10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2009

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission file number 0-12055

Farmers National Banc Corp.

(Exact name of registrant as specified in its charter)

Ohio	34-1371693
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
20 South Broad Street
Canfield, Ohio	44406
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 330-533-3341

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o

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. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

The registrant estimates that the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $82.9 million based upon the last sales price as of June 30, 2009. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the Registrant that such person is an affiliate of the Registrant.)

As of February 28, 2010, the registrant had outstanding 13,519,605 shares of common stock having no par value.

DOCUMENTS INCORPORATED BY REFERENCE

	Parts of Form 10-K
	into which
Document	Document is Incorporated
Portions of 2009 Annual Report to Shareholders	II
Definitive proxy statement for the 2009 Annual Meeting of Shareholders to be held on April 13, 2010	III

Form 10-K Cross Reference Index to Items Incorporated by Reference to the 2009 Annual Report to
Shareholders

	Pages
Part I
Item 1 — Business
Average Balance Sheets/Yields/Rates		12
Rate and Volume Analysis		13
Securities		20-21
Loans		17
Loan Loss Experience		18-20
Deposits		21
Financial Ratios		11
Short-Term Borrowings		21, 38
Part II
Item 5 Market For Registrant’s Common Stock, Number of Holders of Common Stock and Dividends on Common Stock		10
Item 6 Selected Financial Data		11
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations		13-22
Item 7A Quantitative and Qualitative Disclosures About Market Risk		15-16
Item 8 Financial Statements and Supplementary Data		25-44
Item 9A Management’s Annual Report on Internal Control Over Financial Reporting		23
Part IV
Item 15
Report of Independent Registered Public Accounting Firm		24
Financial Statements:
Consolidated Balance Sheets — December 31, 2009 and 2008		25
Consolidated Statements of Income & Comprehensive Income — Calendar Years 2009, 2008 and 2007		26
Consolidated Statement of Stockholders’ Equity Calendar Years 2009, 2008 and 2007		27
Consolidated Statements of Cash Flows Calendar Years 2009, 2008 and 2007		28
Notes to Consolidated Financial Statements		29-44

FARMERS NATIONAL BANC CORP.
FORM 10-K
2009
INDEX

Part I.
Item 1. Business: General	1
Item 1A. Risk Factors	4
Item 1B. Unresolved Staff Comments	9
Item 2. Properties	9
Item 3. Legal Proceedings	10
Part II.
Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchase of Equity Securities	11
Item 6. Selected Financial Data	11
Item 7. Management’s Discussion and Analysis of Financial Condition And Results of Operations	11
Item 7A. Quantitative and Qualitative Disclosure about Market Risk	11
Item 8. Financial Statements and Supplementary Financial Data	11
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	11
Item 9A. Controls and Procedures	12
Item 9B. Other Information	12
Part III.
Item 10. Directors, Executive Officers and Corporate Governance	12
Item 11. Executive Compensation	13
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	14
Item 13. Certain Relationships, Related Transactions and Director Independence	14
Item 14. Principal Accountant Fees and Services	14
Part IV.
Item 15. Exhibits, Financial Statement Schedules	14
Signatures	16
Index to Exhibits	17
EX-3.II Amended Code of Regulations
EX-13 Annual Report
EX-23.A Consent of Crowe Horwath LLP
EX-31.A Certification of CEO
EX-31.B Certification of CFO
EX-32.A 906 Certification of CEO
EX-32.B Certification of CFO

Part I

Item 1. Business General

The Company

The registrant, Farmers National Banc Corp. (herein sometimes referred to as the Company), is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended. The wholly-owned subsidiaries of Farmers National Banc Corp. are The Farmers National Bank of Canfield (the Bank), Farmers Trust Company, and Farmers National Insurance. The Corporation was formed in 1983 to acquire the shares of the Bank. The Corporation and its subsidiaries operate in the domestic banking industry.

Farmers National Banc Corp. conducts no business activities except for investment in securities permitted under the Bank Holding Company Act. Bank holding companies are permitted under Regulation Y of the Board of Governors of the Federal Reserve System to engage in other activities such as leasing and mortgage banking.

The Bank

The Bank is a full-service national bank engaged in commercial and retail banking in Mahoning, Trumbull and Columbiana Counties in Ohio. The Bank’s commercial and retail banking services include checking accounts, savings accounts, time deposit accounts, commercial, mortgage and installment loans, home equity loans, home equity lines of credit, night depository, safe deposit boxes, money orders, bank checks, automated teller machines, internet banking, travel cards, “E” Bond transactions, utility bill payments, MasterCard and Visa credit cards, brokerage services and other miscellaneous services normally offered by commercial banks.

A discussion of the general development of the Bank’s business and information regarding its key segments throughout 2009, is located within the section “Management Discussion and Analysis of Financial Condition and Results of Operations” located on pages 13 through 22 of the Company’s Annual Report.

Please see the Financial Statements and Supplementary Financial Data provided under Item 8 of this Form 10-K for financial and statistical information regarding the Bank’s segments, revenue from external customers, profits, and total assets as of the fiscal year ended December 31, 2009.

The Bank faces significant competition in offering financial services to customers. Ohio has a high density of financial institution offices, many of which are branches of significantly larger institutions that have greater financial resources than the Bank, and all of which are competitors to varying degrees. Competition for loans comes principally from savings banks, savings and loan associations, commercial banks, mortgage banking companies, credit unions, insurance companies and other financial service companies. The most direct competition for deposits has historically come from savings and loan associations, savings banks, commercial banks and credit unions. Additional competition for deposits comes from non-depository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies.

Farmers National Banc Corp. has no employees. The Bank had 260 full-time equivalent employees at December 31, 2009.

Farmers Trust Company

On March 31, 2009, the Company acquired 100% of the capital stock of Butler Wick Trust Company, a wholly owned subsidiary of Butler Wick Corporation in exchange for $12.125 million. The newly acquired trust entity operates under the name Farmers Trust Company. With the acquisition, the Company has added trust services in the areas of estate settlement, living trusts, testamentary trusts, charitable trusts, charitable endowments and employee benefit plans to complement its core retail banking and investment services. The Farmers Trust Company has 30 full-time equivalent employees and operates in two offices located within the same geographic market as the Bank.

1

Farmers National Insurance

Farmers National Insurance was formed during 2009 and offers insurance products through licensed representatives. Farmers National Insurance does not account for a material portion of the Company’s revenue and therefore will not be discussed individually, but as part of the Company as a whole. The entity has 2 full-time employees.

Investor Relations

The Company’s internet site, http://www.fnbcanfield.com contains an Investor Relations section which provides a hyperlink to the SEC where the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, director and Officer Reports on Form(s) 3, 4, and 5 and amendments to those documents filed or furnished pursuant to the Securities Exchange Act of 1934 are available free of charge as soon as reasonably practicable after the Company has filed these documents with the Securities and Exchange Commission (SEC). In addition, the Company’s filings with the SEC may be read and copied at the SEC Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. These filings are also available on the SEC’s web-site at http://www.sec.gov free of charge as soon as reasonably practicable after the Company has filed the above referenced reports.

Supervision and Regulation

The Company is regulated by the Federal Reserve Bank (the “FRB”). The Bank is regulated by the Office of the Comptroller of the Currency (the “OCC”), as well as the Federal Deposit Insurance Corporation (the “FDIC”). The Trust Company is licensed and regulated by the Ohio Division of Financial Institutions. A listing of the minimum regulatory requirements for capital and the Company’s capital position as of December 31, 2009 are presented in Note L on page 40 of the annual report to shareholders for the year ended December 31, 2009 and is hereby incorporated by reference.

The Company is subject to regulation under the Bank Holding Company Act of 1956, as amended. This Act restricts the geographic and product range of bank holding companies by defining the types and locations of institutions the holding companies can own or acquire. This act also regulates transactions between the Corporation and the Bank and generally prohibits tie-ins between credit and other products and services.

The Bank is subject to regulation under the National Banking Act and is periodically examined by the OCC and is subject to the rules and regulations of the FRB. As an insured institution and member of the Bank Insurance Fund (“BIF”), the Bank is also subject to regulation by the FDIC. Establishment of branches is subject to approval of the OCC and geographic limits established by state law. Ohio branch banking law permits a bank having its principal place of business in the state to establish branch offices in any county in Ohio without geographic restrictions.

Federal Home Loan Bank

The Federal Home Loan Banks (FHLB) provide credit to their members in the form of advances. Farmers National Bank is a member of the FHLB of Cincinnati. As a FHLB member, the Bank must maintain an investment in the capital stock of the FHLB.

Upon the origination or renewal of a loan or advance, each FHLB is required by law to obtain and maintain a security interest in certain types of collateral. Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLB. The standards take into account a member’s performance under the Community Reinvestment Act and its record of lending to first-time home buyers.

2

FDICIA

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and several other federal banking statutes. Among other things, FDICIA requires federal banking agencies to broaden the scope of corrective action taken with respect to banks that do not meet minimum capital requirements and to take such actions promptly in order to minimize losses to the FDIC.

FDICIA established five capital tiers: “well capitalized”; “adequately capitalized”; “undercapitalized”; “significantly undercapitalized”; and “critically undercapitalized” and imposes significant restrictions on the operations of a depository institution that is not in either of the first two of such categories. A depository institution’s capital tier depends upon the relationship of its capital to various capital measures. A depository institution is deemed to be “well capitalized” if it significantly exceeds the minimum level required by regulation for each relevant capital measure, “adequately capitalized” if it meets each such measure, “undercapitalized” if it is significantly below any such measure and “critically undercapitalized” if it fails to meet any critical capital level set forth in regulations. An institution is deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating or is deemed to be in an unsafe or unsound condition or to be engaging in unsafe or unsound practices.

Under regulations adopted under these provisions, for an institution to be well capitalized it must have a total risk-based capital ratio of at least 10%, a Tier I risk-based capital ratio of at least 6% and a Tier I leverage ratio of at least 5% and not be subject to any specific capital order or directive. For an institution to be adequately capitalized, it must have a total risk-based capital ratio of at least 8%, a Tier I risk-based capital ratio of at least 4% and a Tier I leverage ratio of at least 4% (or in some cases 3%). Under the regulations, an institution is deemed to be undercapitalized if the bank has a total risk-based capital ratio that is less than 8%, a Tier I risk-based capital ratio that is less than 4% or a Tier I leverage ratio of less than 4% (or in some cases 3%). An institution is deemed to be significantly undercapitalized if the bank has a total risk-based capital ratio that is less than 6%, a Tier I risk-based capital ratio that is less than 3%, or a leverage ratio that is less than 3% and is deemed to be critically undercapitalized if it has a ratio of tangible equity to total assets that is equal to or less than 2%.

Interstate Banking and Branching Legislation

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “IBBEA”) authorizes interstate acquisitions of banks and bank holding companies without geographic constraint. The IBBEA also authorized banks to merge with banks located in another state.

After acquiring interstate branches through a merger, a bank may establish additional branches in that state at the same locations as any bank involved in the merger could have established branches under state and federal law. In addition, a bank may establish a de novo branch in another state that expressly permits the establishment of such branches. A bank that establishes a de novo interstate branch may thereafter establish additional branches on the same basis as a bank that has established interstate branches through a merger transaction.

Patriot Act

The U.S. Patriot Act was signed into law in October 2001 in response to terrorist acts. The Patriot Act gives the United States Government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. Title III of the Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Title III and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity. The Bank has established policies and procedures that are believed to be compliant with the requirements of the Patriot Act.

3

Gramm-Leach-Blily Act

The Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) allows new opportunities for banks, other depository institutions, insurance companies and securities firms to combine to form a single financial services organization to offer customers a broader choice of financial products and services. The GLB Act authorized the Federal Reserve Board to oversee all regulatory activities through the financial holding company, while the functional regulation of operating subsidiaries remains with their primary functional regulator. The GLB Act requires institutions to maintain Community Reinvestment Act ratings of satisfactory or higher in order to engage in any new financial activities. This act also established a federal right to privacy of non-public personal information of individual customers.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. Section 302(a) of Sarbanes-Oxley requires the Company’s chief executive officer and chief financial officer to certify that the Company’s Quarterly and Annual Reports do not contain any untrue statement of a material fact. The rules have several requirements, including having these officers 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 Reports 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.

Emergency Economic Stabilization Act of 2008

The Emergency Economic Stabilization Act of 2008 temporarily increased the basic limit on federal deposit insurance coverage from $100,000 to $250,000. The $250,000 limit is permanent for certain retirement accounts (including IRAs) and is temporary for all other deposit accounts through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all deposit accounts except certain retirement accounts, which will remain at $250,000 per depositor.

In addition, the legislation created the Troubled Assets Relief Program (“TARP”). Under TARP, the U.S. Treasury established a Capital Purchase Program to provide funding to eligible financial institutions through the purchase of capital stock for the purpose of stabilizing and providing liquidity to the capital markets.

Item 1A. Risk Factors

Difficult market conditions and economic trends have adversely affected our industry and our business.

The capital markets continued to experience difficult conditions through 2009 and into 2010, producing uncertainty in the financial markets in general and a related general economic downturn. Dramatic declines in the housing market that resulted in decreasing home prices and increasing delinquencies and foreclosures negatively impacted the credit performance of mortgage and construction loans and resulted in significant write-downs of assets by many financial institutions. In addition, the values of real estate collateral supporting many loans have declined and may continue to decline. These general downward economic trends, the reduced availability of commercial credit and increasing unemployment have all negatively impacted the credit performance of commercial and consumer credit and resulted in additional write-downs. Concerns over the stability of the financial markets and the economy have resulted in decreased lending by financial institutions to their customers and to each other. This market turmoil and tightening of credit has led to increased commercial and consumer deficiencies, lack of customer confidence, increased market volatility and widespread reduction in general business activity. The resulting economic pressure on consumers and businesses and the lack of confidence in the financial markets may adversely affect our business, financial condition, results of operations and stock price. Also, our ability to assess the creditworthiness of customers and to estimate the losses inherent in our credit exposure is made more complex by these difficult market and economic conditions. Business activity across a wide range of industries and regions is greatly reduced and local governments and many companies are in serious difficulty due to the lack of consumer spending and the lack of liquidity in the credit markets. As of the end of 2009, the United States is in the beginning stages of economic recovery from the recession. Any worsening of current conditions or slowing of the economic recovery would have an adverse effect on the Company, our customers and the other financial institutions in our market. As a result, we may experience increases in foreclosures, delinquencies and customer bankruptcies.

4

Changes in interest rates could adversely affect income and financial condition.

The Company’s income and cash flow depends to a great extent on the difference between the interest earned on loans and investment securities, and the interest paid on deposits and other borrowings. An increase in the general level of interest rates may adversely affect the ability of some borrowers to pay the interest and principal of their loans, especially borrowers with loans that have adjustable rates of interest. Interest rates are beyond the Company’s control, and they fluctuate in response to general economic conditions and the policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits and the rates received on loans and investment securities and paid on deposits.

The allowance for loan loss may not be adequate to cover actual future losses.

The Company maintains an allowance for loan losses to cover expected and unexpected future loan losses. Every loan we make carries a certain risk of non-repayment and we make various assumptions
and judgments about the collectibility of our loan portfolio including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, credit quality of the loan portfolio, the collateral supporting the loans and performance of customers relative to their financial obligations with us. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed current estimates. We cannot fully predict the amount or timing of losses or whether the loss allowance will be adequate in the future. If our assumptions prove to be incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to the allowance. Excessive loan losses and significant additions to our allowance for loan losses could have a material adverse impact on our financial condition and results of operations.

Changes in economic and political conditions could adversely affect the Company’s earnings.

Our success depends, to a certain extent, upon economic and political conditions, local and national, as well as governmental monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings. Because we have a significant amount of real estate loans, additional decreases in real estate values could adversely affect the value of property used as collateral and our ability to sell the collateral upon foreclosure. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings. If during a period of reduced real estate values we are required to liquidate the collateral securing a loan to satisfy the debt or to increase our allowance for loan losses, it could materially reduce our profitability and adversely affect our financial condition. The substantial majority of our loans are to individuals and businesses in Ohio. Consequently, further significant declines in the economy in Ohio could have a materially adverse effect on our financial condition and results of operations. It is uncertain when the negative credit trends in our market will reverse and, therefore, future earnings are susceptible to further declining credit conditions in the market in which we operate.

5

Strong competition within the market the Bank operates could reduce our ability to attract and retain business.

In our market, we encounter significant competition from banks, savings and loan associations, credit unions, mortgage banks and other financial service companies. As a result of their size and ability to achieve economies of scale, some of our competitors offer a broader range of products and services than we can offer. In particular, the competition includes major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns. Our ability to maintain our history of strong financial performance and return on investment to shareholders will depend in part on our continued ability to compete successfully in our market. Financial performance and return on investment to shareholders will also depend on its ability to expand its scope of available financial services to its customers. In addition to other banks, competitors now include securities dealers, brokers, investment advisors, and finance and insurance companies. The increasingly competitive environment is, in part, a result of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial service providers.

Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to utilize alternative methods to complete financial transactions that historically have involved banks. For example, consumers can now maintain funds in brokerage accounts or mutual funds that would have historically been held as bank deposits. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

Additional required capital may not be available.

We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital. In that regard, a number of financial institutions have recently raised considerable amounts of capital in response to a deterioration in their results of operations and financial condition arising from the turmoil in the mortgage loan market, deteriorating economic conditions, declines in real estate values and other factors. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside of our control, and on our financial performance. Accordingly, there can be no assurance that we can raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.

The preparation of our financial statements requires the use of estimates that may vary from actual results.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make significant estimates that affect the financial statements. One of our most critical estimates is the level of the allowance for loan losses. Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not be required to charge earnings for significant unexpected loan losses.

We maintain an allowance for loan losses that we believe is a reasonable estimate of known and inherent losses within the loan portfolio. We make various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, credit quality of the loan portfolio, the collateral supporting the loans and performance of customers relative to their financial obligations with us. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed current estimates. We cannot fully predict the amount or timing of losses. Bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities might have a material adverse effect on our financial condition and results of operations.

6

We are exposed to operational risk.

Similar to any large organization, we are exposed to many types of operational risk, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems.

Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to attract and keep customers and can expose us to litigation and regulatory action.

Given the volume of transactions we process, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon automated systems to record and process our transaction volume may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. We may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control (for example, computer viruses or electrical or telecommunications outages), which may give rise to disruption of service to customers and to financial loss of liability. We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as we are) and to the risk that our (or our vendors’) business continuity and data security systems prove to be inadequate.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of our computer systems or otherwise, could severely harm our business.

As part of our financial institution business, we collect, process and retain sensitive and confidential client and customer information on behalf of our subsidiaries and other third parties. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. If information security is breached, information could be lost or misappropriated, resulting in financial loss or costs to us or damages to others. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information, whether by us or by our vendors, could severely damage our reputation, expose us to the risks of litigation and liability or disrupt our operations and have a material adverse effect on our business.

Legislative or regulatory changes or actions, or significant litigation, could adversely impact us or the businesses in which we are engaged.

The financial services industry is extensively regulated. We are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of our operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors and the deposit insurance funds, and not to benefit our shareholders. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact us or our ability to increase the value of our business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for loan losses. Additionally, actions by regulatory agencies or significant litigation against us could cause us to devote significant time and resources to defending our business and may lead to penalties that materially affect us and our shareholders.

7

There can be no assurance that legislative and regulatory initiatives to address economic conditions will stabilize the United States economy and significantly affect our financial condition, results of operation, liquidity or stock price.

Governments, regulators and central banks in the United States and worldwide have taken numerous steps to increase liquidity and to restore investor confidence, but asset values have continued to decline and access to liquidity continues to be very limited. The U.S. Treasury has authority to purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions and their holding companies, under TARP. The purpose of TARP is to restore confidence and stability to the United States banking system and to encourage financial institutions to increase their lending to customers and to each other. The FDIC increased federal deposit insurance on most deposit accounts from $100,000 to $250,000. This increase is in place until the end of 2013 and is not covered by deposit insurance premiums paid by the banking industry. The failure of these significant legislative measures to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our Stock.

Other actions by the U.S. Government and its agencies include homeowner relief that encourages loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector. The purpose of these legislative and regulatory actions is to stabilize the United States banking system. The regulatory initiatives described above may not have their desired effects. If the volatility in the markets continues and economic conditions fail to improve or worsen, our business, financial condition and results of operations could be materially and adversely affected.

We may be a defendant from time to time in the future in a variety of litigation and other actions, which could have a material adverse effect on our financial condition and results of operation.

We and our subsidiaries may be involved from time to time in the future in a variety of litigation arising out of our business. Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition and results of operation. In addition, we may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms, if at all.

We extend credit to a variety of customers based on internally set standards and judgment. We manage the credit risk through a program of underwriting standards, the review of certain credit decisions and an on-going process of assessment of the quality of the credit already extended. Our credit standards and on-going process of credit assessment might not protect us from significant credit losses.

We take credit risk by virtue of making loans and leases, extending loan commitments and letters of credit and, to a lesser degree, purchasing non-governmental securities.

Our exposure to credit risk is managed through the use of consistent underwriting standards that emphasize “in-market” lending while avoiding highly leveraged transactions as well as excessive industry and other concentrations. Our credit administration function employs risk management techniques to ensure that loans and leases adhere to corporate policy and problem loans and leases are promptly identified. While these procedures are designed to provide us with the information needed to implement policy adjustments where necessary, and to take proactive corrective actions, there can be no assurance that such measures will be effective in avoiding undue credit risk.

8

Future FDIC premiums could be substantially higher and would have an unfavorable effect on earnings.

The FDIC projects higher premiums to be necessary because the financial institution failures resulting from the depressed market conditions have depleted and may continue to deplete the deposit insurance fund and reduce its ratio of reserves to insured deposits. The FDIC in an effort to avoid larger increases in the premiums has already taken action to collect FDIC premiums for the next three years in advance. If any additional assessments or large premium increases occur in the future they would negatively affect our financial condition and results of operation.

We depend on our subsidiaries for dividends, distributions and other payments.

As a bank holding company, we are a legal entity separate and distinct from our subsidiaries. Our principal source of funds to pay dividends on our Common Shares is dividends from these subsidiaries. In the event our subsidiaries become unable to pay dividends to us, we may not be able to pay dividends on our Common Shares of outstanding stock. Accordingly, our inability to receive dividends from our subsidiaries could also have a material adverse effect on our business, financial condition and results of operations.

Federal and state statutory provisions and regulations limit the amount of dividends that our banking and other subsidiaries may pay to us without regulatory approval. Our banking subsidiaries generally may not, without prior regulatory approval, pay a dividend in an amount greater than their undivided profits. In addition, the prior approval of the OCC is required for the payment of a dividend by Farmers National Bank if the total of all dividends declared in a calendar year would exceed the total of its net income for the year combined with its retained net income for the two preceding years. The Federal Reserve Board and the OCC have issued policy statements that provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. The ability of Farmers National Bank to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines and may restrict our ability to declare and pay dividends.

Defaults by another larger financial institution could adversely affect financial markets generally.

The commercial soundness of many financial institutions may be closely interrelated as a result of relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This is sometimes referred to as “systemic risk” and may adversely affect our business.

Item 1B. Unresolved Staff Comments

There are no matters of unresolved staff comments from the Commission staff.

Item 2. Properties

Farmers National Banc Corp.’s Properties

The Farmers National Banc Corp. owns no property. Operations are conducted at 20 and 30 South Broad Street, Canfield, Ohio.

