agency
    
    $
    17,561,943
    
    
    $
    227,251
    
    
    $
    (30,080
    )
    
    $
    17,759,114State and municipal
    
    
    2,861,927
    
    
    
    129,113
    
    
    
    
    
    
    
    2,991,040Corporate bonds and notes
    
    
    37,146,122
    
    
    
    1,157,837
    
    
    
    (86,103
    )
    
    
    38,217,856Mortgage Backed
    
    
    630,679
    
    
    
    11,196
    
    
    
    (222
    )
    
    
    641,653Equity securities
    
    
    785,897
    
    
    
    66,422
    
    
    
    
    
    
    
    852,319Total available for sale
    
    
    58,986,568
    
    
    
    1,591,819
    
    
    
    (116,405
    )
    
    
    60,461,982Held to Maturity:State and municipal
    
    
    15,865,047
    
    
    
    580,268
    
    
    
    (546
    )
    
    
    16,444,769Total Investment Securities
    
    $
    74,851,615
    
    
    $
    2,172,087
    
    
    $
    (116,951
    )
    
    $
    76,906,751
 14 National Bancshares Corporation 2006 Annual Report




---



##### 



FINANCIAL REVIEW
  December 31, 2006One year
    
    More than one
    
    More than five
    
    More thanor less
    
    to five years
    
    to ten years
    
    ten years
    
    Total investment securitiesCarrying Value
    
    Carrying Value
    
    Carrying Value
    
    Carrying Value
    
    Carrying Value
    
    MarketAverage Yield
    
    Average Yield
    
    Average Yield
    
    Average Yield
    
    Average Yield
    
    valueAvailable for Sale:U.S.
Government and federal agency
    
    $
    2,494,060
    
    
    $
    11,327,890
    
    
    $
    15,557,928
    
    
    $
    
    
    
    $
    29,379,878
    
    
    $
    29,379,8784.65
    %
    
    
    4.58
    %
    
    
    5.32
    %
    
    
    
    
    
    
    4.95
    %State and municipal
    
    
    926,918
    
    
    
    6,286,079
    
    
    
    5,744,635
    
    
    
    4,437,044
    
    
    
    17,394,676
    
    
    
    17,394,6764.83
    %
    
    
    6.30
    %
    
    
    4.76
    %
    
    
    3.50
    %
    
    
    4.75
    %Corporate bonds
and notes
    
    
    4,003,730
    
    
    
    17,212,658
    
    
    
    6,053,543
    
    
    
    
    
    
    
    27,269,931
    
    
    
    27,269,9315.42
    %
    
    
    3.96
    %
    
    
    4.97
    %
    
    
    
    
    
    
    4.38
    %Mortgage-backed
    
    
    
    
    
    
    21,477
    
    
    
    
    
    
    
    11,933,907
    
    
    
    11,955,384
    
    
    
    11,955,3849.40
    %
    
    
    
    
    
    
    6.27
    %
    
    
    6.54
    %Total debt securities
    
    
    7,424,708
    
    
    
    34,848,104
    
    
    
    27,356,106
    
    
    
    16,370,951
    
    
    
    85,999,869
    
    
    
    85,999,8695.02
    %
    
    
    4.71
    %
    
    
    4.99
    %
    
    
    4.99
    %
    
    
    4.95
    %
 Federal Bank Stock:
 Total Liabilities:
 Deposits:
 National Bancshares Corporation 2006 Annual Report 15




---



##### 



FINANCIAL REVIEW
 Maturity of Time Deposits of $100,000 or More at December 31, 2006Time Remaining to Maturity
    
    Amount
    
    Percent of TotalThree months or less
    
    $
    3,066,643
    
    
    
    20.9
    %Over three through 12 months
    
    
    7,092,138
    
    
    
    48.4
    %Over one year through 3 years
    
    
    4,035,000
    
    
    
    27.5
    %Over 3 years
    
    
    463,857
    
    
    
    3.2
    %Total
    
    $
    14,657,638
    
    
    
    100.0
    %
 Liquidity and Capital Resources:
    16 National Bancshares Corporation 2006 Annual Report




---



##### 



FINANCIAL REVIEW
 2006
    
    
    2005
    
    2004Collateralized by real estate:Commercial
    
    
    $
    4,139,986
    
    
    
    $
    15,163,415
    
    
    $
    11,228,923Residential
    
    
    
    22,138,838
    
    
    
    
    18,242,996
    
    
    
    21,340,723Home equity
    
    
    
    5,635,657
    
    
    
    
    2,847,510
    
    
    
    2,349,374Construction
    
    
    
    6,951,683
    
    
    
    
    6,779,521
    
    
    
    2,412,419Consumer
    
    
    
    5,201,410
    
    
    
    
    4,499,803
    
    
    
    3,734,831Commercial
    
    
    
    9,233,343
    
    
    
    
    9,105,734
    
    
    
    8,643,897Credit cards
    
    
    
    483,950
    
    
    
    
    236,400
    
    
    
    389,700Other
    
    
    
    1,023,172
    
    
    
    
    578,675
    
    
    
    333,052Total
    
    
    $
    54,808,039
    
    
    
    $
    57,454,054
    
    
    $
    50,432,919
  Year Ended December 312006
    
    
    2005
    
    2004Balance at year end
    
    
    $
    7,901,666
    
    
    
    $
    2,359,521
    
    
    $
    3,888,235Average balance outstanding
    
    
    
    6,007,603
    
    
    
    
    4,100,383
    
    
    
    3,140,013Maximum month-end balance
    
    
    
    7,901,666
    
    
    
    
    8,918,122
    
    
    
    4,847,337Weighted-average rate at year end
    
    
    
    3.63
    %
    
    
    
    2.54
    %
    
    
    0.69
    %Weighted-average rate during the year
    
    
    
    3.48
    %
    
    
    
    1.88
    %
    
    
    0.36
    %
  Contractual Obligations:
 Payment due by periodContractual Obligations
    
    Total
    
    Less than 1 year
    
    1 - 3 years
    
    3 - 5 years
    
    More than 5 yearsTime Deposits
    
    $
    90,216,451
    
    
    $
    66,171,308
    
    
    $
    21,901,922
    
    
    $
    2,137,114
    
    
    $
    6,107Long-term obligations
    
    
    14,000,000
    
    
    
    
    
    
    
    
    
    
    
    14,000,000
    
    
    
    Information system
contract obligations
    
    
    1,755,000
    
    
    
    780,000
    
    
    
    975,000
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    55,900
    
    
    
    15,600
    
    
    
    31,200
    
    
    
    9,100
    
    
    
    Total
    
    $
    106,027,351
    
    
    $
    66,966,908
    
    
    $
    22,908,122
    
    
    $
    16,146,214
    
    
    $
    6,107
 National Bancshares Corporation 2006 Annual Report 17




---



##### 



FINANCIAL REVIEW
 Off-Balance Sheet and Contingent Liabilities:
 Expiration of Funding CommitmentsOne year and less
    
    Over one year
    
    TotalUnused loan commitments
    
    $
    25,413,189
    
    
    $
    27,904,036
    
    
    $
    53,317,225Commitment to make loans
    
    
    6,104,425
    
    
    
    
    
    
    
    6,104,425Letters of credit
    
    
    241,800
    
    
    
    
    
    
    
    241,800Total
    
    $
    31,759,414
    
    
    $
    27,904,036
    
    
    $
    59,663,450
    Shareholders Equity:
  18 National Bancshares Corporation 2006 Annual Report




---



##### 



FINANCIAL REVIEW
 Interest Rate Sensitivity:
     National Bancshares Corporation 2006 Annual Report 19




---



##### 



FINANCIAL REVIEW
 Maturing or Repricing PeriodsWithin 3 months
    
    4-12 months
    
    1-5 years
    
    Over 5 years
    
    TotalInterest-earning
assets:Federal funds sold
    
    $
    9,820,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,820,000Investment securities
    
    
    5,643,984
    
    
    
    11,406,584
    
    
    
    37,777,601
    
    
    
    31,171,700
    
    
    
    85,999,869Federal bank stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,120,750
    
    
    
    3,120,750Loans held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loans collateralized by
real estate:Commercial (1)
    
    
    4,499,144
    
    
    
    7,777,937
    
    
    
    30,517,568
    
    
    
    2,942,698
    
    
    
    45,737,347Residential (1)
    
    
    8,084,685
    
    
    
    12,770,893
    
    
    
    31,374,514
    
    
    
    34,421,711
    
    
    
