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, 2010

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 Shares, 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 o 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
		(Do not check if a smaller reporting company)

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

As of June 30, 2010, the estimated aggregate market value of the Registrant’s common shares (the only common equity of the Registrant) held by non-affiliates of the Registrant was approximately $56.8 million based upon the last sales price reported on the Over-The-Counter Bulletin Board. (The exclusion from such amount of the market value of the common 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, 2011, the Registrant had outstanding 18,646,035 common shares, no par value.

DOCUMENTS INCORPORATED BY REFERENCE

	Parts of Form 10-K
	into which
Document	Document is Incorporated
Portions of 2010 Annual Report to Shareholders	II
Definitive proxy statement for the 2011 Annual Meeting of Shareholders to be held on April 28, 2011	III

Form 10-K Cross Reference Index to Items Incorporated by Reference to the 2010 Annual Report
to Shareholders

	Pages
Part I
Item 1 — Business
Average Balance Sheets/Yields/Rates		13
Rate and Volume Analysis		14
Securities		22-23
Loans		19
Loan Loss Experience		20-22
Deposits		23
Financial Ratios		11
Short-Term Borrowings		23,41-42
Part II
Item 5
Market For Registrant’s Common Stock, Related Stockholder Matters and Issuers Purchases of Equity Securities		10
Item 6
Selected Financial Data		11
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations		14-24
Item 7A
Quantitative and Qualitative Disclosures About Market Risk		17-18
Item 8
Financial Statements and Supplementary Data		27-48
Item 9A
Management’s Report on Internal Control Over Financial Reporting		25
Part IV
Item 15
Report of Independent Registered Public Accounting Firm		26
Financial Statements:
Consolidated Balance Sheets — December 31, 2010 and 2009		27
Consolidated Statements of Income & Comprehensive Income — Calendar Years 2010, 2009 and 2008		28
Consolidated Statement of Stockholders’ Equity Calendar Years 2010, 2009 and 2008		29
Consolidated Statements of Cash Flows Calendar Years 2010, 2009 and 2008		30
Notes to Consolidated Financial Statements		31-48

FARMERS NATIONAL BANC CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

TABLE OF CONTENTS

Part I
Item 1. Business	1
Item 1A. Risk Factors	12
Item 1B. Unresolved Staff Comments	20
Item 2. Properties	20
Item 3. Legal Proceedings	21
Item 4. (Removed and Reserved)	21
Executive Officers of the Registrant
Part II
Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchase of Equity Securities	22
Item 6. Selected Financial Data	22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A. Quantitative and Qualitative Disclosure about Market Risk	23
Item 8 Financial Statements and Supplementary Financial Data	23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	23
Item 9A. Controls and Procedures	23
Item 9B. Other Information	24
Part III
Item 10. Directors, Executive Officers and Corporate Governance	24
Item 11. Executive Compensation	24
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	25
Item 13. Certain Relationships and Related Transactions, and Director Independence	25
Item 14. Principal Accountant Fees and Services	25
Part IV
Item 15. Exhibits and Financial Statement Schedules	26
Signatures	27
Index to Exhibits	28
Exhibit 10.2
Exhibit 13
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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 BHCA). The wholly-owned subsidiaries of the Company are The Farmers National Bank of Canfield (the Bank) and Farmers Trust Company. Farmers National Insurance, LLC (Farmers National Insurance) is a subsidiary of the Bank. The Company was formed in 1983 to acquire the shares of the Bank. The Company and its subsidiaries operate in the domestic banking industry.

The Company conducts no business activities except for investment in securities permitted under the BHCA. Bank holding companies are permitted under Regulation Y of the Board of Governors of the Federal Reserve System (the Federal Reserve Board) 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 2010, is located within the section “Management Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 14 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, 2010.

The Bank faces significant competition in offering financial services to customers. Ohio has a high density of financial services providers, many of which are 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.

The Company has no employees. The Bank had 268 full-time equivalent employees at December 31, 2010.

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Farmers Trust Company

During 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 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 29 full-time equivalent employees and operates in two offices located within the same geographic market as the Bank.

Farmers National Insurance

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

Investor Relations

The Company’s internet site, http://www.farmersbankgroup.com contains an Investor Relations section which provides a hyperlink to investor relations 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, as amended (the Exchange Act) 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

Introduction

The Company, the Bank, and its nonbanking subsidiaries are subject to extensive regulation by federal and state legislatures and agencies. The regulation of bank holding companies and their subsidiaries is intended primarily for the protection of depositors, borrowers, other customers, the federal deposit insurance fund and the banking system as a whole and not for the protection of security holders. This intensive regulatory environment, among other things, may restrict the Company’s ability to diversify into certain areas of financial services, acquire depository institutions in certain markets or pay dividends on our capital stock. It also may require the Company to provide financial support to its banking and other subsidiaries, maintain capital balances in excess of those desired by management and pay higher deposit insurance premiums as a result of the deterioration in the financial condition of depository institutions in general.

Significant aspects of the laws and regulations which apply to the Company and its subsidiaries are described below. These descriptions are qualified in their entirety by reference to the full text of the applicable statutes, legislation, regulations and policies, as they may be amended or revised by Congress or state legislatures and federal or state regulatory agencies, as the case may be. Changes in these statutes, legislation, regulations and policies may have a material adverse effect on the Company and its business.

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The Dodd-Frank Act

The “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the Dodd-Frank Act), signed into law on July 21, 2010, effected sweeping financial regulatory reforms, including the following:

• Creates the Consumer Financial Protection Bureau as a new agency to centralize responsibility for consumer financial protection, including implementing, examining and enforcing compliance with federal consumer financial laws;

• Restricts federal law preemption of state laws for subsidiaries and affiliates of national banks;

• Extends application to most bank holding companies of the same leverage and risk-based capital requirements that apply to insured depository institutions, which, among other things, will disallow treatment of trust preferred securities as Tier 1 capital;

• Requires the OCC to make its capital requirements for national banks countercyclical so they increase during economic expansions and decrease during economic contractions;

• Requires bank holding companies and banks both to be well-capitalized and well-managed in order to acquire banks located outside their home state;

• Changes the federal deposit insurance assessment base from the amount of insured deposits to consolidated assets less tangible capital, eliminated the maximum size of the Deposit Insurance Fund (DIF), and increases the minimum size of the DIF;

• Imposes comprehensive regulation of the over-the-counter derivatives market, including certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses within that institution;

• Requires large, publicly-traded bank holding companies to create a risk committee responsible for the oversight of enterprise risk management;

• Implements corporate governance revisions applicable to all public companies (not just financial institutions), concerning matters relating to executive compensation structuring and disclosure and proxy access by shareholders;

• Permanently adopts the $250,000 limit for federal deposit insurance coverage of applicable deposits, and provided unlimited federal deposit insurance through December 31, 2012 for non-interest bearing demand transaction accounts at all insured depository institutions;

• Repeals federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;

• Amends the Electronic Fund Transfer Act (EFTA) to, among other things, give the Federal Reserve authority to establish rules regulating interchange fees charged for electronic debit transactions by payment card issuers having assets over $10.0 billion, and enforcing a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer; and

• Increases authority of the Federal Reserve to examine national banks such as the Bank and its non-bank subsidiaries.

Many aspects of the Dodd-Frank Act are subject to further rulemaking and will therefore continue to develop over several years. This makes it extremely difficult to assess currently the overall financial impact the Act will have on the Company, its customers and the financial industry (for more information, see Risk Factors — “The recently enacted Dodd-Frank Act may adversely impact our results of operations, financial condition or liquidity. ”). Provisions in the legislation affecting capital requirements could require us to seek other sources of capital in the future. Some of the rules that have been proposed and, in some cases, adopted, under the Dodd-Frank Act are discussed further below, along with other regulatory matters affecting the Company and the Bank.

3

Regulatory Agencies

Bank Holding Company. As a bank holding company, the Company is subject to regulation under the BHCA and to inspection, examination and supervision by the Board of Governors of the Federal Reserve System (Federal Reserve Board) under the BHCA.

Subsidiary Bank. The Bank is subject to regulation and examination primarily by the Office of the Comptroller of the Currency (OCC) and secondarily by the Federal Deposit Insurance Corporation (FDIC).

Insurance Subsidiary. Farmers National Insurance is subject to regulation by applicable state insurance regulatory agencies, which require education and licensing of agencies and individual agents, require reports and impose business conduct rules.

SEC. The Company is also under the jurisdiction of the SEC and certain state securities commissions for matters relating to the offering and sale of its securities. The Company is subject to disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC.

Bank Holding Company Regulation

As a bank holding company, the Company’s activities are subject to extensive regulation by the Federal Reserve Board under the BHCA. Generally, the BHCA limits the business of bank holding companies to banking, managing or controlling banks and other activities that the Federal Reserve Board has determined to be so closely related to banking as to be a proper incident thereto. The Company is required to file periodic reports with the Federal Reserve Board and such additional information as the Federal Reserve Board may require, and is subject to examinations by the Federal Reserve Board.

The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including, among other things, the ability to:

• assess civil money penalties;

• issue cease and desist or removal orders;

• require that a bank holding company divest subsidiaries (including its subsidiary bank(s)); and

• in general, initiate enforcement actions for violations of laws and regulations and unsafe or unsound practices and order the cessation of any activity that it has reasonable grounds to believe constitutes a serious risk to the financial soundness, safety or stability of an institution or its subsidiaries.

Under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial and managerial strength to each subsidiary bank and to commit resources to support those subsidiary banks. Under this policy, the Federal Reserve Board may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to the holding company’s shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice. The Dodd-Frank Act codified this policy as a statutory requirement.

The BHCA requires prior approval by the Federal Reserve Board for a bank holding company to directly or indirectly acquire more than a 5.0% voting interest in any bank or its parent holding company. Factors taken into consideration in making such a determination include the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves.

4

The BHCA also governs interstate banking and restricts the nonbanking activities of the Company to those determined by the Federal Reserve Board to be financial in nature, or incidental or complementary to such financial activity, without regard to territorial restrictions. Transactions among the Bank and its affiliates are also subject to certain limitations and restrictions of the Federal Reserve Board, as described more fully below under “Dividends and Transactions with Affiliates.”

The Gramm-Leach-Bliley Act of 1999 (GLBA) permits a qualifying bank holding company to elect to become a financial holding company and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature and not otherwise permissible for a bank holding company. The Company has not elected to seek financial holding company status.

Federal Home Loan Bank

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

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.

Dividends and Transactions with Affiliates

The Company is a legal entity separate and distinct from the Bank and its other subsidiaries. The Company’s principal source of funds to pay dividends on its common shares and service its debt is dividends from the Bank and these other subsidiaries. Various federal and state statutory provisions and regulations limit the amount of dividends that the Bank may pay to the Company without regulatory approval, including requirements to maintain adequate capital above regulatory minimums (as discussed further below under “Capital Requirements”). The Bank generally may not, without prior regulatory approval, pay a dividend in an amount greater than its undivided profits after deducting statutory bad debt in excess of the bank’s allowance for loan losses. In addition, the prior approval of the OCC is required for the payment of a dividend 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. If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, such authority may require, after notice and hearing, that such bank cease and desist from such practice. Depending on the financial condition of the bank, the applicable regulatory authority might deem the bank to be engaged in an unsafe or unsound practice if the bank were to pay dividends. The Federal Reserve Board and the OCC have issued policy statements that provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings. In addition, given the current financial and economic environment, the Federal Reserve Board has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong. Thus, the ability of the Company to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines.

5

The Bank is subject to restrictions under federal law that limit the transfer of funds or other items of value to the Company and its nonbanking subsidiaries, including affiliates, whether in the form of loans and other extensions of credit, investments and asset purchases, or as other transactions involving the transfer of value from a subsidiary to an affiliate or for the benefit of an affiliate. These regulations limit the types and amounts of transactions (including loans due and extensions of credit from bank subsidiaries) that may take place and generally require those transactions to be on an arm’s-length basis. These regulations generally require that any “covered transaction” by the Bank (or its subsidiaries) with an affiliate must be secured by designated amounts of specified collateral and must be limited, as to any one of the Company or its non-bank subsidiaries, to 10.0% of the Bank’s capital stock and surplus, and, as to the Company and all non-bank subsidiaries in the aggregate, to 20.0% of the Bank’s capital stock and surplus. The Dodd-Frank Act significantly expands the coverage and scope of the limitations on affiliate transactions within a banking organization. Starting in July 2011, the 10.0% of capital limit on covered transactions will begin to apply to financial subsidiaries. “Covered transactions” are generally defined by statute to include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve Board) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.

Capital loans from the Company to the Bank are subordinate in right of payment to deposits and certain other indebtedness of the Bank. In the event of the Company’s bankruptcy, any commitment by the Company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

The Federal Deposit Insurance Act provides that, in the event of the “liquidation or other resolution” of an insured depository institution such as the Bank, the insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, nondeposit creditors, including the Company, with respect to any extensions of credit they have made to such insured depository institution.

Regulation of Nationally-Chartered Banks

As a national banking association, the Bank is subject to regulation under the National Banking Act and is periodically examined by the OCC. OCC regulations govern permissible activities, capital requirements, dividend limitations, investments, loans and other matters. Furthermore, the Bank is subject, as a member bank, to certain rules and regulations of the Federal Reserve Board, many of which restrict activities and prescribe documentation to protect consumers. Under the Bank Merger Act, the prior approval of the OCC is required for a national bank to merge with, or purchase the assets or assume the deposits of, another bank. In reviewing applications to approve merger and other acquisition transactions, the OCC and other bank regulatory authorities may include among their considerations the competitive effect and public benefits of the transactions, the capital position of the combined organization, the applicant’s performance under the Community Reinvestment Act, and fair housing laws, and the effectiveness of the entities in restricting money laundering activities.

The Bank is also an insured institution as a member of the DIF. As a result, it is subject to regulation and deposit insurance assessments by the FDIC (described more fully below under Deposit Insurance). In addition, the establishment of branches by the Bank is subject to prior approval of the OCC. The OCC has the authority to impose sanctions on the Bank and, under certain circumstances, may place the Bank into receivership.