9

Bank Property

The Main Office is located at 20 & 30 S. Broad Street, Canfield, Ohio. The other locations of the Bank are:

Office Building	40 & 46 S. Broad St., Canfield, Ohio
Austintown Office	22 N. Niles-Canfield Rd., Youngstown, Ohio
Lake Milton Office	17817 Mahoning Avenue, Lake Milton, Ohio
Cornersburg Office	3619 S. Meridian Rd., Youngstown, Ohio
Colonial Plaza Office	401 E. Main St. Canfield, Ohio
Western Reserve Office	102 W. Western Reserve Rd., Youngstown, Ohio
Salem Office	1858 E. State Street, Salem, Ohio
Columbiana Office	340 State Rt. 14, Columbiana, Ohio
Leetonia Office	16 Walnut St., Leetonia, Ohio
Damascus Office	29053 State Rt. 62 Damascus, Ohio
Poland Office	106 McKinley Way West, Poland, Ohio
Niles Office	1 South Main Street, Niles, Ohio
Niles Drive Up	170 East State Street, Niles, Ohio
Girard Office	121 North State Street, Girard, Ohio
Eastwood Office	5845 Youngstown-Warren Rd, Niles, Ohio
Warren Office	2910 Youngstown-Warren Rd, Warren, Ohio
Mineral Ridge Office	3826 South Main Street, Mineral Ridge, Ohio
Niles Operation Center	51 South Main Street, Niles, Ohio

The Bank owns all locations except the Colonial Plaza, which is leased.

Trust Property

Farmers Trust Company operates from two leased locations:

Youngstown Office	City Centre One, Suite 800, Youngstown, OH
Howland Office	Harvard Commons, 1695 Niles-Cortland Rd., Warren, Ohio

Insurance Property

Farmers National Insurance operates from one location which is owned by the Bank:

Western Reserve Office 102 W. Western Reserve Rd., Youngstown, Ohio

Item 3. Legal Proceedings

In the opinion of management there are no outstanding legal actions that will have a material adverse effect on the Company’s financial condition or results of operations.

10

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities

Purchases of equity securities by the issuer.

On July 14, 2009, The Company announced the adoption of a stock repurchase program that authorizes the re-purchase of up to 4.9% or approximately 657 thousand shares of its outstanding common stock in the open market or in privately negotiated transactions. This program expires in July 2010. There was no treasury stock purchased by the Company during the fourth quarter of 2009.

Item 6. Selected Financial Data

Information required by this section is incorporated by reference to the information appearing under the caption “Selected Financial Data” located on page 11 of the Company’s Annual Report and is explained in the section “Management Discussion and Analysis of Financial Condition and Results of Operations” located on pages 13 through 22 of the Company’s Annual Report.

Item 7. Management’s Discussion and Analysis of Financial Condition

Information required by this section is incorporated by reference to the information appearing under the caption “Management Discussion and Analysis of Financial Condition and Results of Operation” located on pages 13 through 22 of the Company’s Annual Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Information required by this section is incorporated by reference to the information appearing under the caption “Market Risk” located on pages 15 through 16 of the Company’s Annual Report.

Item 8. Financial Statements and Supplementary Financial Data

Information required by this section is incorporated by reference to the information located on pages 25 to 44 of the Company’s Annual Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

During the fiscal years ended December 31, 2009 and December 31, 2008, there were no disagreements between the Company and Crowe Horwath LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Crowe Horwath’s satisfaction, would have caused Crowe Horwath to make reference to the subject matter of the disagreement in connection with its reports on the Company’s consolidated financial statements for such periods.

11

Item 9A. Controls and Procedures

Management’s Annual Report on Internal Control over Financial Reporting

As of the end of the period covered by this report, the Company carried out an evaluation, under
the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to ensure that the financial and nonfinancial information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, including this annual report on Form 10-K for the period ended December 31, 2009, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Management’s responsibilities related to establishing and maintaining effective disclosure controls and procedures include maintaining effective internal controls over financial reporting that are designed to produce reliable financial statements in accordance with accounting principles generally accepted in the United States. As disclosed in the Report on Management’s Assessment of Internal Control Over Financial Reporting in our 2009 Annual Report to Shareholders, management assessed the Company’s system of internal control over financial reporting as of December 31, 2009, in relation to criteria for effective internal control over financial reporting as described in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission and found it to be effective.

Crowe Horwath LLP, the Company’s registered public accounting firm, has audited the Company’s internal control over financial reporting as of December 31, 2009. The audit report by Crowe Horwath is located on page 24 of our 2009 Annual Report to Shareholders.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a — 15(f) under the Exchange Act) that occurred during the year ended December 31, 2009, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation or material weaknesses in such internal controls requiring corrective actions

Item 9B. Other Information

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information relating to Directors and Corporate Governance is set forth in the registrant’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders which will be held April 13, 2010. The proxy statement is incorporated by reference.

Executive Officers of the Registrant

The names, ages and positions of the executive officers as of March 1, 2010

Name	Age		Position Held
Frank L. Paden		59	President and Secretary
John S. Gulas		51	Executive Vice President and Chief Operating Officer
Carl D. Culp		46	Executive Vice President & Treasurer

Officers are elected annually by the Board of Directors immediately following the annual meeting of shareholders. The term of office for all the above executive officers is for the period ending with the next annual meeting.

12

Principal Occupation and Business Experience of Executive Office

Mr. Frank L. Paden has served as President and Secretary since March 1996. Prior to that time he was Executive Vice President of the registrant since March 1995, was Executive Vice President of the Bank since March 1995 and has held various other executive positions with the Bank.

Mr. John S. Gulas has served as Chief Operating Officer since January 2009. In addition to his election as Chief Operating Officer of the registrant Mr. Gulas has served in the same capacity with the Bank since July 2008. Prior to that time Mr. Gulas was the President and CEO of Sky Trust Company, N.A. since July 2005. Prior to that position he was Executive Vice President and Chief Fiduciary Officer for UMB Bank in Kansas City, MO.

Mr. Carl D. Culp has served as Executive Vice President and Treasurer since March 1996. Prior to that time he was Controller of the registrant since November 1995 and was Controller of the Bank since November 1995.

Compliance with Section 16(a) of the Securities Exchange Act

Information regarding this item is set forth in the Company’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held April 13, 2010. The proxy statement is incorporated by reference.

Code of Ethics

See Exhibit 14.

Nominating Committee

Information regarding this item is set forth in the Company’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held April 13, 2010. The proxy statement is incorporated by reference.

Identification of the Audit Committee

Information regarding this item is set forth in the Company’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held April 13, 2010. The proxy statement is incorporated by reference.

Audit Committee Financial Expert

The Board believes that Earl R. Scott and James R. Fisher qualify as “Audit Committee Financial Experts” as that term is defined by applicable SEC rules. In addition, the Board believes that Earl R. Scott and James R. Fisher are “independent” as that term is defined by applicable SEC rules.

Item 10. Executive Compensation

Information regarding this item is set forth in the Company’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held April 13, 2010. The proxy statement is incorporated by reference.

13

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

				Number of securities
	Number of securities		Weighted-average	remaining available for
	to be issued upon		exercise price of	future issuance under
	exercise of out		outstanding	equity compensation
	standing options,		options, warrants	plans (excluding
	warrants and rights		and rights	securities reflected in column (a))
Plan category	(a)		(b)	(c)
Equity compensation plans approved by security holders		37,000	$10.40/share		0

Information regarding the equity (stock-based) compensation plan is set forth in the registrant’s annual report in Notes A and K in the Notes to Consolidated Financial Statements. This portion of the annual report is incorporated by reference.

Security Ownership of Management

Information relating to this item is set forth in the Company’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held April 13, 2010. The proxy statement is incorporated by reference.

Item 12. Certain Relationships and Related Transactions and Director Independence

Information regarding this item is set forth in the Company’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held April 13, 2010. The proxy statement is incorporated by reference.

Item 13. Principal Accountant Fees and Services

Information regarding this item is set forth in the Company’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held April 13, 2010. The proxy statement is incorporated by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)1. Financial Statements

Item 8., Financial Statements and Supplementary Data is set forth in the Company’s 2009 Annual Report to Shareholders and is incorporated by reference in Part II of this report.

2. Financial Statement Schedules

No financial statement schedules are presented because they are not applicable.

14

3. Exhibits

The exhibits filed or incorporated by reference as a part of this report are listed in the Index of Exhibits, which appears at page 17 hereof and is incorporated herein by reference. No financial statement schedules are presented because they are not applicable.

(b) Exhibits

The exhibits filed or incorporated by reference as a part of this report are listed in the Index of Exhibits, which appears at page 17 hereof and is incorporated herein by reference.

(c) Financial Statement Schedules

No financial statement schedules are presented under this section because none are applicable.

15

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the under signed, thereunto duly authorized.

Farmers National Banc Corp.	Farmers National Banc Corp.	Farmers National Banc Corp
/s/ Frank L. Paden	/s/ Carl D. Culp	/s/ Joseph W. Sabat
Frank L. Paden	Carl D. Culp	Joseph W. Sabat
President and Secretary	Executive VP and Treasurer	Controller
March 16, 2010	March 16, 2010	March 16, 2010
/s/ Benjamin R. Brown	Director	March 16, 2010
Benjamin R. Brown
/s/ Anne Frederick Crawford	Director	March 16, 2010
Anne Frederick Crawford
/s/ James R. Fisher	Director	March 16, 2010
James R. Fisher
/s/ Joseph D. Lane	Director	March 16, 2010
Joseph D. Lane
/s/ Ralph D. Macali	Director	March 16, 2010
Ralph D. Macali
/s/ Earl R. Scott	Director	March 16, 2010
Earl R. Scott
/s/ Frank L. Paden	President and Director	March 16, 2010
Frank L. Paden
/s/ Ronald V. Wertz	Director	March 16, 2010
Ronald V. Wertz

16

INDEX TO EXHIBITS

The following exhibits are filed or incorporated by reference as part of this report:

	2.	Not applicable.
	3(i).	The Articles of Incorporation, including amendments thereto for the Corporation. Incorporated by reference to Exhibit 4.1 to Farmers National Banc Corp’s Form S-3 Registration Statement dated October 3, 2001 (File No. 0-12055).
3(ii).		The Code of Regulations, including amendments thereto for the Corporation.
	4.	Incorporated by reference to initial filing.
	9.	Not applicable.
	10.1	Information regarding this item is set forth in the Company’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held April 13, 2010. The proxy statement is incorporated by reference.
	10.2	Executive Incentive Plan, dated August 11, 2009, adopted by the board of directors of the Farmers National Banc Corp, (Incorporated herein by reference to Exhibit 10.2 to the Bank’s August 17, 2009 Form 8-K).
	10.3	Letter Agreement, dated July 22, 2008, between Farmers National Bank of Canfield, and John S. Gulas (Incorporated herein by reference to Exhibit 10.3 to the Bank’s July 22, 2008 Form 8-K).
	10.4	Letter Agreement, dated December 23, 2008, between Farmers National Bank of Canfield, and Kevin J. Helmick (Incorporated herein by reference to Exhibit 10.4 to the Bank’s December 23, 2008 Form 8-K).
	10.5	Letter Agreement, dated December 23, 2008, between Farmers National Bank of Canfield, and Mark L. Graham (Incorporated herein by reference to Exhibit 10.5 to the Bank’s December 23, 2008 Form 8-K).
	10.6	Letter Agreement, dated December 23, 2008, between Farmers National Bank of Canfield, and Frank L. Paden (Incorporated herein by reference to Exhibit 10.6 to the Bank’s December 23, 2008 Form 8-K).
	10.7	Letter Agreement, dated December 23, 2008, between Farmers National Bank of Canfield, and Carl D. Culp (Incorporated herein by reference to Exhibit 10.7 to the Bank’s December 23, 2008 Form 8-K).
	10.8	Certified Resolution regarding Adoption of Farmers National Banc Corp 1999 Stock Option Plan, (Incorporated herein by reference to Exhibit 10.8 to Farmers National Banc Corp’s Proxy dated February 24, 1999).
	11.	Refer to Note P in the annual report incorporated by reference.
	12.	Not applicable.
	13.	Annual Report to security holders.
	14.	The Company has adopted a Code of Ethics that applies to the Chief Executive Officer and Chief Financial Officer and complies with the criteria provided in SEC rules. The Code of Ethics is available, free of charge, by calling the Bank’s Corporate Services at 330-533-3341.

17

16.	Not applicable.
18.	Not applicable.
21.	Farmers National Bank, an Ohio corporation, Canfield, Ohio. Farmers Trust Company, an Ohio corporation, Youngstown, Ohio Farmers National Insurance, an Ohio Limited Liability Company, Canfield, Ohio
22.	Not applicable.
23a.	Consent of Crowe Horwath LLP
24.	Not applicable.
31.a	Certification of Chief Executive Officer (Filed herewith)
31.b	Certification of Chief Financial Officer (Filed herewith)
32.a	1350 Certification of Chief Executive Officer (Filed herewith)
32.b	1350 Certification of Chief Financial Officer (Filed herewith)
33.	Not applicable
34.	Not applicable
35.	Not applicable

Copies of any exhibits will be furnished to shareholders upon written request. Request should be directed to Carl D. Culp, Executive Vice President, Farmers National Banc Corp., 20 S. Broad Street, Canfield, Ohio 44406.

18

EX-3.II

Exhibit 3(ii)

AMENDED
CODE OF REGULATIONS
OF
FARMERS NATIONAL BANC CORP.

ARTICLE I

OFFICES

SECTION 1. PRINCIPAL OFFICE. The principal office of the corporation shall be in the City of Canfield, Ohio, as may be designated from time to time by the Board of Directors.

SECTION 2. OTHER OFFICES. The corporation shall also have offices at such other places without, as well as within, the State of Ohio, as the Board of Directors may from time to time determine.

ARTICLE II

MEETINGS OF SHAREHOLDERS

SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of this corporation, for the purpose of fixing or changing the number of directors of the corporation, electing directors and transacting such other business as may come before the meeting, shall be held on a day, to be determined by the Board of Directors, in the month of April each year.

SECTION 2. SPECIAL MEETINGS. Special Meetings of the shareholders may be called at any time by the Chairman of the Board of Directors, President or a Vice President, or a majority of the Board of Directors acting with or without a meeting, or the holder or holders of one-fourth of all shares outstanding and entitled to vote thereat.

SECTION 3. PLACE OF MEETINGS. Meetings of shareholders shall be held at the office of the corporation in the City of Canfield, Ohio, unless the Board of Directors decides that a meeting shall be held at some other place within or without the State of Ohio and causes the notice thereof to so state.

SECTION 4. NOTICES OF MEETINGS. Unless waived, a written, printed or typewritten notice of each annual or special meeting, stating the day, hour and place and the purpose or purposes thereof, shall be served upon or mailed to each shareholder of record (a) as of the day next preceding the day on which notice is given or (b) if a record date therefor is duly fixed, of record as of said date. Such notice shall be given not more than sixty (60) days, nor less than ten (10) days before any such meeting. If mailed, it shall be directed to a shareholder at his address as the same appears upon the records of the corporation.

All notices with respect to any shares of record in the names of two or more persons may be given to whichever of such persons is named first on the books of the corporation, and notice so given shall be effective as to all the holders of record of such shares.

Every person who by operation of law, transfer, transmission or otherwise shall become entitled to any share or right or interest therein shall be bound by every notice in respect of such share which, prior to his name and address being entered upon the books of the corporation as the registered holder of such share, shall have been given to the person in whose name such share appears of record.

SECTION 5. WAIVER OF NOTICE. Any shareholder, either before or after any meeting, may waive in writing any notice required to be given by law or under these Regulations; and whenever all of the shareholders entitled to vote shall meet in person or by proxy and consent to hold a meeting, it shall be valid for all purposes without call or notice and at such meeting any action may be taken.

SECTION 6. QUORUM. The shareholders present in person or by proxy at any meeting for the determination of the number of directors or the election of directors, or for the consideration or action upon reports required to be laid before such meeting, shall constitute a quorum.

At any meeting called for any other purpose, the holders of shares entitling them to exercise a majority of the voting power of the corporation, present in person or represented by proxy, shall constitute a quorum, except when a greater proportion required by law, the Articles of Incorporation or this Code of Regulations.

At any meeting at which a quorum is present, all questions and business which shall come before the meeting shall be determined by the vote of the holders of a majority of such voting shares as are represented in person or by proxy, except when a greater proportion is required by law or the Articles of Incorporation.

At any meeting, whether a quorum is present or not, the holders of a majority of the voting shares represented by shareholders present in person or by proxy may adjourn from time to time and from place to place without notice other than by announcement at the meeting. At such adjourned meeting, at which a quorum is present, any business may be transacted which might be transacted at the meeting as originally notified or held.

SECTION 7. PROXIES. Any shareholder of record who is entitled to attend a shareholder’s meeting or to vote thereat or to assent or give consents in writing shall be entitled to be represented at such meetings or vote thereat or to assent or give consents in writing, as the case may be, or to exercise any of his other rights, by proxy or proxies, appointed by a writing signed by such shareholder, which need not be sealed, witnessed or acknowledged.

A telegram, cablegram, wireless message or photogram appearing to have been transmitted by a shareholder or a photographic, photostatic or equivalent reproduction or a writing appointing a proxy shall be a sufficient writing.

No appointment of a proxy shall be valid after the expiration of eleven (11) months after it is made, unless the writing specifies the date on which it is to expire or the length of time it is to continue in force.

Unless the writing appointing a proxy or proxies otherwise provides:

1. Each and every proxy shall have the power of substitution, and, when three (3) or more persons are appointed, a majority of them or their respective substitutes may appoint a substitute or substitutes to act for all;

2. If more than one proxy is appointed, then (a) with respect to voting or giving consents at a shareholders’ meeting, a majority of such proxies as attend the meeting, or if only one attends then that one, may exercise all the voting and consenting authority thereat, and if one or more attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such authority with respect to an equal number of shares, and (b) with respect to exercising any other authority, a majority may act for all;

3. A writing appointing a proxy shall not be revoked by the death or incapacity of the maker unless before the vote is taken or the authority granted is otherwise exercised, written notice of such death or incapacity is given to the corporation by the executor or administrator of the estate of such maker or by the fiduciary having control of the shares in respect of which the proxy was appointed;

4. The presence of a shareholder at a meeting shall not operate to revoke a writing appointing a proxy. A shareholder, without affecting any vote previously taken, any revoke such writing not otherwise revoked by giving notice to the corporation in writing or in open meeting.

SECTION 8. VOTING. At any meeting of shareholders, each shareholder of the corporation shall, except as otherwise provided by law or by the Articles of Incorporation or by these Regulations be entitled to one (1) vote in person or by proxy for each share of the corporation registered in his name on the books of the corporation (1) on the date fixed pursuant to subparagraph (f) of Section 2 of Article IV of these Regulations as the record date for the determination of shareholders entitled to vote at such meeting, notwithstanding the prior or subsequent sale, or other disposal of such share or shares or transfer of the same on the books of the corporation of such share or shares on or after the date so fixed, or (2) if no such record date shall have been fixed, then at the time of such meeting.

SECTION 9. FINANCIAL REPORTS. At the annual meeting of shareholders, or the meeting held in lieu thereof, there shall be laid before the shareholders a financial statement consisting of: (1) a balance sheet containing a summary of the assets, liabilities, stated capital and surplus (showing separately any capital surplus arising from unrealized appreciation of assets, other capital surplus and earned surplus) of the corporation as of a date not more than four (4) months before such meeting; if such meeting is an adjourned meeting, said balance sheet may be as of a date not more than four (4) months before the date of the meeting as originally convened; (2) a statement of profit and loss and surplus including a summary of profits, dividends paid and other changes in the surplus accounts of the corporation for the period commencing with the date marking the end of the period for which the last preceding statement of profit and loss required under this section was made and ending with the date of said balance sheet.

An opinion signed by the President or a Vice President or the Treasurer or an Assistant Treasurer, or by a public accountant or firm of public accountants, shall be appended to such financial statement, stating that the financial statement presents fairly the corporation’s financial position and the results of its operations in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding period, or such other opinion as is in accordance with sound accounting practice.

SECTION 10. ACTION WITHOUT A MEETING. Any action which may be authorized or taken at any meeting of shareholders may be authorized or taken without a meeting in a writing or writings signed by all the holders of shares who would be entitled to notice of a meeting of the shareholders for such purpose. Such writing or writings shall be filed with or entered upon the records of the corporation.

ARTICLE III

PROCEDURES FOR ELECTION OF DIRECTORS

SECTION 1. NUMBER OF DIRECTORS. The number of directors constituting the entire Board shall not be less than five (5) nor more than twenty-five (25), the exact number of directors to be determined from time to time by a sixty-six and two-thirds percent (66 2/3%) majority vote of the whole Board of Directors of the corporation, and such exact number shall be eight (8) until otherwise so determined in accordance with this Article III, Section 1. Unless otherwise provided by law, any vacancy in the Board of Directors for any reason, including an increase in the number thereof, shall be filled by action of the Board of Directors as provided in accordance with these Regulations.

SECTION 2. NOMINATIONS. Nominations of persons for election to the Board of Directors of the Corporation at a meeting of the shareholders may be made by or at the direction of the Board of Directors. Nominations may also be made at a meeting of shareholders by any shareholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2 of Article III. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a shareholder’s notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than ninety (90) days nor more than one hundred-twenty (120) days prior to the meeting; provided, however, that in the event that less than ninety (90) days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so delivered or mailed no later than the close of business on the 7th day following the date public disclosure was made, whichever first occurs. Such shareholder’s notice to the Secretary shall set forth (a) as to each nominee of the shareholder: (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment history of the person for the last five (5) years, and (iii) the class and number of shares of capital stock of the corporation which are directly and beneficially owned by the person; and (b) as to the shareholder giving the notice (i) the name and record address of the shareholder and (ii) the class and number of shares of capital stock of the corporation which are directly and beneficially owned by the shareholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as director of the corporation. No person shall be eligible for election as a director of the corporation at a meeting of the shareholders unless nominated in accordance with the procedures set forth herein. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure and the defective nomination shall be disregarded.

SECTION 3. ELECTION AND TERM OF DIRECTORS. The Board of Directors shall be divided into three (3) classes with the term of office of one class expiring each year. At the annual meeting of Shareholders held in 2001, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting, and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from an increase in the number of directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any director so chosen shall hold office until the next election of the class for which such director shall have been chosen and until their successor shall be elected and qualified.

No decrease in the number of directors shall shorten the term of any incumbent director. Subject to the foregoing, at each annual meeting of shareholders, the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting.

Amendment of this Article III, Section 3 — ELECTION AND TERM OF DIRECTORS, shall require a sixty-six and two-thirds percent (66 2/3%) majority vote of the shareholders.

SECTION 4. VACANCIES. In case of a vacancy in the Board of Directors, through increase in the number of directors, death, resignation, disqualification, or other cause, the remaining directors, by an affirmative vote of a majority thereof, shall elect a successor to hold office for the unexpired portion of the term of the director whose place is vacant. If the vacancy is created through an increase in the number of directors, the Board of Directors shall determine the class of such directorship.

SECTION 5. REMOVAL OF DIRECTOR. Any or all of the directors shall only be removed with cause and only by the affirmative vote of the holders of not less than sixty-six and two-thirds percent (66 2/3%) of the voting stock of the corporation at a meeting called for such purpose. Sufficient showing of cause shall be determined by a two-thirds (2/3) majority vote of the unaffected directors if there exists a minimum of four (4) unaffected directors. In the event there exists less than four (4) unaffected directors, then sufficient showing of cause shall be determined by unanimous vote of the unaffected directors and by an opinion of an uninterested legal counsel designated by the President of the corporation, which such opinion concurs with the findings of the unaffected directors.