    86,651,803Home equity (1)
    
    
    19,348,373
    
    
    
    35,000
    
    
    
    
    
    
    
    
    
    
    
    19,383,373Construction (1)
    
    
    2,722,789
    
    
    
    349,507
    
    
    
    2,652,452
    
    
    
    353,922
    
    
    
    6,078,670Consumer loans (1)
    
    
    664,118
    
    
    
    1,760,501
    
    
    
    4,979,241
    
    
    
    118,227
    
    
    
    7,522,087Commercial (1)
    
    
    12,182,299
    
    
    
    2,131,712
    
    
    
    4,204,880
    
    
    
    
    
    
    
    18,518,891Credit cards (1)
    
    
    378,730
    
    
    
    1,142,265
    
    
    
    
    
    
    
    
    
    
    
    1,520,995Other (1)
    
    
    205,133
    
    
    
    151,578
    
    
    
    991,655
    
    
    
    261,030
    
    
    
    1,609,396Total
interest-earning assets
    
    $
    63,549,255
    
    
    $
    37,525,977
    
    
    $
    112,497,911
    
    
    $
    72,390,038
    
    
    $
    285,963,181Interest-bearing
liabilities:Interest-bearing
demand
    
    $
    30,216,656
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    30,216,656Money market
    
    
    23,991,269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,991,269Savings
    
    
    59,018,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,018,314Time
    
    
    17,811,609
    
    
    
    48,359,699
    
    
    
    24,039,036
    
    
    
    6,107
    
    
    
    90,216,451Repurchase
agreements
    
    
    7,901,666
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,901,666Other
borrowings (2)
    
    
    842,819
    
    
    
    
    
    
    
    14,000,000
    
    
    
    
    
    
    
    14,842,819Total interest-bearing
liabilities
    
    $
    139,782,333
    
    
    $
    48,359,699
    
    
    $
    38,039,036
    
    
    $
    6,107
    
    
    $
    226,187,175Interest-sensitivity gap
    
    $
    (76,233,078
    )
    
    $
    (10,833,722
    )
    
    $
    74,458,875
    
    
    $
    72,383,931
    
    
    $
    59,776,006Cumulative interest
sensitivity gap
    
    $
    (76,233,078
    )
    
    $
    (87,066,801
    )
    
    $
    (12,607,926
    )
    
    $
    59,776,005Cumulative interest
sensitivity gap
as a percent of total equity
    
    
    -219.82
    %
    
    
    -251.06
    %
    
    
    -36.35
    %
    
    
    172.36
    %Cumulative interest
sensitivity gap
as a percent of total assets
    
    
    -24.72
    %
    
    
    -28.24
    %
    
    
    -4.09
    %
    
    
    19.39
    %
 (1)
    
    For purposes of the gap analysis, loans are not reduced by the allowance for loan losses.(2)
    
    Federal Home Loan Bank advances included in other borrowings are convertible variable rate
instruments that could reprice in earlier periods should market rates rise.    20 National Bancshares Corporation 2006 Annual Report




---



##### 



FINANCIAL REVIEW
    Effect of a Change in Interest Rates on Net Income Over a 12-Month Period(Dollars in thousands)
    
    2006
    
    
    2005+ 200 basis points
    
    $
    (1
    )
    
    
    (0.6
    )%
    
    
    $
    234
    
    
    
    10.6
    %+ 100 basis points
    
    $
    (56
    )
    
    
    (4.9
    )%
    
    
    $
    17
    
    
    
    0.8
    %- 100 basis points
    
    $
    163
    
    
    
    14.2
    %
    
    
    $
    63
    
    
    
    2.8
    %
  National Bancshares Corporation 2006 Annual Report 21




---



##### 



FINANCIAL REVIEW
  Results of Operations
   Year Ended December 31,2006
    
    
    2005
    
    2004Daily
    
    
    
    
    
    
    
    
    
    
    Daily
    
    
    
    
    
    
    
    
    
    DailyAverage
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    Average(Dollars in thousands)
    
    Balance
    
    Interest
    
    yield/cost(3)
    
    
    Balance
    
    Interest
    
    yield/cost(3)
    
    Balance
    
    Interest
    
    yield/cost(3)AssetsInterest earning assets:Investment securities:Taxable
        
    $
    65,044
    
    
    
    3,299
    
    
    
    5.07
    %
    
    
    $
    54,089
    
    
    
    2,727
    
    
    
    5.06
    %
    
    $
    59,265
    
    
    
    3,186
    
    
    
    5.56
    %Nontaxable (tax
equivalent basis)
        
    
    18,820
    
    
    
    1,209
    
    
    
    6.45
    %
    
    
    
    19,545
    
    
    
    1,307
    
    
    
    6.71
    %
    
    
    19,807
    
    
    
    1,401
    
    
    
    7.13
    %Federal funds sold
        
    
    8,816
    
    
    
    440
    
    
    
    4.99
    %
    
    
    
    6,823
    
    
    
    242
    
    
    
    3.55
    %
    
    
    4,983
    
    
    
    75
    
    
    
    1.51
    %Interest bearing
deposits
        
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    437
    
    
    
    27
    
    
    
    6.18
    %Net loans (including
nonaccrual loans)
        
    
    186,146
    
    
    
    12,620
    
    
    
    6.78
    %
    
    
    
    197,064
    
    
    
    12,243
    
    
    
    6.21
    %
    
    
    194,032
    
    
    
    11,099
    
    
    
    5.72
    %Total interest-earning
assets
        
    
    278,826
    
    
    
    17,568
    
    
    
    6.30
    %
    
    
    
    277,521
    
    
    
    16,520
    
    
    
    5.81
    %
    
    
    278,524
    
    
    
    15,788
    
    
    
    5.67
    %All other assets
        
    
    24,215
    
    
    
    
    
    
    
    
    
    
    
    
    24,030
    
    
    
    
    
    
    
    
    
    
    
    22,611Total assets
        
    $
    303,041
    
    
    
    
    
    
    
    
    
    
    
    $
    301,551
    
    
    
    
    
    
    
    
    
    
    $
    301,135Liabilities and
Shareholders EquityInterest-bearing liabilities:Interest-bearing
checking
        
    $
    42,342
    
    
    
    908
    
    
    
    2.14
    %
    
    
    $
    42,683
    
    
    
    421
    
    
    
    0.99
    %
    
    $
    37,743
    
    
    
    114
    
    
    
    0.30
    %Savings
        
    
    64,979
    
    
    
    721
    
    
    
    1.11
    %
    
    
    
    80,746
    
    
    
    614
    
    
    
    0.76
    %
    
    
    89,428
    
    
    
    650
    
    
    
    0.73
    %Time, $100,000
and over
        
    
    14,168
    
    
    
    584
    
    
    
    4.12
    %
    
    
    
    10,420
    
    
    
    312
    
    
    
    2.99
    %
    
    
    11,991
    
    
    
    282
    
    
    
    2.35
    %Time, other
        
    
    71,593
    
    
    
    2,754
    
    
    
    3.85
    %
    
    
    
    63,034
    
    
    
    1,799
    
    
    
    2.85
    %
    
    
    64,427
    
    
    
    1,427
    
    
    
    2.21
    %Other funds purchased
        
    
    21,319
    
    
    
    1,028
    
    
    
    4.82
    %
    
    
    
    22,072
    
    
    
    983
    
    
    
    4.45
    %
    
    
    20,737
    
    
    
    873
    
    
    
    4.21
    %Total interest-bearing
liabilities
        
    
    214,401
    
    
    
    5,995
    
    
    
    2.80
    %
    
    
    
    218,955
    
    
    
    4,128
    
    
    
    1.89
    %
    
    
    224,326
    
    
    
    3,346
    
    
    
    1.49
    %Demand deposits
        
    
    51,078
    
    
    
    
    
    
    
    
    
    
    
    
    44,655
    
    
    
    
    
    
    
    
    
    
    
    38,749Other liabilities
        
    
    2,221
    
    
    
    
    
    
    
    
    
    
    
    
    2,321
    
    
    
    
    
    
    
    
    
    
    
    2,966Shareholders equity
        
    
    35,341
    
    
    
    
    
    
    
    
    
    
    
    
    35,620
    
    
    
    
    
    
    
    
    
    
    
    35,094Total liabilities and
shareholders equity
        
    $
    303,041
    
    
    
    
    
    
    
    
    
    
    
    $
    301,551
    
    
    
    
    
    
    
    
    
    
    $
    301,135Net interest income
(tax equivalent basis)
        
