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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended Dec. 31, 2002
Commission File Number 0-14773

NATIONAL BANCSHARES CORPORATION

112 West Market Street, Orrville, Ohio 44667
Address of principal executive offices

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act:

Common Stock, No Par Value
Title of Class

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      X     . No      .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      X     

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes     No     X     

State the aggregate market value of the voting stock held by non-affiliates of the registrant as of June 28, 2002, the last business day of the registrant’s most recently completed second fiscal quarter: $39,353,620.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of March 7, 2003.

Common Stock, No Par Value: 2,234,488

Documents Incorporated by Reference:

•     Portions of the registrant’s Proxy Statement dated March 21, 2003 and previously filed March 20, 2003, are incorporated by reference into Part III.

•     Portions of the registrant’s Annual Report to Shareholders, December 31, 2002 are incorporated by reference in Parts I, II, IV.

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Note 1 — Incorporated by reference from the registrant’s Annual Report
     to Shareholders for the year ended December 31, 2002— Appendix A

Note 2 — Incorporated by reference from the registrant’s proxy
     statement dated March 21, 2003 previously filed with the SEC on March 20, 2003

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Item 1 — Business:

Forward-looking Statements
This document contains forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995) about National Bancshares Corporation (the “Company”) and its subsidiary, First National Bank, Orrville, Ohio (the “Bank”). Information incorporated in this document by reference, future filings by the Company on Form 10-Q and Form 8-K, and future oral and written statements by the Company and its management may also contain forward-looking statements. Forward-looking statements include statements about anticipated operating and financial performance, such as loan originations, operating efficiencies, loan sales, charge-offs and loan loss provisions, growth opportunities, interest rates and deposit growth. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plan,” and similar expressions are intended to identify these forward-looking statements.

Forward-looking statements are necessarily subject to many risks and uncertainties. A number of things could cause actual results to differ materially from those indicated by the forward-looking statements. These include the factors we discuss immediately below, those addressed under the caption “Financial Review,” other factors discussed elsewhere in this document or identified in our filings with the Securities and Exchange Commission, and those presented elsewhere by our management from time to time. Many of the risks and uncertainties are beyond our control. The following factors could cause our operating and financial performance to differ materially from the plans, objectives, assumptions, expectations, estimates, and intentions expressed in the forward-looking statements:

	•		the strength of the United States economy in general and the strength of the local economies in which we conduct our operations; general economic conditions, either nationally or regionally, may be less favorable than we expect, resulting in a deterioration in the credit quality of our loan assets, among other things
	•		the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest-rate policies of the Federal Reserve Board
	•		inflation, interest rate, market, and monetary fluctuations
	•		the development and acceptance of new products and services of the Company and its subsidiary and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors’ products and services
	•		the willingness of users to substitute our products and services for those of competitors
	•		the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities, and insurance)
	•		changes in consumer spending and saving habits

Forward-looking statements are based on our beliefs, plans, objectives, goals, assumptions, expectations, estimates, and intentions as of the date the statements are made. Investors should exercise caution because the Company cannot give any assurance that its beliefs, plans, objectives, goals, assumptions, expectations, estimates, and intentions will be realized. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.

Description of Business
National Bancshares Corporation (the “Company”), incorporated in 1985, is a one-bank holding company for First National Bank, Orrville, Ohio (the “Bank”). The formation was approved by shareholders on April 24, 1986 and consummated on June 2, 1986. The Bank offers a full line of services usually found in any commercial bank operation, including checking accounts, savings accounts, certificates of deposit, personal loans, loans to business and industry, installment loans, safety deposit boxes and credit cards. While the Company’s chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment. The Bank does not have trust powers and, therefore, does not offer trust services. The Bank operates thirteen full service offices and one limited service office in a market area comprising most of Wayne County, western Stark County, northeastern Holmes County and southern Medina County. There are approximately 17 other banking and thrift organizations in the immediate market area. The Bank also competes with insurance companies, consumer finance companies, credit unions, mortgage banking companies, and commercial finance and leasing companies. In addition, money market mutual funds and brokerage houses provide many of the financial services offered by the Bank. The principal methods of

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competition are the rates of interest charged and paid for loans and deposits, fees charged for services, the quality of services provided and the convenience of banking hours and branch locations. No major elimination of services presently offered is anticipated in the immediate future.