ARTICLE IV

POWERS, MEETING AND COMPENSATION OF DIRECTORS

SECTION 1. GENERAL POWERS OF THE BOARD. The powers of the corporation shall be exercised, its business and affairs conducted, and its property controlled by the Board of Directors, except as otherwise provided in the Articles of Incorporation, amendments thereto, or General Corporation Act of Ohio.

SECTION 2. OTHER POWERS. Without prejudice to the general powers conferred by or implied in the preceding section, the directors, acting as a Board, shall have powers:

(a) To fix, define and limit the powers and duties of all officers and to fix the salaries of all officers;

(b) To appoint, and at their discretion, with or without cause, to remove or suspend, such subordinate officers, assistants, managers, agents and employees as the directors may from time to time deem advisable, and to determine their duties and fix their compensation;

(c) To require any officer, agent or employee of the corporation to furnish a bond for faithful performance in such amount and with such sureties as the Board may approve;

(d) To designate a depository or depositories of the funds of the corporation and the officer or officers or other persons who shall be authorized to sign notes, check drafts, contracts, deeds, mortgages and other instruments on behalf of the corporation;

(e) To appoint and remove transfer agents and/or registrars for the corporation’s shares;

(f) To fix a time not exceeding forty-five (45) days preceding the date of any meeting of shareholders, or the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or (subject to contract rights with respect thereto) the date when any change or conversion or exchange of shares shall be made or go into effect, as a record date for the determination of the shareholders entitled to notice of and to vote at any such meeting, or entitled to receive payment of any such dividend, distribution or allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares, and in such case, only the persons who are shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting, or to receive payment of such dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after any record date fixed as aforesaid, or change of ownership of any shares either before or after such record date, and such persons shall conclusively be deemed to be the shareholders of the corporation on such record date, notwithstanding notice or knowledge to the contrary; and the Board of Directors may close the books of the corporation against transfer of shares during the whole or any part of such period; and

(g) To establish such rules and regulations respecting the issuance and transfer of shares and certificates for shares as the Board of Directors may consider reasonable.

SECTION 3. MEETINGS OF THE BOARD. A meeting of the Board of Directors shall be held immediately following the adjournment of each shareholders’ meeting at which directors are elected; notice of such meeting need not be given.

The Board of Directors may, by by-laws or resolution, provide for other meetings of the Board.

Special meetings of the Board of Directors may be held at any time upon call of the Chairman of the Board of Directors, President, a Vice President, or any two members of the Board.

Notice of any special meeting of the Board of Directors shall be mailed to each director addressed to him at his residence or usual place of business, at least five (5) days before the day on which the meeting is to be held, or shall be sent to him at such place by telegraph, cable, radio or wireless, or be given personally or by telephone, not later than the day before the day on which the meeting is to be held. Every such notice shall state the time and place of the meeting but need not state the purposes thereof. Notice of any meeting of the Board need not be given to any director, however, if waived by him in writing or by telegraph, cable, radio or wireless, whether before or after such meeting is held, or if he shall be present at such meeting; and any meeting of the Board shall be a legal meeting without any notice thereof having been given, if all the directors shall be present thereat.

Meetings of the Board shall be held at the office of the corporation in the City of Canfield, Ohio, or at such other place, within or without the State of Ohio, as the Board may determine from time to time and as may be specified in the notice thereof. Meetings of the Board of Directors may also be held by the utilization of simultaneous telephonic communications linking all directors present at such meetings, and all such business conducted via such telephonic communication shall be considered legally enforceable by the corporation.

SECTION 4. QUORUM. A majority of the Board of Directors shall constitute a quorum for the transaction of business, provided that whenever less than a quorum is present at the time and place appointed for any meeting of the Board, a majority of those present may adjourn the meeting from time to time, without notice other than by announcement at the meeting, until a quorum shall be present.

SECTION 5. ACTION WITHOUT MEETING. Any action may be authorized or taken without a meeting in a writing or writings signed by all of the directors, which writing or writings shall be filed with or entered upon the records of the corporation.

SECTION 6. COMPENSATION. The directors, as such, shall not receive any salary for their services, but by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board; provided that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefore. Members of the executive committee or of any standing or special committee may by resolution of the Board be allowed such compensation for their services as the Board may deem reasonable, and additional compensation may be allowed to directors for special services rendered.

SECTION 7. BY-LAWS. For the government of its actions, the Board of Directors may adopt by-laws consistent with the Articles of Incorporation.

ARTICLE V

COMMITTEES

SECTION 1. COMMITTEES. The Board of Directors may by resolution provide for such standing or special committees as it deems desirable, and discontinue the same at its pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be designated by the Board of Directors. Vacancies in such committees should be filed by the Board of Directors, or as it may provide.

ARTICLE VI

OFFICERS

SECTION 1. GENERAL PROVISIONS. The Board of Directors shall elect a President, such number of Vice Presidents as the Board may from time to time determine, a Secretary and a Treasurer, and in its discretion, a Chairman of the Board of Directors and a Vice Chairman of the Board of Directors. If no such Chairman of the Board is elected by the Board of Directors, the President of the corporation shall act as presiding officer of the corporation. The Board of Directors may from time to time create such offices and appoint such other officers, subordinate officers and assistant officers as it may determine. The President and the Chairman of the Board shall be, but the other officers need not be, chosen from among the members of the Board of Directors. Any two or more of such offices, other than that of President and Vice President, Secretary and Assistant Secretary, or Treasurer and Assistant Treasurer, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity.

SECTION 2. TERM OF OFFICE. The officers of the corporation shall hold office during the pleasure of the Board of Directors and, unless sooner removed by the Board of Directors, until the organization meeting of the Board of Directors following the date of their election or until their successors are chosen and qualified.

The Board of Directors may remove any officer at any time, with or without cause, by a majority vote.

A vacancy in any office, however created, shall be filled by the Board of Directors.

ARTICLE VII

DUTIES OF OFFICERS

SECTION 1. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one be elected, shall preside at all meetings of the shareholders and Board of Directors and shall have such other powers and duties as may be prescribed by the Board of Directors or prescribed by the General Corporation Act.

SECTION 2. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if one be elected, shall preside at all meetings of the shareholders and Board of Directors, in the absence of the Chairman of the Board. The Vice Chairman shall have such powers and duties as may be prescribed by the Board of Directors, or prescribed by the Chairman of the Board, or General Corporation Act.

SECTION 3. PRESIDENT. The President shall be the chief executive officer of the corporation and shall exercise supervision over the business of the corporation and over its several officers, subject, however, to the control of the Board of Directors. In the absence of or if a Chairman of the Board shall not have been elected or a Vice Chairman shall not have been elected, he shall preside at meetings of the shareholders and Board of Directors. He shall have authority to sign all certificates for shares and all deeds, mortgages, notes, bonds, contracts and other instruments requiring his signature, and shall have all the powers and duties prescribed by the General Corporation Act and such others as the Board of Directors may from time to time assign him.

SECTION 4. VICE PRESIDENTS. The Vice Presidents shall perform such duties as are conferred upon them by these Regulations or as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, or the President. At the request of the President, or in his absence or disability, the Vice President, designated by the President (or, in the absence of such designation, the Vice President designated by the Board) shall perform all the duties of the President and, when so acting, shall have all the powers of the President. The authority of Vice Presidents to sign in the name of the corporation all certificates for shares and authorized deeds, mortgages, bonds, contracts, notes and other instruments shall be coordinate with like authority of the President. Any one or more of the Vice presidents may be designated as an “Executive Vice President.”

SECTION 5. SECRETARY. The Secretary shall keep minutes of all the proceedings of the shareholders and Board of Directors and shall make proper record of the same, which shall be attested by him; sign all certificates for shares and all deeds, mortgages, bonds, contracts, notes and other instruments executed by the corporation and requiring his signature; give notice of meetings of shareholders and directors; produce on request at each meeting of shareholders for the election of directors a certified list of shareholders, arranged in alphabetical order; keep such books as may be required by the Board of Directors and file all reports to States, to the Federal Government and to foreign countries; and perform such other and further duties as may from time to time be assigned to him by the Board of Directors, the Chairman of the Board or by the President.

SECTION 6. TREASURER. The Treasurer shall have general supervision of all finances; he shall receive and have in charge all monies, bills, notes, deeds, leases, mortgages and similar property belonging to the corporation; and shall do with the same as may from time to time be required by the Board of Directors. He shall cause to be kept adequate and correct accounts of the business transactions of the corporation, including account of its assets, liabilities, receipts, disbursements, gains, losses, stated capital, surplus and shares, together with such other accounts as may be required, and, upon the expiration of her term of office, shall turn over to his successor or to the Board of Directors all property, books, papers and monies of the corporation in his hands; and he shall perform such other duties as may from time to time be assigned to him by the Board of Directors.

SECTION 7. ASSISTANT AND SUBORDINATE OFFICERS. The Board of Directors may appoint such assistant and subordinate officers as it may deem desirable. Each such officer shall hold office during the pleasure of the Board of Directors and shall perform such duties as the Board of Directors may prescribe. The Board of Directors may from time to time authorize any officer to appoint and remove subordinate officers, to prescribe their authority and duties and to fix their compensation.

SECTION 8. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence of any officer of the corporation, or for any other reason which the Board of Directors may deem sufficient, the Board of Directors may delegate for the time being powers or duties or any of them, of any such officer to any other officer or to any director.

ARTICLE VIII

CERTIFICATE FOR SHARES

SECTION 1. FORM AND EXECUTION. Certificates for shares shall be issued to each shareholder in such form as shall be approved by the Board of Directors. Such certificates shall be signed by the Chairman of the Board of Directors or the President or a Vice President and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of the corporation, which shall certify the number and class of shares held by him in the corporation, but no certificate for shares shall be executed or delivered until such shares are fully paid. When such certificate is countersigned by an Incorporated Transfer Agent or Registrar, the signature of any of said officers and the seal of the corporation may be facsimile, engraved, stamped or printed. Although any officer of the corporation whose manual or facsimile signature is affixed to such a certificate ceases to be such officer before the certificate is delivered, such certificate, nevertheless, shall be effective in all other respects when delivered.

Such certificates for share shall be transferable in person or by attorney, but, except as hereinafter provided in the case of lost, mutilated or destroyed certificates, no transfer of shares shall be entered upon the records of the corporation until the previous certificates, if any, given for the same shall have been surrendered and cancelled.

SECTION 2. LOST, MUTILATED OR DESTROYED CERTIFICATES. If any certificates for shares are lost, mutilated or destroyed, the Board of Directors may authorize the execution and delivery of a new certificate in place thereof, upon such terms and conditions as it may deem advisable. The Board of Directors, in its discretion, may refuse to execute such new certificate until the corporation has been indemnified by a final order of decree of a court of competent jurisdiction.

SECTION 3. REGISTERED SHAREHOLDERS. A person in whose name shares are of record on the books of the corporation shall conclusively be deemed the unqualified owner thereof, for all purposes, and to have capacity to exercise all rights of ownership. Neither the corporation nor any transfer agent of the corporation shall be bound to recognize any equitable interest in or claim to such shares on the part of any other person, whether disclosed upon such certificate or otherwise, nor shall they be obligated to see to the execution of any trust or obligation.

ARTICLE IX

FISCAL YEAR

The fiscal year of the corporation shall end on the 31st day of December, in each year, or on such other day as may from time to time be fixed by the Board of Directors.

ARTICLE X

SEAL

The Board of Directors may, in its discretion, provide a suitable seal containing the name of the corporation. If deemed advisable by the Board of Directors, duplicate seals may be provided and kept for the purposes of the corporation.

ARTICLE XI

AMENDMENTS

These Regulations may be amended or repealed at any meeting of shareholders called for that purpose, by the affirmative vote of the holders of record of shares entitling them to exercise a majority of the voting power on such proposal, or, without a meeting, by the written consent of the holders of record of shares entitling them to exercise two-thirds (2/3) of the voting power on such proposal.

EX-13

Exhibit 13

BE SURE OF WHERE YOU’RE STANDING... AND THEN STAND STRONG.

CORPORATE PROFILE

Farmers National Banc Corp. (the “Corporation”) is a multi-bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Corporation has three subsidiaries, Farmers National Bank of Canfield (the “Bank”), an independent community bank with 16 offices; Farmers Trust Company, a non-depository trust bank; and Farmers National Insurance, LLC. The Corporation and its subsidiaries operate in one industry, domestic banking.

The Farmers National Bank of Canfield, chartered in 1887 as a national bank, is a full-service financial services company engaged in commercial and retail banking. The Bank’s main office is located at 20 South Broad Street, Canfield, Ohio. Business is conducted at a total of sixteen (16) retail offices and two (2) trust offices located in the counties of Mahoning, Columbiana and Trumbull. In addition, the Bank provides 24-hour access to a network of Automated Teller Machines and offers Internet and telephone banking services. As a national banking association, the Bank is a member of the Federal Reserve System, subject to supervision and regulation of the Comptroller of the Currency, and deposits are insured by the Federal Deposit Insurance Corporation to the extent provided by law. The Bank is affected also by the monetary and fiscal policy of the United States and of various regulatory agencies.

The Bank competes with state and national banks located in Mahoning, Columbiana and Trumbull counties. The Bank also competes with a large number of other financial institutions, such as thrifts, insurance companies, consumer finance companies, credit unions and commercial finance leasing companies for deposits, loans and other financial service business. The principal methods of competition are the rates of interest charged for loans, the rates paid for funds, the fees charged for services and the availability of services.

CORE VALUES / BELIEFS

Integrity Respect
Diligence
Stewardship
Commitment
Relationships

MISSION STATEMENT

“Our organization will strive to be the premier financial partner providing the best products and services to achieve innovative solutions for customers, associates, shareholders and the community. We will do so with integrity, respect and commitment to quality.”

TABLE OF CONTENTS

Financial Highlights	3
Letters To Our Shareholders	4-9
Investor Information	10
Selected Financial Data	11-13
Management’s Discussion & Analysis	13-22
Management’s Report	23
Report Of Independent Auditors	24
Consolidated Financial Statements & Notes	25-44
Philanthropy	45
Farmers National Financial Group	46
Board Of Directors & Executive Team	47

FINANCIAL HIGHLIGHTS
(Dollar Amounts in Thousands Except for Per Share Data)

For the Year	2009			2008			2007
Net Income	$	5,842		$	5,665		$	5,925
Return on Average Assets		0.60	%		0.67	%		0.74	%
Return on Average Equity		7.32	%		7.67	%		7.95	%
Per Share
Net Income (Basic)	$	0.44		$	0.43		$	0.46
Net Income (Diluted)		0.44			0.43			0.46
Book Value		5.96			5.83			5.67
Balances at Year-End
Total Assets	$	1,014,808		$	880,370		$	798,236
Earning Assets		948,187			829,173			745,482
Total Deposits		777,552			648,010			593,428
Net Loans		601,995			546,452			508,647
Total Stockholders’ Equity		80,628			77,102			73,920
Cash Dividends		4,801			6,802			8,309
Common Shares Outstanding		13,520			13,230			13,028

3

FROM THE DESK OF:
FRANK L. PADEN, PRESIDENT & CEO
AND JOHN S. GULAS, EXECUTIVE VICE PRESIDENT & COO

To Our Shareholders:

On behalf of your Board of Directors, it is our distinct pleasure to present our Annual Report to Shareholders for 2009. The theme of this year’s Annual Report, “Standing Strong”, speaks to your Corporation’s continuing position of strength and stability in the midst of, and at times, an unpredictable national economic financial environment.

Your Corporation has responded to the needs and demands of this economic climate with what can accurately be described as “accelerated productivity.” Indeed, it would be difficult to point to any prior year in Farmers’ 122 year history in which we have successfully pursued and implemented so many goals and objectives.

To say that these last two years have been eventful would be beyond an understatement. This period was dominated by the worst financial crisis since the Great Depression. The financial services industry was directly impacted by reports that the mounting credit and liquidity crisis had overwhelmed what were once some of the worlds’ most powerful financial institutions. During those times, our industry saw major corporate consolidations, bank failures, government investment into corporations and heightened regulatory scrutiny to deal with the worsening in the credit markets. Financial institutions under stress were forced to make some very difficult decisions.

From left to right:
John S. Gulas, Executive Vice President & COO, Frank L. Paden, President & CEO and Carl D. Culp, Executive Vice President & CFO

Our Corporation is certainly not immune to these issues in the current economic environment; however, we are able to share with you in this Annual Report results that demonstrate growth in many categories of our business in 2009. Additionally, we made strategic decisions and advancements in processes and systems that will position us ahead of most of our peers and alongside many of the most progressive larger financial institutions.

We would not attempt to list all the achievements our Company accomplished during 2009. Some of those are highlighted below and you will find additional reports on Farmers National Investments and our wholly owned subsidiaries, Farmers Trust Company and Farmers National Insurance, LLC.

Reflecting balance sheet growth in 2009 in loans and deposits, your Corporation exceeded the $1 Billion mark in total assets for the first time in its history. In the banking industry, $1 Billion in total assets is often seen as a symbolic benchmark separating smaller community banks from community banks with a more significant role in the competitive marketplace.

CREDIT

Our loan portfolio increased 10% during 2009, reflecting substantial development in our traditionally strong automobile financing programs, which grew by approximately 24%.This is a time when local dealers and customers needed support and financing. Additionally, our commercial real estate loan portfolio grew 11% and our commercial and industrial (C&I) loan portfolio increased approximately 8%, year over year.

As a group, our commercial loan officers exceeded their aggressive target goals for 2009. As always, our desire to grow our business was measured against our long-instilled culture of fiscal conservatism and prudent risk management. We strive for that balance, which in our view, creates long-term shareholder value. When others exited the credit markets in our regional business marketplace, it is fair to say that our Company was perceived as the “Bank of Choice” for credit-worthy companies with a sound business model who were seeking capital this past year to grow and expand their business.

4

In 2009, we continued to emphasize our objective to make loans to creditworthy borrowers, conduct sound analysis of financial and collateral information, work constructively with borrowers experiencing difficulties and confront credit problems in a forthright and timely manner. We increased staff, devoted resources and re-engineered our credit administration processes to respond to signals that were identified in our loan portfolio.

The Bank experienced an increase in the asset quality ratio that measures nonperforming loans as a percentage of total loans during 2009. Our ratios remain better than peer groups at the local, state and regional level. However, levels of foreclosures and bankruptcy filings continue to rise and our markets continue to be impacted by high unemployment, depressed real estate values and high vacancy rates on commercial real estate. Net loan losses increased during 2009 and management took the necessary steps to provide reserves for these losses and for ongoing stress on the loan portfolio.

CAPITAL

The financial crisis highlighted the critical role that capital serves as the protection against loss, liquidity risk and insolvency. Financial institutions operate under a risk-based capital structure that risk-rates each of the assets on the bank’s balance sheet. Capital levels are then determined based on the risk analysis conducted by management and regulatory agencies. Financial institutions are being called on to conduct more robust capital analysis and planning to deal with growth initiatives, negative trends in asset quality and impairments in the investment portfolios; all of which could weaken capital levels. As part of the solution to improve capital levels, we are in an era where many institutions have curtailed or eliminated cash dividends to shareholders. Another factor that impacts capital is growth. As our Company continues to grow assets, more capital is required to support that growth.

Our Board of Directors and Management are in the midst of a comprehensive capital planning process that will give us the direction that we need to take to enable us to grow, practice prudent risk management, provide the capital levels to insure the Bank’s safety and soundness initiatives and enhance the long-term return to shareholders.

Community bank stock valuations did not demonstrate the recovery hoped for in 2009, and while this holds true for your Corporation as well, our current yield on cash dividends remains better than that of our peers.

For a more detailed explanation of your Company’s financial performance during 2009, please see the report prepared by Mr. Carl D. Culp, our Executive Vice President and Chief Financial Officer included in this Annual Report.

CORE SYSTEMS UPGRADES

As pleased as we are to point to our business development growth in 2009, we take equal pride in the successful deployment of several internal initiatives that show great promise for advancing your Company’s competitive position and for creating shareholder value. Specifically, we succeeded in implementing seven key system conversions over the course of five intensive months in 2009. These conversions are tantamount to re-engineering of the technology and processing core of our Bank, and included the following:

• Fiserv Core System — this included a total conversion of an in-house operating system to a more robust outsourcing solution for core banking systems.

• ATM processing — this conversion consisted of our decision to process all ATM, debit, credit and point of sale transactions directly through our core processing vendor.

• Mark IV — this new product gives our credit department a more efficient method to process consumer loan applications and automate all the processing accordingly.

• Compliance One — this product upgraded our lending documentation processes to a more efficient and consistent methodology.

• Funds Express Internet Banking — this technology upgrade provided us with a new vendor for a suite of on-line banking products along with a comprehensive cash management system for the corporate banking customers.

• Telephone Banking — as part of the new on-line banking vendor, we converted our previous telephone banking product to a more secure system for our customers.

• Bill Pay — this product was enhanced and added as a “free” service to be included in conjunction with our on-line banking product.

To our valued shareholder, we can say with assurance this represents a major technology investment and process leap forward for your Company. We now have the tools and procedures to offer our clients products and services commensurate with their needs in today’s quickly changing consumer and business environment. We can also report advancements in other key areas of our evolving business model.

RETAIL BANKING GROWTH

A key strategic priority for 2009 was to significantly increase our market share in our geographic footprint. Our retail banking division reported strong production results for 2009. Our branch network reported increases of 17% in core deposits, far exceeding our targets for success. This team of personal bankers was also successful by increasing branch loan production and commercial loan referrals by approximately 30% over the previous year.

5

Deposit growth increased alongside the growth in our overall loan portfolio. Total deposits increased by 20%, with exceptional growth in our Money Market Index product, which increased approximately 48% during the year. Our talented team of personal bankers executed the Bank’s strategic initiatives to generate new deposit relationships and increase market share during 2009. Management provided the foresight to refine and enhance the deposit products to meet the demands of our new and existing core deposit account holders.

During this year, we undertook a total remodeling of our Cornersburg branch demonstrating our commitment to that community to provide the best of facilities and services in a market that we have serviced for nearly 40 years. In addition, we continue to position ourselves for future growth opportunities in the marketplace.

FARMERS NATIONAL FINANCIAL GROUP

One of the emerging trends is to focus on fee-based businesses and service lines. The core of the 2010 focus will be on our Insurance Agency, Investments and Trust Company. With that said, we created Farmers National Insurance LLC, a separate entity under the holding company that operates within our Retail Banking Division. This full service insurance agency, which is managed by Mr. David Frank, is fully functional and we are just in the final stages of introducing and marketing this product and service to all customers. In February 2010, we contracted with Insuritas, the nation’s leading provider of outsourced insurance agencies to provide our Company with a turnkey, outsource insurance agency solution that takes full advantage of technology. This strategic commitment provides our customer with a full-service insurance agency where we own and operate the agency under our new insurance division, Farmers National Insurance. This outsourced insurance agency solution will be fully operational in the second quarter of 2010.

Our wealth management division of Farmers National Investments expanded during 2009 with the addition of a fourth investment representative to our branch network. Mr. Dan Cvercko was promoted to Investment Manager and he led his team of investment representatives to a record level of production during the past year. This business line contributed nearly $500,000 in net revenue to the Corporation.