    
    
    
    
    $
    11,573
    
    
    
    
    
    
    
    
    
    
    
    $
    12,391
    
    
    
    
    
    
    
    
    
    
    $
    12,442Interest
rate spread (1)
        
    
    
    
    
    
    
    
    
    
    3.50
    %
    
    
    
    
    
    
    
    
    
    
    
    3.92
    %
    
    
    
    
    
    
    
    
    
    
    4.18
    %Net yield on interest-
earning assets (2)
        
    
    
    
    
    
    
    
    
    
    4.15
    %
    
    
    
    
    
    
    
    
    
    
    
    4.55
    %
    
    
    
    
    
    
    
    
    
    
    4.47
    %Ratio of average interest-
earning assets to average
interest-bearing liabilities
        
    
    
    
    
    
    
    
    
    
    130.05
    %
    
    
    
    
    
    
    
    
    
    
    
    126.75
    %
    
    
    
    
    
    
    
    
    
    
    124.16
    %
 (1)
    
    Interest rate spread represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.(2)
    
    Net yield on interest-earning assets represents net interest income as a percentage of
average interest-earning assets.(3)
    
    Average yields are computed using annualized interest income and expense for the periods. 22 National Bancshares Corporation 2006 Annual Report




---



##### 



FINANCIAL REVIEW
  Changes in net interest income for
    
    
    Changes in net interest income forthe year ended December 31, 2006
    
    
    the year ended December 31, 20052006 versus 2005 Increase
    
    
    2005 versus 2004 Increase(Decrease) Due to Changes In
    
    
    (Decrease) Due to Changes In(Dollars in thousands)
    
    Volume
    
    Rate
    
    Net Change
    
    
    Volume
    
    Rate
    
    Net ChangeInterest IncomeInvestment securities:Taxable
    
    $
    556
    
    
    $
    16
    
    
    $
    572
    
    
    
    $
    (268
    )
    
    $
    (191
    )
    
    $
    (459
    )Non taxable
(tax equivalent
basis)*
    
    
    (48
    )
    
    
    (50
    )
    
    
    (98
    )
    
    
    
    (18
    )
    
    
    (76
    )
    
    
    (94
    )Federal funds sold
    
    
    83
    
    
    
    115
    
    
    
    198
    
    
    
    
    36
    
    
    
    131
    
    
    
    167Interest bearing deposits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )Loans (including
nonaccrual loans)
    
    
    (702
    )
    
    
    1,079
    
    
    
    377
    
    
    
    
    176
    
    
    
    968
    
    
    
    1,144Total interest income
(tax equivalent basis)
    
    $
    (111
    )
    
    $
    1,160
    
    
    $
    1,049
    
    
    
    $
    (101
    )
    
    $
    832
    
    
    $
    731Interest ExpenseDepositsInterest bearing
checking
    
    $
    (3
    )
    
    $
    490
    
    
    $
    487
    
    
    
    $
    17
    
    
    $
    290
    
    
    $
    307Savings
    
    
    (136
    )
    
    
    243
    
    
    
    107
    
    
    
    
    (65
    )
    
    
    28
    
    
    
    (37
    )Time, $100,000
and over
    
    
    133
    
    
    
    139
    
    
    
    272
    
    
    
    
    (40
    )
    
    
    70
    
    
    
    30Time, other
    
    
    268
    
    
    
    687
    
    
    
    955
    
    
    
    
    (31
    )
    
    
    403
    
    
    
    372Other funds purchased
    
    
    (34
    )
    
    
    79
    
    
    
    45
    
    
    
    
    58
    
    
    
    52
    
    
    
    110Total interest expense
    
    $
    228
    
    
    $
    1,638
    
    
    $
    1,866
    
    
    
    $
    (61
    )
    
    $
    843
    
    
    $
    782Change in net
interest income
(tax equivalent basis)*
    
    $
    (339
    )
    
    $
    (478
    )
    
    $
    (817
    )
    
    
    $
    (40
    )
    
    $
    (11
    )
    
    $
    (51
    )
 *
    
    Tax equivalence based on highest statutory tax rates of 34%. 2006 versus 2005
    National Bancshares Corporation 2006 Annual Report 23




---



##### 



FINANCIAL REVIEW
      2005 versus 2004
       24 National Bancshares Corporation 2006 Annual Report




---



##### 



FINANCIAL REVIEW
   Critical Accounting Policies
     New Accounting Pronouncements
  National Bancshares Corporation 2006 Annual Report 25




---



##### 



CONSOLIDATED BALANCE SHEETS  DECEMBER 31, 2006, 2005, 2004
 2006
    
    
    2005AssetsCash and due from banks
    
    $
    8,955,348
    
    
    
    $
    10,985,160Federal funds sold
    
    
    9,820,000
    
    
    
    
    8,780,000Total cash and cash equivalents
    
    
    18,775,348
    
    
    
    
    19,765,160Securities available for sale
    
    
    85,999,869
    
    
    
    
    60,091,913Securities held to maturity
(fair value: 2005  $17,115,020)
    
    
    
    
    
    
    
    16,917,133Federal bank stock
    
    
    3,120,750
    
    
    
    
    2,987,050Loans held for sale
    
    
    
    
    
    
    
    Loans, net of allowance for loan losses:2006  $1,993,077;2005  $1,902,828
    
    
    184,481,374
    
    
    
    
    191,538,419Premises and equipment, net
    
    
    5,548,672
    
    
    
    
    5,201,211Other real estate owned
    
    
    103,334
    
    
    
    
    103,334Goodwill
    
    
    4,722,775
    
    
    
    
    4,722,775Identified intangible assets
    
    
    890,635
    
    
    
    
    1,136,613Accrued interest receivable
    
    
    1,750,327
    
    
    
    
    1,621,306Cash surrender value of life insurance
    
    
    2,498,708
    
    
    
    
    2,415,910Other assets
    
    
    466,261
    
    
    
    
    380,184$
    308,358,053
    
    
    
    $
    306,881,008Liabilities and
Shareholders EquityDepositsNoninterest-bearing
    
    $
    44,238,007
    
    
    
    $
    47,143,340Interest-bearing
    
    
    203,442,690
    
    
    
    
    202,344,481Total deposits
    
    
    247,680,697
    
    
    
    
    249,487,821Repurchase agreements
    
    
    7,901,666
    
    
    
    
    2,359,521Federal Reserve note account
    
    
    842,819
    
    
    
    
    592,763Federal Home Loan Bank advances
    
    
    14,000,000
    
    
    
    
    17,000,000Accrued expenses and other liabilities
    
    
    3,252,601
    
    
    
    
    2,787,478Total liabilities
    
    
    273,677,783
    
    
    
    
    272,227,583Shareholders equityCommon stock, no par value;
6,000,000 shares authorized;
2,289,528 shares issued
    
    
    11,447,640
    
    
    
    
    11,447,640Additional paid-in capital
    
    
    4,689,800
    
    
    
    
    4,689,800Retained earnings
    
    
    19,901,163
    
    
    
    
    20,067,339Treasury stock, at cost (55,040 shares)
    
    
    (1,189,493
    )
    
    
    
    (1,189,493
    )Accumulated other
comprehensive income (loss)
    
    
    (168,840
    )
    
    
    
    (361,861
    )Total shareholders equity
    
    
    34,680,270
    
    
    
    
    34,653,425$
    308,358,053
    
    
    
    $
    306,881,008
  26 National Bancshares Corporation 2006 Annual Report




---



##### 



CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2006, 2005, 2004
 2006
    
    
    2005
    
    2004Interest and dividend incomeLoans, including fees
    
    $
    12,619,512
    
    
    
    $
    12,243,402
    
    
    $
    11,098,476Federal funds sold
    
    
    440,485
    
    
    
    
    242,047
    
    
    
    75,138Securities:Taxable
    
    
    3,298,849
    
    
    
    
    2,727,098
    
    
    
    3,213,539Nontaxable
    
    
    797,701
    
    
    
    
    862,648
    
    
    
    924,846Total interest and dividend income
    
    
    17,156,547
    
    
    
    
    16,075,195
    
    
    
    15,311,999Interest expenseDeposits
    
    
    4,967,182
    
    
    
    
    3,145,320
    
    
    
    2,473,832Short-term borrowings
    
    
    224,866
    
    
    
    
    87,712
    
    
    
    15,037Federal Home Loan Bank advances
    
    
    803,105
    
    
    
    
    895,357
    
    
    