Capital Requirements

The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies and the OCC and the FDIC have adopted risk-based capital guidelines for national banks and state non-member banks, respectively. The guidelines provide a systematic analytical framework which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.

6

The minimum guideline for the ratio of total capital to risk-weighted assets (including certain off-balance sheet items such as standby letters of credit) is 8.0%. At least half of the minimum total risk-based capital ratio (4.0%) must be composed of common shareholders’ equity, minority interests in certain equity accounts of consolidated subsidiaries and a limited amount of qualifying preferred stock and qualified trust preferred securities (although the Tier 1 capital treatment of trust preferred securities is revoked under the Dodd-Frank Act), less goodwill and certain other intangible assets, including the unrealized net gains and losses, after applicable taxes, on available-for-sale securities carried at fair value (commonly known as “Tier 1” risk-based capital). The remainder of total risk-based capital (commonly known as “Tier 2” risk-based capital) may consist of certain amounts of hybrid capital instruments, mandatory convertible debt, subordinated debt, preferred stock not qualifying as Tier 1 capital, loan and lease loss allowance and net unrealized gains on certain available-for-sale equity securities, all subject to limitations established by the guidelines.

Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of four risk weights (0.0%, 20.0%, 50.0% and 100.0%) is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Federal Reserve Board has also established minimum leverage ratio guidelines for bank holding companies. The Federal Reserve Board guidelines provide for a minimum ratio of Tier 1 capital to average assets (excluding the loan and lease loss allowance, goodwill and certain other intangibles), or “leverage ratio,” of 3.0% for bank holding companies that meet certain criteria, including having the highest regulatory rating, and 4.0% for all other bank holding companies. The guidelines further provide that bank holding companies experiencing growth through acquisitions or otherwise, or under other warranted circumstances, will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The OCC and the FDIC have each also adopted minimum leverage ratio guidelines for national banks and for state non-member banks, respectively.

The Federal Reserve Board’s review of certain bank holding company transactions is affected by whether the applying bank holding company is “well-capitalized.” To be deemed “well-capitalized,” the bank holding company must have a Tier 1 risk-based capital ratio of at least 6.0%, a leverage ratio of at least 5.0%, and a total risk-based capital ratio of at least 10.0%, and must not be subject to any written agreement, order, capital directive or prompt corrective action directive issued by the Federal Reserve Board to meet and maintain a specific capital level for any capital measure. Due to the continuing growth in the Bank’s business and the increase in its allowance for loan losses associated with current economic conditions, senior management and the Board have determined that higher levels of capital are appropriate. The OCC concurred in the Board’s view that additional capital would be beneficial in supporting its continued growth and operations. As a result, effective February 2, 2010, the OCC proposed and the Bank accepted the following individual minimum capital requirements for the Bank: Tier I risk-based capital ratio of 7.20% and a total risk-based capital ratio of 11.00%. As of December 31, 2010, the Bank is in compliance with these minimum capital requirements. See Note 12, “Regulatory Matters,” to the consolidated financial statements.

The federal banking agencies have established a system of prompt corrective action to resolve certain of the problems of undercapitalized institutions. This system is based on five capital level categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.”

The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a bank’s capital level. For example, the banking agencies must appoint a receiver or conservator for a bank within 90 days after it becomes “critically undercapitalized” unless the bank’s primary regulator determines, with the concurrence of the FDIC, that other action would better achieve regulatory purposes. Banking operations otherwise may be significantly affected depending on a bank’s capital category. For example, a bank that is not “well capitalized” generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must guarantee, in part, specific aspects of the bank’s capital plan for the plan to be acceptable.

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Federal law permits the OCC to order the pro rata assessment of shareholders of a national bank whose capital stock has become impaired, by losses or otherwise, to relieve a deficiency in such national bank’s capital stock. This statute also provides for the enforcement of any such pro rata assessment of shareholders of such national bank to cover such impairment of capital stock by sale, to the extent necessary, of the capital stock owned by any assessed shareholder failing to pay the assessment. As the sole shareholder of the Bank, the Company is subject to such provisions.

The risk-based capital guidelines adopted by the federal banking agencies are based on the “International Convergence of Capital Measurement and Capital Standards” (Basel I), published by the Basel Committee on Banking Supervision (the “Basel Committee”) in 1988. In 2004, the Basel Committee published a new, more risk-sensitive capital adequacy framework (Basel II) for large, internationally active banking organizations. In December 2007, the federal banking agencies issued final rules making the implementation of certain parts of Basel II mandatory for any bank that has consolidated total assets of at least $250 billion (excluding certain assets) or has consolidated on-balance sheet foreign exposure of at least $10 billion, and making it voluntary for other banks.

In response to concerns regarding the complexity and cost associated with implementing the Basel II rules, the federal banking agencies issued a notice of proposed rulemaking in July 2008 that would have revised the existing risk-based capital framework for banks not subject to the Basel II rules. The proposed rules would allow banks other than the large Basel II banks to elect to adopt the new risk weighting methodologies set forth in the proposed rules or remain subject to the existing risk-based capital rules. The Company will not be required to implement Basel II. Until the final rules for the non-Basel II banks are adopted by the federal banking agencies, the Company is unable to predict whether and when its subsidiary bank will adopt the new capital guidelines. Comments on the proposed rules were due to the federal banking agencies in October 2008, but no definitive final rules have been issued.

The Dodd-Frank Act requires the Federal Reserve Board, the OCC and the FDIC to adopt regulations imposing minimum Basel I-based capital requirements in cases where the Basel II-based capital requirements and any changes in capital regulations resulting from Basel III (see below) otherwise would permit lower requirements. In December 2010, the Federal Reserve Board, the OCC and the FDIC issued a joint notice of proposed rulemaking that would implement this requirement.

In December 2010, the Basel Committee released a final framework for strengthening international capital and liquidity regulation (Basel III). When implemented by the federal banking agencies and fully phased-in, Basel III will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. The Basel III final capital framework, among other things, (i) introduces as a new capital measure of “Common Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consist of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expands the scope of the adjustments as compared to existing regulations.

When fully phased in on January 1, 2019, Basel III will require banks to maintain (i) as a newly adopted international standard, a minimum ratio of CET1 to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, which will effectively result in a minimum ratio of CET1 to risk-weighted assets of 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% on full implementation), (iii) a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation) and (iv) as a newly adopted international standard, a minimum leverage ratio of 3.0%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). When implementation of the Basel III final framework is scheduled to commence on January 1, 2013, banks will be required to maintain 3.5% CET1 to risk-weighted assets, 4.5% Tier 1 capital to risk-weighted assets, and 8.0% Total capital to risk-weighted assets.

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Basel III also provides for a “countercyclical capital buffer,” generally imposed when federal regulatory agencies determine that excess aggregate credit growth becomes associated with a buildup of systemic risk, that would be in addition to the capital conservation buffer in the range of 0.0% to 2.5% when fully implemented, potentially resulting in total buffers of 2.5% to 5.0%. The countercyclical capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum, but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when applicable) will have constraints imposed on their dividends, equity repurchases and compensation, based on the amount of the shortfall.

The Basel III final framework provides for a number of new deductions from and adjustments to CET1, including the deduction of mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities if any one such category exceeds 10.0% of CET1 or if all such categories in the aggregate exceed 15.0% of CET1. Implementation of the deductions and other adjustments to CET1 will be phased-in on a pro-rata basis over a five-year period beginning on January 1, 2014. Implementation of the capital conservation buffer will begin on January 1, 2016 at 0.625% and be phased in over a four-year period (increasing each subsequent January 1 by the same amount until it reaches 2.50% on January 1, 2019).

Regulations by the federal banking agencies implementing Basel III are expected to be proposed in mid-2011, with adoption of final implementing regulations in mid-2012. Notwithstanding its release of the Basel III framework as a final framework, the Basel Committee is considering further amendments to Basel III, including imposition of additional capital surcharges on globally systemically important financial institutions. In addition to Basel III, the Dodd-Frank Act requires or permits federal banking agencies to adopt regulations affecting capital requirements in a number of respects, including potentially more stringent capital requirements for systemically important financial institutions. Accordingly, the regulations ultimately applicable to the Company may be differ substantially from the currently published final Basel III framework. Requirements of higher capital levels or higher levels of liquid assets could adversely impact the Company’s net income and return on equity.

Federal Deposit Insurance Corporation

The FDIC is an independent federal agency which insures the deposits, up to prescribed statutory limits, of federally-insured banks and savings associations and safeguards the safety and soundness of the financial institution industry.

Insurance Premiums

Insurance premiums for each insured depository institution are determined based upon the institution’s capital level and supervisory rating provided to the FDIC by the institution’s primary federal regulator and other information the FDIC determines to be relevant to the risk posed to the deposit insurance fund by the institution. The assessment rate determined by considering such information is then applied to the amount of the institution’s deposits to determine the institution’s insurance premium. An increase in the assessment rate could have a material adverse effect on the earnings of the affected institutions, depending on the amount of the increase.

Insurance of deposits may be terminated by the FDIC upon a finding that the insured depository institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition enacted or imposed by the institution’s regulatory agency.

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Fiscal and Monetary Policies

The Company’s business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. The Company is particularly affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the Federal Reserve are (a) conducting open market operations in United States government securities, (b) changing the discount rates of borrowings of depository institutions, (c) imposing or changing reserve requirements against depository institutions’ deposits, and (d) imposing or changing reserve requirements against certain borrowing by banks and their affiliates. These methods are used in varying degrees and combinations to affect directly the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the policies of the Federal Reserve Board have a material effect on the earnings of the Company.

Privacy Provisions of Gramm-Leach-Bliley Act

Under the Gramm-Leach-Bliley Act, federal banking regulators were required to adopt rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.

Anti-Money Laundering and the USA Patriot Act

The USA Patriot Act of 2001 and its related regulations require insured depository institutions, broker-dealers and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing. The statute and its regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution. In addition, federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering policies, procedures and controls of the applicants.

EESA and ARRA

In response to the ongoing financial crisis affecting the banking system and financial markets, The Emergency Economic Stabilization Act of 2008 (EESA) was signed into law in October 2008 and established the Treasury’s Troubled Assets Relief Program (TARP). As part of TARP, the Treasury established the Capital Purchase Program (CPP) to provide up to $700 billion of funding to eligible financial institutions through the purchase of mortgages, mortgage-backed securities, capital stock and other financial instruments for the purpose of stabilizing and providing liquidity to the U.S. financial markets. The Company did not participate in the CPP. The American Recovery and Reinvestment Act of 2009 (ARRA), more commonly known as the economic stimulus or economic recovery package, was signed into law in February 2009. ARRA Included a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs.

Corporate Governance

The Sarbanes-Oxley Act of 2002 effected broad reforms to areas of corporate governance and financial reporting for public companies under the jurisdiction of the SEC. The Company’s corporate governance policies include an Audit Committee Charter, a Compensation Committee Charter, Corporate Governance and Nominating Committee Charter, and Code of Business Conduct and Ethics. The Board of Directors reviews the Company’s corporate governance practices on a continuing basis. These and other corporate governance policies have been provided previously to shareholders and are available, along with other information on the Company’s corporate governance practices, on the Company’s website at www.farmersbankgroup.com

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As directed by Section 302(a) of the Sarbanes-Oxley Act, the Company’s chief executive officer and chief financial officer are each required 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 about the Company’s internal controls to its auditors and the audit committee of the Board of Directors, and they have included information in the Company’s Quarterly and Annual Reports about their evaluation and whether there have been significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation.

The Dodd-Frank Act contains significant corporate governance measures, some of which are applicable to all public companies while others apply only to financial institutions, and many of which are not yet fully implemented. For example, the Dodd-Frank Act authorized the SEC to adopt rules giving nominating shareholders access to the company’s proxy, which such rules were issued in August 2010, but implementation has been stayed pending the outcome of current litigation. Many of the other Dodd-Frank corporate governance provisions involve executive and incentive compensation practices and annual disclosures relating thereto. See “Executive and Incentive Compensation” below.

Executive and Incentive Compensation

In June 2010, the Federal Reserve, OCC and FDIC issued joint interagency guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The principles-based guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

The Federal Reserve will review, as part of a regular, risk-focused examination process, the incentive compensation arrangements of financial institutions such as the Company under this guidance. These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination and deficiencies will be incorporated into the institution’s supervisory ratings, which can affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against an institution if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and prompt and effective measures are not being taken to correct the deficiencies.

On February 7, 2011, the federal regulatory agencies jointly issued proposed rules on Incentive-Based Compensation Arrangements under applicable provisions of the Dodd-Frank Act. The Joint Guidance generally applies to financial institution with $1.0 billion or more in assets that maintain incentive-based compensation arrangements for certain covered employees. While at December 31, 2010, the Company had just under $1.0 billion in assets, it is likely that the Joint Guidance will become applicable to the Company in the near future. The Joint Guidance: (i) prohibits covered financial institutions from maintaining incentive-based compensation arrangements that encourage covered persons to expose the institution to inappropriate risk by providing the covered person with “excessive” compensation; (ii) prohibits covered financial institutions from establishing or maintaining incentive-based compensation arrangements for covered persons that encourage inappropriate risks that could lead to a material financial loss; (iii) requires covered financial institutions to maintain policies and procedures appropriate to their size, com plexity and use of incentive-based compensation to help ensure compliance with the Joint Compensation Guidance; and (iv) requires covered financial institutions to provide enhanced disclosure to regulators regarding their incentive-based compensation arrangements for covered persons within 90 days following the end of the fiscal year. There is a 45-day public comment period on the proposed final rules, and the Joint Compensation Guidance will become effective six months after final guidance is published in the Federal Register.

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Public companies will also be required, once stock exchanges impose additional listing requirements under the Dodd-Frank Act, to implement “clawback” procedures for incentive compensation payments and to disclose the details of the procedures which allow recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating a restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to compensation paid within a three year look-back window of the restatement and would cover all executives who received incentive awards.

The Dodd-Frank Act also provides shareholders the opportunity to cast a non-binding vote on executive compensation practices, imposes new executive compensation disclosure requirements, and contains additional considerations of the independence of compensation advisors.