The final piece of Farmers National Financial Group is the 2009 acquisition of the Farmers Trust Company. With over $832 Million in assets under management, Farmers Trust is the largest independently owned trust company in the State of Ohio. Mr. James H. Sisek, Esq., President & CEO manages this Trust Company that has offices located in Youngstown and Howland. Mr. Sisek provides a full report on the Trust Company and their achievements and contributions to the Corporation and the community in this Annual Report on the pages that follow.

Charles Darwin, the English Naturalist & Author once wrote, “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” Over the past year, much has been asked of the dedicated Directors, Officers and Employees of the Corporation. They have more than risen to that challenge and responded to the changes.

In closing, we want to thank you for your continued support — for “Standing Strong” with this Company and its bright and developing future. There are always going to be challenges to face and new opportunities to seize. At 122 years old and counting, our team is proud of what we have accomplished and poised to look forward to continue to fill our role in the community and to create value for our shareholders for generations to come.

Sincerely,

Frank L. Paden
President & CEO

John S. Gulas
Executive Vice President & COO

6

FROM THE DESK OF:
CARL D. CULP, EXECUTIVE VICE PRESIDENT & CFO

To Our Shareholders:

The following paragraphs provide a brief overview of relevant information regarding your Company’s financial performance in 2009.

Net income for 2009 was $5.8 million, or $0.44 basic and diluted earnings per share compared to $5.7 million, or $0.43 diluted earnings per share in 2008, increases of 3.12% and 2.33% respectively. The results for 2008 included a pre-tax charge of $2.711 million representing a reclassification and recognition of an other-than-temporary impairment of securities, compared to $74 thousand in impairment charges in 2009.

The net interest margin improved from 3.58% for the year ended December 31, 2008 to 3.88% for 2009, or 30 basis points. Total average earning assets increased 14.19% while the yields on those average-earning assets decreased 39 basis points from 6.11% in 2008 to 5.72% in 2009. Total interest bearing liabilities increased 17.37%, and the cost on the average interest-bearing liabilities decreased from 2.85% in 2008 to 2.01% in 2009 or 84 basis points. The decrease in cost was the result of depositors investing in short-term time deposits and money market instruments, the continued repricing of maturing time deposits in the continued low interest rate environment, combined with an increase in repurchase agreements held by wholesale customers. The increase in net interest margin combined with a higher level of earning assets resulted in a significant improvement in net interest income from the previous year.

Noninterest income, excluding the impairment charges mentioned above, increased by $4.134 million in 2009, primarily resulting from an addition of $3.469 million in trust income. Earlier in the year, the Company successfully completed the acquisition of Butler Wick Trust Company, which has since been renamed Farmers Trust Company. The Trust Company acquisition complements our core retail banking and asset management services.

DEPOSITS

Total deposits increased 20% during the past year, as our Company developed relationships with new customers along with a continued movement of funds to deposits from equity markets as customers seek liquidity and security. The Company prices deposit rates to remain competitive within the market to retain customers. The effect of lower short-term interest rates during the year and a shift to short term deposit products and repurchase agreements by customers resulted in total interest expense decreasing $3.4 million in 2009.

Strategies for 2010 include a continued focus on growth in our level on noninterest bearing deposits; offer time deposit products in specific time periods to balance our exposure to potentially rising interest rates; and remain focused on lowering our overall cost of funds.

LOANS

Net loans increased 10.16% during 2009. The Company continues to build on a strategy developed a few years ago to diversify the loan portfolio and employ a more balanced portfolio management model between commercial, commercial real estate, residential real estate and consumer loans. At year-end, we have approximately 13% of the loan portfolio in commercial loans, 35% in commercial real estate loans, 30% in residential real estate loans and 22% in consumer loans. Each of the loan categories experienced solid growth during 2009, but we especially realized significant increases in our commercial real estate and consumer non-real estate loan portfolios. Our team of experienced loan officers remain focused on increasing our portfolio by building long-term customer relationships.

Our management team has taken a proactive stance to address asset quality deterioration, most notably in the commercial real estate portfolio. During the year, management provided $6.05 million to the allowance for loan losses. Two key ratios to monitor asset quality performance are the net charge-offs/average loans and the allowance for loan losses/non-performing loans. At year-end 2009, these ratios were .71% and 73% respectively compared to .26% and 104% in 2008. As a result of these changes, we increased the allowance for loan losses in 2009. Management remains diligent in monitoring local economic conditions and the impact that it may have on our loan portfolio.

Loan strategies for the upcoming year are to grow balances in our loan portfolios responsibly while maintaining our underwriting standards and carefully pricing new loans in a potentially rising interest rate environment.

STOCKHOLDERS EQUITY

Shareholder’s Equity increased $3.5 million or 4.6% during 2009. At the end of the year, the Bank is “well capitalized” under regulatory guidelines. In order to preserve capital and create a stronger position for long-term shareholder value, we decreased our quarterly cash dividend to $0.06 per share during the third quarter Total cash dividends declared were $4.8 million in 2009 and $6.8 million in 2008.

Equity strategies for 2010 include: increase earnings and preserve capital; and evaluate opportunities to raise new capital through various alternatives to support growth initiatives.

Even during these difficult economic times, our Company was able to report another year of strong earnings, with a 3% increase over 2008 results. Every Board member, Officer and Employee plays an important part in achieving these financial results. We will continue to remain focused on our core values as we strive to build shareholder value.

Sincerely,

Carl D. Culp,
Executive Vice President & CFO

7

FROM THE DESK OF:
JAMES H. SISEK, ESQ. PRESIDENT & CEO
AND WILLIAM HANSHAW, ESQ. EXECUTIVE V.P. & SECRETARY

James H. Sisek, Esq. President & CEO	William Hanshaw, Esq. Executive V.P. & Secretary

To Our Shareholders:

2009 has been both an exciting and challenging year for the Trust Company. We have weathered a tumultuous financial market and yet still remain strong. Despite the market fluctuations, our assets have grown this year from approximately $622 million to approximately $822 million. Although our name has changed, our staff, location and commitment to the Valley remain unchanged. We are confident that Farmers Trust Company adds greatly to the value of your investment in Farmers National Banc Corp. It is our pleasure to share some information regarding Farmers Trust Company.

COMPANY PROFILE

Farmers Trust Company, formerly known as Butler Wick Trust Company, was originally incorporated in Sharon, Pennsylvania in December 1995, with the Youngstown, Ohio office as its “operation center.” In 1998, as a result of changes in Ohio law, Butler Wick Trust Company was re-incorporated in Ohio as a state chartered bank authorized by the Ohio Division of Financial Institutions to conduct trust business, and the current downtown Youngstown site became headquarters. In 2000, the Trust Company decided to expand its presence in the Trumbull County market by opening a Howland office staffed with five employees and headed by Attorney William Hanshaw. On April 1, 2009, Farmers National Banc Corp. completed its acquisition of Butler Wick Trust Company from United Community Financial Corporation. In May 2009, Butler Wick Trust Company officially changed its name to Farmers Trust Company, a subsidiary of Farmers National Banc Corp. holding company, while maintaining the same staff and locations.

Farmers Trust Company, the only locally owned trust company in the Mahoning Valley, began with just seven employees growing to a current staff of 30 with two locations. Attorney James H. Sisek, President of Farmers Trust Company, operates the Trust Company’s Youngstown office at 100 Federal Plaza East, Youngstown, Ohio, 44503, and Attorney William Hanshaw, Executive Vice President supervises the Howland location at 1695 Niles-Cortland Rd., NE, Suite 2, Warren, Ohio 44484. Farmers Trust Company maintains its own Administrative, Investment, Operations, Tax, Employee Benefits and Business Development Departments. We proudly provide quality service through a professional team of employees on a local level; both a strength and a uniqueness of our firm.

Farmers Trust Company is regulated and examined by the State of Ohio, Division of Financial Institutions. Our external auditors are Crowe Horwath, LLP and our internal auditors are Packer Thomas & Co., CPA.

INVESTMENT MANAGEMENT

Farmers Trust Company is skilled in administering all types of trusts and provides professional and thorough administration of estates, personal trusts, charitable trusts and employee benefit plans.

The Investment Department has assisted several not-for-profit organizations with the development of their own respective investment policies and manages investments in accordance with The Ohio Prudent Investors Act and the objective of each client. The following graph illustrates the growth of the Trust Company:

8

CHARITABLE TRUSTS

The Trust Company manages in excess of $100 million for many qualified charities, individuals and foundations throughout the greater community. In 2009, over $6 million was distributed to organizations either at the direction of the donor or under the terms of the trust agreement for charitable trusts, and as gifts from individual trusts. The beneficiaries of these charitable and personal trusts are vast and varied. Area colleges and universities received in excess of $1,064,000 with approximately $620,000 distributed to Youngstown State University for various scholarship programs including early instruction programs such as Academic Achievers. Over $875,000 was donated in support of cultural programs such as Mahoning Valley Historical Society, Friends of Fellows Riverside Garden, Henry H. Stambaugh Auditorium Association, The Youngstown Playhouse and The Youngstown Symphony, as well as local parks and historical societies. Over $646,000 was distributed for humanitarian services to organizations such as Habitat for Humanity, American Red Cross, Easter Seals, Hospice, The Rescue Mission and others. St. Elizabeth Medical Center, Akron Children’s Hospital and Trumbull Memorial Hospital along with other health providers received over $759,000. The American Cancer Society, American Diabetes Association and Multiple Sclerosis Society were the recipients of more than $90,000 to benefit medical research. Local churches and temples received donations of over $466,000.

Other beneficiaries such as the YWCA, YMCA, United Way, Special Olympics, Girl Scouts, Boy Scouts and many more throughout our community received assistance through donations totaling more than $785,000.

Clients of Farmers Trust Company are among the most generous in the Valley as evidenced by the chart below:

EMPLOYEE BENEFIT DIVISION

The Trust Company’s Employee Benefit Division is a highly specialized department of $160 million in managed assets within the Trust Company servicing the overall retirement needs of clients. We provide full personalized administrative and record keeping services for all types of retirement plans, including various defined contribution plans, such as profit sharing, 401(k)’s and money purchase pension plans, defined benefit pension and 403(b) plans as well as the administration and investment management of larger IRA rollover accounts. Certified Specialists ensure all client retirement plans follow the rigorous government imposed regulations to fulfill strict compliance and audit issues, whether in a daily valuation and/or cash balance forward environment. The Trust Company can serve in the capacity of Plan Trustee, Investment Manager and/or Custodian, thus relieving clients of any or all fiduciary liability issues with regards to the plan administration or management of their plan’s assets. Other services provided include: sponsored IRS approved prototype plan documents, consulting and plan design services to clients, conducting participant enrollment and 404(c) educational meetings, all tax reporting for both plan and participants, 24/7 web site access and toll free numbers.

CONCLUSION

Our locally owned, operated, staffed and controlled Trust Company offers outstanding professional estate planning, trust, investment and retirement services. Your family deserves a professional trustee who knows you as an individual rather than an account number. Consider a conversation with one of our trust officers at your convenience.

Sincerely,

James H. Sisek, Esq.
President & CEO

William Hanshaw, Esq.
Executive V.P. & Secretary

9

INVESTOR INFORMATION

Corporate Headquarters: Farmers National Banc Corp., 20 South Broad Street, P.O. Box 555, Canfield, OH 44406. Phone 330-533-3341 or Toll Free 1-888-988-3276.

Web site: www.fnbcanfield.com

Dividend Payments: Subject to the approval of the Board of Directors, quarterly cash dividends are customarily payable on or about the 30th day of March, June, September and December.

Dividend Reinvestment Plan (DRIP): Registered shareholders can purchase additional shares of Farmers’ common stock through Farmers Dividend Reinvestment Plan. Participation is voluntary and allows for automatic reinvestment of cash dividends and the safekeeping of stock certificates. To obtain our Plan prospectus, contact Susan Better at the Bank or e-mail exec@fnbcanfield.com.

Direct Deposit of Cash Dividends: The direct deposit program, which is offered at no charge, provides for automatic deposit of quarterly dividends directly to a checking or savings account. For information regarding this program, please contact the Bank.

Stock Transfer Agent: The Farmers National Bank of Canfield, Attention: Susan Better, AVP, Corporate Services Administration P.O. Box 555 Canfield, OH 44406

Form 10-K: A copy of the Annual Report filed with the Securities and Exchange Commission will be provided to any shareholder on request to the Corporation, to the attention: Mr. Carl D. Culp, Treasurer, Farmers National Banc Corp., 20 South Broad Street, P.O. Box 555 Canfield, OH 44406

Common Stock Listing and Information as to Stock Prices and Dividends: The common stock of the Corporation trades on the OTC Bulletin Board under the symbol FMNB.OB. There are approximately 13 local and/or regional brokerage firms that are known to be relatively active in trading the Corporation’s common stock. Set forth in the accompanying table are per share prices at which common stock of the Corporation has actually been purchased and sold in transactions during the periods indicated, to the knowledge of the Corporation. Also included in the table are dividends per share paid on the outstanding common stock and any stock dividends paid. As of December 31, 2009, there were 13,519,605 shares outstanding and 3,760 shareholders of record of common stock.

MARKET AND DIVIDEND SUMMARY

Dividend Date	High		Low		Dividend
March 2008	$	9.15	$	6.84	$	0.16
June 2008	$	8.45	$	7.00	$	0.12
September 2008	$	7.55	$	5.15	$	0.12
December 2008	$	7.35	$	3.55	$	0.12
March 2009	$	6.74	$	3.65	$	0.12
June 2009	$	6.80	$	4.70	$	0.12
September 2009	$	6.20	$	4.70	$	0.06
December 2009	$	5.40	$	4.00	$	0.06

The following graph compares the cumulative 5-year total return to shareholders on Farmers National Banc Corp.’s common stock relative to the cumulative total returns of the NASDAQ Composite index and the NASDAQ Bank index. The graph assumes that the value of the investment in the company’s common stock and in each of the indexes (including reinvestment of dividends) was $100 on 12/31/2004 and tracks it through 12/31/2009.

	12/04		12/05		12/06		12/07		12/08		12/09
Farmers National Banc Corp.		100.00		83.41		73.16		57.09		28.12		39.76
NASDAQ Composite		100.00		101.33		114.01		123.71		73.11		105.61
NASDAQ Bank		100.00		98.57		111.92		89.33		71.39		60.47

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

10

SELECTED FINANCIAL DATA
(Table Dollar Amounts In Thousands except Per Share Data)

For the Years Ending December 31,	2009			2008			2007			2006			2005
SUMMARY OF EARNINGS
Total Interest Income (including fees on loans)	$	49,775		$	46,415		$	45,538		$	44,098		$	42,481
Total Interest Expense		16,547			19,947			21,893			20,199			15,236
Net Interest Income		33,228			26,468			23,645			23,899			27,245
Provision for Loan Losses		6,050			1,420			570			200			649
Noninterest Income (1)		9,388			2,617			4,408			5,134			4,386
Noninterest Expense		29,655			21,013			20,382			19,619			20,212
Income Before Income Taxes		6,911			6,652			7,101			9,214			10,770
Income Taxes		1,069			987			1,176			1,999			2,710
NET INCOME	$	5,842		$	5,665		$	5,925		$	7,215		$	8,060
PER SHARE DATA
Basic earnings per share	$	0.44		$	0.43		$	0.46		$	0.55		$	0.62
Diluted earnings per share		0.44			0.43			0.46			0.55			0.62
Cash Dividends Paid		0.36			0.52			0.64			0.64			0.64
Book Value at Year-End		5.96			5.83			5.67			5.83			5.82
Tangible Book Value (2)		5.41			5.83			5.67			5.83			5.82
BALANCES AT YEAR-END
Total Assets	$	1,014,808		$	880,370		$	798,236		$	821,584		$	827,069
Earning Assets		948,187			829,173			745,482			778,719			776,300
Total Deposits		777,552			648,010			593,428			619,747			630,800
Short-Term Borrowings		125,912			105,435			74,174			77,792			76,963
Long-Term Borrowings		27,169			46,464			52,455			41,602			39,508
Net Loans		601,995			546,452			508,647			502,594			506,054
Total Stockholders’ Equity		80,628			77,102			73,920			76,223			75,864
AVERAGE BALANCES
Total Assets	$	970,163		$	841,630		$	804,968		$	818,549		$	828,180
Total Stockholders’ Equity		79,775			73,889			74,615			75,143			77,475
SIGNIFICANT RATIOS
Return on Average Assets (ROA)		0.60	%		0.67	%		0.74	%		0.88	%		0.97	%
Return on Average Equity (ROE)		7.32			7.67			7.95			9.60			10.40
Average Earning Assets/Average Assets		92.79			93.68			94.86			94.98			94.59
Average Equity/Average Assets		8.22			8.78			9.26			9.18			9.35
Loans/Deposits		78.37			85.18			86.63			82.00			81.15
Allowance for Loan Losses/Total Loans		1.21			1.01			1.06			1.10			1.14
Allowance for Loan Losses/Nonperforming Loans		73.25			104.05			231.22			324.85			290.57
Efficiency Ratio (On tax equivalent basis)		67.00			63.02			68.00			65.04			61.54
Net Interest Margin		3.88			3.58			3.33			3.29			3.67
Dividend Payout Rate		82.18			120.07			140.24			115.14			103.08
Tangible Common Equity Ratio (3)		7.26			8.76			9.26			9.28			9.17

(1)	Noninterest income includes a securities impairment charge of $74 thousand, $2.711 million and $873 thousand respectively for the years ended December 31, 2009, 2008 and 2007.
(2)	Tangible book value per share is Total Stockholders’ Equity minus goodwill and other intangible assets divided by the number of shares outstanding.
(3)	Tangible common equity ratio is Total Stockholders’ Equity minus goodwill and other intangible assets divided by Total Assets minus goodwill and other intangible assets.

11

AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
(Table Dollar Amounts In Thousands except Per Share Data)

	2009								2008								2007
	AVERAGE								AVERAGE								AVERAGE
Years Ended December 31,	BALANCE			INTEREST		RATE			BALANCE			INTEREST		RATE			BALANCE			INTEREST		RATE
EARNING ASSETS
Loans (1) (3) (5)	$	581,629		$	38,130		6.56	%	$	515,671		$	35,351		6.86	%	$	508,812		$	35,203		6.92	%
Taxable securities (2)		224,784			9,399		4.18			183,201			8,063		4.40			168,074			7,017		4.17
Tax-exempt securities (2) (5)		60,911			3,667		6.02			67,666			3,985		5.89			70,413			4,112		5.84
Equity securities (4) (5)		5,147			263		5.11			7,414			420		5.66			9,360			664		7.09
Federal funds sold		27,769			32		0.12			14,402			338		2.35			6,970			342		4.91
Total earning assets		900,240			51,491		5.72			788,354			48,157		6.11			763,629			47,338		6.20
NONEARNING ASSETS
Cash and due from banks		23,098								23,089								21,774
Premises and equipment		14,230								14,363								14,630
Allowance for Loan Losses		(6,377	)							(5,433	)							(5,597	)
Unrealized gains (losses) on securities		5,980								(1,089	)							(2,264	)
Other assets (1)		32,992								22,346								12,796
Total Assets	$	970,163							$	841,630							$	804,968
INTEREST-BEARING LIABILITIES
Time deposits	$	312,511		$	9,742		3.12	%	$	286,980		$	12,216		4.26	%	$	270,269		$	12,675		4.69	%
Savings deposits		238,618			2,670		1.12			186,022			2,964		1.59			166,840			3,334		2.00
Demand deposits		101,470			314		0.31			97,401			468		0.48			97,362			547		0.56
Short term borrowings		123,758			1,847		1.49			80,621			2,047		2.54			80,174			2,957		3.69
Long term borrowings		45,543			1,974		4.33			49,261			2,252		4.57			50,536			2,380		4.70
Total Interest-Bearing Liabilities		821,900			16,547		2.01			700,285			19,947		2.85			665,181			21,893		3.29
NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS’ EQUITY
Demand deposits		64,563								62,350								60,632
Other Liabilities		3,925								5,106								4,540
Stockholders’ equity		79,775								73,889								74,615
Total Liabilities and Stockholders’ Equity	$	970,163							$	841,630							$	804,968
Net interest income and interest rate spread				$	34,944		3.71	%				$	28,210		3.26	%				$	25,445		2.91	%
Net interest margin							3.88	%							3.58	%							3.33	%

(1)	Non-accrual loans and overdraft deposits are included in other assets.
(2)	Includes unamortized discounts and premiums. Average balance and yield are computed using the average historical amortized cost.
(3)	Interest on loans includes fee income of $2.30 million, $1.86 million and $1.68 million for 2009, 2008 and 2007 respectively and is reduced by amortization of $1.54 million, $1.09 million and $1.12 million for 2009, 2008 and 2007 respectively.
(4)	Equity securities include restricted stock, which is included in other assets on the consolidated balance sheets.
(5)	For 2009, adjustments of $496 thousand and $1.22 million are made to tax equate income on tax exempt loans and tax exempt securities. For 2008, adjustments of $386 thousand, $1.32 million, and $32 thousand respectively are made to tax equate income on tax exempt loans, tax exempt securities and to reflect a dividends received deduction on equity securities. For 2007, adjustments of $350 thousand, $1.37 million, and $83 thousand respectively are made to tax equate income on tax exempt loans, tax exempt securities and to reflect a dividends received deduction on equity securities. These adjustments are based on a marginal federal income tax rate of 34%, less disallowances.

12

RATE AND VOLUME ANALYSIS
(Table Dollar Amounts In Thousands except Per Share Data)

The following table analyzes by rate and volume the dollar amount of changes in the components of the interest differential:

	2009 change from 2008									2008 change from 2007
	Net			Change Due			Change Due			Net			Change Due			Change Due
	Change			To Volume			To Rate			Change			To Volume			To Rate
TAX EQUIVALENT INTEREST INCOME
Loans	$	2,779		$	4,522		$	(1,743	)	$	148		$	475		$	(327	)
Taxable securities		1,336			1,830			(494	)		1,046			632			414
Tax-exempt securities		(318	)		(398	)		80			(127	)		(160	)		33
Equity securities		(157	)		(128	)		(29	)		(244	)		(138	)		(106	)
Federal funds sold		(306	)		314			(620	)		(4	)		365			(369	)
Total interest income	$	3,334		$	6,140		$	(2,806	)	$	819		$	1,174		$	(355	)
INTEREST EXPENSE
Time deposits	$	(2,474	)	$	1,087		$	(3,561	)	$	(459	)	$	784		$	(1,243	)
Savings deposits		(294	)		838			(1,132	)		(370	)		383			(753	)
Demand deposits		(154	)		20			(174	)		(79	)		0			(79	)
Short term borrowings		(200	)		1,095			(1,295	)		(910	)		16			(926	)
Long term borrowings		(278	)		(170	)		(108	)		(128	)		(60	)		(68	)
Total interest expense	$	(3,400	)	$	2,870		$	(6,270	)	$	(1,946	)	$	1,123		$	(3,069	)
Increase (decrease) in tax equivalent net interest income	$	6,734		$	3,270		$	3,464		$	2,765		$	51		$	2,714

The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the relative size of the rate and volume changes.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis represents a review of the Company’s consolidated financial condition and results of operations. This review should be read in conjunction with the consolidated financial statements and footnotes.

Forward Looking Statements

When used in this annual report, or in future filings with the Securities and Exchange Commission, in press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project”, or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Company’s actual results to be materially different from those indicated. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the market areas the Company conducts business, which could materially impact credit quality trends, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the market areas the Company conducts business, and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Results of Operations:

Comparison of Operating Results for the Years Ended December 31, 2009 and 2008.