    857,453Total interest expense
    
    
    5,995,153
    
    
    
    
    4,128,389
    
    
    
    3,346,322Net interest income
    
    
    11,161,394
    
    
    
    
    11,946,806
    
    
    
    11,965,677Provision for loan losses
    
    
    160,000
    
    
    
    
    159,233
    
    
    
    177,500Net interest income after provision for loan losses
    
    
    11,001,394
    
    
    
    
    11,787,573
    
    
    
    11,788,177Noninterest incomeChecking account fees
    
    
    985,131
    
    
    
    
    970,329
    
    
    
    790,928Visa check card interchange fees
    
    
    205,269
    
    
    
    
    176,677
    
    
    
    137,999Deposit and miscellaneous service fees
    
    
    170,051
    
    
    
    
    197,825
    
    
    
    153,646Securities gains, net
    
    
    43,469
    
    
    
    
    109,035
    
    
    
    432,915Gain on sale of loans
    
    
    17,315
    
    
    
    
    43,548
    
    
    
    67,379Gain (loss) on sale of other
real estate owned
    
    
    (29,333
    )
    
    
    
    19,603
    
    
    
    Other
    
    
    261,360
    
    
    
    
    284,183
    
    
    
    312,446Total noninterest income
    
    
    1,653,262
    
    
    
    
    1,801,200
    
    
    
    1,895,313Noninterest expenseSalaries and employee benefits
    
    
    5,855,558
    
    
    
    
    5,764,959
    
    
    
    5,351,230Data processing
    
    
    920,216
    
    
    
    
    870,954
    
    
    
    815,870Net occupancy
    
    
    829,892
    
    
    
    
    913,389
    
    
    
    873,929Marketing
    
    
    416,721
    
    
    
    
    301,154
    
    
    
    181,526Franchise tax
    
    
    361,959
    
    
    
    
    372,388
    
    
    
    355,469Maintenance and repairs
    
    
    293,658
    
    
    
    
    382,250
    
    
    
    262,777Telephone
    
    
    262,720
    
    
    
    
    227,788
    
    
    
    215,372Professional and consulting fees
    
    
    248,588
    
    
    
    
    272,476
    
    
    
    166,200Amortization of intangibles
    
    
    245,978
    
    
    
    
    249,964
    
    
    
    267,509Dues, subscriptions and fees
    
    
    240,399
    
    
    
    
    207,977
    
    
    
    185,879Director fees
    
    
    213,277
    
    
    
    
    152,122
    
    
    
    139,611Stationary, printing and office supplies
    
    
    204,010
    
    
    
    
    197,280
    
    
    
    214,327Postage, express and freight
    
    
    178,058
    
    
    
    
    173,191
    
    
    
    158,610Director pension
    
    
    167,200
    
    
    
    
    142,967
    
    
    
    55,916Loss on customer accounts
    
    
    146,148
    
    
    
    
    80,220
    
    
    
    30,553Impairment charge for property
    
    
    124,087
    
    
    
    
    
    
    
    
    Other
    
    
    645,193
    
    
    
    
    676,536
    
    
    
    622,684Total noninterest expense
    
    
    11,353,662
    
    
    
    
    10,985,615
    
    
    
    9,897,462Income before income taxes
    
    
    1,300,994
    
    
    
    
    2,603,158
    
    
    
    3,786,028Income tax expense
    
    
    137,098
    
    
    
    
    503,348
    
    
    
    875,288Net income
    
    $
    1,163,896
    
    
    
    $
    2,099,810
    
    
    $
    2,910,740Weighted average common
shares outstanding
    
    
    2,234,488
    
    
    
    
    2,234,488
    
    
    
    2,234,488Basic and diluted earnings
per common share
    
    $
    0.52
    
    
    
    $
    0.94
    
    
    $
    1.30
  National Bancshares Corporation 2006 Annual Report 27




---



##### 



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2006, 2005, 2004
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    Other
    
    TotalCommon
    
    Paid-in
    
    Retained
    
    Treasury
    
    Comprehensive
    
    ShareholdersStock
    
    Capital
    
    Earnings
    
    Stock
    
    Income (Loss)
    
    EquityBalance at
January 1, 2004
    
    $
    11,447,640
    
    
    $
    4,689,800
    
    
    $
    17,849,899
    
    
    $
    (1,189,493
    )
    
    $
    2,006,889
    
    
    $
    34,804,735Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    2,910,740
    
    
    
    
    
    
    
    
    
    
    
    2,910,740Other comprehensive
income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,033,116
    )
    
    
    (1,033,116
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,877,624Cash dividends declared
($.61 per share)
    
    
    
    
    
    
    
    
    
    
    (1,363,038
    )
    
    
    
    
    
    
    
    
    
    
    (1,363,038
    )Balance, December 31, 2004
    
    
    11,447,640
    
    
    
    4,689,800
    
    
    
    19,397,601
    
    
    
    (1,189,493
    )
    
    
    973,773
    
    
    
    35,319,321Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    2,099,810
    
    
    
    
    
    
    
    
    
    
    
    2,099,810Other comprehensive
income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,335,634
    )
    
    
    (1,335,634
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    764,176Cash dividends declared
($.64 per share)
    
    
    
    
    
    
    
    
    
    
    (1,430,072
    )
    
    
    
    
    
    
    
    
    
    
    (1,430,072
    )Balance, December 31, 2005
    
    
    11,447,640
    
    
    
    4,689,800
    
    
    
    20,067,339
    
    
    
    (1,189,493
    )
    
    
    (361,861
    )
    
    
    34,653,425Adjustment to apply
SAB 108 (See Note 1)
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    1,163,896
    
    
    
    
    
    
    
    
    
    
    
    1,163,896Other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    193,021
    
    
    
    193,021Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,356,917Cash dividends declared
($.64 per share)
    
    
    
    
    
    
    
    
    
    
    (1,430,072
    )
    
    
    
    
    
    
    
    
    
    
    (1,430,072
    )Balance,
December 31, 2006
    
    $
    11,447,640
    
    
    $
    4,689,800
    
    
    $
    19,901,163
    
    
    $
    (1,189,493
    )
    
    $
    (168,840
    )
    
    $
    34,680,270
  28 National Bancshares Corporation 2006 Annual Report




---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005, 2004
 Years ended December 31,2006
    
    
    2005
    
    2004Cash flows from operating activitiesNet income
    
    $
    1,163,896
    
    
    
    $
    2,099,810
    
    
    $
    2,910,740Adjustments to reconcile net income to
net cash from operating activitiesProvision for loan losses
    
    
    160,000
    
    
    
    
    159,233
    
    
    
    177,500Deferred income taxes
    
    
    (309,992
    )
    
    
    
    (239,499
    )
    
    
    (126,348
    )Depreciation, amortization and accretion
    
    
    944,067
    
    
    
    
    1,025,207
    
    
    
    810,553Earnings on Bank owned life insurance
    
    
    (82,798
    )
    
    
    
    (78,131
    )
    
    
    (80,132
    )Federal Home Loan Bank stock dividend
    
    
    (133,700
    )
    
    
    
    (109,200
    )
    
    
    (106,500
    )Origination of mortgage loans held for sale
    
    
    (3,834,372
    )
    
    
    
    (7,397,614
    )
    
    
    (3,030,007
    )Proceeds from sales of mortgage loans held for sale
    
    
    3,811,858
    
    
    
    
    7,421,122
    
    
    
    3,014,578Gain on sale of loans
    
    
    (17,315
    )
    
    
    
    (43,548
    )
    
    
    (67,379
    )Net security gains
    
    
    (43,469
    )
    
    
    
    (109,035
    )
    
    
    (432,915
    )Impairment charge for property
    
    
    124,087
    
    
    
    
    
    
    
    
    (Gain) loss on sale of other real estate owned
    
    
    29,333
    
    
    
    
    (19,603
    )
    
    
    Change in other assets and liabilities
    
    
    562,024
    
    
    
    
    621,032
    
    
    
    108,268Net cash from operating activities
    
    
    2,373,619
    
    
    
    
    3,329,774
    
    
    
    3,178,358Cash flows from investing activitiesNet change in interest-bearing deposits with other banks
    
    
    
    
    
    
    
    
    
    
    
    999,048Securities held to maturityProceeds from maturities and repayments
    
    
    49,971
    
    
    
    
    1,002,995
    
    
    
    2,752,943Purchases
    
    
    
    
    
    
    
    (2,034,579
    )
    
    
    (2,076,438
    )Securities available for saleProceeds from maturities and repayments
    