Future Legislation

Various and significant legislation affecting financial institutions and the financial industry is from time to time introduced in Congress, as evidenced by the sweeping reforms in the Dodd-Frank Act adopted in 2010. Such legislation may continue to change banking statutes and the operating environment of the Company and its subsidiaries in substantial and unpredictable ways, and could significantly increase or decrease the costs of doing business, limit or expand permissible activities or affect the competitive balance among financial institutions. With the enactment of the Dodd-Frank Act and the continuing implementation of final rules and regulations thereunder, the nature and extent of future legislative and regulatory changes affecting financial institutions remains very unpredictable.

Summary

To the extent that the previous information describes statutory and regulatory provisions applicable to the Company or its subsidiaries, it is qualified in its entirety by reference to the full text of those provisions or agreement. Also, such statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies and are subject to change at any time, particularly in the current economic and regulatory environment. Any such change in applicable statutes, regulations or regulatory policies could have a material effect on the Company and its business.

Item 1A. Risk Factors.

Our business could be impacted by any of the risks noted below, although such risks are not the only risks that we face. Additional risks that are not presently known or that we presently deem to be immaterial could also have a material, adverse impact on our business, financial condition or results of operations.

Risks Relating to Economic and Market Conditions

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

The capital markets have experienced an easing of the difficult conditions present during 2010 and prior. 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 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. Although conditions appear to be turning, business activity across a wide range of industries and regions was greatly reduced, and local governments and many companies are still in serious difficulty due to the lack of consumer spending and the lack of liquidity in the credit markets. During 2010, the United States was in the beginning stages of economic recovery from the recession. Any worsening or slowing of the economic recovery would have an adverse effect on us, our customers and the other financial institutions in our market. As a result, we may experience increases in foreclosures, delinquencies and customer bankruptcies.

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Changes in economic and political conditions could adversely affect our 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 loans 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 material 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.

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

Our 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 our 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.

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.

Risks Related to Our Business

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.

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We have significant exposure to risks associated with commercial and residential real estate.

A substantial portion of our loan portfolio consists of commercial and residential real estate-related loans, including real estate development, construction and residential and commercial mortgage loans. Consequently, real estate-related credit risks are a significant concern for us. The adverse consequences from real estate-related credit risks tend to be cyclical and are often driven by national economic developments that are not controllable or entirely foreseeable by us or our borrowers. General difficulties in our real estate markets have recently contributed to increases in our non-performing loans, charge-offs, and decreases in our income.

Our indirect lending exposes us to increased credit risks.

A portion of our current lending involves the purchase of consumer automobile installment sales contracts from automobile dealers located in Northeastern Ohio. These loans are for the purchase of new or late model used cars. We serve customers over a broad range of creditworthiness, and the required terms and rates are reflective of those risk profiles. While these loans have higher yields than many of our other loans, such loans involve significant risks in addition to normal credit risk. Potential risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through dealers, the absence of assured continued employment of the borrower, the varying general creditworthiness of the borrower, changes in the local economy, and difficulty in monitoring collateral. While indirect automobile loans are secured, such loans are secured by depreciating assets and characterized by loan to value ratios that could result in the Bank not recovering the full value of an outstanding loan upon default by the borrower. Due to the economic slowdown in our primary market area, we currently are experiencing higher delinquencies, charge-offs and repossessions of vehicles in this portfolio. If the economy continues to contract, we may continue to experience higher levels of delinquencies, repossessions and charge-offs.

Commercial and industrial loans may expose us to greater financial and credit risk than other loans.

Commercial and industrial loans generally carry larger loan balances and can involve a greater degree of financial and credit risk than other loans. Any significant failure to pay on time by our customers would hurt our earnings. The increased financial and credit risk associated with these types of loans are a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the size of loan balances, the effects of general economic conditions on income-producing properties and the increased difficulty of evaluating and monitoring these types of loans. In addition, when underwriting a commercial or industrial loan, we may take a security interest in commercial real estate, and, in some instances upon a default by the borrower, we may foreclose on and take title to the property, which may lead to potential financial risks for us under applicable environmental laws. If hazardous substances were discovered on any of these properties, we may be liable to governmental agencies or third parties for the costs of remediation of the hazard, as well as for personal injury and property damage. Many environmental laws can impose liability regardless of whether we knew of, or were responsible for, the contamination.

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

We maintain an allowance for loan losses to cover current, incurred loan losses. Every loan we make carries a certain risk of non-repayment, and we make various assumptions and judgments about the collectability 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, which will require 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.

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Our business strategy includes continuing our growth plans. Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We intend to continue pursuing a profitable growth strategy both within our existing markets and in new markets. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in significant growth stages of development. We cannot assure that we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations and could adversely affect our ability to successfully implement our business strategy. Also, if we grow more slowly than anticipated, our operating results could be materially adversely affected.

We may not be able to attract and retain skilled people.

Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most activities in which we engage can be intense, and we may not be able to retain or hire the people we want or need. In order to attract and retain qualified employees, we must compensate them at market levels. If we are unable to continue to attract and retain qualified employees, or do so at rates necessary to maintain our competitive position, our performance, including our competitive position, could suffer, and, in turn, adversely affect our business, financial condition and results of operations.

Strong competition within the market in which 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 our ability to expand our scope of available financial services to our 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.

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.

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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.

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.

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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 outstanding common shares. 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 subsidiary 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 the 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 the 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.

Impairment of investment securities, goodwill, other intangible assets, or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations.

In assessing the impairment of investment securities, we consider the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuers, whether the market decline was affected by macroeconomic conditions and whether we have the intent to sell the debt security or will be required to sell the debt security before its anticipated recovery. Under current accounting standards, goodwill and certain other intangible assets with indeterminate lives are no longer amortized but, instead, are assessed for impairment periodically or when impairment indicators are present. Assessment of goodwill and such other intangible assets could result in circumstances where the applicable intangible asset is deemed to be impaired for accounting purposes. Under such circumstances, the intangible asset’s impairment would be reflected as a charge to earnings in the period. Deferred tax assets are only recognized to the extent it is more likely than not they will be realized. Should management determine it is not more likely than not that the deferred tax assets will be realized, a valuation allowance with a change to earnings would be reflected in the period.

A substantial decline in the value of our Federal Home Loan Bank of Cincinnati common stock may adversely affect our financial condition.

We own common stock of the Federal Home Loan Bank of Cincinnati (the “FHLB”), in order to qualify for membership in the Federal Home Loan Bank system, which enables us to borrow funds under the Federal Home Loan Bank advance program. The carrying value of our FHLB common stock was approximately $3.06 million as of December 31, 2010.

Published reports indicate that certain member banks of the Federal Home Loan Bank system may be subject to asset quality risks that could result in materially lower regulatory capital levels. In December 2008, certain member banks of the Federal Home Loan Bank system (other than the FHLB) suspended dividend payments and the repurchase of capital stock until further notice. In an extreme situation, it is possible that the capitalization of a Federal Home Loan Bank, including the FHLB, could be substantially diminished or reduced to zero. Consequently, given that there is no market for our FHLB common stock, we believe that there is a risk that our investment could be deemed other-than-temporarily impaired at some time in the future. If this occurs, it may adversely affect our results of operations and financial condition. If the FHLB were to cease operations, or if we were required to write-off our investment in the FHLB, our business, financial condition, liquidity, capital and results of operations may be materially adversely affected.

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Risks Related to the Legal and Regulatory Environment

Increases in FDIC insurance premiums may have a material adverse effect on our earnings.

The FDIC maintains the DIF to resolve the cost of bank failures. The DIF is funded by fees assessed on insured depository institutions, including the Bank. In November 2010, the FDIC issued a notice of proposed rulemaking to substantially modify the manner by which fee assessments are determined, including changing the deposit insurance assessment base from total domestic deposits to average total assets minus average tangible equity, as required by the Dodd-Frank Act. Final rules regarding proposed changes to the manner and method of DIF fee assessments are expected to be effective April 1, 2011. We cannot provide any assurance as to the effect of any proposed change in DIF assessment rate, should such a change occur, as such changes are dependent upon a variety of factors, some of which are beyond our control. Increases in DIF assessment rates may materially adversely affect our results of operations and our ability to continue to pay dividends on our common shares at the current rate or at all. Additional information regarding the FDIC’s proposed changes to DIF assessment rates is provided in Item 1. Business, in the section captioned “Regulation and Supervision — Deposit Insurance.”

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.

The recently enacted Dodd-Frank Act may adversely impact our results of operations, financial condition or liquidity.

On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States. There are a number of reform provisions that are likely to significantly impact the ways in which banks and bank holding companies, including us and the Bank, do business. For example, the Dodd-Frank Act changes the assessment base for federal deposit insurance premiums by modifying the deposit insurance assessment base calculation to equal a depository institution’s consolidated assets less tangible capital and permanently increases the standard maximum amount of deposit insurance per customer to $250,000 and non-interest bearing transaction accounts will have unlimited deposit insurance through January 1, 2013. The Dodd-Frank Act creates the Consumer Financial Protection Bureau as a new agency empowered to promulgate new and revise existing consumer protection regulations which may limit certain consumer fees or otherwise significantly change fee practices. The Dodd-Frank Act also imposes more stringent capital requirements on bank holding companies by, among other things, imposing leverage ratios on bank holding companies and prohibiting new trust preferred issuances from counting as Tier I capital. The Dodd-Frank Act also repeals the federal prohibition on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts. Other significant changes from provisions of the Dodd-Frank Act include, but are not limited to: (i) changes to rules relating to debit card interchange fees; (ii) new comprehensive regulation of the over-the counter derivatives market; (iii) reform related to the regulation of credit rating agencies; (iv) restrictions on the ability of banks to sponsor or invest in private equity or hedge funds; and (v) the implementation of a number of new corporate governance provisions, including, but not limited to, requiring companies to “claw back” incentive compensation under certain circumstances, providing shareholders the opportunity to cast a non-binding vote on executive compensation, new executive compensation disclosure requirements and considerations regarding the independence of compensation advisors.

Many provisions of the Dodd-Frank Act will not be implemented immediately and will require interpretation and rule making by federal regulators. We are closely monitoring all relevant sections of the Dodd-Frank Act to ensure continued compliance with laws and regulations. While the ultimate effect of the Dodd-Frank Act on us cannot currently be determined, the law and its implementing rules and regulations are likely to result in increased compliance costs and fees paid to regulators, along with possible restrictions on our operations, all of which may have a material adverse affect on our operating results and financial condition.

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The recent repeal of federal prohibitions on payment of interest on demand deposits could increase our interest expense.

All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Act. As a result, beginning on July 21, 2011, financial institutions could commence offering interest on demand deposits to compete for clients. We do not yet know what interest rates other institutions may offer. Our interest expense will increase and our net interest margin will decrease if we begin offering interest on demand deposits to attract new customers or maintain current customers, which could have a material adverse effect on our business, financial condition and results of operation.

Our results of operations, financial condition or liquidity may be adversely impacted by issues arising in foreclosure practices, including delays in the foreclosure process, related to certain industry deficiencies, as well as potential losses in connection with actual or projected repurchases and indemnification payments related to mortgages sold into the secondary market.

Recent announcements of deficiencies in foreclosure documentation by several large seller/servicer financial institutions have raised various concerns relating to mortgage foreclosure practices in the United States. A group of state attorneys general and state bank and mortgage regulators in all 50 states and the District of Columbia is currently reviewing foreclosure practices and a number of mortgage sellers/servicers have temporarily suspended foreclosure proceedings in some or all states in which they do business in order to evaluate their foreclosure practices and underlying documentation.

The integrity of the foreclosure process is important to our business, as an originator and servicer of residential mortgages. As a result of our continued focus of concentrating our lending efforts in our primary markets in Ohio, as well as servicing loans for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), we do not anticipate suspending any of our foreclosure activities. During 2010, we reviewed our foreclosure procedures and concluded they are generally conservative in nature and do not present the significant documentation deficiencies underlying other industry foreclosure problems. Nevertheless, we could face delays and challenges in the foreclosure process arising from claims relating to industry practices generally, which could adversely affect recoveries and our financial results, whether through increased expenses of litigation and property maintenance, deteriorating values of underlying mortgaged properties or unsuccessful litigation results generally.

In addition, in connection with the origination and sale of residential mortgages into the secondary market, we make certain representations and warranties, which, if breached, may require us to repurchase such loans, substitute other loans or indemnify the purchasers of such loans for actual losses incurred in respect of such loans. Although we believe that our mortgage documentation and procedures have been appropriate and are generally conservative in nature, it is possible that we will receive repurchase requests in the future and we may not be able to reach favorable settlements with respect to such requests. It is therefore possible that we may increase our reserves or may sustain losses associated with such loan repurchases and indemnification payments.

Environmental liability associated with commercial lending could have a material adverse effect on our business, financial condition and results of operations.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. In addition, we own and operate certain properties that may be subject to similar environmental liability risks.

Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures requiring the performance of an environmental site assessment before initiating any foreclosure action on real property, these assessments may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

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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.

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 Company does not own any property. The Company’s operations are conducted at the Bank’s main office, which is located at 20 and 30 South Broad Street, Canfield, Ohio.

Farmers National Bank Property

The Bank’s main office is located at 20 and 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

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

Farmers Trust Company Property

Farmers Trust Company operates from two leased locations:

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

Farmers National Insurance, LLC 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 normal course of business, the Company and its subsidiaries are at all times subject to pending and threatened legal actions, some for which the relief or damages sought are substantial. Although Farmers is not able to predict the outcome of such actions, after reviewing pending and threatened actions with counsel, management believes that based on the information currently available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the results of operations or stockholders’ equity of the Company. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations in a particular future period as the time and amount of any resolution of such actions and its relationship to the future results of operations are not known.

Item 4. (Removed and Reserved).

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages and positions of the executive officers as of February 28, 2011:

Name	Age	Position Held
Frank L. Paden	60	Executive Chairman of the Board and Secretary
John S. Gulas	52	President and Chief Executive Officer
Carl D. Culp	47	Executive Vice President and Treasurer
Mark L. Graham	56	Senior Vice President and Senior Loan Officer
Kevin J. Helmick	39	Senior Vice President, Retail Services

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.