The Company’s net income totaled $5.842 million during 2009, compared to $5.665 million for 2008. On a per share basis, diluted earnings per share were $.44 as compared to $.43 diluted earnings per share for 2008. Common comparative ratios for results of operations include the return on average assets and return on average stockholders’ equity. For 2009 the return on average equity was 7.32% compared to 7.67% for 2008. The return on average assets was .60% for 2009 and .67% for 2008.

The results for 2008 included $2.711 million in pre-tax charges recognized for other-than-temporary impairment of securities, related mainly to Fannie Mae Series F preferred stock held in the Company’s investment portfolio. The current year’s impairment charge related to equity securities amounted to $74 thousand pre-tax.

13

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Per Share Data)

Net interest income, the principal source of the Company’s earnings, represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. For 2009, taxable equivalent net interest income increased $6.734 million or 23.87% from 2008. Interest-earning assets averaged $900.240 million during 2009 increasing $111.886 million or 14.19% compared to 2008. The Company’s interest-bearing liabilities increased 17.37% from $700.285 million in 2008 to $821.900 million in 2009.

The Company finances its earning assets with a combination of interest-bearing and interest-free funds. The interest-bearing funds are composed of deposits, short-term borrowings and long-term debt. Interest paid for the use of these funds is the second factor in the net interest income equation. Interest-free funds, such as demand deposits and stockholders’ equity, require no interest expense and, therefore, contribute significantly to net interest income.

The profit margin, or spread, on invested funds is a key performance measure. The Company monitors two key performance indicators — net interest spread and net interest margin. The net interest spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest spread in 2009 was 3.71% increasing from 3.26% in 2008. The net interest margin represents the overall profit margin: net interest income as a percentage of total interest-earning assets. This performance indicator gives effect to interest earned for all investable funds including the substantial volume of interest-free funds. For 2009 the net interest margin, measured on a fully taxable equivalent basis increased to 3.88%, compared to 3.58% in 2008.

Total taxable equivalent interest income was $51.491 million for 2009, which is $3.334 million more than the $48.157 million reported in 2008. This increase is primarily the result of growth in the level of average earning assets, increasing 14.19% during 2009. Average loans increased $65.958 million or 12.79% in 2009, but the yields decreased from 6.86% in 2008 to 6.56% in 2009. Income from securities and federal funds increased $555 thousand or 4.33% in 2009, but the Company saw its yields on these assets decrease from 4.70% in 2008 to 4.19% in 2009. The average balance of investment securities and federal funds sold increased 16.84% in 2009, mainly due to increases in customer deposits.

Total interest expense amounted to $16.547 million for 2009, an 17.05% decrease from $19.947 million reported in 2008. The decrease in 2009 is the result of lower rates of interest paid on interest-bearing deposits and repurchase agreements. The cost of interest-bearing liabilities decreased from 2.85% in 2008 to 2.01% in 2009.

Management will continue to evaluate future changes in interest rates and the shape of the treasury yield curve so that assets and liabilities may be priced accordingly to minimize the impact on the net interest margin.

Other Income

Total other income, excluding pre-tax impairment charges discussed on page 13, increased by $4.134 million in 2009. Most of this increase is due to an addition of $3.469 million of trust income. During 2009, the Company completed an acquisition of Butler Wick Trust Company, now known as Farmers Trust Company. The acquisition of the Trust Company gives the Company the ability to provide investment, trust and estate services to private individuals and small corporate clients with a high level of attention and confidentiality. This addition to the Company significantly complements core retail banking and asset management.

Other income was also impacted by gains on the sales of securities. Security gains were $1.017 million in 2009 compared to $474 thousand in 2008.

Other Expenses

Total other expenses for 2009 increased 41.13% or $8.642 million from 2008, and was mainly the result of an increase of $3.52 million in salaries and employee benefits, $1.36 million in FDIC insurance premiums, $453 thousand in merger costs and $449 thousand in amortization associated with the Trust Company acquisition. Most of the $3.52 million increase in salaries and employee benefits can be attributed to increases of $2.56 million in salaries and $561 thousand in employee health insurance expense.

Below is a detail of non-interest expense line items classified between the total Company, the Company without Trust, and the Trust Company for the year ending December 31, 2009. The Company purchased the Trust Company on March 31, 2009, subsequently only nine months of Trust non-interest expense is detailed in the following table:

	For the Year Ended December 31, 2009
	Total		Company
Noninterest expense	Company		without Trust		Trust
Salaries and employee benefits	$	15,145	$	13,073	$	2,072
Occupancy and equipment		3,538		3,195		343
State and local taxes		930		883		47
Professional fees		1,020		984		36
Advertising		595		571		24
FDIC insurance		1,543		1,543		0
Merger related costs		453		453		0
Intangible amortization		449		0		449
Other operating expenses		5,982		5,553		429
Total noninterest expense	$	29,655	$	26,255	$	3,400

The Company’s tax equivalent efficiency ratio increased from 63.02% in 2008 to 67.00% in 2009. The efficiency ratio was adversely impacted by the merger expenses and FDIC insurance expenses disclosed in the table above. The efficiency ratio is calculated as follows: non-interest expense divided by the sum of tax equivalent net interest income plus non-interest income, excluding security gains and losses and intangible amortization. This ratio is a measure of the expense incurred to generate a dollar of revenue. Management will continue to closely monitor and keep the increases in other expenses to a minimum.

14

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Per Share Data)

Income Taxes

Income tax expense totaled $1.069 million for 2009 and $987 thousand for 2008. Income taxes are computed using the appropriate effective tax rates for each period. The effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income. The effective income tax rate was 15% for the periods ending 2009 and 2008. Refer to Note N to the consolidated financial statements for additional information regarding the effective tax rate.

Comparison of Operating Results for the Years Ended December 31, 2008 and 2007.

The Company’s net income totaled $5.7 million during 2008 compared to $5.9 million for 2007. On a per share basis, diluted earnings per share was $.43 for 2008 as compared to $.46 for 2007. For 2008, the return on average equity was 7.67% as compared to 7.95% for 2007. The return on average assets was .67% for 2008 and .74% for 2007. For 2008, taxable equivalent net interest income increased $2.765 million or 10.87% more than 2007. Interest-earning assets averaged $788.354 million during 2008 increasing $24.725 million or 3.24% compared to 2007. For 2008 the net interest margin, measured on a fully taxable equivalent basis was 3.58% in comparison to 3.33% for 2007. The results for 2008 included a pre-tax charge of $2.711 million recognized for other-than-temporary impairment of securities, compared to $873 thousand of impairment charges recognized in 2007.

Total taxable equivalent interest income was $48.157 million for 2008 which was $819 thousand more than the $47.338 million reported in 2007. This moderate increase was primarily the result of an increase in the level of average earning assets, increasing 3.24% from $763.629 million in 2007 to $788.354 million in 2008. Average loan balances increased $6.859 million or 1.35% but the yields decreased from 6.92% in 2007 to 6.86% in 2008. Income from securities and federal funds sold increased $671 thousand or 5.53% in 2008, but the Company saw its yields on these assets decrease from 4.76% in 2007 to 4.70% in 2008. The average balances of investment securities and federal funds sold increased 7.01% in 2008, mainly due to increases in customer deposits.

Total interest expense amounted to $19.947 million for 2008, an 8.89% decrease from $21.893 million reported in 2007. The decrease in 2008 is the result of lower rates of interest paid on a lower level of interest-bearing deposits and repurchase agreements. The cost of interest-bearing liabilities decreased from 3.29% in 2007 to 2.85% in 2008.

Other Income

Total other income in 2008, excluding an $2.711 million pre-tax impairment charge, increased by $47 thousand. This increase is primarily due to a $466 thousand increase in bank-owned life insurance income offset by a decrease in security gains. Security gains were $474 thousand in 2008 compared to $771 thousand in 2007.

Other Expenses

Total other expenses for 2008 increased 3.10% or $631 thousand from 2007. Most of this increase resulted from higher occupancy and equipment expense, as well as other operating expenses, which increased 6.98% and 10.26% respectively. Salaries and employee benefits decreased $106 thousand, mainly as a result of fewer full time equivalent employees. The Company’s tax-equivalent efficiency ratio improved from 68.00% in 2007 to 63.02% in 2008. The efficiency ratio was favorably impacted by the $2.765 million increase in tax equivalent net interest income, while keeping noninterest expenses to a modest increase of $631 thousand.

Income Taxes

Income tax expense totaled $987 thousand for 2008 and $1.176 million for 2007. The effective income tax rate was 15% and 17% for the periods ending 2008 and 2007, respectively.

Market Risk

Important considerations in asset/liability management are liquidity, the balance between interest rate sensitive assets and liabilities and the adequacy of capital. Interest rate sensitive assets and liabilities are those which have yields on rates subject to change within a future time period due to maturity of the instrument or changes in market rates. While liquidity management involves meeting the funds flow requirements of the Company, the management of interest rate sensitivity focuses on the structure of these assets and liabilities with respect to maturity and repricing characteristics. Balancing interest rate sensitive assets and liabilities provides a means of tempering fluctuating interest rates and maintaining net interest margins through periods of changing interest rates. The Company monitors interest rate sensitive assets and liabilities to determine the overall interest rate position over various time frames.

The Company considers the primary market exposure to be interest rate risk. Simulation analysis is used to monitor the Company’s exposure to changes in interest rates, and the effect of the change to net interest income. The following table shows the effect on net interest income and the net present value of equity in the event of a sudden and sustained 200 basis point increase or decrease in market interest rates:

Changes In Interest Rate	2009			2008			ALCO
(basis points)	Result			Result			Guidelines
Net Interest Income Change
+200		-6.41	%		-5.66	%		15.00	%
-200		-2.09	%		2.11	%		15.00	%
Net Present Value Of Equity Change
+200		-6.32	%		-7.41	%		20.00	%
-200		-31.98	%		-7.35	%		20.00	%

15

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Per Share Data)

It should be noted that the change in the net present value of equity exceeded policy when the simulation model assumed a sudden decrease in rates of 200 basis points (2%). This primarily because the positive impact on the fair value of assets would not be as great as the negative impact on the fair value of certain liabilities. Specifically, because core deposits typically bear relatively low interest rates, their fair value would be negatively impacted as the rates could not be adjusted by the full extent of the sudden decrease in rates. Management does not believe that a 200 basis rate decline is realistic in the current interest rate environment. The remaining results of this analysis comply with internal limits established by the Company. A report on interest rate risk is presented to the Board of Directors and the Asset/Liability Committee on a quarterly basis. The Company has no market risk sensitive instruments held for trading purposes, nor does it hold derivative financial instruments, and does not plan to purchase these instruments in the near future.

With the largest amount of interest sensitive assets and liabilities maturing within twelve months, the Company monitors this area most closely. Early withdrawal of deposits, prepayments of loans and loan delinquencies are some of the factors that can impact actual results in comparison to our simulation analysis. In addition, changes in rates on interest sensitive assets and liabilities may not be equal, which could result in a change in net margin.

Interest rate sensitivity management provides some degree of protection against net interest income volatility. It is not possible or necessarily desirable to attempt to eliminate this risk completely by matching interest sensitive assets and liabilities. Other factors, such as market demand, interest rate outlook, regulatory restraint and strategic planning also have an effect on the desired balance sheet structure.

Liquidity

The Company maintains, in the opinion of management, liquidity sufficient to satisfy depositors’ requirements and meet the credit needs of customers. The Company depends on its ability to maintain its market share of deposits as well as acquiring new funds. The Company’s ability to attract deposits and borrow funds depends in large measure on its profitability, capitalization and overall financial condition.

Principal sources of liquidity for the Company include assets considered relatively liquid such as short-term investment securities, federal funds sold and cash and due from banks.

Along with its liquid assets, the Company has additional sources of liquidity available which help to insure that adequate funds are available as needed. These other sources include, but are not limited to, loan repayments, the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at three major domestic banks. At December 31, 2009, the Company had not borrowed against these lines of credit. Management feels that its liquidity position is more than adequate and will continue to monitor the position on a monthly basis. The Company also has additional borrowing capacity with the Federal Home Loan Bank of Cincinnati (“FHLB”), as well as access to the Federal Reserve Discount Window, which provides an additional source of funds. The Company views its membership in the FHLB as a solid source of liquidity. As of December 31, 2009, the Bank is eligible to borrow an additional $60.2 million from the FHLB under various fixed rate and variable rate credit facilities. Advances outstanding from the Federal Home Loan Bank at December 31, 2009 amounted to $26.9 million.

The primary investing activities of the Company are originating loans and purchasing securities. During 2009, net cash used in investing activities amounted to $105.66 million compared to $89.33 million used in 2008. Net increases in loans were $62.22 million in 2009 compared to $39.40 million in 2008. Purchases of securities available for sale were $126.52 million in 2009 compared to $141.65 million in 2008. Proceeds from maturities and sales of securities available for sale were $92.90 million in 2009 compared to $92.22 million in 2008.

The primary financing activities of the Company are obtaining deposits, repurchase agreements and other borrowings. Net cash provided by financing activities amounted to $127.36 million for 2009 compared to $74.42 million in 2008. Most of this change is a result of the net increase in deposits. Deposits increased $129.54 million in 2009 compared to a $54.58 million in 2008. Short-term borrowings increased $20.47 million in 2009 compared to $31.26 million in 2008.

Financial Condition

Total Assets increased $134.44 million or 15.27% since December 31, 2008. Average earning assets also increased by $111.89 million since 2008. The increase in assets is mainly the result of increases in deposit balances. Total Liabilities increased $130.91 million or 16.30% since December 31, 2008. Average interest-bearing liabilities also increased $121.62 million from 2008 to 2009.

16

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Per Share Data)

LOAN PORTFOLIO

Maturities and Sensitivities of Loans to Interest Rates

The following schedule shows the composition of loans and the percentage of loans in each category at the dates indicated:

Years Ended December 31,	2009				2008				2007				2006				2005
Commercial, Financial and Agricultural	$	75,893	12.5	%	$	70,410	12.7	%	$	45,844	8.9	%	$	40,698	8.0	%	$	38,722	7.6	%
Commercial Real Estate		215,917	35.4			195,244	35.4			193,187	37.6			181,128	35.6			164,936	32.2
Residential Real Estate		180,877	29.7			173,246	31.4			170,006	33.1			169,937	33.5			165,386	32.3
Consumer		136,708	22.4			113,105	20.5			105,069	20.4			116,425	22.9			142,870	27.9
Total Loans	$	609,395	100.0	%	$	552,005	100.0	%	$	514,106	100.0	%	$	508,188	100.0	%	$	511,914	100.0	%

The following schedule sets forth maturities based on remaining scheduled repayments of principal for commercial and commercial real estate loans listed above as of December 31, 2009:

Types of Loans	1 Year or less		1 to 5 Years		Over 5 Years
Commercial and Commercial Real Estate	$	38,872	$	36,304	$	216,634

The amounts of commercial and commercial real estate loans as of December 31, 2009, based on remaining scheduled repayments of principal, are shown in the following table:

Loan Sensitivities	1 Year or less		Over 1 Year		Total
Floating or Adjustable Rates of Interest	$	29,470	$	180,241	$	209,711
Fixed Rates of Interest		9,402		72,697		82,099
Total Loans	$	38,872	$	252,938	$	291,810

Total loans were $609.395 million at year-end 2009 compared to $552.005 million at year-end 2008. This represents an increase of 10.40%. Loans comprised 64.61% of the Bank’s average earning assets in 2009, compared to 65.41% in 2008. The product mix in the Loan Portfolio includes Commercial Loans comprising 12.5%, Residential Real Estate Loans 29.7%, Commercial Real Estate Loans 35.4% and Consumer Loans 22.4% at December 31, 2009 compared with 12.7%, 31.4%, 35.4% and 20.5%, respectively, at December 31, 2008.

Loans contributed 74.1% of total taxable equivalent interest income in 2009 and 73.4% in 2008. Loan yield was 6.56% in 2009, 84 basis points greater than the average rate for total earning assets. Management recognizes that while the Loan Portfolio holds some of the Bank’s highest yielding assets, it is inherently the most risky portfolio. Accordingly, management attempts to balance credit risk versus return with conservative credit standards. Management has developed and maintains comprehensive underwriting guidelines and a loan review function that monitors credits during and after the approval process. To minimize risks associated with changes in the borrower’s future repayment capacity, the Bank generally requires scheduled periodic principal and interest payments on all types of loans and normally requires collateral.

Consumer Loans increased from $113.105 million on December 31, 2008 to $136.708 million on December 31, 2009 representing a 20.87% increase. Management continues to target the automobile dealer network to purchase indirect Installment Loans. Dealer paper was purchased using strict underwriting guidelines with an emphasis on quality. Indirect Loans comprise 90.8% of the Consumer Loan Portfolio. Net loan losses in the Consumer Loan portfolio have increased to $833 thousand in 2009 as compared to $409 thousand in 2008.

Residential Real Estate Mortgage Loans increased 4.40% to $180.877 million at December 31, 2009, compared to $173.246 million in 2008. Commercial Real Estate Loans increased from $195.244 million in 2008 to $215.917 million in 2009. The Company originated both fixed rate and adjustable rate mortgages during 2009. Fixed rate terms are generally limited to fifteen year terms while adjustable rate products are offered with maturities up to thirty years.

Commercial Loans at December 31, 2009 increased 7.79% from year-end 2008 with outstanding balances of $75.893 million. The Bank’s commercial loans are granted to customers within the immediate trade area of the Bank. The mix is diverse, covering a wide range of borrowers, business types and local municipalities. The Bank monitors and controls concentrations within a particular industry or segment of the economy. These loans are made for purposes such as equipment purchases, capital and leasehold improvements, the purchase of inventory, general working capital and small business lines of credit.

17

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Per Share Data)

SUMMARY OF LOAN LOSS EXPERIENCE

The following is an analysis of the allowance for loan losses for the periods indicated:

Years Ended December 31,	2009			2008			2007			2006			2005
Balance at Beginning of Year	$	5,553		$	5,459		$	5,594		$	5,860		$	6,144
Charge-Offs:
Commercial, Financial and Agricultural		(911	)		(94	)		(48	)		(19	)		(25	)
Commercial Real Estate		(2,389	)		(767	)		(385	)		(9	)		(78	)
Residential Real Estate		(251	)		(75	)		(67	)		(181	)		(25	)
Consumer		(1,248	)		(795	)		(612	)		(850	)		(1,631	)
Total Charge-Offs		(4,799	)		(1,731	)		(1,112	)		(1,059	)		(1,759	)
Recoveries on Previous Charge-Offs:
Commercial, Financial and Agricultural		2			19			3			24			276
Commercial Real Estate		178			0			0			2			0
Residential Real Estate		1			0			5			0			0
Consumer		415			386			399			567			550
Total Recoveries		596			405			407			593			826
Net Charge-Offs		(4,203	)		(1,326	)		(705	)		(466	)		(933	)
Provision for Loan Losses		6,050			1,420			570			200			649
Balance at End of Year	$	7,400		$	5,553		$	5,459		$	5,594		$	5,860
Ratio of Net Charge-Offs to Average Loans Outstanding		0.71	%		0.26	%		0.14	%		0.09	%		0.19	%

Provisions charged to operations amounted to $6.05 million in 2009 compared to $1.42 million in 2008. The provision for loan losses charged to operating expense is based on management’s judgment after taking into consideration all factors connected with the collectibility of the existing loan portfolio. Management evaluates the loan portfolio in light of economic conditions, changes in the nature and volume of the loan portfolio, industry standards and other relevant factors. Specific factors considered by management in determining the amounts charged to operating expenses include previous charge-off experience, the status of past due interest and principal payments, the quality of financial information supplied by loan customers and the general condition of the industries in the community to which loans have been made.

The allowance for loan losses increased $1.847 million during the year. The primary reason for the increase in the current year was the increase in allocations made for loans individually identified as impaired. At December 31, 2009, loans considered to be impaired totaled $13.50 million with an allowance allocation of $2.058 million. At the end of 2008, loans considered to be impaired were $2.64 million with an allowance allocation of $555 thousand. Loans individually identified as impaired include nonaccrual commercial and commercial real estate loans and loans with their contractual terms modified such that they represent troubled debt restructurings. Impaired loans are carried at the fair value of the underlying collateral, less estimated disposition costs, if repayment of the loan is expected to be solely dependent on the sale of the collateral. Otherwise, impaired loans are carried at the present value of expected cash flows.

The valuation of collateral-dependent impaired loans is a challenging component of our financial reporting process due to the timing of when a loan is identified as impaired and the need to timely close the Company’s books for a given period. Typically, commercial and commercial real estate loans are identified as impaired when they become ninety days past due, or earlier if management believes it is probable that the Company will not collect all amounts due under the terms of the loan agreement. When we identify a loan as impaired and also conclude that the loan is collateral dependent, we perform an internal collateral valuation as an interim measure. We typically obtain an external appraisal to validate our internal collateral valuation as soon as is practical. To the extent that an external appraisal returns a value estimate that is materially different from our internally generated estimate before the release of our interim or annual financial statements, we would adjust the associated specific loss reserve and, if necessary, the Company’s consolidated financial statements for the difference.

The allowance for loan losses increased otherwise during the year due to continued adverse economic conditions and negative asset quality indicators in our loan portfolio. The ratio of nonperforming loans to total loans increased from .97% at December 31, 2008 to 1.66% at December 31, 2009. As of December 31, 2009, total non-performing loans were $10.10 million, compared to $5.34 million at the end of 2008. The ratio of the allowance for loan losses to non-performing loans at December 31, 2009 was 73.25%, compared to 104.05% at December 31, 2008. The increase in non-performing loans is primarily due to the classification of certain commercial real estate and land development loans that are in default according to the terms of the contract. The balance in the allowance for loan losses is $7.400 million or 1.21% of loans at December 31, 2009. This ratio has increased from the 1.01% reported at December 31, 2008.

18

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Per Share Data)

NONPERFORMING ASSETS

December 31,	2009			2008			2007			2006			2005
Nonaccrual loans:
Commercial, Financial and Agricultural	$	1,504		$	342		$	0		$	38		$	40
Commercial Real Estate		5,677			2,820			975			171			249
Residential Real Estate		2,281			1,485			975			975			1,091
Consumer		172			128			77			101			90
Total Nonaccrual Loans	$	9,634		$	4,775		$	2,027		$	1,285		$	1,470
Loans Past Due 90 Days or More		469			562			334			437			547
Total Nonperforming Loans	$	10,103		$	5,337		$	2,361		$	1,722		$	2,017
Other Real Estate Owned		374			65			0			0			92
Total Nonperforming Assets	$	10,477		$	5,402		$	2,361		$	1,722		$	2,109
Loans modified in troubled debt restructuring (1)	$	5,440		$	0		$	0		$	0		$	0
Percentage of Nonperforming Loans to Loans		1.66	%		0.97	%		0.46	%		0.34	%		0.39	%
Percentage of Nonperforming Assets to Total Assets		1.03	%		0.61	%		0.30	%		0.21	%		0.25	%

(1) Not included in nonaccrual loans

Interest income from loans would have been $38.339 million if all loans had been current in accordance with their original terms.

Net charge-offs as a percentage of average loans outstanding increased from .26% for 2008 to .71% for 2009. The Company’s net charge-offs were primarily concentrated in commercial, commercial real estate and consumer loans. The net losses in commercial loans accounted for 21.6% of the total net losses, commercial real estate loans accounted for 52.6% of the total net losses, and the consumer loans represented 19.8% of the total.