    
    8,794,842
    
    
    
    
    7,717,705
    
    
    
    14,335,787Proceeds from sales
    
    
    278,351
    
    
    
    
    18,664,328
    
    
    
    4,615,918Purchases
    
    
    (17,905,806
    )
    
    
    
    (28,094,375
    )
    
    
    (13,322,070
    )Capital expenditures
    
    
    (917,946
    )
    
    
    
    (1,332,783
    )
    
    
    (179,559
    )Proceeds from sale of other real estate owned
    
    
    104,830
    
    
    
    
    65,603
    
    
    
    Net change in loans to customers
    
    
    6,677,322
    
    
    
    
    4,811,723
    
    
    
    (9,891,855
    )Net cash from investing activities
    
    
    (2,918,436
    )
    
    
    
    800,617
    
    
    
    (2,766,226
    )Cash flows from financing activitiesNet change in deposits
    
    
    (1,807,124
    )
    
    
    
    965,345
    
    
    
    5,675,185Net change in short-term borrowings
    
    
    5,792,201
    
    
    
    
    (1,726,958
    )
    
    
    1,572,831Repayments of Federal Home Loan Bank advances
    
    
    (3,000,000
    )
    
    
    
    
    
    
    
    Dividends paid
    
    
    (1,430,072
    )
    
    
    
    (1,430,072
    )
    
    
    (1,340,693
    )Net cash from financing activities
    
    
    (444,995
    )
    
    
    
    (2,191,685
    )
    
    
    5,907,323Net change in cash and cash equivalents
    
    
    (989,812
    )
    
    
    
    1,938,706
    
    
    
    6,319,455Beginning cash and cash equivalents
    
    
    19,765,160
    
    
    
    
    17,826,454
    
    
    
    11,506,999Ending cash and cash equivalents
    
    $
    18,775,348
    
    
    
    $
    19,765,160
    
    
    $
    17,826,454Supplemental cash flow information:Interest paid
    
    $
    5,670,786
    
    
    
    $
    3,869,119
    
    
    $
    3,356,077Income taxes paid
    
    
    375,372
    
    
    
    
    795,000
    
    
    
    1,035,000Supplemental noncash disclosures:Transfer from loans to other real estate owned
    
    $
    134,163
    
    
    
    $
    103,334
    
    
    $
    46,000Adjustment to Apply SAB 108 (see Note 1)
    
    
    100,000
    
    
    
    
    
    
    
    
    Transfer investment securities from held to
maturity to available for sale
    
    
    16,831,272
    
    
    
    
    
    
    
    
    
  National Bancshares Corporation 2006 Annual Report 29




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2006, 2005, 2004
 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Operations and Principles of Consolidation:
  Segments:
 Use of Estimates:
 Cash Flows:
 Securities:
    Loans Held for Sale:
 30 National Bancshares Corporation 2006 Annual Report




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Loans:
   Allowance for Loan Losses:
   Servicing Rights:
  Other Real Estate Owned:
 National Bancshares Corporation 2006 Annual Report 31




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2006, 2005, 2004
 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Premises and Equipment:
 Bank Owned Life Insurance:
 Goodwill and Other Intangible Assets:
   Long-term Assets:
 Repurchase Agreements:
 Benefit Plans:
 Income Taxes:
 Loan Commitments and Related Financial Instruments:
 Earnings Per Common Share:
 Comprehensive Income:
 Loss Contingencies:
 Restrictions on Cash:
 Dividend Restriction:
 32 National Bancshares Corporation 2006 Annual Report




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Fair Value of Financial Instruments:
 Reclassifications:
 Adoption of New Accounting Standards:     Share-based Payment
  Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements
 Deferred Federal Income Taxes:
 Effect of Newly Issued But Not Yet Effective Accounting Standards:
   National Bancshares Corporation 2006 Annual Report 33




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2006, 2005, 2004
 NOTE 2 SECURITIES
  Expiration of Funding CommitmentsGross
    
    GrossFair Value
    
    Unrealized Gains
    
    Losses2006U.S. Government and federal agency
    
    $
    29,379,878
    
    
    $
    68,809
    
    
    $
    (225,649
    )State and municipal
    
    
    17,394,676
    
    
    
    330,243
    
    
    
    (45,312
    )Corporate bond and notes
    
    
    27,269,931
    
    
    
    131,836
    
    
    
    (440,930
    )Mortgage backed
    
    
    11,955,384
    
    
    
    3,806
    
    
    
    (78,621
    )Total debt securities
    
    $
    85,999,869
    
    
    $
    534,694
    
    
    $
    (790,512
    )2005U.S. Government and federal agency
    
    $
    22,142,375
    
    
    $
    26,624
    
    
    $
    (282,131
    )State and municipal
    
    
    2,075,355
    
    
    
    36,699
    
    
    
    (1,929
    )Corporate bond and notes
    
    
    30,722,919
    
    
    
    192,861
    
    
    
    (462,748
    )Mortgage backed
    
    
    4,898,030
    
    
    
    4,599
    
    
    
    (75,230
    )Total debt securities
    
    
    59,838,679
    
    
    
    260,783
    
    
    
    (822,038
    )Equity securities
    
    
    253,234
    
    
    
    13,285
    
    
    
    (304
    )Total
    
    $
    60,091,913
    
    
    $
    274,068
    
    
    $
    (822,342
    )
  Gross
    
    GrossCarrying Amount
    
    Unrecognized Gains
    
    Unrecognized Losses
    
    Fair Value2005State and municipal
    
    $
    16,917,133
    
    
    $
    283,969
    
    
    $
    (86,082
    )
    
    $
    17,115,020
  2006
    
    
    2005
    
    2004Proceeds
    
    
    $
    278,351
    
    
    
    $
    18,664,328
    
    
    $
    4,615,918Gross gains
    
    
    
    38,098
    
    
    
    
    355,169
    
    
    
    459,992Gross losses
    
    
    
    
    
    
    
    
    254,268
    
    
    
    27,077Gross gains from calls
    
    
    
    5,371
    
    
    
    
    8,134
    
    
    
    
  34 National Bancshares Corporation 2006 Annual Report




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 2 SECURITIES (Continued)
  Available for Sale Fair ValueDue in one year or less
    
    $
    7,424,708Due from one to five years
    
    
    34,826,627Due from five to ten years
    
    
    27,356,106Due after ten years
    
    
    4,437,044Mortgage-backed
    
    
    11,955,384Total
    
    $
    85,999,869
  Less than 12 Months
    
    12 Months or more
    
    TotalFair Value
    
    Unrealized Loss
    
    Fair Value
    
    Unrealized Loss
    
    Fair Value
    
    Unrealized Loss2006Available for sale:U. S. government
and federal agency
    
    $
    5,031,596
    
    
    $
    (33,280
    )
    
    $
    13,163,864
    
    
    $
    (192,369
    )
    
    $
    18,195,460
    
    
    $
    (225,649
    )State and municipal
    
    
    1,093,207
    
    
    
    (3,233
    )
    
    
    3,314,733
    
    
    
    (42,079
    )
    
    
    4,407,940
    
    
    
    (45,312
    )Corporate bonds
and notes
    
    
    1,500,245
    
    
    
    (10,101
    )
    
    
    19,431,193
    
    
    
    (430,829
    )
    
    
    20,931,438
    
    
    
    (440,930
    )Mortgage backed
    
    
    6,237,941
    
    
    
    (20,022
    )
    
    
    3,388,772
    
    
    
    (58,599
    )
    
    
    9,626,713
    
    
    
    (78,621
    )Total temporarily
impaired
    
    $
    13,862,989
    
    
    $
    (66,636
    )
    
    $
    39,298,562
    
    
    $
    (723,876
    )
    
    $
    53,161,551
    
    
    $
    (790,512
    )2005Available for sale:U. S. government
and federal agency
    
    $
    14,248,615
    
    
    $
    (161,125
    )
    
    $
    3,870,640
    
    
    $
    (121,006
    )
    
    $
    18,119,255
    
    
    $
    (282,131
    )State and municipal
    
    
    257,816
    
    
    
    (1,929
    )
    
    
    
    
    
    
    
    
    
    
    257,816
    
    
    
    (1,929
    )Corporate bonds
and notes
    
    
    17,490,220
    
    
    
    (342,931
    )
    
    
    4,091,557
    
    
    
    (119,817
    )
    
    
    21,581,777
    
    
    
    (462,748
    )Mortgage backed
    
    
    4,503,875
    
    
    