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Principal Occupation and Business Experience of Executive Officers

Mr. Paden has served a variety of roles within the Bank with a concentration in lending and executive administration. In 1995, Mr. Paden was appointed President and Secretary of the Company. In July 2010, Mr. Gulas succeeded Mr. Paden as President and Chief Executive Officer, while Mr. Paden continued to serve as Executive Chairman and Secretary. Until July 2010, Mr. Paden also served as President and Chief Executive Officer of the Bank. Mr. Paden has over 35 years of experience with the Company.

Mr. Gulas is the President and Chief Executive Officer of the Company, a position he has held since July 2010. From July 2008 to July 2010, Mr. Gulas served as the Company’s Chief Operating Officer. From 2005 to 2007, Mr. Gulas was President and Chief Executive Officer of Sky Trust Co., N.A. Mr. Gulas has over 26 years of banking experience, including executive roles with Wachovia and Key Bank.

Mr. 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.

Mr. Graham has over 33 years of experience with the Company. During his tenure, Mr. Graham has held a variety of positions in the Company’s commercial loan department.

Mr. Helmick is responsible for the management and oversight of Farmers National Investments, the retail investment area of Farmers National Bank, Farmers National Insurance, and all branch sales and operational functions. Mr. Helmick has been with the Company for 15 years and has a retail and investment background, including an MBA and CFP designation.

Part II

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

Market Information regarding the Company’s Common Shares.

The information required by Item 201 of Regulation S-K is incorporated herein by reference from the information provided under the caption “Market and Dividend Summary” beginning on page 10 of the Company’s Annual Report.

Purchases of Common Shares by the Company.

On July 14, 2009, the Company announced the adoption of a stock repurchase program that authorized the re-purchase of up to 4.9% or approximately 657 thousand shares of its outstanding common shares in the open market or in privately negotiated transactions. This program expired in July 2010 and has not been renewed. The Company did not make any repurchases of its common shares during the course of 2010.

Item 6. Selected Financial Data.

Information required by Item 301 of Regulation S-K is incorporated herein by reference from the information appearing under the caption “Selected Financial Data” beginning on page 11 of the Company’s Annual Report and is explained in the section captioned “Management Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 14 of the Company’s Annual Report.

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

Information required by Item 303 of Regulation S-K is incorporated herein by reference from the information appearing under the caption “Management Discussion and Analysis of Financial Condition and Results of Operation” beginning on page 14 of the Company’s Annual Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Information required by Item 305 of Regulation S-K is incorporated herein by reference from the information appearing under the caption “Market Risk” beginning on page 17 the Company’s Annual Report.

Item 8. Financial Statements and Supplementary Data.

Information required by this Item is incorporated herein by reference from the information located on pages 27 to 48 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, 2010 and December 31, 2009, 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 LLP 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.

Item 9A. Controls and Procedures.

As of the end of the period covered by this Annual Report on Form 10-K, 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, as amended, including this Annual Report on Form 10-K for the period ended December 31, 2010, 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 GAAP. As disclosed in the Report on Management’s Assessment of Internal Control Over Financial Reporting in the Company’s 2010 Annual Report to Shareholders, management assessed the Company’s system of internal control over financial reporting as of December 31, 2010, 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, 2010. The attestation report by Crowe Horwath is located on page 26 of the Company’s 2010 Annual Report.

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, 2010, 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.

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Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by Item 401 of Regulation S-K concerning the directors of the Company and the nominees for election as directors of the Company at the Annual Meeting of Shareholders to be held on April 28, 2011 (the “2011 Annual Meeting”) is incorporated herein by reference from the information to be included under the caption “Proposal 1 — Election of Directors” in the Company’s definitive proxy statement relating to the 2011 Annual Meeting to be filed with the SEC (“2011 Proxy Statement”).

The information required by Item 401 of Regulation S-K concerning the executive officers of the Company is incorporated herein by reference from the information provided under the caption “Executive Officers of the Registrant” included in Part I of this Annual Report on Form 10-K.

Compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended.

The information required by Item 405 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2011 Proxy Statement.

Code of Business Conduct and Ethics.

The Company has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that covers all employees, including its principal executive, financial and accounting officers, and is posted on the Company’s website www.farmersbankgroup.com. In the event of any amendment to, or waiver from, a provision of the Code of Ethics that applies to its principal executive, financial or accounting officers, the Company intends to disclose such amendment or waiver on its website.

Procedures for Recommending Directors Nominees.

Information concerning the procedures by which shareholders of the Company may recommend nominees to the Company’s Board of Directors is incorporated herein by reference from the information to be included under the caption “Director Nominations” in 2011 Proxy Statement. During the course of 2010, the Board of Directors adopted Corporate Governance Guidelines for the Company, which, among other things, updated and formalized the Company’s shareholder nominations process. As described under the caption “Director Nominations” in the 2011 Proxy Statement, shareholders are now required to provide certain information regarding the director nominee and the nominating shareholder when submitting a potential nominee for consideration by the Corporate Governance and Nominating Committee.

Audit Committee Financial Expert.

The information required by Items 407(d)(5) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Committees of the Board of Directors — Audit Committee” in the 2011 Proxy Statement.

Item 11. Executive Compensation.

The information required by Item 402 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the captions “Compensation Discussion and Analysis” and “Executive Compensation and Other Information” in the Proxy Statement.

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The information required by Item 407(e)(4) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Compensation Interlocks and Insider Participation” in the 2011 Proxy Statement.

The information required by Item 407(e)(5) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “The Compensation Report” in the 2011 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by Item 403 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Beneficial Ownership of Management and Certain Beneficial Owners” in Proxy Statement.

Securities Authorized for Issuance Under Equity Compensation Plans.

Equity Compensation Plan Information

				Number of securities
				remaining available for
	Number of securities		Weighted-average	future issuance under
	to be issued upon		exercise price of	equity compensation
	exercise of		outstanding	plans (excluding
	outstanding options,		options, warrants	securities reflected
	warrants and rights		and rights	in column (a))
Plan category	(a)		(b)	(c)
Equity compensation plans approved by security holders		28,500	$10.22/share		0

Information regarding the Company’s equity (stock-based) compensation plan is incorporated herein by reference from the information appearing in Notes 1 and 11 to consolidated financial statements in the Company’s Annual Report, which begin on pages 31 and 43, respectively.

Item 13. Certain Relationships and Related Transactions and Director Independence.

The information required by Item 404 of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “Certain Relationships and Related Transactions” in the 2011 Proxy Statement.

The information required by Item 407(a) of Regulation S-K is incorporated herein by reference from the disclosure to be included under the caption “The Board of Directors — Independence” in the 2011 Proxy Statement.

Item 14. Principal Accountant Fees and Services.

The information required by this Item 14 is incorporated herein by reference from the disclosure to be included under the captions “Independent Registered Public Accounting Firm Fees” and “Pre-Approval of Fees” in the 2011 Proxy Statement.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)1. Financial Statements

All financial statements and supplementary data is set forth in the Company’s 2010 Annual Report and is incorporated by reference in Part II of this Annual Report on Form 10-K.

2. Financial Statement Schedules

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

3. Exhibits

The exhibits filed or incorporated by reference as a part of this Annual Report on Form 10-K are listed in the Exhibit Index, which follows the signature page and is incorporated herein by reference.

(b) Exhibits

The exhibits filed or incorporated by reference as a part of this Annual Report on Form 10-K are listed in the Exhibit Index, which follows the signature page and is incorporated herein by reference.

(c) Financial Statement Schedules

See subparagraph (a)(2) above.

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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/ John S. Gulas	/s/ Carl D. Culp	/s/ Joseph W. Sabat
John S. Gulas	Carl D. Culp	Joseph W. Sabat
President and CEO	Executive VP, CFO and Treasurer	Controller
March 14, 2011	March 14, 2011	March 14, 2011
/s/ Anne Frederick Crawford Anne Frederick Crawford	Director	March 14, 2011
/s/ Lance J. Ciroli Lance J. Ciroli	Director	March 14, 2011
/s/John S. Gulas John S. Gulas	President & Director	March 14, 2011
/s/ Joseph D. Lane Joseph D. Lane	Director	March 14, 2011
/s/ Ralph D. Macali Ralph D. Macali	Director	March 14, 2011
/s/ Frank L. Paden Frank L. Paden	Executive Chairman & Secretary	March 14, 2011
/s/ David Z. Paull David Z. Paull	Director	March 14, 2011
/s/ Earl R. Scott Earl R. Scott	Director	March 14, 2011
/s/ Ronald V. Wertz Ronald V. Wertz	Lead Independent Director	March 14, 2011

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INDEX TO EXHIBITS

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

3.1		Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by reference from Exhibit 4.1 to the Company’s Registration Statement on Form S-3 filed with the SEC on October 3, 2001 (File No. 333-70806).
3.2		Amended Code of Regulations of Farmers National Banc Corp. (incorporate by reference from Exhibit 3(ii) to Farmers National Banc Corp.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the SEC on March 16, 2010).
10.1	*	Farmers National Banc Corp. 1999 Stock Option Plan (incorporated by reference from Exhibit A to Farmers National Banc Corp’s definitive proxy statement, filed with the SEC on February 24, 1999).
10.2	*	Deferred Compensation Agreement, effective January 1, 2005, between Farmers National Bank of Canfield and Frank L. Paden (filed herewith).
10.3	*	Letter Agreement, dated December 23, 2008, between Farmers National Bank of Canfield and Frank L. Paden (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 30, 2008).
10.4	*	Letter Agreement, dated December 23, 2008, between Farmers National Bank of Canfield and Mark L. Graham (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 30, 2008).
10.5	*	Letter Agreement, dated December 23, 2008, between Farmers National Bank of Canfield and Kevin J. Helmick (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 30, 2008).
10.6	*	Letter Agreement, dated January 27, 2009, between Farmers National Bank of Canfield and John S. Gulas (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2009).
10.7	*	Executive Incentive Plan, dated August 11, 2009 (incorporated by reference from Farmers National Banc Corp.’s Current Report on Form 8-K filed with the SEC on August 17, 2009).
10.8	*	Incentive Compensation Plan, dated January, 2010 (incorporated by reference from Farmers National Banc Corp.’s Current Report on Form 8-K filed with the SEC on March 14, 2011).
10.9	*	Executive Incentive Plan, dated September 14, 2010 (incorporated by reference from Farmers National Banc Corp.’s Current Report on Form 8-K filed with the SEC on September 20, 2010).
10.10		Agency Agreement, dated December 20, 2010, between Farmers National Banc Corp., The Farmers National Bank of Canfield and Sandler O’Neill + Partners, L.P., dated December 20, 2010 (incorporated by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 23, 2010).
10.11		Form of Standby Purchase Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 23, 2010).
10.12		Amendment No. 1 to Agency Agreement, dated January 26, 2011, by and among Farmers National Banc Corp., The Farmers National Bank of Canfield and Sandler O’Neill + Partners, L.P. (incorporated by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2011).

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13	2010 Annual Report to Shareholders (filed herewith).
21	Subsidiaries of the Company (filed herewith).
23	Consent of Independent Registered Public Accounting Firm (filed herewith).
31.1	Rule 13a-14(a)/15d-14(a) Certification of John S. Gulas, President and Chief Executive Officer of the Company (filed herewith).
31.2	Rule 13a-14(a)/15d-14(a) Certification of Carl D. Culp, Executive Vice President and Chief Financial Officer of the Company (filed herewith).
32.1	Certification pursuant to 18 U.S.C. Section 1350 of John S. Gulas, President and Chief Executive Officer of the Company (filed herewith).
32.2	Certification pursuant to 18 U.S.C. Section 1350 of Carl D. Culp, Executive Vice President and Chief Financial Officer of the Company (filed herewith).

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

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EX-10.2

Exhibit 10.2

FARMERS NATIONAL BANK OF CANFIELD

DEFERRED COMPENSATION AGREEMENT

THIS DEFERRED COMPENSATION AGREEMENT (“Agreement”) is made effective as of this 1st day of January, 2005, by and between Farmers National Bank of Canfield (the “Company”), an Ohio corporation and wholly-owned subsidiary of Farmers National Banc Corp., and Frank L. Paden (the “Executive”), an individual employed by the Company.

WITNESSETH:

WHEREAS, Executive now serves as an officer of the Company;

WHEREAS, Executive is a member of a select group of management or highly compensated employees and has contributed significantly to the profits of the Company and its continued expansion; and,

WHEREAS, the Company through this Agreement wishes to encourage Executive to continue in the service of the Company and to reward Executive for his past and future best efforts.

NOW, THEREFORE, in consideration of the promises, covenants and agreements herein set forth, and for other good and valuable consideration, receipt of which is hereby mutually acknowledged, the Company and Executive hereby covenant and agree as follows:

1. All Prior Deferred Compensation Agreements Superseded. Any and all agreements between the Company and Executive covering the subject matter hereof are hereby terminated, of no further effect, and superseded by this Agreement.

2. Retirement Date. Executive may retire from the active and daily service of the Company (“Retirement Date”) upon that November 1st occurring nearest in time to Executive’s sixty-fifth (65^th) birthday or at any date thereafter specified by Executive in writing to the Company.