A significant allocation in our allowance for loan losses is for performing commercial and commercial real estate loans classified by our internal loan review as substandard. Substandard loans are those that exhibit one or more structural weaknesses and there is a distinct possibility that the Bank will suffer a loss on the loan unless the weakness is corrected. Our loss experience on the average balance of this category of loans for the past two years has been approximately 9.27% of the principal balance of these loans, which is management’s allocation for these loans. This equates to an allocation of approximately $1.99 million at the end of 2009 compared to an allocation of $2.16 million at the end of 2008. The allocation decreased primarily due to a reduction in the balance of these loans. Our actual loss experience may be more or less than the amount allocated. At December 31, 2009, the amount of substandard loans that continue to accrue interest is $22.88 million. As always, management is working to address weaknesses in each of these specific loans that may result in loss.

The allowance is allocated among the loan categories based upon the consistent, quarterly procedures determined by management. However, the entire allowance for loan losses is available to absorb future losses in any loan category. The following table details the allocation of the allowance for loan losses at December 31:

	2009					2008					2007					2006					2005
			Loans					Loans					Loans					Loans					Loans
			to Total					to Total					to Total					to Total					to Total
December 31,	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
Commercial, Financial and Agricultural	$	1,738		12.5	%	$	933		12.7	%	$	506		8.9	%	$	302		8.0	%	$	439		7.6	%
Residential Real Estate		328		29.7	%		696		31.4	%		1,026		33.1	%		1,084		33.5	%		1,528		32.3	%
Commercial Real Estate		4,111		35.4	%		3,126		35.4	%		2,956		37.6	%		2,910		35.6	%		1,660		32.2	%
Consumer		1,223		22.4	%		798		20.5	%		971		20.4	%		1,298		22.9	%		2,233		27.9	%
	$	7,400		100.0	%	$	5,553		100.0	%	$	5,459		100.0	%	$	5,594		100.0	%	$	5,860		100.0	%

19

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Per Share Data)

The allowance allocated to each of the four loan categories should not be interpreted as an indication that charge-offs in 2010 will occur in the same proportions or that the allocation indicates future charge-off trends. The allowance allocated to the one-to-four family real estate loan category and the consumer loan category is based upon the Company’s allowance methodology for homogeneous loans, and increases and decreases in the balances of those portfolios. In previous years, the indirect installment loan category has represented the largest percentage of loan losses. The one-to-four family real estate loan category represents approximately 29.7% of total loans, but historically has represented a very small percentage of loan losses. For the commercial loan category, which represents only 12.5% of the total loan portfolio, management relies on the Bank’s internal loan review procedures and allocates accordingly based on loan classifications. The commercial real estate loan category represents 35.4% of the total loan portfolio.

LOAN COMMITMENTS AND LINES OF CREDIT

In the normal course of business, the Bank has extended various commitments for credit. Commitments for mortgages, revolving lines of credit and letters of credit generally are extended for a period of one month up to one year. Normally no fees are charged on any unused portion. Normally, an annual fee of two percent is charged for the issuance of a letter of credit.

As of December 31, 2009, there were no concentrations of loans exceeding 10% of total loans that are not disclosed as a category of loans. As of that date also, there were no other interest-earning assets that are either nonaccrual, past due, restructured or non-performing.

INVESTMENT SECURITIES

The investment securities portfolio increased $37.763 million in 2009. Increases in deposits and securities sold under repurchase agreements that were in excess of loan growth were strategically invested. The Company also sold $26.185 million in securities in 2009, resulting in net security gains of $1.017 million.

Our objective in managing the investment portfolio is to preserve and enhance corporate liquidity through investment in primarily short and intermediate term securities which are readily marketable and of the highest credit quality. In general, investment in securities is limited to those funds the Bank feels it has in excess of funds used to satisfy loan demand and operating considerations.

Mortgage-backed securities are created by the pooling of mortgages and issuance of a security. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages. Investments in mortgage-backed securities involve a risk that actual principal prepayments will be greater than estimated prepayments over the life of the security. Prepayment estimates for mortgage-backed securities are performed at purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the mortgage-backed securities at issue and current mortgage interest rates and to determine the yield and estimated maturity of the mortgage-backed security portfolio. Prepayments that are faster than anticipated may shorten the life of the security and may result in faster amortization of any premiums paid and thereby reduce the net yield on such securities. During periods of declining mortgage interest rates, refinancing generally increases and accelerates the prepayment of the underlying mortgages and the related security. All holdings of mortgage-backed securities were issued by U.S. Government sponsored enterprises.

The following table shows the book value of investment securities by type of obligation at the dates indicated:

TYPE

December 31,	2009		2008		2007
U.S. Treasury Securities	$	101	$	800	$	800
U.S. Government sponsored enterprise debt securities		99,732		43,881		56,076
Mortgage-backed securities		145,580		165,822		88,825
Obligations of States and Political Subdivisions		63,432		60,906		71,395
Other Securities		523		196		3,055
	$	309,368	$	271,605	$	220,151

A summary of debt securities held at December 31, 2009 classified according to maturity and including weighted average yield for each range of maturities is set forth below:

	December 31, 2009
			Weighted
	Fair		Average
Type and Maturity Grouping	Value		Yield (1)
U.S. Treasury Securities
Maturing Within One Year	$	101		0.46	%
U.S. Government Sponsored Enterprise
Debt Securities
Maturing Within One Year	$	1,714		2.41	%
Maturing After One Year But Within Five Years		81,857		2.84	%
Maturing After Five Years But Within Ten Years		6,023		3.88	%
Maturing After Ten Years		10,138		4.71	%
Total U.S. Government Sponsored Enterprise Debt Securities	$	99,732		3.08	%
Mortgage-Backed Securities (2)
Maturing Within One Year	$	33,523		4.12	%
Maturing After One Year But Within Five Years		55,424		4.46	%
Maturing After Five Years But Within Ten Years		25,439		4.56	%
Maturing After Ten Years		31,194		4.09	%
Total Mortgage-Backed Securities:	$	145,580		4.32	%
Obligations of States and Political Subdivisions
Maturing Within One Year	$	1,748		5.65	%
Maturing After One Year But Within Five Years		11,237		5.64	%
Maturing After Five Years But Within Ten Years		29,754		6.03	%
Maturing After Ten Years		20,693		6.37	%
Total Obligations of States and Political Subdivisions	$	63,432		6.07	%
Corporate Debt Securities
Maturing After One Year But Within Five Years	$	264		5.00	%

(1)

The weighted average yield has been computed by dividing the total contractual interest income adjusted for amortization of premium or accretion of discount over the life of the security by the par value of the securities outstanding. The weighted average yield of tax-exempt obligations of states and political subdivisions has been calculated on a fully taxable equivalent basis. The amounts of adjustments to interest which are based on the statutory tax rate of 35% were $19 thousand, $116 thousand, $356 thousand and $777 thousand for the four ranges of maturities.

(2)

Payments based on contractual maturity.

20

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Per Share Data)

Deposits

Deposits represent the Company’s principal source of funds. The deposit base consists of demand deposits, savings and money market accounts and other time deposits. During the year, the Company’s average total deposits increased 13.34% from $632.753 million in 2008 to $717.162 million in 2009. Money market account balances have increased $65.66 million since December 31, 2008. Total time deposits have also increased $42.39 million since 2008 as customers have moved investment dollars out of the equity markets seeking safety and liquidity. The Company prices deposit rates to remain competitive within the market and to retain customers.

Bank Owned Life Insurance

The Company owns bank owned life insurance policies on the lives of certain members of management. The purpose of this transaction is to help fund the costs of employee benefit plans. The cash surrender value of these policies is $11.438 million at December 31, 2009 compared to $11.021 million at December 31, 2008.

Borrowings

Short-term borrowings increased $20.48 million or 19.4% since December 31, 2008. Most of this increase resulted from securities sold under repurchase agreements, increasing $40.44 million, or 48.2%. Long-term borrowings decreased $19.30 million or 41.53%, mainly as a result of prepayment of Federal Home Loan Bank advances. The purpose of the prepayment was to facilitate the sale of certain securities which resulted in realized gains of approximately $510 thousand.

Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements

The following table presents, as of December 31, 2009, the Company’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts or other similar carrying value adjustments. Further discussion of the nature of each obligation is included in referenced note to the consolidated financial statements.

Commitments	Note											There-
12/31/2009	Ref.	2010		2011		2012		2013		2014		after
Deposits without maturity	—	$	452,478		—		—		—		—		—
Certificates of deposit	G		233,309		45,650		17,539		8,644		17,625		2,307
Repurchase agreements	H		124,313		—		—		—		—		—
Other short-term borrowed funds	H		1,599		—		—		—		—		—
Federal Home Loan Bank advances	I		1,135		2,487		865		820		11,367		10,249
Other long-term borrowed funds	I		56		60		65		64		—		—
Operating leases	E		61		61		61		61		48		—

Note J to the consolidated financial statements discusses in greater detail other commitments and contingencies and the various obligations that exists under those agreements. Examples of these commitments and contingencies include commitments to extend credit and standby letters of credit.

At December 31, 2009 the Company had no unconsolidated, related special purpose entities, nor did the Company engage in derivatives and hedging contracts, such as interest rate swaps, that may expose the Company to liabilities greater than the amounts recorded on the consolidated balance sheet. Management’s policy is to not engage in derivatives contracts for speculative trading purposes.

Capital Resources

Total Stockholders’ Equity increased 4.6% from $77.102 million at December 31, 2008 to $80.628 million in 2009. During 2009, the mark to market adjustment to securities increased accumulated other comprehensive income by $1.05 million. During the year, the Company issued 289 thousand shares through the dividend reinvestment program.

The Bank, as a national bank, is subject to the dividend restrictions set forth by the Comptroller of the Currency. The Comptroller of the Currency must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined). The Bank and the Company are required to maintain minimum amounts of capital to total “risk weighted” assets, as defined by the banking regulators. At December 31, 2009, the Bank and the Company are required to have a minimum Tier 1 and Total Capital ratios of 4.00% and 8.00%, respectively. The Bank and the Company had capital ratios above the minimum levels at December 31, 2009 and 2008. At year-end 2009 and 2008, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

21

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Per Share Data)

Critical accounting Policies

The Company follows financial accounting and reporting policies that are in accordance with generally accepted accounting principles in the United States of America and conform to general practices within the banking industry. Some of these accounting policies are considered to be critical accounting policies. Critical accounting policies are those policies that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has identified two accounting policies that are critical accounting policies and an understanding of these policies is necessary to understand our financial statements. These policies relate to determining the adequacy of the allowance for loan losses and other-than-temporary impairment of securities. Additional information regarding these policies is included in the notes to the consolidated financial statements, Note A (Summary of Significant Accounting Policies), Note B (Securities), Note C (Loans), and the sections above captioned “Loan Portfolio” and “Investment Securities”. Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.

The Company maintains an allowance for loan losses. The allowance for loan losses is presented as a reserve against loans on the balance sheets. Loan losses are charged off against the allowance for loan losses, while recoveries of amounts previously charged off are credited to the allowance for loan losses. A provision for loan losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance. The provision for credit losses provides for probable losses on loans.

Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio represents the largest asset category on the consolidated balance sheets. Management’s assessment of the adequacy of the allowance for loan losses considers individually impaired loans, pools of homogeneous loans with similar risk characteristics and other environmental risk factors.

Pools of homogeneous loans with similar risk characteristics are assessed for probable losses. Probable losses are estimated through application of historical loss experience. Historical loss experience data used to establish loss estimates may not precisely correspond to the current portfolio. As a result, the historical loss experience used in the allowance analysis may not be representative of actual unrealized losses inherent in the portfolio.

Management also evaluates the impact of environmental factors which pose additional risks that may not adequately be addressed in the analyses described above. Such environmental factors could include: levels of, and trends in, delinquencies and impaired loans, charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in lending policies and procedures including those for underwriting, collection, charge-off, and recovery; experience, ability, and depth of lending management and staff; national and local economic trends and conditions; industry and geographic conditions; concentrations of credit such as, but not limited to, local industries, their employees, suppliers; or any other common risk factor that might affect loss experience across one or more components of the portfolio. The determination of this component of the allowances requires considerable management judgment. To the extent actual outcomes differ from management estimates, additional provision for credit losses could be required that could adversely affect earnings or financial position in future periods. The “Loan Portfolio” section of this financial review includes a discussion of the factors driving changes in the allowance for loan losses during the current period.

Other-than-temporary impairment of securities is the second critical accounting policy. Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses. In estimating other than temporary losses, management considers: (1) the length of time, extent, and reasons that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.

Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. GAAP establishes standards for the amortization of acquired intangible assets and the impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Company’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Company’s Trust subsidiary to provide quality, cost-effective trust services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost-effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods. GAAP requires an annual evaluation of goodwill for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The fair value of the goodwill, which resides on the books of the Company’s subsidiary, Farmers Trust Company, is estimated by reviewing the past and projected operating results for the subsidiary and trust banking industry comparable information.

At December 31, 2009, on a consolidated basis, the Company had intangibles of $3.8 million subject to amortization and $3.7 million of goodwill, which was not subject to periodic amortization.

Recent Accounting Pronouncements and Developments

Note A to the consolidated financial statements discusses new accounting policies adopted by the Company during 2009 and the expected impact of accounting policies recently issued or proposed but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations, or liquidity, the impacts are discussed in the applicable sections of this financial review and notes to the consolidated financial statements.

22

MANAGEMENT’S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

March 16, 2010

The management of Farmers National Banc Corp. (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2009.

The Company’s independent registered public accounting firm, Crowe Horwath LLP, has audited the Company’s consolidated financial statements included in this Annual Report and the Company’s internal control over financial reporting as of December 31, 2009, and has issued their Report of Independent Registered Public Accounting Firm, which appears in this Annual Report.

Frank L. Paden	Carl D. Culp
President and Secretary	Executive Vice President and Treasurer

23

Crowe Horwath LLP
Independent Member Crowe Horwath International

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Farmers National Banc Corp.
Canfield, Ohio

We have audited the accompanying consolidated balance sheets of Farmers National Banc Corp. as of December 31, 2009 and 2008 and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2009. We also have audited Farmers National Banc Corp.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Farmers National Banc Corp.’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Farmers National Banc Corp. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Farmers National Banc Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the COSO.

Crowe Horwath LLP

Cleveland, Ohio
March 16, 2010

24

CONSOLIDATED BALANCE SHEETS
(Table Dollar Amounts In Thousands except Per Share Data)

December 31,	2009			2008
ASSETS
Cash and due from banks	$	25,713		$	23,803
Federal funds sold		25,447			246
TOTAL CASH AND CASH EQUIVALENTS		51,160			24,049
Securities available for sale		309,368			271,605
Loans		609,395			552,005
Less allowance for loan losses		7,400			5,553
NET LOANS		601,995			546,452
Premises and equipment, net		14,193			14,139
Goodwill		3,709			0
Other intangibles		3,791			0
Bank owned life insurance		11,438			11,021
Other assets		19,154			13,104
TOTAL ASSETS	$	1,014,808		$	880,370
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	68,420		$	61,499
Interest-bearing		709,132			586,511
TOTAL DEPOSITS		777,552			648,010
Short-term borrowings		125,912			105,435
Long-term borrowings		27,169			46,464
Other liabilities		3,547			3,359
TOTAL LIABILITIES		934,180			803,268
Commitments and contingent liabilities
Stockholders’ Equity
Common Stock — Authorized 25,000,000 shares; issued 15,572,703 in 2009 and 15,283,520 in 2008		95,650			94,217
Retained earnings		7,137			6,096
Accumulated other comprehensive income (loss)		3,344			2,292
Treasury stock, at cost; 2,053,098 shares in 2009 and 2,053,058 shares in 2008		(25,503	)		(25,503	)
TOTAL STOCKHOLDERS’ EQUITY		80,628			77,102
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,014,808		$	880,370

See accompanying notes.

25

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Table Dollar Amounts In Thousands except Per Share Data)

Years ended December 31,	2009			2008			2007
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	37,634		$	34,965		$	34,853
Taxable securities		9,399			8,063			7,017
Tax exempt securities		2,447			2,661			2,745
Dividends		263			388			581
Federal funds sold		32			338			342
TOTAL INTEREST AND DIVIDEND INCOME		49,775			46,415			45,538
INTEREST EXPENSE
Deposits		12,726			15,648			16,556
Short-term borrowings		1,847			2,047			2,957
Long-term borrowings		1,974			2,252			2,380
TOTAL INTEREST EXPENSE		16,547			19,947			21,893
NET INTEREST INCOME		33,228			26,468			23,645
Provision for loan losses		6,050			1,420			570
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		27,178			25,048			23,075
NONINTEREST INCOME
Service charges on deposit accounts		2,593			2,685			2,823
Bank owned life insurance income, including death benefits		621			531			65
Trust fees		3,469			0			0
Insurance agency commissions		80			0			0
Security gains		1,017			474			771
Impairment of securities		(74	)		(2,711	)		(873	)
Other operating income		1,682			1,638			1,622
TOTAL NONINTEREST INCOME		9,388			2,617			4,408
NONINTEREST EXPENSE
Salaries and employee benefits		15,145			11,626			11,732
Occupancy and equipment		3,538			2,898			2,709
State and local taxes		930			819			904
Professional fees		1,020			701			586
Advertising		595			563			455
FDIC insurance		1,543			187			70
Merger related costs		453			0			0
Intangible amortization		449			0			0
Other operating expenses		5,982			4,219			3,926
TOTAL NONINTEREST EXPENSE		29,655			21,013			20,382
INCOME BEFORE INCOME TAXES		6,911			6,652			7,101
INCOME TAXES		1,069			987			1,176
NET INCOME		5,842			5,665			5,925
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in net unrealized gains (losses) on securities, net of reclassifications		1,052			2,945			692
COMPREHENSIVE INCOME	$	6,894		$	8,610		$	6,617
EARNINGS PER SHARE:
Basic	$	0.44		$	0.43		$	0.46
Diluted	$	0.44		$	0.43		$	0.46

See accompanying notes.

26

CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY
(Table Dollar Amounts In Thousands except Per Share Data)

Years ended December 31,	2009			2008			2007
COMMON STOCK
Balance at beginning of year	$	94,217		$	91,741		$	88,366
Stock option expense (1)		0			0			0
289,183 shares issued from dividend reinvestment in 2009, 362,414 in 2008 and 353,826 in 2007		1,433			2,476			3,375
Balance at end of year		95,650			94,217			91,741
RETAINED EARNINGS
Balance at beginning of year		6,096			7,233			9,617
Net income		5,842			5,665			5,925
Dividends declared:
$.36 cash dividends per share in 2009, $.52 in 2008 and $.64 in 2007		(4,801	)		(6,802	)		(8,309	)
Balance at end of year		7,137			6,096			7,233
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of year		2,292			(653	)		(1,345	)
Change in net unrealized gains (losses) on securities, net of reclassifications and tax effects		1,052			2,945			692
Balance at end of year		3,344			2,292			(653	)
TREASURY STOCK, AT COST
Balance at beginning of year		(25,503	)		(24,401	)		(20,415	)
Purchase of 40 shares in 2009, 160,328 in 2008 and 398,205 in 2007 (2)		0			(1,102	)		(3,986	)
Balance at end of year		(25,503	)		(25,503	)		(24,401	)
TOTAL STOCKHOLDERS’ EQUITY AT END OF YEAR	$	80,628		$	77,102		$	73,920

(1)	Stock option expense for 2009 and 2008, was less than $1,000 and rounded to $0.
(2)	Treasury stock repurchased in 2009 was less than $1,000 and rounded to $0.

See accompanying notes.

27

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Table Dollar Amounts In Thousands except Per Share Data)

Years ended December 31,	2009			2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,842		$	5,665		$	5,925
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		6,050			1,420			570
Depreciation and amortization		1,530			1,079			1,042
Net amortization of securities		539			271			355
Security gains		(1,017	)		(474	)		(771	)
Loss on sale of other real estate owned		47			0			0
Impairment of securities		74			2,711			873
Federal Home Loan Bank dividends		0			(174	)		0
Increase in bank owned life insurance		(417	)		(531	)		(65	)
Net change in other assets and liabilities		(7,233	)		(2,114	)		(1,718	)
NET CASH FROM OPERATING ACTIVITIES		5,415			7,853			6,211
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and repayments of securities available for sale		66,715			61,161			42,497
Proceeds from sales of securities available for sale		26,185			31,058			10,865
Purchases of securities available for sale		(126,524	)		(141,650	)		(17,107	)
Proceeds from sale of Federal Home Loan Bank stock		1,414			0			0
Purchase of trust entity, net		(10,511	)		0			0
Loan originations and payments, net		(62,218	)		(39,403	)		(6,623	)
Additions to premises and equipment		(990	)		(612	)		(673	)
Proceeds from sales of other real estate owned		269			113			0
Purchase of bank owned life insurance		0			0			(10,000	)
NET CASH FROM INVESTING ACTIVITIES		(105,660	)		(89,333	)		18,959
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		129,542			54,582			(26,319	)
Net change in short-term borrowings		20,477			31,261			(3,618	)
Proceeds from Federal Home Loan Bank borrowings and other debt		0			5,000			20,000
Repayment of Federal Home Loan Bank borrowings and other debt		(19,295	)		(10,991	)		(9,146	)
Repurchase of common stock		0			(1,102	)		(3,986	)
Cash dividends paid		(4,801	)		(6,802	)		(8,409	)
Proceeds from dividend reinvestment		1,433			2,476			3,375
NET CASH FROM FINANCING ACTIVITIES		127,356			74,424			(28,103	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		27,111			(7,056	)		(2,933	)
Beginning cash and cash equivalents		24,049			31,105			34,038
Ending cash and cash equivalents	$	51,160		$	24,049		$	31,105
Supplemental cash flow information:
Interest paid	$	16,713		$	20,183		$	21,910
Income taxes paid		2,215			1,870			1,220
Supplemental noncash disclosures:
Transfer of loans to other real estate	$	625		$	178		$	0

Farmers National Banc Corp acquired all of the stock of Butler Wick Trust Company for $12.13 million on March 31, 2009. The assets acquired and liabilities assumed are itemized in Note R — Business Combination of this report.

See accompanying notes.

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

The consolidated financial statements include the accounts of Farmers National Banc Corp. and its wholly-owned subsidiaries, The Farmers National Bank of Canfield, Farmers Trust Company and Farmers National Insurance together referred to as “the Company.” All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations:

The Company provides full banking services through its nationally chartered subsidiary, The Farmers National Bank of Canfield. As a national bank, the Bank is subject to regulation of the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The area served by the Bank is the northeastern region of Ohio and service is provided at seventeen (17) locations. The Company provides trust and insurance services through its subsidiaries, Farmers Trust Company and Farmers National Insurance, respectively. Farmers Trust Company has a state-chartered bank license to conduct trust business from the Ohio Department of Commerce – Division of Financial Institutions.

Estimates:

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The allowance for loan losses, deferred tax assets, carrying amount of goodwill and fair values of financial instruments are particularly subject to change.

Cash Flows:

Cash and cash equivalents include cash on hand, deposits with other financial institutions and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Net cash flows are reported for loan and deposit transactions, short term borrowings, and other assets and liabilities.

Securities Available for Sale:

Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. Purchases are recognized on the trade date.

Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant.

Loans:

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level yield method without anticipating prepayments. Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to non-accrual status in accordance with the Company’s policy, typically after 90 days of non-payment.