    (75,230
    )
    
    
    
    
    
    
    
    
    
    
    4,503,875
    
    
    
    (75,230
    )Equity Securities
    
    
    216,546
    
    
    
    (304
    )
    
    
    
    
    
    
    
    
    
    
    216,546
    
    
    
    (304
    )Total temporarily
impaired
    
    $
    36,717,072
    
    
    $
    (581,519
    )
    
    $
    7,962,197
    
    
    $
    (240,823
    )
    
    $
    44,679,269
    
    
    $
    (822,342
    )Held to maturity:State and municipal
    
    $
    6,505,193
    
    
    $
    (82,865
    )
    
    $
    312,918
    
    
    $
    (3,217
    )
    
    $
    6,818,111
    
    
    $
    (86,082
    )
   National Bancshares Corporation 2006 Annual Report 35




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 2 SECURITIES (Continued)
  NOTE 3 LOANS
  2006
    
    
    2005Collateralized by real estate:Commercial
    
    $
    45,737,347
    
    
    
    $
    47,638,035Residential
    
    
    86,651,803
    
    
    
    
    91,591,798Home equity
    
    
    19,383,373
    
    
    
    
    19,044,581Construction
    
    
    6,078,670
    
    
    
    
    6,440,000157,851,193
    
    
    
    
    164,714,414Other:Consumer
    
    
    7,522,087
    
    
    
    
    6,205,096Commercial
    
    
    18,518,891
    
    
    
    
    20,045,739Credit cards
    
    
    1,520,995
    
    
    
    
    1,405,708Other
    
    
    1,609,396
    
    
    
    
    1,565,995187,022,562
    
    
    
    
    193,936,952Unearned and deferred income
    
    
    (548,111
    )
    
    
    
    (495,705
    )Allowance for loan losses
    
    
    (1,993,077
    )
    
    
    
    (1,902,828
    )Total
    
    $
    184,481,374
    
    
    
    $
    191,538,419
  2006
    
    
    2005
    
    2004Beginning balance
    
    $
    1,902,828
    
    
    
    $
    1,763,298
    
    
    $
    1,603,568Provision for loan losses
    
    
    160,000
    
    
    
    
    159,233
    
    
    
    177,500Loans charged-off
    
    
    (162,053
    )
    
    
    
    (57,594
    )
    
    
    (68,762
    )Recoveries
    
    
    92,302
    
    
    
    
    37,891
    
    
    
    50,992Ending balance
    
    $
    1,993,077
    
    
    
    $
    1,902,828
    
    
    $
    1,763,298
 36
    
    National Bancshares Corporation 2006 Annual Report




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 3 LOANS (Continued)
  2006
    
    
    2005Year-end loans with no allocated allowance for loan losses
    
    $
    
    
    
    
    $
    Year-end loans with allocated allowance for loan losses
    
    
    1,731,843
    
    
    
    
    1,177,688Amount of the allowance for loan losses allocated
    
    
    415,264
    
    
    
    
    273,438
 2006
    
    
    2005
    
    2004Average of impaired loans during the year
    
    $
    583,849
    
    
    
    $
    366,164
    
    
    $
    395,646Interest income recognized during impairment
    
    
    1,511
    
    
    
    
    
    
    
    
    190Cash-basis interest income recognized
    
    
    1,511
    
    
    
    
    
    
    
    
    190
  NOTE 4 LOANS SERVICING
   2006
    
    
    2005Mortgage loan portfolio serviced for:FHLMC
    
    $
    17,203,075
    
    
    
    $
    14,504,735
   2006
    
    
    2005
    
    2004Servicing rights:Beginning of year
    
    $
    84,580
    
    
    
    $
    25,288
    
    
    $
    Additions
    
    
    39,828
    
    
    
    
    77,040
    
    
    
    25,809Amortized to
expense
    
    
    (38,386
    )
    
    
    
    (17,748
    )
    
    
    (521
    )End of year
    
    $
    86,022
    
    
    
    $
    84,580
    
    
    $
    25,288
 National Bancshares Corporation 2006 Annual Report
    
    
    37




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 5 PREMISES AND EQUIPMENT
   2006
    
    
    2005Land
    
    $
    1,588,993
    
    
    
    $
    1,666,971Buildings
    
    
    6,063,644
    
    
    
    
    5,687,712Furniture, fixtures and equipment
    
    
    4,261,869
    
    
    
    
    4,731,09511,914,506
    
    
    
    
    12,085,778Less: Accumulated depreciation
    
    
    (6,365,834
    )
    
    
    
    (6,884,567
    )$
    5,548,672
    
    
    
    $
    5,201,211
  NOTE 6 INTANGIBLE ASSETS
  2006


    2005Gross
    
    Accumulated
    
    
    Gross
    
    AccumulatedCarrying Amount
    
    Amortization
    
    
    Carrying Amount
    
    AmortizationAmortized
intangible assets:Core deposit intangibles
    
    $
    1,063,104
    
    
    $
    570,089
    
    
    
    $
    1,063,104
    
    
    $
    457,466Customer relationship intangibles
    
    
    728,266
    
    
    
    416,152
    
    
    
    
    728,266
    
    
    
    312,114Branch acquisition intangible
    
    
    759,338
    
    
    
    673,832
    
    
    
    
    759,338
    
    
    
    644,515Total
    
    $
    2,550,708
    
    
    $
    1,660,073
    
    
    
    $
    2,550,708
    
    
    $
    1,414,095
   2007
    
    $
    237,0082008
    
    
    231,3602009
    
    
    224,9282010
    
    
    90,0322011
    
    
    86,045
 38
    
    National Bancshares Corporation 2006 Annual Report




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 7 DEPOSITS
  2006
    

    2005Demand, noninterest-bearing
    
    $
    44,238,007
    
    
    
    $
    47,143,340Demand, interest-bearing
    
    
    54,207,925
    
    
    
    
    50,023,917Savings
    
    
    59,018,314
    
    
    
    
    74,048,596Time, $100,000 and over
    
    
    14,657,638
    
    
    
    
    12,403,627Time, other
    
    
    75,558,813
    
    
    
    
    65,868,341$
    247,680,697
    
    
    
    $
    249,487,821
  2007
    
    $
    66,171,3082008
    
    
    18,208,1212009
    
    
    3,693,8012010
    
    
    2,112,0202011 and thereafter
    
    
    31,201$
    90,216,451
 NOTE 8 FEDERAL HOME LOAN BANK ADVANCES
  2006
    
    2005Maturity in 2010, fixed rate at 6.26%, convertible
to variable rate if 3-month LIBOR is at or above
predetermined conversion rate level
    
    $
    1,000,000
    
    
    
    $
    1,000,000Maturities in 2010 and 2011, fixed rate at 4.93% to
5.79% at December 31 2006, fixed rate at 4.60% to
5.79% at December 31, 2005, convertible to variable
if 1-month LIBOR is at or above fixed rate
    
    
    13,000,000
    
    
    
    
    16,000,000Total
    
    $
    14,000,000
    
    
    
    $
    17,000,000
   Rate2010
    
    5.00 to 6.26%
    
    $
    11,000,0002011
    
    
    4.93 to 5.12
    %
    
    
    3,000,000$
    14,000,000
 National Bancshares Corporation 2006 Annual Report
    
    
    39




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 9 REPURCHASE AGREEMENTS
  2006
    

    2005Average balance during the year
    
    $
    6,007,603
    
    
    
    $
    4,100,383Average interest rate during the year
    
    
    3.48
    %
    
    
    
    1.88
    %Maximum month-end balance during the year
    
    
    7,901,666
    
    
    
    
    8,918,122Weighted average rate at year-end
    
    
    3.63
    %
    
    
    
    2.54
    %
 NOTE 10 BENEFIT PLANS
   
 40
    
    National Bancshares Corporation 2006 Annual Report




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 11 INCOME TAXES
  2006
    
    
    2005Deferred tax assets:Bad debts
    
    $
    517,516
    
    
    
    $
    486,832Deferred loan fees
    
    
    186,358
    
    
    
    
    168,540Core deposit intangibles
    
    
    21,128
    
    
    
    
    28,372Deferred compensation
    
    
    390,363
    
    
    
    
    319,066Non-accrual loan interest income
    
    
    77,858
    
    
    
    
    46,586Accrued benefits
    
    
    80,001
    
    
    
    
    Credit card rebate
    
    
    20,303
    
    
    
    
    Unrealized security losses, net
    
    
    86,978
    
    
    