3. Retirement Compensation. Commencing with the first business day of the month succeeding the Retirement Date, the Company will pay to Executive the sum of Nine Hundred Thirty Dollars ($930.00) each month, payable on the first business day of each calendar month. The Company agrees that it will continue to make such monthly payments to Executive for seventeen consecutive (17) years; subject, to the conditions and limitations hereinafter set forth:

a. if Executive has retired but dies before receiving two hundred four (204) monthly payments in the amount specified above, the balance of such payments shall be discounted to their net present value at the rate of six percent (6%) per annum, compounded annually, and paid in a lump sum to Executive’s surviving spouse, if any. If Executive does not leave a surviving spouse, the lump sum as calculated above shall be paid to the executor or personal representative of Executive. In no event shall the Company, by reason of this Agreement, become liable to any party or parties for a sum greater than two hundred four (204) payments in the amount specified above.

b. If Executive retires from the active and daily service of the Company prior to the November 1st occurring nearest in time to Executive’s sixty-fifth (65^th) birthday due to a disability which prevents Executive from performing Executive’s duties in a manner satisfactory to the Company, payments hereunder shall commence, beginning the first business day of the month following the month in which such retirement occurs. Payments shall be made for the duration of two hundred four (204) months to Executive, if living. If Executive dies during the period in which such payments are being made, the balance of such payments shall be paid as if Executive had died pursuant to subsection a. above. For the purposes of this subsection b., the amount of the monthly payment shall be determined as follows: the monthly payment as specified in this section 3 above shall be reduced by multiplying by a fraction the numerator of which is the number of years of service completed (a year of service being defined as more than two thousand hours worked) and the denominator of which is the number of years from date of hire and Executive’s attaining age 65.

c. If Executive voluntarily terminates employment, or has employment involuntarily terminated prior to age 65, other than “for cause” as provided herein, a proportionate monthly amount will be paid, commencing on the first business day of the month following Executive’s termination of employment. The amount to be paid to Executive, as specified in section 3, shall be reduced by one-seventeenth (1/17^th) for each year between the November 1^st following the date that employment terminates and the November 1^St following the Executive’s 65^th birthday.

d. If Executive is deemed, in the sole discretion of the Company, to be a “keyspecified employee” as defined in the rules promulgated under the Internal Revenue Code of 1954, as amended, and specifically under Reg. 1.409(A)-1(i) as administered by the Internal Revenue Service, and the separation from service hereunder occurs other than by reason of death or disability (as defined in such rules) then the commencement of payments hereunder shall be deferred for a six (6) month interval, and the payments which would have been made in the first six (6) months shall be paid in a lump sum (without interest) and paid coincident with the commencement of regular payments on the first business day of the seventh (7^th) month following such separation.

4. Executive’s Responsibilities After the Retirement Date. Executive agrees that after the Retirement Date and for so long as Executive continues to receive monthly payments hereunder, Executive will attend, when invited and reasonably able to do so, all regular meetings of the officers of the Company and will meet with the officers of the Company more often if requested to do so by the Company. Executive agrees to consult with the Company without receiving separate compensation therefor, in an advisory capacity at any and all times if and when requested to do so by the Company. The parties hereto acknowledge that the responsibilities of Executive under this section are voluntary on the part of Executive and that the failure of Executive to either participate in meetings or consult with the Company shall not affect the validity, enforceability, or vesting of the deferred compensation conferred upon Executive in this Agreement.

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5. Covenant Not to Compete. Executive agrees that while receiving monthly payments from the Company pursuant to this Agreement, Executive will not, within one hundred (100) miles of Youngstown, Ohio, directly or indirectly engage in competition with the Company (“Competition”). The determination as to weather or not Competition is taking place shall be in the sole discretion of the Company’s Board of Directors (the “Board”), who shall decide by majority vote of directors at a meeting, called for the purpose of considering the issue of the existence of Competition under the terms of this Agreement, for which a quorum is present (such a determination is referred to as a “Qualified Meeting”). The determination of the Board shall be final, conclusive and binding upon Executive, Executive’s spouse, if any, and any party claiming through Executive.

6. Consequences of Executive Breaching Section 5. If, in the opinion of a majority of the Board of the Company, taking action in a Qualified Meeting, Executive is engaging in Competition, the Company shall promptly notify Executive in writing at his home address that the Board has decided that Executive is engaging in Competition with the Company. Executive shall have a period of fifteen (15) days after receipt of such notice to cease the activity that caused the finding that Competition exists. If Executive, again in the opinion of the Board acting at a Qualified Meeting, has not ceased engaging in Competition by the end of such fifteen (15) day period, then, any of the provisions of this Agreement to the contrary notwithstanding, Executive agrees that no further payments shall be due or payable by the Company hereunder and that the Company shall have no further liability to make payment hereunder to Executive or any survivor of Executive, or to Executive’s personal representative or executor.

7. Non-assignment of Payments. Neither Executive nor Executive’s spouse shall purport to sell, assign, transfer, or otherwise transfer the right to receive any payments under this Agreement, which payments and the right thereto are expressly declared to be non-assignable and non-transferable, and in the event of any attempted assignment or transfer, said assignment or transfer shall be void and of no effect upon the Company.

8. Termination for Cause. If, prior to the Retirement Date, a majority of the Board, in a Qualified Meeting, votes to terminate Executive’s employment “for cause”, this Agreement shall be void and of no effect. The term “for cause” for the purpose of this section shall mean gross incompetence or that Executive has engaged in any of the following: theft, forgery, embezzlement, burglary, arson, fraud, misappropriation of funds, libel, or slander.

9. Binding Effect; Prior Agreements Superseded. This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators and successors. The Company agrees that it will not merge or consolidate with any other entity unless such entity shall expressly assume the duties and liabilities of the Company herein set forth. This Agreements supersedes all previous agreements between the parties on the subject matter hereof.

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10. Effect of Suicide. In the event of the suicide of Executive within two years from the date of this Agreement, this Agreement shall be void and of no effect

11. Counterparts. This Agreement shall be executed in duplicate, each copy of which when so executed and delivered shall be an original, but both copies shall, together, constitute one and the same instrument.

12. Governing Law. This Agreement shall be construed according to the laws of the State of Ohio.

13. Non-exclusivity. Nothing in this Agreement shall affect any right which the Executive may otherwise have to participate in, or under, any other retirement plan or agreement which the Company may now or hereafter enter into with or for the benefit of Executive.

14. Amendments; Termination. This Agreement shall be amended by the parties hereto if necessary, in the opinion of the Company, to conform this Agreement to requirements of the Internal Revenue Code, including, but not limited to, section 409(A) thereof pertaining to the taxation of deferred compensation arrangements, in such manner as necessary to avoid recognition of income by Executive prior to the taxable period in which Executive actually receives payments hereunder. This Agreement may not be amended by the parties in any respect which would result in recognition of income by Executive of payments hereunder prior to the accounting period in which such payments are received by Executive, or received by Executive’s surviving spouse or estate. This Agreement may be amended in other respects; provided, however, that any such amendment must be in writing and signed by the parties hereto. If this Agreement is terminated by the Company for any reason no payments hereunder may be accelerated unless the Company has received an opinion of its counsel, satisfactory in form and substance in the sole discretion of the Company, to the effect that the acceleration of payments does not subject this Agreement to the deferred compensation rules administered by the Internal Revenue Service and referred to above.

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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed in its corporate name by its Executive Vice President, Cashier and CFO impressed with its corporate seal, attested by its Secretary, all as duly authorized by its directors, and the said Executive has hereunto set his name, all effective as of this 1^st day of January, 2005.

Attest:
	Frank L. Paden
	The Farmers National Bank of Canfield
	By:
Signed in the presence of:
		Date:

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EX-13

Exhibit 13

CORPORATE PROFILE

Farmers National Banc Corp. (the “Company”) is a multi-bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company provides full banking services through its nationally chartered subsidiary, The Farmers National Bank of Canfield (the “Bank”). The Company provides trust services through its subsidiary, Farmers Trust Company, and insurance services through the Bank’s subsidiary, Farmers National Insurance. Farmers Trust Company has a state-chartered bank license to conduct trust business from the Ohio Department of Commerce — Division of Financial Institutions.

The Farmers National Bank, chartered in 1887, is a full-service financial services company engaged in commercial and retail banking with a total of seventeen (17) retail offices and two (2) trust offices located in the counties of Mahoning, Columbiana and Trumbull in the State of Ohio. In addition, the Farmers National Bank provides 24-hour access to a network of Automated Teller Machines and offers Internet and telephone banking services. Farmers National Bank competes with state and national banks, as well as 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 by which Farmers National Bank competes are loan interest rates, the rates paid for funds, the fees charged for services and the availability of services.

As a national banking association, Farmers National Bank is a member of the Federal Reserve System, is subject to the supervision and regulation of the Office of the Comptroller of the Currency, and deposits are insured by the Federal Deposit Insurance Corporation to the extent provided by law.

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	11-14
Management’s Discussion & Analysis	14-24
Management’s Report on Internal Control Over Financial Reporting	25
Report of Independent Auditors	26
Consolidated Financial Statements & Notes	27-48
Community Giving	49
Farmers National Financial Group	50
Board of Directors & Executive Team	51

ANNUAL MEETING NOTICE

The Annual Meeting of Shareholders will be held at the Family Life Center Banquet Hall at St. Michael Parish at 300 North Broad Street, Canfield, OH 44406 at 3:30 p.m. local time, on Thursday, April 28, 2011.

FINANCIAL HIGHLIGHTS

(Dollar Amounts in Thousands Except for Per Share Data)

For the Year	2010			2009			2008
Net Income	$	8,991		$	5,842		$	5,665
Return on Average Assets		0.87	%		0.60	%		0.67	%
Return on Average Equity		10.46	%		7.32	%		7.67	%
Per Share
Net Income (Basic)	$	0.66		$	0.44		$	0.43
Net Income (Diluted)		0.66			0.44			0.43
Book Value		6.45			5.96			5.83
Balances at Year-End
Total Assets	$	982,751		$	1,014,808		$	880,370
Earning Assets		915,224			948,187			829,173
Total Deposits		761,050			777,552			648,010
Net Loans		581,060			601,995			546,452
Total Stockholders’ Equity		88,048			80,628			77,102
Cash Dividends		1,626			4,801			6,802
Common Shares Outstanding		13,646			13,520			13,230

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FROM THE DESK OF:
JOHN S. GULAS, PRESIDENT & CEO

For 124 years, we have maintained disciplined focus on our core values. We will continue to stay focused on those values as we chart a course for the future.

Dear Fellow Shareholders:

The past two years were the most challenging for banks since “The Great Depression” and were dubbed by many as “The Great Recession”. From December 31, 2008 to December 31, 2010, federal regulators closed almost 300 banks. Many of these failed institutions were community banks caught up in a changing regulatory environment and stressed credit quality situations.

Your Bank took a different approach than many. We focused on strategies and actions that strengthened our company now and afforded us the opportunity to invest for our future success. Farmers shunned TARP, tried to anticipate regulatory changes and established a plan to attain profitable growth while maintaining — and improving — sound operations and risk management.

Farmers has remained profitable throughout this past cycle and has taken advantage of opportunities presented. From December 31, 2008 to December 31, 2010, we grew assets by 12%, loans by 6% and core deposits by 13% resulting in revenue growth of 26%.

For 124 years, we have maintained disciplined focus on our core values and will continue to stay focused on those values as we chart a course for the future. The road ahead will be full of new challenges and we will need to be more flexible to address those challenges. The regulatory landscape will continue to evolve and we must adapt. We must actively address our structural limitations if we are to replace revenue streams currently under attack by new regulations.

CAPITAL RAISING INITIATIVES

We are pleased to report that with your help, we have successfully raised $15 million in new capital. This new capital represents the fuel we need to take us into a secure future. It will position us to generate additional assets and revenues that should create additional profits that can be reinvested in our business and distributed as dividends to our shareholders. The key to our success in increasing the revenues necessary to meet our goals will include proper deployment of this capital and the ability to be more flexible in identifying and opportunistically acting on new, profitable growth situations.

RISK MANAGEMENT AND ASSET QUALITY

This will continue to be a key differentiator for successful banks and will remain a focus for Farmers. We made significant investments in 2010 and will again in 2011 to make sure that we have the right people and processes in place to ensure proper credit, investment, rate, market, reputation and overall enterprise risk management. This process has provided protection for our shareholders in the past and will continue to ensure our viability into the future.

BRAND ENHANCEMENT

We have found that a focus on being Farmers National Bank has served us well. There is value in our brand. We are engaged with the community and recognized as the bank of choice for customers looking for a true relationship-focused community bank. Our campaigns have demonstrated your Bank to be “Rock Solid,” a “Safe Harbor” and that we “Stand Strong”. All supporting the sound claim that Farmers is the strongest local bank, providing us with the image and exposure needed to gain a larger percentage of the market in the Valley.

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ATTRACT, DEVELOP AND RETAIN QUALITY PEOPLE

We are continuing our focus on attracting and retaining the right people. We have improved our health benefits program while cutting costs. Our 401-k plan has expanded investment options with reduced administrative costs. Farmers Academy is in its second year of training our internal talent as leaders for the future. We need motivated, dedicated and responsible associates to deliver the quality service we envision for our customers and return value to our shareholders. To retain the right people, we will need to improve our compensation programs to compete with our peers. By treating employees fairly, and with dignity and respect, we will retain and attract a satisfied workforce focused on adding value to themselves and our shareholders.

LEVERAGE TECHNOLOGY

We made needed upgrades to our systems and infrastructure over the last two years. We are now seeing the benefits of these upgrades in improved products and services, to meet the changing needs of our customers. These improvements have also aided management with improved financial and risk reporting allowing us to achieve improved profitability, as evidenced by our 54% improvement in earnings and attainment of a 61% efficiency ratio and 4.1% net-interest margin. Our IT area is now properly staffed and has only touched the surface of value-added enhancements that will contribute to additional successes.

EXPAND ASSET BASE THROUGH LOAN AND CORE DEPOSIT GROWTH

One of our greatest opportunities in 2011 will be the continued expansion of our quality loan portfolio and core deposits in the Mahoning Valley. Our current market share is still below what we believe to be our fair share of the marketplace. Our approximate market share in Mahoning and Columbiana counties is 10% and is about 7% in Trumbull County. Our strategy for organic growth is to attain a more significant market share in each of these markets in order to become one of the top providers of financial services in each of these markets. During this time of economic upheaval, we appreciate the need to diversify our market risk, but not to reach beyond our core competencies. We will look for opportunistic situations that fit our risk profile in Northeastern Ohio and Western Pennsylvania.

DIVERSIFY FINANCIALS

Diversification of revenue sources has also been very important to Farmers in the past two years. Excluding security gains and impairment of securities, we have experienced 117% growth in our non-interest income since 2008. This growth contributed to our ability to meet the added cost of regulatory mandates and the economic impacts to our credit customers. These new revenues should allow us to move toward improved dividends as earnings continue to improve and the economic cycle returns to normal. Our new tool kit of services allows us to penetrate and expand our customer base, while reducing our interest rate risk. Farmers Trust Company has grown 50% since its acquisition in 2009 and our Farmers National Investments group added 57% in net revenues over their 2009 production. Farmers National Insurance is still in its formative period, but should provide great opportunities for revenue growth as it completes its first full year in 2011.