When interest accruals are discontinued, interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest on such loans is thereafter recorded on a cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Concentration of Credit Risk:

There are no significant concentrations of loans to any one industry or customer. However, most of the Company’s business activity is with customers located within Mahoning, Trumbull and Columbiana counties (Tri-County area). Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy of the Tri-County area.

Allowance for Loan Losses:

The allowance for loan losses is a valuation allowance for probable incurred loan losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. The allowance is based on management’s judgment taking into consideration past loss experience, reviews of individual loans, current economic conditions and other factors considered relevant by management at the financial statement date. While management uses the best information available to establish the allowance, future adjustments to the allowance may be necessary, which may be material, if economic conditions differ substantially from the assumptions used in estimating the allowance. If additions to the original estimate of the allowance for loan losses are deemed necessary, they will be reported in earnings in the period in which they become reasonably estimable. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers loans not individually classified as impaired and is based on historical loss experience adjusted for current factors.

A loan is considered impaired when, based on the current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and commercial real estate loans over $250 thousand by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.

Foreclosed Assets:

Assets acquired through or instead of loan foreclosure are initially recorded at the lower of cost or fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

Premises and Equipment:

Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging from 5 to 40 years. Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 10 years.

Restricted Stock:

The Bank is a member of the Federal Home Loan Bank (FHLB) system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security included in other assets, and periodically evaluated for impairment based on ultimate recovery of par value. The bank is also a member of and owns stock in the Federal Reserve Bank. Both cash and stock dividends are reported as income.

Bank Owned Life Insurance:

The Company has purchased life insurance policies on certain key officers. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Long-term Assets:

Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Goodwill and Other Intangible Assets:

Goodwill resulting from a business combination is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired as of the acquisition date. Goodwill acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected September 30 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives. Goodwill is the only intangible asset with an indefinite life on our balance sheet. Non-compete contracts are amortized on a straight line basis over the term of the agreement which is two years. Customer relationship intangibles are amortized over 13 years on an accelerated method.

Loan Commitments and Related Financial Instruments:

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Stock-Based Compensation:

Compensation cost is recognized for stock options issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

Income Taxes:

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

The Company adopted guidance issued by the FASB with respect to accounting for uncertainty in income taxes, as of January 1, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no affect on the Company’s financial statements.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Retirement Plans:

Employee 401(k) and profit sharing plan expense is the amount of matching contributions. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service.

Earnings Per Share:

Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements.

Comprehensive Income:

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income consists solely of unrealized gains and losses on securities available for sale and is recognized as a separate component of equity.

Loss Contingencies:

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the financial statements.

Restrictions on Cash:

Cash on hand or on deposit with the Federal Reserve Bank of $4.076 million and $3.628 million was required to meet regulatory reserve and clearing requirements at year end 2009 and 2008.

Equity:

Treasury stock is carried at cost.

Dividend Restriction:

Regulations require maintaining certain capital levels and may limit the dividends paid by the bank, trust and insurance subsidiaries to the holding company or by the holding company to shareholders.

Fair Value of Financial Instruments:

Fair values of financial instruments are estimated using relevant market information and other assumptions as more fully disclosed in Note D. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments:

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is primarily aggregated and reported in two lines of business, the Bank segment and the Trust segment. The Company discloses segment information in Footnote S.

Reclassifications:

Certain items in the prior year financial statements were reclassified to conform to the current presentation.

Adoption of New Accounting Standards:

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (Accounting Standards Codification (ASC) 820-10). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157, which is currently FASB ASC 820-10. This FSP delayed the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material. In October 2008, the FASB issued Staff Position (FSP) 157-3, Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active. This FSP clarifies the application of FAS 157 in a market that is not active. The impact of adoption was not material.

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (ASC 805). ASC 805 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. ASC 805 was effective for fiscal years beginning on or after December 15, 2008. On March 31, 2009, the Company acquired Butler Wick Trust Company, now known as Farmers Trust Company. The principles and requirements of ASC 805 supplied guidance for the accounting of the business combination.

In April 2009, the FASB issued Staff Position No. 115-2 and No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (ASC 320-10), which amended existing guidance for determining whether impairment is other-than-temporary for debt securities. The requires an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) other-than-temporary impairment (OTTI) related to other factors, which is recognized in other comprehensive income and 2) OTTI related to credit loss, which must be recognized in the income statement. The credit loss is determined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. Additionally, disclosures about other-than-temporary impairments for debt and equity securities were expanded. ASC 320-10 was effective for interim and annual reporting periods ending June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of this ASC did not have a material effect on the results of operations or financial position.

In April 2009, the FASB issued Staff Position (FSP) No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (ASC 820-10). This FSP emphasizes that the objective of a fair value measurement does not change even when market activity for the asset or liability has decreased significantly. Fair value is the price that would be received for an asset sold or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. When observable transactions or quoted prices are not considered orderly, then little, if any, weight should be assigned to the indication of the asset or liability’s fair value. Adjustments to those transactions or prices would be needed to determine the appropriate fair value. The FSP, which was applied prospectively, was effective for interim and annual reporting periods ending after June 15, 2009 with early adoption for periods ending after March 15, 2009. The effect of adopting this new guidance was not material.

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

NOTE B — SECURITIES AVAILABLE FOR SALE

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at December 31, 2009 and 2008 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2009	Cost		Gains		Losses			Value
U.S. Treasury and U.S. government sponsored entities	$	98,746	$	1,424	$	(337	)	$	99,833
State and political subdivisions		62,809		1,070		(447	)		63,432
Mortgage-backed securities — residential		141,915		3,758		(411	)		145,262
Collateralized mortgage obligations		309		9		0			318
Other securities		250		14		0			264
Equity securities		149		129		(19	)		259
TOTALS	$	304,178	$	6,404	$	(1,214	)	$	309,368

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2008	Cost		Gains		Losses			Value
U.S. Treasury and U.S. government sponsored entities	$	42,611	$	2,089	$	(19	)	$	44,681
State and political subdivisions		61,749		536		(1,379	)		60,906
Mortgage-backed securities — residential		162,966		2,705		(397	)		165,274
Collateralized mortgage obligations		531		17		0			548
Equity securities		222		34		(60	)		196
TOTALS	$	268,079	$	5,381	$	(1,855	)	$	271,605

The proceeds from sales of available-for-sale securities and the associated gains and losses were as follows:

	2009			2008			2007
Proceeds	$	26,185		$	31,058		$	10,865
Gross gains		1,019			523			771
Gross losses		(2	)		(49	)		0

The amortized cost and fair value of the debt securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if issuers have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are not due at a single maturity date and are shown separately.

	December 31, 2009
	Amortized		Fair
Available for sale	Cost		Value
Maturity
Within one year	$	3,538	$	3,563
One to five years		92,162		93,357
Five to ten years		35,177		35,777
Beyond ten years		30,928		30,832
Mortgage-backed securities		142,224		145,580
TOTALS	$	304,029	$	309,109

	December 31, 2008
	Amortized		Fair
Available for sale	Cost		Value
Maturity
Within one year	$	7,979	$	8,843
One to five years		40,220		42,321
Five to ten years		17,741		17,940
Beyond ten years		38,419		36,483
Mortgage-backed securities		163,498		165,822
TOTALS	$	267,857	$	271,409

Securities with a carrying amount of $206 million at December 31, 2009 and $127 million at December 31, 2008 were pledged to secure public deposits and repurchase agreements.

In each year, there were no holdings of any other issuer that exceeded 10% of shareholders’ equity, other than the U.S. Government and its agencies.

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

The following table summarizes the investment securities with unrealized losses at December 31, 2009 and December 31, 2008 aggregated by major security type and length of time in a continuous unrealized loss position:

	Less than 12 Months					12 Months or More					Total
2009	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. Treasury and U.S. government sponsored entities	$	44,854	$	(330	)	$	359	$	(7	)	$	45,213	$	(337	)
State and political subdivisions		13,336		(162	)		3,035		(285	)		16,371		(447	)
Mortgage-backed securities — residential		40,304		(410	)		60		(1	)		40,364		(411	)
Equity securities		28		(3	)		7		(16	)		35		(19	)
Total temporarily impaired	$	98,522	$	(905	)	$	3,461	$	(309	)	$	101,983	$	(1,214	)

	Less than 12 Months					12 Months or More					Total
2008	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. Treasury and U.S. government sponsored entities	$	0	$	0		$	6,177	$	(19	)	$	6,177	$	(19	)
State and political subdivisions		8,367		(418	)		22,855		(961	)		31,222		(1,379	)
Mortgage-backed securities — residential		59,593		(80	)		95,852		(317	)		155,445		(397	)
Equity securities		44		(46	)		9		(14	)		53		(60	)
Total temporarily impaired	$	68,004	$	(544	)	$	124,893	$	(1,311	)	$	192,897	$	(1,855	)

The Corporation’s equity securities include local and regional bank holdings. For the year ended December 31, 2009, the Corporation recognized a $74 thousand pre-tax charge for the other-than-temporary decline in fair value on its equity holdings. When a decline in fair value below cost is deemed to be other-than-temporary, the difference between the amortized cost basis of the equity security and its fair value must be recognized as a charge to earnings.

In determining OTTI for debt and equity securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

As of December 31, 2009, the Corporation’s security portfolio consisted of 434 securities, 114 of which were in an unrealized loss position. The majority of unrealized losses are related to the Corporation’s holdings in securities issued by U.S. government sponsored entities, state and political subdivisions, and mortgage-backed securities, as discussed below:

Securities issued by U.S. Government sponsored entities and agencies:

Unrealized losses on debt securities issued by U.S. government sponsored entities and agencies have not been recognized into income because the securities are of high credit quality, management does not have the intent to sell these securities before their anticipated recovery and the decline in fair value is largely due to changes in market interest rates and not credit quality. The fair value is expected to recover as the securities approach their maturity date.

Securities issued by State and Political subdivisions:

Unrealized losses on debt securities issued by state and political subdivisions have not been recognized into income. Generally these securities have maintained their investment grade ratings and management does not have the intent to sell these securities before their anticipated recovery. The fair value is expected to recover as the securities approach their maturity date.

Mortgage-backed securities:

All of the Company’s holdings of mortgage-backed securities at year end 2009 and 2008 were issued by U.S. Government sponsored enterprises. Unrealized losses on mortgage-backed securities have not been recognized into income. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Corporation does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2009.

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

NOTE C — LOANS

Loans at year end were as follows:

	2009			2008
Residential Real Estate	$	180,877		$	173,246
Commercial Real Estate		215,917			195,244
Consumer		136,708			113,105
Commercial		75,893			70,410
Subtotal		609,395			552,005
Allowance for loan losses		(7,400	)		(5,553	)
NET LOANS	$	601,995		$	546,452

Activity in the allowance for loan losses was as follows:

	2009			2008			2007
Balance at beginning of year	$	5,553		$	5,459		$	5,594
Provision for loan losses		6,050			1,420			570
Loans charged off		(4,799	)		(1,731	)		(1,112	)
Recoveries		596			405			407
Balance at end of year	$	7,400		$	5,553		$	5,459

Individually impaired loans were as follows:

	2009		2008
Year-end loans with no allocated allowance for loan losses	$	425	$	213
Year-end loans with allocated allowance for loan losses		13,071		2,425
	$	13,496	$	2,638
Amount of the allowance for loan losses allocated	$	2,058	$	555

	2009		2008		2007
Average of individually impaired loans during year	$	11,407	$	1,157	$	1,332

Interest income recognized during impairment for all periods was immaterial.

Nonaccrual loans and loans past due 90 days still on accrual were as follows:

	2009		2008
Loans past due over 90 days still on accrual	$	469	$	562
Nonaccrual loans		9,634		4,775

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Included in the individually impaired loans of $13.50 million disclosed above are $5.44 million of loans that have terms that have been modified under troubled debt restructuring. The Company has allocated $333 thousand of specific reserves to those loans as of December 31, 2009. The Company has also committed $24 thousand to customers whose loans are classified as a troubled debt restructuring.

NOTE D — FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Investment Securities:

The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Impaired Loans:

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned:

Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:

	Fair Value Measurements
	at December 31, 2009 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets:
Investment securities available-for sale
U.S. Treasury and U.S. Government — sponsored entities	$	99,833	$	0	$	99,833	$	0
States and political subdivisions		63,432		0		63,432		0
Mortgage-backed securities — residential		145,262		0		145,249		13
Collateralized mortgage obligations		318		0		318		0
Equity securities		259		259		0		0
Other securities		264		0		264		0
Total investment securities	$	309,368	$	259	$	309,096	$	13

	Fair Value Measurements
	at December 31, 2008 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Financial Assets:
Investment securities available-for-sale
U.S. Treasury and U.S. Government — sponsored entities	$	44,681	$	0	$	43,071	$	1,610
States and political subdivisions		60,906		0		60,906		0
Mortgage-backed securities — residential		165,274		0		157,907		7,367
Collateralized mortgage obligations		548		0		548		0
Equity securities		196		196		0		0
Total investment securities	$	271,605	$	196	$	262,432	$	8,977

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period ended December 31, 2009:

	Investment Securities
	Available-for-Sale
Balance of recurring Level 3 assets at January 1, 2009	$	8,977
Total unrealized gains or losses:
Included in other comprehensive income		(379	)
Purchases, sales, issuances and settlements, net		(1,613	)
Transfers in and/or out of Level 3		(6,972	)
Balance of recurring Level 3 assets at December 31, 2009	$	13

	Investment Securities
	Available-for-Sale
Balance of recurring Level 3 assets at January 1, 2008	$	3,762
Total unrealized gains or losses:
Included in other comprehensive income		(59	)
Purchases, sales, issuances and settlements, net		7,374
Transfers in and/or out of Level 3		(2,100	)
Balance of recurring Level 3 assets at December 31, 2008	$	8,977

There is no impact to earnings as a result of fair value measurements on items valued on a recurring basis, using level 3 inputs.

Assets Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are summarized below:

	Fair Value Measurements
	at December 31, 2009 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	6,330	$	0	$	0	$	6,330

	Fair Value Measurements
	at December 31, 2008 Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	1,870	$	0	$	0	$	1,870

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $6.33 million, net of a valuation allowance of $1.73 million at December 31, 2009, resulting in an additional provision for loan losses of $1.50 million for the year ending December 31, 2009. At December 31, 2008, impaired loans had a carrying amount of $2.43 million, with a valuation allowance of $555 thousand, resulting in an additional provision for loan losses of $555 thousand for the year ending December 31, 2008.

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments, at December 31, 2009 and December 31, 2008 are as follows:

	2009				2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets
Cash, due from banks, federal funds sold and money market investments	$	51,160	$	51,160	$	24,049	$	24,049
Securities available-for-sale		309,368		309,368		271,605		271,605
Restricted stock		3,977		n/a		5,317		n/a
Loans, net		601,995		609,127		546,452		551,209
Accrued interest receivable		4,370		4,370		4,057		4,057
Financial liabilities
Deposits	$	777,552	$	781,703	$	648,010	$	652,686
Short-term borrowings		125,912		125,912		105,435		105,435
Long-term borrowings		27,169		28,990		46,464		48,868
Accrued interest payable		1,155		1,155		1,321		1,321

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, demand deposits, short term debt, and variable rate loans or deposits that reprice frequently and fully. The methods for determining the fair values for securities were described previously. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and the allowance for loan losses. Fair value of debt is based on current rates for similar financing. It was not practicable to determine the fair value of restricted stock due to restrictions placed on its transferability. The fair value of off-balance sheet items is not considered material.

NOTE E — PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

	2009			2008
Land	$	2,834		$	2,747
Buildings		15,812			15,548
Furniture, fixtures and equipment		9,247			9,914
Leasehold improvements		203			192
		28,096			28,401
Less accumulated depreciation		(13,903	)		(14,262	)
NET BOOK VALUE	$	14,193		$	14,139

Depreciation expense was $980 thousand for the year ended December 31, 2009, $989 thousand for 2008 and $901 thousand for 2007.

The Bank leases a branch location under a noncancelable operating lease extending to 2014. Rental expense charged to operations totaled $75, $73, and $61 thousand for 2009, 2008 and 2007. In addition to rental expense, under the lease, common area maintenance is paid and the amount can fluctuate according to the costs incurred. Rent commitments, before considering renewal options that generally are present, were as follows:

2010	$	61
2011		61
2012		61
2013		61
2014		48
TOTAL	$	292

NOTE F — GOODWILL AND INTANGIBLE ASSETS

The acquisition of Farmers Trust Company on March 31, 2009, more fully described in Note R, resulted in $3.71 million of goodwill.

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value, which is determined through a two-step impairment test. Step 1 includes the determination of the carrying value of our reporting unit, including the existing goodwill and intangible assets, and estimating the fair value of the reporting unit. We determined the fair value of our reporting unit exceeded its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, we are required to perform a second step to the impairment test.

Acquired Intangible Assets:

Acquired intangible assets, which also resulted from the acquisition of Farmers Trust Company, were as follows at year end:

	2009
	Gross
	Carrying		Accumulated
	Amount		Amortization
Amortized intangible assets:
Customer relationship intangibles	$	3,990	$	(355	)
Non-compete contracts		250		(94	)
TOTAL	$	4,240	$	(449	)

Estimated amortization expense for each of the next five years:

2010	$	580
2011		479
2012		409
2013		393
2014		354
Thereafter		1,576

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

NOTE G — INTEREST BEARING DEPOSITS

Following is a summary of scheduled maturities of certificates of deposit during the years following December 31, 2009:

2010	$	233,309
2011		45,650
2012		17,539
2013		8,644
2014		17,625
Thereafter		2,307
TOTAL	$	325,074

Following is a summary of certificates of deposit of $100 thousand or more by remaining maturities:

	2009		2008
Three months or less	$	21,729	$	40,653
Three to six months		29,968		8,765
Six to twelve months		43,491		15,150
Over twelve months		35,846		33,097
TOTAL	$	131,034	$	97,665

Following is a summary of year-end interest-bearing deposits:

	2009		2008
Demand	$	106,410	$	96,845
Money Market		198,747		133,089
Savings		78,901		73,897
Certificates of Deposit		325,074		282,680
TOTAL	$	709,132	$	586,511

NOTE H — SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM BORROWINGS

Securities sold under repurchase agreements are secured by the Bank’s holdings of debt securities issued by U.S. government sponsored entities and agencies with a carrying amount of $152.3 million and $89.2 million at year-end 2009 and 2008.

Repurchase agreements are financing arrangements that mature within 89 days. Under the agreements, customers agree to maintain funds on deposit with the Bank and in return acquire an interest in a pool of securities pledged as collateral against the funds. The securities are held in a segregated safekeeping account at the Federal Reserve Bank. Information concerning securities sold under agreements to repurchase is summarized as follows:

	2009			2008			2007
Average balance during the year	$	123,119		$	77,952		$	77,770
Average interest rate during the year		1.49	%		2.60	%		3.63	%
Maximum month-end balance during the year	$	148,765		$	101,706		$	90,643
Average year-end interest rate		1.23	%		2.30	%		3.48	%
Balance at year-end	$	124,313		$	83,874		$	73,257

The Bank has a short-term U.S. Treasury interest-bearing demand note with a balance of $849 thousand at December 31, 2009 and $811 thousand at December 31, 2008. The demand note was interest free at December 31, 2009 and 2008.

The Bank has access to lines of credit amounting to $21 million at three major domestic banks that are below prime rate. These lines and terms are periodically reviewed by the banks and are generally subject to withdrawal at their discretion. There were no borrowings under these lines at December 31, 2009. At December 31, 2008, there was a borrowed balance of $750 thousand at a rate of .50%.

In 2009 Farmers National Banc Corp secured a $5 million revolving line of credit collateralized by the stock of the Bank. The line can be renewed annually. The outstanding balance at December 31, 2009 was $750 thousand. The interest rate is prime with a floor of 4.5%. The interest rate at December 31, 2009 was 4.5%.

There were no short-term advances from the Federal Home Loan Bank at December 31, 2009. The Bank had short-term advances from the Federal Home Loan Bank amounting to $20 million, with a weighted average interest rate of .42% at December 31, 2008. $5 million was under the cash management line of credit. Borrowings under the cash management line of credit have a variable interest rate and must be repaid within 90 days. $15 million was a short-term fixed rate advance, repaid in January 2009.

NOTE I — FEDERAL HOME LOAN BANK ADVANCES AND OTHER LONG-TERM BORROWINGS

At year end, long-term advances from the Federal Home Loan Bank were as follows:

	2009					2008
			Weighted					Weighted
			Average					Average
	Amount		Rate			Amount		Rate
Fixed-rate interest only advances	$	0		0.00	%	$	10,000		4.93	%
Fixed-rate constant payment advances, at rates from 3.16% to 5.25% at December 31, 2009		6,924		4.62	%		11,167		4.74	%
Convertible and putable fixed-rate advances, at rates from 2.82% to 4.88% at December 31, 2009		20,000		4.12	%		25,000		4.27	%
Total advances	$	26,924		4.25	%	$	46,167		4.53	%

At year end 2009 and 2008, $5 million of the FHLB fixed-rate advances are convertible to a floating rate advance on or after certain specific dates at the option of the FHLB. Should the FHLB elect to convert, the Bank has the right to prepay any or all of the borrowing at the time of conversion and on any interest payment due date, thereafter, without penalty.

At year end 2009 and 2008, $15 million and $20 million of the FHLB fixed-rate advances are putable on or after certain specific dates at the option of the FHLB. Should the FHLB elect the put, the Bank is required to repay the advance on that date without penalty.

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

Federal Home Loan Bank advances are secured by a blanket pledge of residential mortgage loans totaling $108.2 million and $89.3 million at year end 2009 and 2008. Based on this collateral and the Company’s holdings of FHLB stock, the Bank is eligible to borrow an additional $60.2 million at year end 2009. Each advance is subject to a prepayment penalty if paid prior to its maturity date. Scheduled repayments of long-term FHLB advances are as follows:

Maturing in:
2010	$	1,136
2011		2,487
2012		865
2013		820
2014		11,367
Later years		10,249
TOTAL	$	26,924

The Bank has a note payable secured by real estate totaling $245 thousand in 2009 and $297 thousand in 2008. This note carried a fixed interest rate of 7.50%. Scheduled principal repayments of the note payable are as follows:

Maturing in:
2010	$	56
2011		60
2012		65
2013		64
TOTAL	$	245

NOTE J — COMMITMENTS AND CONTINGENT LIABILITIES

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off-balance-sheet risk at year end were as follows:

	2009				2008
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Commitments to make loans	$	845	$	8,872	$	2,671	$	13,836
Unused lines of credit	$	33,368	$	34,619	$	33,488	$	20,037

Commitments to make loans are generally made for periods of 30 days or less. The fixed rate loan commitments for 2009 have interest rates ranging from 4.75% to 5.88% and maturities ranging from fifteen to thirty years. The fixed rate commitments for 2008 have interest rates ranging from 5.63% to 7.75% and maturities ranging from six months to twenty years. Fixed rate unused lines of credit have interest rates ranging from 3.25% to 18.00% at December 31, 2009 and 3.18% to 18.00% at December 31, 2008.

Standby letters of credit are considered financial guarantees. The standby letters of credit have a contractual value of $3.561 million in 2009 and $1.052 million in 2008. The carrying amount of these items on the balance sheet is not material.