    
    186,413Other
    
    
    
    
    
    
    
    261Total
    
    
    1,380,505
    
    
    
    
    1,236,070Deferred tax liabilities:Securities accretion
    
    
    85,922
    
    
    
    
    47,255Depreciation
    
    
    223,391
    
    
    
    
    224,735Federal Home Loan Bank stock dividends
    
    
    509,116
    
    
    
    
    463,658Prepaid expenses
    
    
    41,740
    
    
    
    
    21,100Mortgage servicing rights
    
    
    29,247
    
    
    
    
    28,757Partnership income
    
    
    1,709
    
    
    
    
    1,659Purchase accounting adjustments
    
    
    369,367
    
    
    
    
    539,450Total
    
    
    1,260,492
    
    
    
    
    1,326,614Net deferred tax asset (liability)
    
    $
    120,013
    
    
    
    $
    (90,544
    )
   2006
    
    
    2005
    
    2004Currently payable
    
    $
    447,090
    
    
    
    $
    742,847
    
    
    $
    1,001,636Deferred
    
    
    (309,902
    )
    
    
    
    (239,499
    )
    
    
    (126,348
    )Total
    
    $
    137,098
    
    
    
    $
    503,348
    
    
    $
    875,288
  YEARS ENDED DECEMBER 31,2006

    
    2005
    
    2004Rate
    
    Amount
    
    
    Rate
    
    Amount
    
    Rate
    
    AmountTax at federal statutory rate
    
    
    34
    %
    
    $
    442,338
    
    
    
    
    34
    %
    
    $
    885,074
    
    
    
    34
    %
    
    $
    1,287,250Tax-exempt income
    
    
    (20
    )
    
    
    (260,843
    )
    
    
    
    (11
    )
    
    
    (294,635
    )
    
    
    (9
    )
    
    
    (319,108
    )Other
    
    
    (3
    )
    
    
    (44,397
    )
    
    
    
    (3
    )
    
    
    (87,091
    )
    
    
    (2
    )
    
    
    (92,854
    )Income tax expense
    
    
    11
    %
    
    $
    137,098
    
    
    
    
    20
    %
    
    $
    503,348
    
    
    
    23
    %
    
    $
    875,288
 National Bancshares Corporation Annual Report 41




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 12 RELATED PARTY TRANSACTIONS
  Beginning balance
    
    $
    3,729,292Effect of changes in composition of related parties
    
    
    (1,801,495
    )New loans
    
    
    2,302,319Repayments
    
    
    (644,397
    )Ending balance
    
    $
    3,585,719
   NOTE 13 REGULATORY MATTERS
 
 
 42 ational ancshares orporation nnual eport




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2006, 2005, 2004
 NOTE 13 REGULATORY MATTERS (Continued)
  For Capital
    
    To Be Well Capitalized UnderActual
    
    Adequacy Purposes
    
    Prompt Corrective Action Provisions(Dollars in Thousands)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio2006Total capital to risk-weighted assetsBank
    
    $
    27,770
    
    
    
    13.26
    %
    
    $
    16,750
    
    
    
    8.00
    %
    
    $
    20,937
    
    
    
    10.00
    %Tier 1 capital to risk-weighted assetsBank
    
    
    25,777
    
    
    
    12.31
    
    
    
    8,375
    
    
    
    4.00
    
    
    
    12,562
    
    
    
    6.00Tier 1 capital to average assetsBank
    
    
    25,777
    
    
    
    8.57
    
    
    
    12,038
    
    
    
    4.00
    
    
    
    15,047
    
    
    
    5.002005Total capital to risk-weighted assetsConsolidated
    
    $
    31,051
    
    
    
    14.45
    %
    
    $
    17,187
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    29,261
    
    
    
    13.62
    
    
    
    17,184
    
    
    
    8.00
    
    
    
    21,480
    
    
    
    10.00
    %Tier 1 capital to risk-weighted assetsConsolidated
    
    
    29,148
    
    
    
    13.57
    
    
    
    8,593
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    27,358
    
    
    
    12.74
    
    
    
    8,592
    
    
    
    4.00
    
    
    
    12,888
    
    
    
    6.00Tier 1 capital to average assetsConsolidated
    
    
    29,148
    
    
    
    9.76
    
    
    
    11,943
    
    
    
    4.00
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    27,358
    
    
    
    9.16
    
    
    
    11,941
    
    
    
    4.00
    
    
    
    14,927
    
    
    
    5.00
 Dividend
Restrictions
 NOTE 14 LOAN COMMITMENTS AND RELATED ACTIVITIES
   2006
    
    
    2005Unused lines of credit
    
    $
    53,317,225
    
    
    
    $
    44,212,300Commitments to make loans
    
    
    6,104,425
    
    
    
    
    11,891,660Letters of credit
    
    
    241,800
    
    
    
    
    499,400
  ational ancshares orporation nnual eport 43




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  DECEMBER 31, 2006, 2005, 2004
 NOTE 15 FAIR VALUES OF FINANCIAL INSTRUMENTS
  2006
    
    
    2005Carrying
    
    Fair
    
    
    Carrying
    
    FairAmount
    
    Value
    
    
    Amount
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    18,775,348
    
    
    $
    18,775,000
    
    
    
    $
    19,765,160
    
    
    $
    19,765,000Securities available for sale
    
    
    85,999,869
    
    
    
    86,000,000
    
    
    
    
    60,091,913
    
    
    
    60,092,000Securities held to maturity
    
    
    
    
    
    
    
    
    
    
    
    16,917,133
    
    
    
    17,115,000Federal bank stock
    
    
    3,120,750
    
    
    
    3,121,000
    
    
    
    
    2,987,050
    
    
    
    2,987,000Loans, net
    
    
    184,481,374
    
    
    
    185,718,000
    
    
    
    
    191,538,419
    
    
    
    191,599,000Accrued interest receivable
    
    
    1,750,327
    
    
    
    1,750,000
    
    
    
    
    1,621,306
    
    
    
    1,621,000Financial liabilitiesDeposit
    
    
    (247,680,697
    )
    
    
    (247,359,000
    )
    
    
    
    (249,487,821
    )
    
    
    (248,655,000
    )Short-term borrowings
    
    
    (8,744,485
    )
    
    
    (8,744,000
    )
    
    
    
    (2,952,284
    )
    
    
    (2,952,000
    )Federal Home Loan Bank
advances
    
    
    (14,000,000
    )
    
    
    (13,222,000
    )
    
    
    
    (17,000,000
    )
    
    
    (17,531,000
    )Accrued interest payable
    
    
    (1,028,673
    )
    
    
    (1,029,000
    )
    
    
    
    (704,306
    )
    
    
    (704,000
    )
   44 ational ancshares orporation nnual eport




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 16 OTHER COMPREHENSIVE INCOME (LOSS)
  2006
    
    
    2005
    
    2004Unrealized holding gains (loss)
on available-for-sale securities
    
    $
    72,581
    
    
    
    $
    (1,914,653
    )
    
    $
    (1,132,412
    )Reclassification adjustment for
gains later recognized in income
    
    
    (43,469
    )
    
    
    
    (109,035
    )
    
    
    (432,915
    )Net unrealized gains (loss)
    
    
    29,112
    
    
    
    
    (2,023,688
    )
    
    
    (1,565,327
    )Unrealized gain on securities
transferred from held to maturity
to available for sale
    
    
    263,344
    
    
    
    
    
    
    
    
    Tax effect (benefit)
    
    
    (99,435
    )
    
    
    
    688,054
    
    
    
    532,211Other comprehensive income (loss)
    
    $
    193,021
    
    
    
    $
    (1,335,634
    )
    
    $
    (1,033,116
    )
  NOTE
17 PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
 BALANCE SHEETS
 DECEMBER 31,2006
    
    
    2005AssetsCash
    

    $
    3,778,399
    
    
    
    $
    2,118,481Investment in Bank subsidiary
    

    
    31,230,086
    
    
    
    
    32,855,390Securities available for sale
    

    
    
    
    
    
    
    36,689Other assets
    

    
    29,303
    
    
    
    
    383Total assets
    

    $
    35,037,788
    
    
    
    $
    35,010,943Liabilities and shareholders equityDividends payable
    

    $
    357,518
    
    
    
    $
    357,518Shareholders equity
    

    
    34,680,270
    
    
    
    
    34,653,425Total liabilities and shareholders equity
    

    $
    35,037,788
    
    
    