I think you will agree we have had many successes. We believe these successes are only a taste of what the future holds for Farmers. We believe that we are well-positioned to take advantage of opportunities within the Mahoning Valley; however, we need your assistance in making additional changes to our governance documents so that we have the flexibility to meet future challenges and capitalize on new opportunities. These changes are more fully described in the accompanying proxy statement and you will be asked to vote on these changes at our Annual Meeting. I encourage you to call me with any questions that you have regarding our business vision, our hopes and our desires. In addition, I would be happy to discuss any of the items we are requesting shareholders to vote on at our upcoming Annual Meeting. Your support is imperative to our long-term success, especially in light of the ever changing economic and regulatory environment in which we operate, and we urge you to vote on the matters presented at the Annual Meeting.

I thank you, as does our entire Senior Team and Board of Directors, for your past and future support in securing the future of Farmers National Banc Corp.

Sincerely,

John S. Gulas
President & CEO

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FROM THE DESK OF:
FRANK L. PADEN, EXECUTIVE CHAIRMAN OF THE BOARD

This new capital injection was the first of its kind for the Company in over 30 years.

Letter from the Executive Chairman of the Board to the Shareholders:

I encourage you to read this 2010 Annual Report to Shareholders. You will find favorable reports on how this Company adjusted accordingly to the changing regulatory environment, produced amazing results in difficult economic conditions, and took many steps to invest responsibly for future growth and revenue enhancement opportunities.

Our Board of Directors made some very hard business decisions during this past year. Our record of financial stability enabled us to make key strategic decisions to leverage our conservative operating model that provides us with a strong core revenue stream together with diverse revenue sources that enhance our opportunities for future growth and profitability. To support this growth and pursue our strategic initiatives, during January 2011, we successfully completed a rights and public offering of our common shares. Through the sale of 5,000,000 shares of common shares, we were able to generate gross proceeds of $15,000,000 as a source of new capital. These funds will be used to enable the Company to continue pursuing our program of controlled growth and diversifying our sources of revenue. This new capital injection was the first of its kind for the Company in over 30 years.

In July of this past year, the Board promoted Mr. John S. Gulas to the position of President and CEO for Farmers National Banc Corp. and the subsidiary bank, Farmers National Bank. At that same time, having served as President & CEO for the past 14 years, the Board of Directors appointed me to serve as the Executive Chairman of the Board during the final stage of this management succession plan.

Mr. Gulas, who was also appointed to the Board of Directors at that time, reshaped the Senior Leadership team and reinvigorated our Company.

Additionally, two new directors were appointed to the Board in order to fill the retirements of Mr. James R. Fisher and Mr. Benjamin R. Brown. Mr. Lance J. Ciroli joined the Board in October following a 33 year career in the bank regulatory industry supervising community banks. Mr. David Z. Paull was added to the Board on January 1, 2011. Mr. Paull is employed with RTI International Metals, Inc. as a Vice President Human Resources Operations and Labor Relations for over 32 years. In February 2011, Mr. Joseph D. Lane informed the Board that he would not seek to be elected for a new three year term. Our Corporate Governance and Nominating Committee is pleased to nominate and recommend the approval of Mr. Gregory C. Bestic to fill the spot held by Mr. Lane. Mr. Bestic, a CPA and Cr. F. A., is the Managing Principal with the local accounting firm of Schroedel, Scullin and Bestic, LLC and brings over 33 years of public accounting experience.

Our success has hinged on the community service and the loyalty and dedication of all our customers. I’m extremely proud of our knowledgeable, caring staff, the leadership of management and our Board of Directors. I personally thank all of the shareholders for your support and trust you have in our Company.

Very truly yours,

Frank L. Paden
Executive Chairman of the Board

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

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

On behalf of Farmers Trust Company, we are pleased to announce record growth in assets and earnings for the calendar year 2010. Trust assets increased in value from $822 million in December of 2009 to $912 million in December of 2010. Operating earnings before tax and amortization increased to $1.1 million. While some of the growth is due to the rebound in the equity markets, we attribute most of the growth to the desire of individuals and charitable institutions to have their financial affairs and family wealth managed locally with individuals they know and trust. The growth of Farmers Trust Company, together with the synergy of Farmers National Bank, continues to benefit clients and shareholders.

Other highlights during 2010 include:

• The reorganization of our Investment Department to our downtown Youngstown offices with five investment officers.

• The retirement, after 14 years, of Karen L. Cipperley as Chief Investment Officer.

• The promotion of Scott R. Schulick to Senior Trust Investment Officer and Treasurer, and Amy L. Jones to Trust Officer.

• The promotion of four employees to officer positions: Margaret S. Adams, Esq., William F. Moss III, Michelle M. Schenker, and Eric R. Watson.

• The growth of our Employee Benefits Department with assets increased to $163 million.

• The expansion of our Tax Department, which files in excess of 1,000 tax returns electronically on both the Federal and State level.

• The establishment of a formal Business Development division.

During the calendar year 2010, continuing improvements were made to the Metavante Trust Accounting System, which daily tracks and balances all securities in the Company together with posted dividends and interest. All securities are valued on a daily basis and are available for client view through our internet information service known as Portfolio Online. This feature allows clients to monitor their portfolios and market value information at their convenience 24/7, and to discuss any issues with the appropriate administrative or investment office assigned to the account in a timely manner.

Clients of Farmers Trust Company continue to be among the most generous in the Mahoning Valley. During the year, individuals, private foundations, and charitable trusts contributed in excess of $6 million to beneficiaries throughout the community. Significant grants were made in the field of education to Youngstown State University, Mount Union College, Westminster College and the College of Wooster. Distributions to local health providers were made to St. Elizabeth Medical Center, Akron Children’s Hospital, and Trumbull Memorial Hospital, as well as to Western Reserve Care System. Humanitarian grants were made to the American Red Cross, Hospice and the Rescue Mission among others, while cultural programs such as the Mahoning Valley Historical Society, The Youngstown Symphony Center, Henry H. Stambaugh Auditorium, and the Butler Institute of American Art were also recipients.

With offices in downtown Youngstown and in Howland, our professional staff of 28 is skilled in administering all types of personal trusts, charitable trusts, estates, employee benefits, and personal financial planning. Maintaining local administrative, investment, operations, employee benefits, tax and business development departments, Farmers Trust Company looks forward to additional growth in the Valley during the calendar year 2011. Thank you for your continued confidence and allowing us to assist you with your investments, charitable and estate planning, and personal and business affairs.

Sincerely,

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

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

The net interest margin improved from 3.88% at December 31, 2009 to 4.10% for 2010, or 22 basis points.

To Our Shareholders,

The following paragraphs provide a brief overview of relevant information regarding your Company’s financial performance in 2010.

Net income for 2010 was $9.0 million, or $0.66 basic and diluted earnings per share, compared to $5.8 million, or $0.44 diluted earnings per share in 2009, increases of 53.9% and 50%, respectively. The results for 2010 included security gains of $2.7 million, compared to $1.0 million in 2009.

The net interest margin improved from 3.88% at December 31, 2009 to 4.10% for 2010, or 22 basis points. Total average earning assets increased 5.63%, while the yields on those average-earning assets decreased 47 basis points from 5.72% in 2009 to 5.25% in 2010. Total interest-bearing liabilities increased 5.62%, and the cost on the average interest-bearing liabilities decreased from 2.01% in 2009 to 1.27% in 2010, or 74 basis points. The decrease in cost was the result of lower rates of interest paid on interest-bearing deposits and repurchase agreements. 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 increased by $3.8 million in 2010, primarily as a result of an increase of $1.4 million in trust income and a $1.7 million increase in security gains. The addition of Farmers Trust Company in March 2009 continues to complement our existing core retail and asset management services.

DEPOSITS

Average deposits increased 7.51% during the past year, as the growth in money market accounts was offset by a decrease in time deposits when our customers moved deposit dollars from time deposits seeking liquidity. Your Company’s focus is on core deposit growth and we will continue to price deposit rates to remain competitive within the market and to retain customers. At December 31, 2010, core deposits, which are defined as savings and money market accounts, time deposits less than $100 thousand, demand deposits and interest-bearing demand deposits, represent 86% of our total deposits.

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LOANS

Average loans increased 3% during 2010. 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, 34% in commercial real estate loans, 30% in residential real estate loans and 23% in consumer loans. Our team of experienced loan officers remains focused on increasing our portfolio by building long-term customer relationships.

During the year, management provided $8.08 million to the allowance for loan losses. Although the Company has a lower level of non-performing loans at December 31, 2010, compared to the same time in 2009, management believed an increase in the allowance for loan losses was necessary because of an increase in the historical loss experience of commercial real estate loans and commercial and industrial loans that are classified as substandard. Substandard loans are those that exhibit one or more structural weakness and are characterized by the distinct possibility that the Company will sustain some loss on the loan unless the weaknesses are corrected. Two key ratios to monitor asset quality performance are the allowance for loan losses to total loans and the allowance for loan losses to non-performing loans. At year-end 2010, these ratios improved to 1.58% and 105%, respectively compared to 1.21% and 73% 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

Stockholders’ equity increased $7.4 million, or 9.2%, during 2010. At the end of the year, Farmers National 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 $0.03 per share during the first quarter 2010. Total cash dividends declared were $1.6 million in 2010 and $4.8 million in 2009.

At the beginning of 2011, our Company was successful in raising new capital that will provide the fuel needed to again grow our asset base and provide additional revenue producing opportunities. 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

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INVESTOR INFORMATION

Corporate Headquarters: Farmers National Banc Corp., 20 South Broad Street, P.O. Box 555, Canfield, OH 44406. Phone 330-533-5127 or Toll Free 1-888-988-3276.

Website: www.farmersbankgroup.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.

Transfer Agent: Registrar and Transfer Company, Attention: Stock Transfer Services, 10 Commerce Drive, Cranford, NJ 07016

Dividend Reinvestment Plan (DRIP): Registered shareholders can purchase additional common 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 a prospectus, contact the Registrar and Transfer Co. at 1-800-368-5948.

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 Registrar and Transfer Co. at 1-800-368-5948.

Annual Report on Form 10-K: A copy of the Annual Report on Form 10-K filed with the Securities and Exchange Commission will be provided to any shareholder on request to the Company, to the attention: Mr. Carl D. Culp, 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 Company’s common shares trade on the OTC Bulletin Board under the symbol FMNB.OB. There are approximately six local and/or regional brokerage firms that are known to be relatively active in trading the Company’s common shares. Set forth in the accompanying table are per share prices at which common shares have actually been purchased and sold in transactions during the periods indicated, to the knowledge of the Company. Also included in the table are dividends per share paid on the outstanding Company’s common shares and any shares dividends paid. As of December 31, 2010, there were 13,646,035 shares outstanding and 3,691 shareholders of record of common shares.

MARKET AND DIVIDEND SUMMARY

Dividend Date	High		Low		Dividend
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
March 2010	$	4.80	$	4.10	$	0.03
June 2010	$	4.65	$	3.50	$	0.03
September 2010	$	4.10	$	3.47	$	0.03
December 2010	$	3.70	$	3.45	$	0.03

The following graph compares the cumulative five year total return to shareholders on Farmers National Banc Corp.’s common shares 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 shares and in each of the indexes (including reinvestment of dividends) was $100 on 12/31/2005 and tracks it through 12/31/2010.

	12/31/05		12/31/06		12/31/07		12/31/08		12/31/09		12/31/10
Farmers National Banc Corp.		100.00		87.70		68.44		33.72		47.66		38.88
NASDAQ Composite		100.00		110.39		122.15		73.32		106.57		125.91
NASDAQ Bank		100.00		113.82		91.16		71.52		59.87		68.34

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 Share and Per Share Data)

For the Years Ending December 31,	2010			2009			2008			2007			2006
SUMMARY OF EARNINGS
Total Interest Income (including fees on loans)	$	48,365		$	49,775		$	46,415		$	45,538		$	44,098
Total Interest Expense		10,998			16,547			19,947			21,893			20,199
Net Interest Income		37,367			33,228			26,468			23,645			23,899
Provision for Loan Losses		8,078			6,050			1,420			570			200
Noninterest Income (1)		13,210			9,388			2,617			4,408			5,134
Noninterest Expense		30,964			29,655			21,013			20,382			19,619
Income Before Income Taxes		11,535			6,911			6,652			7,101			9,214
Income Taxes		2,544			1,069			987			1,176			1,999
NET INCOME	$	8,991		$	5,842		$	5,665		$	5,925		$	7,215
PER SHARE DATA
Basic earnings per share	$	0.66		$	0.44		$	0.43		$	0.46		$	0.55
Diluted earnings per share		0.66			0.44			0.43			0.46			0.55
Cash Dividends Paid		0.12			0.36			0.52			0.64			0.64
Book Value at Year-End		6.45			5.96			5.83			5.67			5.83
Tangible Book Value (2)		5.95			5.41			5.83			5.67			5.83
BALANCES AT YEAR-END
Total Assets	$	982,751		$	1,014,808		$	880,370		$	798,236		$	821,584
Earning Assets		915,224			948,187			829,173			745,482			778,719
Total Deposits		761,050			777,552			648,010			593,428			619,747
Short-Term Borrowings		105,634			125,912			105,435			74,174			77,792
Long-Term Borrowings		24,733			27,169			46,464			52,455			41,602
Net Loans		581,060			601,995			546,452			508,647			502,594
Total Stockholders’ Equity		88,048			80,628			77,102			73,920			76,223
AVERAGE BALANCES
Total Assets	$	1,030,516		$	970,163		$	841,630		$	804,968		$	818,549
Total Stockholders’ Equity		85,968			79,775			73,889			74,615			75,143
SIGNIFICANT RATIOS
Return on Average Assets (ROA)		0.87	%		0.60	%		0.67	%		0.74	%		0.88	%
Return on Average Equity (ROE)		10.46			7.32			7.67			7.94			9.60
Average Earning Assets/Average Assets		92.28			92.79			93.67			94.86			94.98
Average Equity/Average Assets		8.34			8.22			8.78			9.26			9.18
Loans/Deposits		77.57			78.37			85.18			86.63			82.00
Allowance for Loan Losses/Total Loans		1.58			1.21			1.01			1.06			1.10
Allowance for Loan Losses/Nonperforming Loans		104.56			73.25			104.05			231.22			324.85
Efficiency Ratio (On tax equivalent basis)		61.10			67.00			63.02			68.00			64.98
Net Interest Margin		4.10			3.88			3.58			3.33			3.29
Dividend Payout Rate		18.08			82.18			120.07			140.24			115.14
Tangible Common Equity Ratio (3)		8.31			7.26			8.76			9.26			9.28

(1)	Noninterest income includes a securities impairment charge of $74 thousand, $2.7 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.