NOTE K — STOCK OPTIONS

The Company’s Stock Option Plan, which was shareholder-approved, permitted the grant of share options to its directors, officers and employees for up to 375,000 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards were generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods of 5 years and have 10-year contractual terms. Option exercises are expected to be satisfied with either newly issued shares or treasury shares. The fair value of the Company’s stock at December 31, 2009 and 2008 was less than the fair value option exercise price, therefore the outstanding and exercisable options had no intrinsic value.

The fair value of each option award is estimated on the date of grant using a closed form option valuation Black-Scholes model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted was determined using the following weighted-average assumptions as of the grant date during 2008. There were no options granted in 2009.

	2008
Risk-free interest rate		2.51	%
Expected term	5 yrs
Expected stock price volatility		15.48	%
Dividend yield		7.14	%
Fair value	$	0.46

A summary of the activity in the stock option plan for 2009 is as follows:

						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual
	Shares			Price		Life
Outstanding at beginning of year		44,500		$	10.50	3.6 yrs
Granted		0
Exercised		0
Forfeited or expired		(7,500	)		11.00
Outstanding at end of year		37,000		$	10.40	2.8 yrs
Exercisable at end of year		33,000		$	10.87	2.1 yrs

The Company expects all outstanding options to vest. As of December 31, 2009, the total unrecognized compensation cost related to nonvested stock options granted under the Plan was immaterial.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

Actual and required capital amounts and ratios are presented below at year-end:

							Requirement					To be Well Capitalized
							For Capital					Under Prompt Corrective
		Actual					Adequacy Purposes:					Action Provisions:
		Amount		Ratio			Amount		Ratio			Amount		Ratio
2009
Total Capital to risk weighted assets	Consolidated	$	77,297		12.03	%	$	51,402		8.00	%		N/A		N/A
	Bank		72,692		11.36	%		51,197		8.00	%	$	63,996		10.00	%
Tier I Capital to risk weighted assets	Consolidated		69,847		10.87	%		25,701		4.00	%		N/A		N/A
	Bank		65,251		10.20	%		25,598		4.00	%		38,398		6.00	%
Tier I Capital to average assets	Consolidated		69,847		6.87	%		40,659		4.00	%		N/A		N/A
	Bank		65,251		6.52	%		40,028		4.00	%		50,035		5.00	%
2008
Total Capital to risk weighted assets	Consolidated	$	80,346		14.01	%	$	45,870		8.00	%		N/A		N/A
	Bank		78,415		13.68	%		45,845		8.00	%	$	57,306		10.00	%
Tier I Capital to risk weighted assets	Consolidated		74,793		13.04	%		22,935		4.00	%		N/A		N/A
	Bank		72,862		12.71	%		22,922		4.00	%		34,384		6.00	%
Tier I Capital to average assets	Consolidated		74,793		8.58	%		34,878		4.00	%		N/A		N/A
	Bank		72,862		8.37	%		34,824		4.00	%		43,530		5.00	%

NOTE L — REGULATORY MATTERS

The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Management believes as of December 31, 2009, the Corporation and Bank meet all capital adequacy requirements to which it is subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year end 2009 and 2008, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

Dividend Restrictions: The Corporation’s principal source of funds for dividend payments is dividends received from the Bank. The Bank, as a national bank, is subject to the dividend restrictions set forth by the Comptroller of the Currency. The Comptroller of the Currency must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined). In 2010, the Bank could, without prior approval, declare dividends on any 2010 net profits retained above $1.75 million at the date of the dividend declaration.

The Bank experienced significant asset growth during 2009 which had a direct impact on certain capital ratios. In order to keep capital commensurate with the risk profile of the Bank, the Board of Directors has taken action to establish and maintain minimum ratio levels for the Bank’s Tier One Capital to Average Asset ratio at 7.20% and the Bank’s Total Capital to Risk Weighted Assets ratio at 11.00% during 2010.

NOTE M — EMPLOYEE BENEFIT PLANS

The Company has a qualified 401(k) deferred compensation Retirement Savings Plan. All employees of the Company who have completed at least one year of service and meet certain other eligibility requirements are eligible to participate in the plan. Under the terms of the Plan, employees may voluntarily defer a portion of their annual compensation pursuant to section 401(k) of the Internal Revenue Code. The Company matches a percentage of the participants’ voluntary contributions up to 6% of gross wages. In addition, at the discretion of the Board of Directors, the Company may make an additional profit sharing contribution to the plan. Total expense was $236 thousand, $182 thousand and $194 thousand for the years ended December 31, 2009, 2008 and 2007, respectively.

The Corporation maintains a deferred compensation plan for certain existing employees and retirees. Expense under the plan was $21 thousand, $26 thousand and $29 thousand for the years ended December 31, 2009, 2008 and 2007, respectively. The liability under the Plan at December 31, 2009 and 2008 was $383 thousand and $399 thousand.

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

The Corporation also has a postretirement benefit plan covering individuals retired from the Corporation that have met certain service and age requirements and certain other active employees that have met similar service requirements. The postretirement health care plan includes a limit on the Corporation’s share of costs for recent and future retirees. Expense under this plan for 2009, 2008, and 2007 was not material. The accrued postretirement benefit liability under this plan is also not material. Due to the immateriality of the plan, the disclosures required under U.S. generally accepted accounting principles have been omitted.

NOTE N — INCOME TAXES

The provision for income taxes (credit) consists of the following:

	2009			2008			2007
Current expense	$	1,875		$	1,911		$	1,389
Deferred expense		(806	)		(924	)		(213	)
TOTALS	$	1,069		$	987		$	1,176

Effective tax rates differ from federal statutory rate of 35% applied to income before income taxes due to the following:

	2009			2008			2007
Statutory tax	$	2,419		$	2,328		$	2,485
Effect of nontaxable interest		(1,060	)		(1,053	)		(1,039	)
Bank owned life insurance, net		(172	)		(172	)		(8	)
Effect of nontaxable life insurance death proceeds		(32	)		0			0
Other		(86	)		(116	)		(262	)
ACTUAL TAX	$	1,069		$	987		$	1,176

Deferred tax assets (liabilities) are comprised of the following:

	2009			2008
Deferred tax assets:
Allowance for credit losses	$	2,590		$	1,943
Security valuation		1,771			1,745
Deferred and accrued compensation		317			229
Deferred loan fees and costs		436			419
Capital loss carryover		11			265
Post-retirement benefits		155			147
Other		132			25
Gross deferred tax assets	$	5,412		$	4,773
Deferred tax liabilities:
Depreciation	$	(742	)	$	(634	)
Net unrealized gain on securities available for sale		(1,846	)		(1,234	)
Federal Home Loan Bank dividends		(482	)		(735	)
Prepaid expenditures		(124	)		(106	)
Other		(32	)		(72	)
Gross deferred tax liabilities		(3,226	)		(2,781	)
NET DEFERRED TAX ASSET	$	2,186		$	1,992

No valuation allowance for deferred tax assets was recorded at December 31, 2009 and 2008. Income taxes applicable to realized investment securities gains in 2009, 2008 and 2007 were $356 thousand, $166 thousand and $270 thousand, respectively. The capital loss carryover of $33 thousand, which can be used to offset future capital gain income, expires by December 31, 2013.

At December 31, 2009 and December 31, 2008, the Company had no unrecognized tax benefits recorded. The Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months.

The Company is subject to U.S. federal income tax. The Company is no longer subject to examination by the federal taxing authority for years prior to 2006. The tax years 2006 — 2008 remain open to examination by the U.S. taxing authority.

NOTE O — RELATED PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates during 2009 were as follows:

Total loans at December 31, 2008	$	5,812
New loans		593
Effect of changes in composition of related parties		(44	)
Repayments		(1,228	)
Total loans at December 31, 2009	$	5,133

Deposits from principal officers, directors, and their affiliates at year-end 2009 and 2008 were $1.79 million and $1.87 million.

NOTE P — EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

	2009		2008		2007
Basic EPS
Net income	$	5,842	$	5,665	$	5,925
Weighted average shares outstanding		13,363,445		13,103,761		13,004,593
Basic earnings per share	$	.44	$	.43	$	.46
Diluted EPS
Net income	$	5,842	$	5,665	$	5,925
Weighted average shares outstanding for basic earnings per share		13,363,445		13,103,761		13,004,593
Effect of Stock Options		0		0		0
Weighted average shares for diluted earnings per share		13,363,445		13,103,761		13,004,593
Diluted earnings per share	$	.44	$	.43	$	.46

Stock options for 37,000, 44,500 and 46,500 shares of common stock were not considered in computing diluted earnings per share for 2009, 2008 and 2007 respectively because they were antidilutive.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

NOTE Q — OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) components and related tax effects were as follows:

	2009			2008			2007
Net unrealized holding gains (losses) on available for sale securities	$	2,607		$	2,294		$	962
Reclassification adjustment for (gains) losses realized in income		(943	)		2,237			102
Net unrealized gains (losses)		1,664			4,531			1,064
Tax effect		(612	)		(1,586	)		(372	)
Net-of-tax amount	$	1,052		$	2,945		$	692

Reclassification adjustment for (gains) losses realized in income includes other-than-temporary impairment losses of $74, $2,711 and $873 respectively. All impairment losses relate to equity securities thus all other-than-temporary impairment has been recognized in net income.

NOTE R — BUSINESS COMBINATION

On March 31, 2009, the Company acquired 100% of the capital stock of Butler Wick Trust Company, a wholly owned subsidiary of Butler Wick Corporation in exchange for $12.125 million in cash. With the acquisition, the Company has added trust and estate services to complement its core retail banking and investment services. The newly acquired trust entity is operating under the name Farmers Trust Company. Merger-related costs are recognized as expense in the Company’s income statement for the year ended December 31, 2009.

The goodwill of $3.71 million arising from the acquisition consisted largely of synergies and other benefits that flow from control over the combining of the operations of the companies. The amount of goodwill that is expected to be deductible for income taxes purposes is $3.71 million. The fair value of $4.24 million of intangible assets is related to customer relationships and noncompetition agreements with two key Trust Company employees. The following table summarizes the amounts of assets acquired and liabilities assumed at the acquisition date:

Cash and due from banks	$	1,614
Securities available for sale		2,071
Premises and equipment		44
Identifiable intangible assets		4,240
Other assets		716
Liabilities assumed		(269	)
Total identifiable net assets		8,416
Goodwill		3,709
Total net assets acquired	$	12,125

NOTE S — SEGMENT INFORMATION

A reportable segment is determined by the products and services offered, primarily distinguished between banking and trust operations. They are also distinguished by the level of information provided to the chief operating decision makers in the Company, who use such information to review performance of various components of the business, which are then aggregated. Loans, investments, and deposits provide the revenues in the banking operation, and trust service fees provide the revenue in trust operations. All operations are domestic.

Significant segment totals are reconciled to the financial statements as follows:

	Trust		Bank					Consolidated
December 31, 2009	Segment		Segment		Others			Totals
Assets
Cash and due from banks	$	866	$	50,327	$	(33	)	$	51,160
Securities available for sale		3,519		305,734		115			309,368
Net loans		0		601,995		0			601,995
Premises and equipment, net		112		14,081		0			14,193
Goodwill		3,709		0		0			3,709
Other intangibles		3,791		0		0			3,791
Other assets		475		29,881		236			30,592
Total Assets	$	12,472	$	1,002,018	$	318		$	1,014,808
Liabilities and Stockholders’ Equity
Deposits, borrowings and other liabilities	$	255	$	933,273	$	652		$	934,180
Stockholders’ equity		12,217		68,745		(334	)		80,628
Total Liabilities and Stockholders’ Equity	$	12,472	$	1,002,018	$	318		$	1,014,808

	Trust		Bank					Consolidated
For year ended 2009	Segment		Segment		Others			Totals
Interest and dividend income	$	66	$	49,701	$	8		$	49,775
Interest expense		0		16,547		0			16,547
Net interest income		66		33,154		8			33,228
Provision for loan losses		0		6,050		0			6,050
Net interest income after provision for loan losses		66		27,104		8			27,178
Service fees and other noninterest income		3,467		6,057		(136	)		9,388
Noninterest expense
Salaries and employee benefits		2,072		13,073		0			15,145
Occupancy and equipment		343		3,195		0			3,538
State and local taxes		47		883		0			930
Professional fees		36		984		0			1,020
Advertising		24		571		0			595
Intangible amortization		449		0		0			449
Other		429		7,054		495			7,978
Total noninterest expense.		3,400		25,760		495			29,655
Income before taxes		133		7,401		(623	)		6,911
Income tax		46		1,235		(212	)		1,069
Net Income	$	87	$	6,166	$	(411	)	$	5,842

The Bank segment includes Farmers National Insurance.

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

NOTE T — QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarter Ended 2009	March 31		June 30		September 30		December 31
Total interest income	$	11,994	$	12,329	$	12,649	$	12,803
Total interest expense		4,311		4,101		4,178		3,957
Net interest income		7,683		8,228		8,471		8,846
Provision for loan losses		450		1,050		1,550		3,000
Other income		1,118		2,643		2,609		3,018
Other expense		6,256		7,803		7,675		7,921
Income before income taxes		2,095		2,018		1,855		943
Income taxes		411		361		299		(2	)
Net income	$	1,684	$	1,657	$	1,556	$	945
Earnings per share — basic and diluted	$	0.13	$	0.12	$	0.12	$	0.07

Quarter Ended 2008	March 31		June 30		September 30			December 31
Total interest income	$	11,198	$	11,347	$	11,808		$	12,062
Total interest expense		5,364		4,954		4,922			4,707
Net interest income		5,834		6,393		6,886			7,355
Provision for loan losses		110		100		350			860
Other income		1,395		644		(249	)		827
Other expense		5,006		5,095		5,269			5,643
Income before income taxes		2,113		1,842		1,018			1,679
Income taxes		389		308		19			271
Net income	$	1,724	$	1,534	$	999		$	1,408
Earnings per share — basic and diluted	$	0.13	$	0.12	$	0.08		$	0.11

During the quarter ended September 30, 2008, the Bank recorded a charge of $1.8 million for other-than-temporary impairment of securities, resulting in the lower net income for the quarter. In the fourth quarter of 2009, the Bank recorded a loan charge-off of $1.79 million leading to a $3 million provision for loan losses for the quarter.

NOTE U — PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Below is condensed financial information of Farmers National Banc Corp. (parent company only). This information should be read in conjunction with the consolidated financial statements and related notes.

BALANCE SHEETS

	December 31, 2009			December 31, 2008
Assets:
Cash	$	275		$	1,235
Investment in subsidiaries		80,962			75,170
Securities available for sale		115			944
Other		237			133
TOTAL ASSETS	$	81,589		$	77,482
Liabilities:
Dividends payable	$	171		$	322
Note payable		750			0
Other accounts payable		40			58
TOTAL LIABILITIES		961			380
Stockholders’ equity:
Common stock		95,650			94,217
Retained earnings		7,137			6,096
Accumulated other comprehensive income (loss)		3,344			2,292
Treasury stock, at cost; 2,053,098 shares in 2009 and 2,053,058 shares in 2008		(25,503	)		(25,503	)
TOTAL STOCKHOLDERS’ EQUITY		80,628			77,102
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	81,589		$	77,482

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except Per Share Data)

STATEMENTS OF INCOME

Years ended December 31,	2009			2008			2007
Income:
Dividends from subsidiary bank	$	13,746		$	0		$	14,339
Interest and dividends on securities		8			45			68
Security gains/(losses)		(74	)		(87	)		9
TOTAL INCOME		13,680			(42	)		14,416
Other expenses		(557	)		(249	)		(172	)
Income before income tax benefit and undistributed subsidiary income		13,123			(291	)		14,244
Income tax benefit		212			99			32
Equity in undistributed net income of subsidiary (dividends in excess of net income)		(7,493	)		5,857			(8,351	)
NET INCOME	$	5,842		$	5,665		$	5,925

STATEMENTS OF CASH FLOWS

Years ended December 31,	2009			2008			2007
Cash flows from operating activities:
Net income	$	5,842		$	5,665		$	5,925
Adjustments to reconcile net income to net cash provided by operating activities:
Security (gains)/losses		0			49			(9	)
Impairment of securities		74			38			0
Dividends in excess of net income (Equity in undistributed net income of subsidiary)		7,493			(5,857	)		8,351
Other		(290	)		( 102	)		(44	)
NET CASH FROM OPERATING ACTIVITIES		13,119			( 207	)		14,223
Cash flows from investing activities:
Proceeds from maturities of investment securities available for sale		800			1,600			1,600
Proceeds from sales of securities available for sale		0			61			9
Investment in subsidiaries		(12,260	)		0			0
Purchases of securities available for sale		(1	)		(1,587	)		(1,569	)
NET CASH FROM INVESTING ACTIVITIES		(11,461	)		74			40
Cash flows from financing activities:
Purchase of treasury stock		0			(1,102	)		(3,986	)
Dividends paid		(4,801	)		(6,802	)		(8,409	)
Proceeds of borrowings		750			0			0
Proceeds from dividend reinvestment		1,433			2,476			3,375
NET CASH FROM FINANCING ACTIVITIES		(2,618	)		(5,428	)		(9,020	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(960	)		(5,561	)		5,243
Beginning cash and cash equivalents		1,235			6,796			1,553
Ending cash and cash equivalents	$	275		$	1,235		$	6,796

44

PHILANTHROPY

INVESTING IN OUR COMMUNITIES

Investing in our communities is a cornerstone of Farmers’ philosophy. We know that contributing to our communities is a way for us to help create future economic growth and prosperity. At Farmers, we also believe that if our communities flourish, so will we. That is why each year Farmers invests financial and human capital by partnering with local agencies, nonprofit partners, schools, universities and other organizations to make our communities better places to live and work.

During the economic downfall, Farmers continued to contribute to the communities by increasing donations by 36%. Farmers National Bank recognized that discontinuing a giving program during these challenging times would be detrimental to the community’s growth and development. In 2009, an unprecedented sum of $170,173 was donated to local charities, schools, universities, hospitals and more to improve the lives of our community members.

We want our shareholders to know that your company believes not only in doing well, but also in doing good.

2009 DONATION WHEEL Total: $170,173 Community Athletics 2% Arts Civic Civic 8% EconomicDeveloPment 6% Community Athletics Economic Development | Education J Health & Wellness V HijjjUjH Health & Wellness VV Higher Education B % m MISC Religious Religious 5% Social Services MISC1%

45

FARMERS NATIONAL FINANCIAL GROUP

Dan Cvercko, Program Manager Investment Executive

Vince Dobransky
Investment Advisor Representative

Steve Fisher
Investment Executive

Phil Lammers
Investment Advisor Representative

David G. Frank, CLU, ChFC
Insurance Director

FARMERS NATIONAL INVESTMENTS

Today’s investment climate offers unprecedented opportunities. At Farmers National Investments, our mission is to help clients take advantage of those opportunities by providing them with three key tools:

1. A clear understanding of their financial goals

2. A well-defined road map for achieving those goals

3. Advice to help adjust their road map when their needs change

Our services cover all areas of financial management, from investment and retirement planning to risk management and estate conservation. We specialize in helping our clients develop a comprehensive, cohesive financial strategy that fits their unique needs and enables them to meet both short- and long-term objectives.

Professional Services Offered:

• Portfolio Strategy

• Insurance Needs

• Asset Allocation

• Retirement Planning

• College Funding

• Tax-Favored Investing

• Health Care Concerns

• Business Owner Needs

• Estate Issues*

* Please note that neither Farmers National Investments nor any of its representatives may give legal or tax advice.

PrimeVest Financial Services, Inc. is an independent, registered broker-dealer, member SIPC/FINRA. Securities and insurance products offered by PrimeVest:-Not FDIC/NCUSIF insured- May go down in value-Not financial institution guaranteed-Not a deposit-Not insured by any federal government agency. Advisory services may only be offered by Investment Adviser Representatives in connection with an appropriate PrimeVest Advisory Services Agreement and disclosure brochure as provided.

FARMERS NATIONAL INSURANCE

In early 2009, Farmers National Bank became a fully-licensed insurance agency offering life, health and property casualty products. David G. Frank, CLU, ChFC, with over 35 years of experience, has been appointed Insurance Director for the agency.

Farmers National Insurance offers a comprehensive array of products to include:

• Auto Insurance

• Homeowners Insurance

• Personal Liability Insurance

• Business Insurance

• Pet Insurance

• Dental & Health Insurance

46

BOARD OF DIRECTORS

From left to right: Frank L. Paden, Joseph D. Lane, Ronald V. Wertz, Earl R. Scott, Anne Frederick Crawford, Benjamin R. Brown, Ralph D. Macali and James R. Fisher

EXECUTIVE TEAM

From Left to right: Brian E. Jackson, Vice President, Chief Information Officer; James H. Sisek, Esq., President & CEO, Farmers Trust Company; Mark L. Graham, Senior Vice President and Senior Loan Officer; Kevin J. Helmick, Senior Vice President, Retail Services; Bradley S. Henderson, Vice President Facilities Management/Security; Carl D. Culp, Executive Vice President & CFO; Mark A. Nicastro, Vice President, Director of Human Resources; John S. Gulas, Executive Vice President & COO; Frank L. Paden, President & CEO; Amber B. Wallace, Senior Vice President, Director of Marketing

47

BE SURE OF WHERE YOU’RE STANDING... AND THEN STAND STRONG For over 120 years, Farmers National Bank has taken pride in setting a standard for what it means to be a community bank. In challenging economic times, local families and businesses need to know that their bank can weather the ups and downs, and stand firm in their role in the community.

The theme of this year’s annual report focuses on the attributes that Farmers is known for: stability, strength, and longevity. Farmers is a long-term banking partner who adapts to changing times, changing needs and community concerns.

You can feel confident that Farmers is the bank to choose if you want rock solid strength for your family or business.

FARMERS NATIONAL BANC CORP.

20 SOUTH BROAD STREET P.O. BOX 555 CANFIELD, OHIO 44406

EX-23.A

Exhibit 23a.

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the registration statements on Form S-3D (No. 333-153023), Form S-3D (No. 333-111905), and Form S-3 (No. 333-136106) of Farmers National Banc Corp. of our report dated March 12, 2010, which report is incorporated by reference in the Annual Report on Form 10-K of Farmers National Banc Corp. for the year ended December 31, 2009.

/s/ Crowe Horwath LLP

Crowe Horwath LLP

Cleveland, Ohio
March 16, 2010

EX-31.A

Exhibit 31.a
CERTIFICATIONS

Certification of Chief Executive Officer
CERTIFICATION FOR ANNUAL REPORT ON FORM 10-K

I, Frank L. Paden, certify that:

1) I have reviewed this annual report on Form 10-K of Farmers National Banc Corp. (the “Company”);

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Frank L. Paden

Frank L. Paden

Chief Executive Officer

March 16, 2010

EX-31.B

Exhibit 31.b
CERTIFICATIONS

Certification of Chief Financial Officer
CERTIFICATION FOR ANNUAL REPORT ON FORM 10-K

I, Carl D. Culp, certify that:

1) I have reviewed this annual report on Form 10-K of Farmers National Banc Corp. (the “Company”);

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Carl D. Culp

Carl D. Culp

Chief Financial Officer

March 16, 2010

EX-32.A

Exhibit 32.a

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Farmers National Banc Corp. (the “Company”) on Form 10-K for the period ending December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Frank L. Paden, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Frank L. Paden

Frank L. Paden

Chief Executive Officer

March 16, 2010

EX-32.B

Exhibit 32.b

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Farmers National Banc Corp. (the “Company”) on Form 10-K for the period ending December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Carl D. Culp, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Carl D. Culp

Carl D. Culp

Chief Financial Officer

March 16, 2010