Lending policies of the Bank follow the guidelines set forth in the Bank’s Credit Policy, which is approved by the Board of Directors on an annual basis. The Credit Policy designates lending authority for the Chief Executive Officer, Senior Vice President, Chief Loan Officer and all loan officers. The Credit Policy also sets forth the maximum aggregate amount that may be loaned to any one customer. Guidelines are established for credit types, loan mix, concentration of credit and credit standards. Collateral is generally obtained on loans and an appraisal is required to determine the value of the collateral. For real estate loans, guidelines have been established for maximum loan-to-value ratios. Guidelines are also established for the term of the loan, which must coincide with the credit purpose and life of the collateral. In addition to the Credit Policy, the Bank has established a series of control procedures to monitor the overall credit quality of the loan portfolio. These controls include checklists, loan diaries, annual loan reviews of all loans over $75,000 (excluding first mortgage loans), monthly board reports of problem loans, and a monthly review and determination of the adequacy of the allowance for loan losses.

Management estimates the allowance for loan loss balance required using past loss experience, risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.

The Bank is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation. It is subject to supervision, examination and regulation by the Comptroller of the Currency. The Company is also subject to supervision, examination and regulation by the Federal Reserve System. Management is not currently aware of any regulatory recommendations which, if they were to be implemented, would have a material effect on the registrant.

On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act, which, effective March 11, 2000, permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies, and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under regulatory prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act (CRA) by filing a declaration that the bank holding company wishes to become a financial holding company. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

The Gramm-Leach-Bliley Act defines “financial in nature” to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Board has determined to be closely related to banking. Subsidiary banks of a financial holding company must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a CRA rating of satisfactory or better. The Company elected to become a financial holding company in November 2002.

On July 30, 2002, Congress enacted the Sarbanes-Oxley Act of 2002, a law that addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. Effective August 29, 2002, per Section 302(a) of the Act, the Company’s President and Treasurer are each required to certify that the Company’s Quarterly and Annual Reports do not contain any untrue statement of a material fact. These officers must certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of the Company’s internal controls; they have made certain disclosures to the Company’s auditors and the audit committee of the Board of Directors about the Company’s internal controls; and they have included information in the Company’s Quarterly and Annual Report about their evaluation and whether there have been significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation.

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Item 2 — Properties:
The headquarters of the Company and the Bank are located in Orrville, Ohio. The Bank has a total of fourteen banking office buildings, which are located in Orrville, Dalton, Kidron, Smithville, Mt. Eaton, Apple Creek, Lodi, Wooster, Seville and Massillon, Ohio. All buildings are owned by the Bank with the exception of the Seville and Massillon Marketplace Office, which are leased facilities.

Item 3 — Legal Proceedings
There were no legal proceedings during 2002, other than ordinary routine litigation which was incidental to business and which was not material.

Item 5 — Number of shareholders of common stock
The Company had 961 shareholders of common stock as of February 28, 2003. Price ranges of the Company’s common stock for 2002 and 2001 are reported in the Annual Report to Shareholders (Appendix A). A local broker that deals in the Company’s stock supplied the stock prices.

Item 7 — Liquidity Management
Additional information regarding liquidity can be found in the Annual Report to Shareholders, (Appendix A, Page 6). Effective liquidity management ensures the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met.

Funds are available from a number of sources, including the securities portfolio, the core deposit base, the ability to acquire large deposits, short-term funding arrangements with correspondent banks and the Federal Home Loan Bank, and the capability to package loans for sale. On December 31, 2002, the Corporation had $17.2 million in advances from the Federal Home Loan Bank. No borrowings have occurred under the short-term funding arrangements with correspondent banks.

The Corporation’s major source of funding to meet its liquidity requirements is dividends and return of investment from its subsidiary, First National Bank. Information regarding dividends paid by the Bank to the Corporation and dividend restrictions is located in the consolidated financial statements and note 12 of the Annual Report to Shareholders. As discussed in note 2 of the Annual Report to Shareholders, on April 3, 2002 the Corporation acquired Peoples Financial Corporation, a financial institution holding company located in Massillon, Ohio. To facilitate the funding of the acquisition, the Corporation received approval from the regulators of a special dividend from the Bank to the Corporation.