11

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

(3) The tangible common equity ratio is calculated by dividing total common stockholders’ equity by total assets, after reducing both amounts by intangible assets. The tangible common equity ratio is not required by United States generally accepted accounting principals (U.S. GAAP) or by applicable bank regulatory requirements, but is a metric used by management to evaluate the adequacy of the Company’s capital levels. Since there is no authoritative requirement to calculate the tangible common equity ratio, the Company’s tangible common equity ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non U.S. GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with U.S. GAAP. With respect to the calculation of the actual unaudited tangible common equity ratio as of December 31, reconciliations of tangible common equity to U.S. GAAP total common stockholders’ equity and tangible assets to U.S. GAAP total assets are set forth below:

Reconciliation of Common Stockholders’ Equity to Tangible Common Equity

December 31,	2010		2009		2008		2007		2006
Stockholders’ Equity	$	88,048	$	80,628	$	77,102	$	73,920	$	76,223
Less Goodwill and other intangibles		6,920		7,500		0		0		0
Tangible Common Equity	$	81,128	$	73,128	$	77,102	$	73,920	$	76,223

Reconciliation of Total Assets to Tangible Assets

December 31,	2010		2009		2008		2007		2006
Total Assets	$	982,751	$	1,014,808	$	880,370	$	798,236	$	821,584
Less Goodwill and other intangibles		6,920		7,500		0		0		0
Tangible Assets	$	975,831	$	1,007,308	$	880,370	$	798,236	$	821,584

12

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

Years Ended December 31,	2010								2009								2008
	AVERAGE								AVERAGE								AVERAGE
	BALANCE			INTEREST		RATE			BALANCE			INTEREST		RATE			BALANCE			INTEREST		RATE
EARNING ASSETS
Loans (1) (3) (5)	$	598,931		$	37,235		6.22	%	$	581,629		$	38,130		6.56	%	$	515,671		$	35,351		6.86	%
Taxable securities (2)		252,450			8,755		3.47			224,784			9,399		4.18			183,201			8,063		4.40
Tax-exempt securities (2) (5)		62,804			3,729		5.94			60,911			3,667		6.02			67,666			3,985		5.89
Equity securities (4) (5)		4,126			189		4.58			5,147			263		5.11			7,414			420		5.66
Federal funds sold		32,638			56		0.17			27,769			32		0.12			14,402			338		2.35
Total earning assets		950,949			49,964		5.25			900,240			51,491		5.72			788,354			48,157		6.11
NONEARNING ASSETS
Cash and due from banks		22,926								23,098								23,089
Premises and equipment		14,292								14,230								14,363
Allowance for Loan Losses		(7,885	)							(6,377	)							(5,433	)
Unrealized gains (losses) on securities		10,030								5,980								(1,089	)
Other assets (1)		40,204								32,992								22,346
Total Assets	$	1,030,516							$	970,163							$	841,630
INTEREST-BEARING LIABILITIES
Time deposits	$	289,581		$	7,156		2.47	%	$	312,511		$	9,742		3.12	%	$	286,980		$	12,216		4.26	%
Savings deposits		300,538			1,762		0.59			238,618			2,670		1.12			186,022			2,964		1.59
Demand deposits		107,890			125		0.12			101,470			314		0.31			97,401			468		0.48
Short term borrowings		144,583			872		0.60			123,758			1,847		1.49			80,621			2,047		2.54
Long term borrowings		25,472			1,083		4.25			45,543			1,974		4.33			49,261			2,252		4.57
Total Interest-Bearing Liabilities		868,064			10,998		1.27			821,900			16,547		2.01			700,285			19,947		2.85
NONINTEREST-BEARING LIABILITIES AND STOCKHOLDERS’ EQUITY
Demand deposits		73,044								64,563								62,350
Other Liabilities		3,440								3,925								5,106
Stockholders’ equity		85,968								79,775								73,889
Total Liabilities and Stockholders’ Equity	$	1,030,516							$	970,163							$	841,630
Net interest income and interest rate spread				$	38,966		3.98	%				$	34,944		3.71	%				$	28,210		3.26	%
Net interest margin							4.10	%							3.88	%							3.58	%

(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 $2.0 million, $2.3 million and $1.9 million for 2010, 2009 and 2008, respectively, and is reduced by amortization of $1.8 million, $1.5 million and $1.1 million for 2010, 2009 and 2008, respectively.
(4)	Equity securities include restricted shares, which is included in other assets on the consolidated balance sheets.
(5)	For 2010, adjustments of $360 thousand and $1.2 million are made to tax equate income on tax exempt loans and tax exempt securities. For 2009, adjustments of $496 thousand and $1.2 million are made to tax equate income on tax exempt loans and tax exempt securities. For 2008, adjustments of $386 thousand, $1.3 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. These adjustments are based on a marginal federal income tax rate of 35%, less disallowances.

13

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

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

	2010 change from 2009									2009 change from 2008
	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	$	(895	)	$	1,134		$	(2,029	)	$	2,779		$	4,522		$	(1,743	)
Taxable securities		(644	)		1,157			(1,801	)		1,336			1,830			(494	)
Tax-exempt securities		62			114			(52	)		(318	)		(398	)		80
Equity securities		(74	)		(52	)		(22	)		(157	)		(128	)		(29	)
Federal funds sold		24			6			18			(306	)		314			(620	)
Total interest income	$	(1,527	)	$	2,359		$	(3,886	)	$	3,334		$	6,140		$	(2,806	)
INTEREST EXPENSE
Time deposits	$	(2,586	)	$	(715	)	$	(1,871	)	$	(2,474	)	$	1,087		$	(3,561	)
Savings deposits		(908	)		693			(1,601	)		(294	)		838			(1,132	)
Demand deposits		(189	)		20			(209	)		(154	)		20			(174	)
Short term borrowings		(975	)		310			(1,285	)		(200	)		1,095			(1,295	)
Long term borrowings		(891	)		(869	)		(22	)		(278	)		(170	)		(108	)
Total interest expense	$	(5,549	)	$	(561	)	$	(4,988	)	$	(3,400	)	$	2,870		$	(6,270	)
Increase (decrease) in tax equivalent net interest income	$	4,022		$	2,920		$	1,102		$	6,734		$	3,270		$	3,464

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

Discussions in this report that are not statements of historical fact (including statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “project,” intend,” and “plan”) are forward-looking statements that involve risks and uncertainties. Any forward-looking statement is not a guarantee of future performance and actual future results could differ materially from those contained in forward-looking information. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including, without limitation, the risk factors disclosed in Item 1A, “Risk Factors,” in the Company’s 2010 Annual Report on Form 10-K.

Many of these factors are beyond the Company’s ability to control or predict, and readers are cautioned not to put undue reliance on those forward-looking statements. The following list, which is not intended to be an all-encompassing list of risks and uncertainties affecting the Company, summarizes several factors that could cause the Company’s actual results to differ materially from those anticipated or expected in these forward-looking statements:

• general economic conditions in market areas where the Company conducts business, which could materially impact credit quality trends;

• business conditions in the banking industry;

• the regulatory environment;

• fluctuations in interest rates;

• demand for loans in the market areas where the Company conducts business;

• rapidly changing technology and evolving banking industry standards;

• competitive factors, including increased competition with regional and national financial institutions;

• new service and product offerings by competitors and price pressures; and

• other like items.

14

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

Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows and financial position. There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in this Annual Report are reasonable, the reader should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. The Company does not undertake, and expressly disclaims, any obligation to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Results of Operations:

Comparison of Operating Results for the Years Ended December 31, 2010 and 2009.

The Company’s net income totaled $9.0 million during 2010, compared to $5.8 million for 2009. On a per share basis, diluted earnings per share were $0.66 as compared to $0.44 diluted earnings per share for 2009. Common comparative ratios for results of operations include the return on average assets and return on average stockholders’ equity. For 2010, the return on average equity was 10.46%, compared to 7.32% for 2009 and the return on average assets was 0.87% for 2010 and 0.60% for 2009.

The results for 2010 included $2.7 million in gains on sales of securities, compared to $1.0 million in 2009.

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 2010, taxable equivalent net interest income increased $4.0 million, or 11.51%, from 2009. Interest-earning assets averaged $950.9 million during 2010 increasing $50.7 million or 5.63%, compared to 2009. The Company’s interest-bearing liabilities increased 5.62% from $821.9 million in 2009 to $868.1 million in 2010.

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 2010 was 3.98%, increasing from 3.71% in 2009. 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 2010, the net interest margin, measured on a fully taxable equivalent basis increased to 4.10%, compared to 3.88% in 2009.

Total taxable equivalent interest income was $50.0 million for 2010, which is $1.5 million less than the $51.5 million reported in 2009. This decrease is primarily the result of a decline on the yield of earning assets, offset by growth in the level of average earning assets. Average loans increased $17.3 million, or 2.97%, in 2010, but the yields decreased from 6.56% in 2009 to 6.22% in 2010. Income from securities and federal funds decreased $632 thousand, or 4.73%, in 2010, as the Company saw its yields on these assets decrease from 4.19% in 2009 to 3.62% in 2010. The average balance of investment securities and federal funds sold increased 10.49% in 2010, mainly due to increases in customer deposits.

Total interest expense amounted to $11.0 million for 2010, a 33.53% decrease from $16.5 million reported in 2009. The decrease in 2010 is the result of lower rates of interest paid on interest-bearing deposits and repurchase agreements. The cost of interest-bearing liabilities decreased from 2.01% in 2009 to 1.27% in 2010.

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.

Noninterest Income

Total noninterest income increased by $3.8 million in 2010. Some of this increase is a result of a $1.7 million increase in gains on sales of securities. The Company sold $69.4 million in securities to recognize market appreciation on existing holdings and to further diversify the securities portfolio.

The increase in noninterest income was also the result of a $1.4 million increase in trust fee income. Farmers Trust Company was purchased on March 31, 2009; therefore, the prior year’s results included only nine months of income compared to twelve months in 2010. The addition of Farmers Trust Company, and its growth from $822 million in trust assets at December 31, 2009 to over $912 million in assets at December 31, 2010, complements the Company’s existing core retail and asset management services.

Bank owned life insurance income also increased $372 thousand. This increase is primarily due to the receipt of death benefit proceeds in excess of cash value, which are included in income. Service charges on deposit accounts decreased by $522 thousand. Most of this decrease was primarily a result of a decline in overdraft fee income. The Company is uncertain of the future trend in reduced overdraft fees in light of new consumer regulatory provisions associated with these fees.

Insurance agency commissions increased by $154 thousand in 2010. Farmers National Insurance commenced operations in August 2009; therefore the prior year’s results included only five months of income compared to twelve months in 2010. Other operating income also increased by $454 thousand during 2010. Most of this increase is the result of a one-time income item recognized from a $285 thousand arbitration settlement.

Excluding gains on sales of securities, noninterest income for the twelve months ended December 31, 2010 would have improved by 24.69% when compared to the same period of 2009.

15

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

Noninterest Expenses

Noninterest expense for 2010 was $31.0 million, compared to $29.7 million for the same period in 2009, representing an increase of $1.3 million, or 4.41%. The increase resulted from the inclusion of expenses associated with Farmers Trust Company throughout 2010. Because Farmers Trust Company was acquired on March 31, 2009, results for 2009 included only nine months of expenses associated with its operations. Farmers Trust Company’s noninterest expense was $4.6 million for 2010, compared to $3.4 million reported for the same period in 2009.

Core processing charges increased by $742 thousand in 2010. During late 2009 the Company outsourced core processing services that were previously performed in house, resulting in the increase over 2009. Professional fees also increased by $379 thousand. Most of this increase is due to legal expenses associated with the Company’s capital raising activities.

Below is a detail of noninterest expense line items classified between Farmers Trust Company, the Company excluding Farmers Trust Company, and the total Company for the year ending December 31, 2010. The Company purchased Farmers Trust Company on March 31, 2009, subsequently only nine months of trust noninterest expense is detailed in the following table for the year ended December 31, 2009:

For the Year Ended:	December 31, 2010						December 31, 2009
	Farmers						Farmers
	Trust		Bank		Total		Trust		Bank		Total
	Company		and Others		Company		Company		and Others		Company
Noninterest expense
Salaries and employee benefits	$	2,607	$	13,799	$	16,406	$	2,072	$	13,073	$	15,145
Occupancy and equipment		509		3,200		3,709		343		3,195		3,538
State and local taxes		116		784		900		47		883		930
Professional fees		56		1,343		1,399		36		984		1,020
Advertising		9		628		637		24		571		595
FDIC insurance		0		1,306		1,306		0		1,543		1,543
Merger related costs		0		0		0		0		453		453
Intangible amortization		580		0		580		449		0		449
Core processing charges		0		973		973		0		231		231
Other operating expenses		711		4,343		5,054		429		5,322		5,751
Total noninterest expense	$	4,588	$	23,376	$	30,964	$	3,400	$	26,255	$	29,655

The Company’s tax equivalent efficiency ratio for the twelve month period ended December 31, 2010 was 61.10%, compared to 67.00% for the same period in 2009. The improvement in the efficiency ratio was the result of the 12.5% improvement in net interest income and a $2.1 million increase in noninterest income, excluding gains on sales of securities. The efficiency ratio is calculated as follows: noninterest expense divided by the sum of tax equivalent net interest income plus noninterest 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.

16

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

Income Taxes

Income tax expense totaled $2.5 million for 2010 and $1.1 million for 2009. 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 22% for 2010 and 15% for 2009. The increase in the effective tax rate was due to the Company having relatively comparable tax exempt income in 2010 and 2009, while income before income taxes was significantly higher in 2010. Thus, tax exempt income had a more significant impact on the effective tax rate in 2009. Refer to Note 14 (Income Taxes) to the consolidated financial statements for additional information regarding the effective tax rate.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008.