    $
    35,010,943
 STATEMENTS OF INCOME
 YEARS ENDED DECEMBER 31,2006
    
    
    2005
    
    2004IncomeDividends from Bank subsidiary
    
    $
    3,000,000
    
    
    
    $
    2,000,000
    
    
    $
    1,500,000Other dividends
    
    
    
    
    
    
    
    
    
    
    
    24,046Securities gains (loss), net
    
    
    28,884
    
    
    
    
    (768
    )
    
    
    19,909Total income
    
    
    3,028,884
    
    
    
    
    1,999,232
    
    
    
    1,543,955ExpensesMiscellaneous expense
    
    
    (37,894
    )
    
    
    
    (16,119
    )
    
    
    (33,965
    )Undistributed equity in (distributions in excess of)
net income of Bank subsidiary
    
    
    (1,827,094
    )
    
    
    
    116,697
    
    
    
    1,400,750Net income
    
    $
    1,163,896
    
    
    
    $
    2,099,810
    
    
    $
    2,910,740
 ational ancshares orporation nnual eport 45




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006, 2005, 2004
 NOTE 17 PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
 STATEMENTS OF CASH FLOWS
 YEARS ENDED DECEMBER 31,2006
    
    
    2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIESNet income
    

    $
    1,163,896
    
    
    
    $
    2,099,810
    
    
    $
    2,910,740Adjustments to reconcile net income to net
cash from operating activities:Distributions in excess of (equity in
undistributed net income) of Bank subsidiary
    

    
    1,827,094
    
    
    
    
    (116,697
    )
    
    
    (1,400,750
    )Net security (gains) loss
    

    
    (28,884
    )
    
    
    
    768
    
    
    
    (19,909
    )Change in other assets and liabilities
    

    
    75,597
    
    
    
    
    (4,003
    )
    
    
    (899
    )Net cash from operating activities
    

    
    3,037,703
    
    
    
    
    1,979,878
    
    
    
    1,489,182CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of securities
    

    
    52,287
    
    
    
    
    537,982
    
    
    
    93,953Cash received from investment-return of capital
    

    
    
    
    
    
    
    7,164
    
    
    
    Net cash from investing activities
    

    
    52,287
    
    
    
    
    545,146
    
    
    
    93,953CASH FLOWS FROM FINANCING ACTIVITIESDividends paid
    

    
    (1,430,072
    )
    
    
    
    (1,430,072
    )
    
    
    (1,340,693
    )Net cash from financing activities
    

    
    (1,430,072
    )
    
    
    
    (1,430,072
    )
    
    
    (1,340,693Net increase in cash
    

    
    1,659,918
    
    
    
    
    1,094,952
    
    
    
    242,442Cash, beginning of year
    

    
    2,118,481
    
    
    
    
    1,023,529
    
    
    
    781,087Cash, end of year
    

    $
    3,778,399
    
    
    
    $
    2,118,481
    
    
    $
    1,023,529
 46 National Bancshares Corporation 2006 Annual Report




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005, 2004
 NOTE 18 QUARTERLY FINANCIAL DATA (UNAUDITED)
 Interest
    
    Net Interest
    
    Net
    
    Basic and DilutedIncome
    
    Income
    
    Income
    
    Earnings per share2006First quarter
    
    $
    4,165,700
    
    
    $
    2,894,650
    
    
    $
    508,120
    
    
    $
    0.23Second quarter
    
    
    4,186,787
    
    
    
    2,721,096
    
    
    
    158,940
    
    
    
    0.07Third quarter
    
    
    4,378,808
    
    
    
    2,819,792
    
    
    
    302,621
    
    
    
    0.14Fourth quarter
    
    
    4,425,252
    
    
    
    2,725,856
    
    
    
    194,215
    
    
    
    0.092005First quarter
    
    $
    3,828,291
    
    
    $
    2,964,022
    
    
    $
    520,799
    
    
    $
    0.23Second quarter
    
    
    3,975,548
    
    
    
    3,012,758
    
    
    
    431,939
    
    
    
    0.19Third quarter
    
    
    4,035,644
    
    
    
    2,958,723
    
    
    
    447,916
    
    
    
    0.20Fourth quarter
    
    
    4,235,712
    
    
    
    3,011,303
    
    
    
    699,156
    
    
    
    0.31
   National Bancshares Corporation 2006 Annual Report 47




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Crowe Chizek and Company LLC
 
     
    48 National Bancshares Corporation 2006 Annual Report




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COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN OF NATIONAL BANCSHARES
CORPORATION, S&P 500 STOCK INDEX, AND S&P 500 BANK INDEX
 PERFORMANCE GRAPH
 
 2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006National Bancshares Corp
    
    
    $
    100.00
    
    
    
    
    150.17
    
    
    
    
    167.78
    
    
    
    
    196.51
    
    
    
    
    167.85
    
    
    
    
    177.33S&P 500 Stock Index*
    
    
    $
    100.00
    
    
    
    
    77.90
    
    
    
    
    100.25
    
    
    
    
    111.15
    
    
    
    
    116.61
    
    
    
    
    135.03S&P 500 Banks Index*
    
    
    $
    100.00
    
    
    
    
    98.98
    
    
    
    
    125.37
    
    
    
    
    143.44
    
    
    
    
    141.35
    
    
    
    
    164.11
 *
    
    National Bancshares is not included in the S&P 500 Bank Index or S&P 500 Stock Index.
 National Bancshares Corporation 2006 Annual Report 49




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PRICE RANGE OF COMMON STOCK
 
  High
    
    Low
    
    Dividends Per Share2006First Quarter
    
    $
    22.75
    
    
    $
    21.50
    
    
    
    .16Second Quarter
    
    
    23.10
    
    
    
    22.27
    
    
    
    .16Third Quarter
    
    
    24.35
    
    
    
    22.50
    
    
    
    .16Fourth Quarter
    
    
    24.25
    
    
    
    21.75
    
    
    
    .162005First Quarter
    
    $
    29.50
    
    
    $
    27.30
    
    
    
    .16Second Quarter
    
    
    28.50
    
    
    
    25.05
    
    
    
    .16Third Quarter
    
    
    27.45
    
    
    
    24.35
    
    
    
    .16Fourth Quarter
    
    
    24.50
    
    
    
    22.25
    
    
    
    .16
 SHAREHOLDER INFORMATION
 Corporate Office
 
 Stock Trading Information
  Form 10-K
  Shareholder Assistance
 
 Transfer Agent
 
  50 National Bancshares Corporation 2006 Annual Report




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OFFICERS
 National Bancshares Corporation
 President & Chief Executive Officer
 Senior Vice President & Secretary
 Senior Vice President & Treasurer
 First National Bank
 President & Chief Executive Officer
 Client Services
 Vice President, Client Services
 Assistant Vice President,
Manager Lodi and Seville Offices
 Assistant Vice President,
Manager Smithville Office
 Assistant Vice President,
Manager Midway Office
 Assistant Vice President,
Manager Wooster Offices
  Assistant Vice President,
Manager Kidron Office
 Assistant Vice President,
Manager Downtown Massillon Office
 Assistant Vice President,
Manager Mayflower Office
 Administrative Officer,
Orrville Offices
 Assistant Vice President,
Manager Mt. Eaton Office
 Compliance, Human Resources & Security
 Vice President, Compliance,
Human Resources & Security
 Compliance Officer
 Assistant Vice President,
Manager of Human Resources
 Control
 Senior Vice President,
Chief Financial Officer
 Assistant Controller
 Accounting Officer
 Credit Administration
 Vice President,
Senior Credit Officer
 Collections and Loan Officer
 Lending
 Senior Vice President,
Senior Loan Officer
 Vice President,
Commercial Banking
 Vice President,
Commercial Banking
 Vice President,
Commercial Banking
 Assistant Vice President,
Mortgage Lending
 Assistant Vice President,
Manager, Mortgage and
Consumer Loan Services
 Loan Officer
 Marketing
 Director of Marketing
 Operations
 Vice President,
Operations and Cashier
 Operations Officer
 National Bancshares Corporation 2006 Annual Report 51




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FIRST NATIONAL BANK OFFICES
  Main
 
 Northside
 
 West High
 
 Midway
 
 Lodi
 
 Dalton
 
 Kidron
 
 Mt. Eaton
 
 Seville
 
 Smithville
 
 Burbank Road
 
 Cleveland Road
 
 Downtown Massillon
 
 Mayflower
 
 Massillon Marketplace
 
 Printed on recycled paper
 52 National Bancshares Corporation 2006 Annual Report




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