Item 10 — Executive Officers
The Executive Officers of the Company are as follows:

There is no family relationship between any of the above executive officers. Mr. Dolezal has been an executive officer of the Company since its formation in 1986 and the President of the Bank since 1982. Mr. VanSickle was appointed Senior V.P., Secretary of the Company on April 24, 1997 and has been a senior loan officer of the Bank since 1986. Mr. Cardinal was appointed Vice President, Treasurer of the Company and Vice President & Controller

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of the Bank on April 24, 1997. Mr. Berkey was appointed Vice President of Customer Services of the Bank in 1995 and Mr. Woodruff was appointed Vice President and Cashier of the Bank in 1993.

Item 14 — Controls and Procedures

Within 90 days prior to the date of this Annual Report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Treasurer (Principal Financial Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the President and Treasurer concluded that the Company’s disclosure controls and procedures were effective as of the date of their evaluation in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this Annual Report.

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

VOLUME AND RATE VARIANCE ANALYSIS

The following table represents a summary analysis of changes in interest income, interest expense and the resulting net interest income on a tax equivalent basis for the periods presented. Volume is based on daily average balances. Changes not associated with either rate or volume are reflected as a rate change.

*     Tax equivalence based on highest statutory tax rates of 34%.

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INVESTMENT PORTFOLIO

The carrying amounts and distribution of the Company’s securities held at year-end 2002 and 2001 are summarized in the Annual Report to Shareholders (Appendix A, Page 17, Note 3). The carrying amount, maturities and approximate weighted average yields (on a tax equivalent basis) of debt securities at December 31, 2002 and the carrying amounts and fair values as of December 31, 2000 are as follows:

INVESTMENT PORTFOLIO
December 31, 2002
(Dollars in thousands)

There was no single issuer of securities where the total book value of such securities exceeded 10% of shareholders’ equity except for US government and agency obligations in any periods presented.

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LOAN PORTFOLIO

The detail of the loan portfolio balances for year-end 2002 and 2001 is included in the Annual Report to Shareholders (Appendix A, Page 17, Note 4). The detail of the loan portfolio balances for year-end 2000, 1999 and 1998 is as follows:

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES

The following are approximate maturities and sensitivity to changes in interest rates of certain loans exclusive of real estate mortgages and consumer loans as of December 31, 2002.

NONACCRUAL AND PAST DUE LOANS

Generally, recognition of interest income is discontinued where reasonable doubt exists as to the collectability of the interest. Income from non-accrual loans is recorded when received. The difference between interest income recognized on such loans and income that would have been recognized at original contractual rates is immaterial. The bank generally places loans on a non-accrual status when a default of principal or interest has existed for 90 days or more. The bank generally does not renegotiate loans due to deterioration in the financial position of the borrower. The amounts of renegotiated loans are not considered material and are not considered impaired.

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POTENTIAL PROBLEM LOANS

Management reviews the loan portfolio for potential problem loans on a monthly basis. The following loans were classified by management, which excludes the above non-accrual loan totals. The amount shown below is the outstanding loan balance, which has not been reduced by collateral values. There were no other assets which management believes should be reported in the table above or the items below.

FOREIGN LOANS

There were no foreign loans in any periods presented.

LOAN CONCENTRATIONS

Due to the nature of our market area, there are no significant loan concentrations of 10% of total loans to borrowers engaged in similar activities other than noted in the loan categories disclosed in the Annual Report to Shareholders (Appendix A, Page 17, Note 4).

SUMMARY OF LOAN LOSS EXPERIENCE

The determination of the balance of the allowance for loan losses historically has been based on an overall analysis of the loan portfolio and reflects an amount, which, in management’s judgment, is adequate to provide for probable loan losses. This analysis considers, among other things, the Company’s loan loss experience, present risks of the loan portfolio and general economic conditions. In addition, management considers the examinations of the loan portfolio by federal regulatory agencies and internal reviews and evaluations. The Company’s allocation of the allowance for loan losses by category represents only an estimate for each category of loans based upon a detailed review of the loan portfolio by management.

Transactions in the allowance for loan losses are maintained by three major loan categories and the summary of such transactions for the periods indicated follows:

CHANGES IN ALLOWANCE
FOR LOAN LOSSES

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DISTRIBUTION OF ALLOWANCE FOR
LOAN LOSSES BY CATEGORY