The Company’s net income totaled $5.8 million during 2009 compared to $5.7 million for 2008. On a per share basis, diluted earnings per share was $0.44 for 2009 as compared to $0.43 for 2008. For 2009, the return on average equity was 7.32% as compared to 7.67% for 2008. The return on average assets was 0.60% for 2009 and 0.67% for 2008. For 2009, taxable equivalent net interest income increased $6.7 million, or 23.87%, more than 2008. Interest-earning assets averaged $900.2 million during 2009 increasing $111.9 million, or 14.19%, compared to 2008. For 2009, the net interest margin, measured on a fully taxable equivalent basis, was 3.88%, in comparison to 3.58% for 2008. The results for 2009 included a pre-tax charge of $74 thousand recognized for other-than-temporary impairment of securities, compared to $2.7 million of impairment charges recognized in 2008.

Total taxable equivalent interest income was $51.5 million for 2009, which was $3.3 million more than the $48.2 million reported in 2008. This increase was primarily the result of an increase in the level of average earning assets, increasing 14.2% in 2009. Average loan balances increased $66.0 million or 12.79%, but the yields decreased from 6.86% in 2008 to 6.56% in 2009. Income from securities and federal funds sold 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 balances of investment securities and federal funds sold increased 16.8% in 2009, mainly due to increases in customer deposits.

Total interest expense amounted to $16.5 million for 2009, a 17.1% decrease from $19.9 million reported in 2008. The decrease in 2009 is the result of lower rates of interest paid on interest-bearing deposits and repurchase agreements more than offsetting higher average balances of interest-bearing liabilities. The cost of interest-bearing liabilities decreased from 2.85% in 2008 to 2.01% in 2009.

Noninterest Income

Total noninterest income in 2009, excluding $74 thousand and $2.7 million pre-tax impairment charges in 2009 and 2008, respectively, increased by $4.1 million from 2008. Most of this increase is due to an addition of $3.5 million in trust income. During 2009, the Company completed an acquisition of Butler Wick Trust Company now known as Farmers Trust Company. Noninterest income was also impacted by gains on the sales of securities. Security gains were $1.0 million in 2009 compared to $474 thousand in 2008.

Noninterest Expenses

Total noninterest expenses for 2009 increased 41.1%, or $8.6 million, from 2008, and was mainly the result of an increase of $3.5 million in salaries and employee benefits, $1.4 million in FDIC insurance premiums, $453 thousand in merger costs and $449 thousand in intangible amortization associated with the Farmers Trust Company acquisition. Most of the $3.5 million increase in salaries and employee benefits can be attributed to increases of $2.6 million in salaries and $561 thousand in employee health insurance expense of the Farmers Trust Company. The Company’s tax-equivalent efficiency ratio declined from 63% in 2008 to 67% in 2009. The efficiency ratio was adversely impacted by the merger expenses and FDIC insurance expenses.

Income Taxes

Income tax expense totaled $1.1 million for 2009 and $987 thousand for 2008. The effective income tax rate was 15% for the years ending 2009 and 2008.

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	2010			2009			ALCO
(basis points)	Result			Result			Guidelines
Net Interest Income Change
+200		-3.54	%		-6.41	%		15.00	%
-200		-3.10	%		-2.09	%		15.00	%
Net Present Value Of Equity Change
+200		-2.24	%		-6.32	%		20.00	%
-200		-32.08	%		-31.98	%		20.00	%

17

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Share and 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 occurs 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 interest 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 an approved line of credit of $8.0 million, at a major domestic bank, that is below prime rate. At December 31, 2010, the Company had not borrowed against this line 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, 2010, Farmers National Bank is eligible to borrow an additional $53.3 million from the FHLB under various fixed rate and variable rate credit facilities. Advances outstanding from the Federal Home Loan Bank at December 31, 2010 amounted to $24.5 million.

The primary investing activities of the Company are originating loans and purchasing securities. During 2010, net cash from investing activities amounted to $6.7 million, compared to $105.5 million used in 2009. Net decreases in loans were $12.1 million in 2010, compared to a net increase of $62.2 million in 2009. Purchases of securities available for sale were $138.2 million in 2010, compared to $126.5 million in 2009. Proceeds from maturities and sales of securities available for sale were $132.1 million in 2010, compared to $92.9 million in 2009.

The primary financing activities of the Company are obtaining deposits, repurchase agreements and other borrowings. Net cash used by financing activities amounted to $40.4 million for 2010, compared to $127.4 million provided in 2009. Most of this change is a result of the net decrease in deposits. Deposits decreased $16.5 million in 2010 compared to a $129.5 million increase in 2009. Short-term borrowings decreased $20.3 million in 2010 compared to a $20.5 million increase in 2009.

18

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Share and 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,	2010				2009				2008				2007				2006
Commercial Real Estate	$	203,894	34.5	%	$	215,917	35.4	%	$	195,244	35.4	%	$	193,187	37.6	%	$	181,128	35.6	%
Commercial		76,635	13.0			75,893	12.5			70,410	12.7			45,844	8.9			40,698	8.0
Residential Real Estate		177,067	30.0			180,877	29.7			173,246	31.4			170,006	33.1			169,937	33.5
Consumer		132,771	22.5			136,708	22.4			113,105	20.5			105,069	20.4			116,425	22.9
Total Loans	$	590,367	100.0	%	$	609,395	100.0	%	$	552,005	100.0	%	$	514,106	100.0	%	$	508,188	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, 2010:

Types of Loans	1 Year or less		1 to 5 Years		Over 5 Years
Commercial and Commercial Real Estate	$	33,971	$	41,884	$	204,674

The amounts of commercial and commercial real estate loans as of December 31, 2010, 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	$	25,930	$	187,309	$	213,239
Fixed Rates of Interest		8,041		59,249		67,290
Total Loans	$	33,971	$	246,558	$	280,529

Total loans were $590.4 million at year-end 2010, compared to $609.4 million at year-end 2009, representing a decrease of 3.12%. Loans comprised 62.98% of Farmers National Bank’s average earning assets in 2010, compared to 64.61% in 2009. The product mix in the loan portfolio includes commercial loans comprising 13.0%, residential real estate loans 30.0%, commercial real estate loans 34.5% and consumer loans 22.5% at December 31, 2010, compared with 12.5%, 29.7%, 35.4% and 22.4%, respectively, at December 31, 2009.

Loans contributed 74.5% of total taxable equivalent interest income in 2010 and 74.1% in 2009. Loan yield was 6.22% in 2010, 97 basis points greater than the average rate for total earning assets. Management recognizes that while the Loan Portfolio holds some of Farmers National 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, Farmers National Bank generally requires scheduled periodic principal and interest payments on all types of loans and normally requires collateral.

Consumer loans decreased from $136.7 million on December 31, 2009 to $132.8 million on December 31, 2010, representing a 2.88% decrease. 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 installment loans comprise 90.4% of the consumer loan portfolio. Net loan losses in the consumer loan portfolio have decreased to $639 thousand in 2010 as compared to $833 thousand in 2009.

Residential real estate mortgage loans decreased 2.11% to $177.1 million at December 31, 2010, compared to $180.9 million in 2009. Commercial real estate loans decreased from $215.9 million in 2009 to $203.9 million in 2010. The Company originated both fixed rate and adjustable rate mortgages during 2010. 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, 2010 increased 0.98% from year-end 2009 with outstanding balances of $76.6 million. Farmers National 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. Farmers National 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.

19

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Share and 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,	2010			2009			2008			2007			2006
Balance at Beginning of Year	$	7,400		$	5,553		$	5,459		$	5,594		$	5,860
Charge-Offs:
Commercial Real Estate		(1,910	)		(2,389	)		(767	)		(385	)		(9	)
Commercial		(2,898	)		(911	)		(94	)		(48	)		(19	)
Residential Real Estate		(760	)		(251	)		(75	)		(67	)		(181	)
Consumer		(1,177	)		(1,248	)		(795	)		(612	)		(850	)
Total Charge-Offs		(6,745	)		(4,799	)		(1,731	)		(1,112	)		(1,059	)
Recoveries on Previous Charge-Offs:
Commercial Real Estate		26			178			0			0			2
Commercial		8			2			19			3			24
Residential Real Estate		2			1			0			5			0
Consumer		538			415			386			399			567
Total Recoveries		574			596			405			407			593
Net Charge-Offs		(6,171	)		(4,203	)		(1,326	)		(705	)		(466	)
Provision for Loan Losses		8,078			6,050			1,420			570			200
Balance at End of Year	$	9,307		$	7,400		$	5,553		$	5,459		$	5,594
Ratio of Net Charge-Offs to Average Loans Outstanding		1.02	%		0.72	%		0.26	%		0.14	%		0.09	%

Provisions charged to operations amounted to $8.1 million in 2010, compared to $6.1 million in 2009. 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 $1.9 million during the year. The primary reason for the increase in the current year was the increase in net charge-offs which increased the historical loss experience of commercial real estate loans and commercial and industrial loans that are classified as substandard. Substandard loans are those that exhibit one or more structural weaknesses and there is a distinct possibility that Farmers National Bank will suffer a loss on the loan unless the weakness is corrected. At December 31, 2010, loans considered to be impaired totaled $7.1 million with an allowance allocation of $605 thousand. At the end of 2009, loans considered to be impaired were $13.5 million with an allowance allocation of $2.1 million. 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 the Company’s 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 the Company identifies a loan as impaired and also concludes that the loan is collateral dependent, the Company performs an internal collateral valuation as an interim measure. The Company typically obtains an external appraisal to validate its internal collateral valuation as soon as is practical. To the extent that an external appraisal returns a value estimate that is materially different from the Company’s internally generated estimate before the release of its interim or annual financial statements, the Company will adjust the associated specific loss reserve and, if necessary, the Company’s consolidated financial statements for the difference.

The increase in net charge-offs and the historical loss experience of commercial real estate loans and commercial and industrial loans mentioned above is offset by the improvement in asset quality indicators in the loan portfolio. The ratio of nonperforming loans to total loans decreased from 1.66% at December 31, 2009 to 1.51% at December 31, 2010. As of December 31, 2010, total non-performing loans were $8.9 million, compared to $10.1 million at the end of 2009. The ratio of the allowance for loan losses to non-performing loans at December 31, 2010 was 104.56%, compared to 73.25% at December 31, 2009. The decrease in non-performing loans is primarily due to a decline in the level of commercial and industrial loans and commercial real estate loans that are in default according to the terms of the contract. The balance in the allowance for loan losses is $9.3 million or 1.58% of loans at December 31, 2010. This ratio has increased from the 1.21% reported at December 31, 2009.

20

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

NONPERFORMING ASSETS

December 31,	2010			2009			2008			2007			2006
Nonaccrual loans:
Commercial Real Estate	$	3,972		$	5,677		$	2,820		$	975		$	171
Commercial		400			1,504			342			0			38
Residential Real Estate		4,177			2,281			1,485			975			975
Consumer		27			172			128			77			101
Total Nonaccrual Loans	$	8,576		$	9,634		$	4,775		$	2,027		$	1,285
Loans Past Due 90 Days or More		325			469			562			334			437
Total Nonperforming Loans	$	8,901		$	10,103		$	5,337		$	2,361		$	1,722
Other Real Estate Owned		532			374			65			0			0
Total Nonperforming Assets	$	9,433		$	10,477		$	5,402		$	2,361		$	1,722
Loans modified in troubled debt restructuring (1)	$	2,974		$	5,440		$	0		$	0		$	0
Percentage of Nonperforming Loans to Loans		1.51	%		1.66	%		0.97	%		0.46	%		0.34	%
Percentage of Nonperforming Assets to Total Assets		0.96	%		1.03	%		0.61	%		0.30	%		0.21	%
Loans Delinquent 30-90 days		7,924			9,212			9,660			4,667			4,142
Percentage of Loans Delinquent 30-90 days to Total Loans		1.34	%		1.51	%		1.75	%		0.91	%		0.82	%

(1) Not included in nonaccrual loans

The company has forgone interest income of approximately $325 thousand from nonaccrual loans as of December 31, 2010 that would have been earned during the year if all loans had performed in accordance with their original terms.

Net charge-offs as a percentage of average loans outstanding increased from 0.72% for 2009 to 1.02% for 2010. 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 46.8% of the total net losses, commercial real estate loans accounted for 30.5% of the total net losses, and the consumer loans represented 10.4% of the total.

A significant allocation in the Company’s allowance for loan losses is for performing commercial and commercial real estate loans classified by the Company’s internal loan review as substandard. The Company’s loss experience on the average balance of this category of loans for the past two years has been approximately 11.35% of the principal balance of these loans, which is management’s allocation for these loans. This equates to an allocation of approximately $3.7 million at the end of 2010, compared to an allocation of $2.0 million at the end of 2009. The allocation increased primarily due to an increase in the historical loss experience in the balance of these loans. The Company’s actual loss experience may be more or less than the amount allocated. At December 31, 2010, the amount of substandard loans that continue to accrue interest is $36.0 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:

December 31,	2010					2009					2008					2007					2006
			Loans					Loans					Loans					Loans					Loans
			to Total					to Total					to Total					to Total					to Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
Commercial Real Estate	$	5,780		34.5	%	$	4,111		35.4	%	$	3,126		35.4	%	$	2,956		37.6	%	$	2,910		35.6	%
Commercial		1,707		13.0	%		1,738		12.5	%		933		12.7	%		506		8.9	%		302		8.0	%
Residential Real Estate		881		30.0	%		328		29.7	%		696		31.4	%		1,026		33.1	%		1,084		33.5	%
Consumer		875		22.5	%		1,223		22.4	%		798		20.5	%		971		20.4	%		1,298		22.9	%
Unallocated		64		—			—		—			—		—			—		—			—		—
	$	9,307		100.0	%	$	7,400		100.0	%	$	5,553		100.0	%	$	5,459		100.0	%	$	5,594		100.0	%

21

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

The allowance allocated to each of the four loan categories should not be interpreted as an indication that charge-offs in 2011 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 30.0% of total loans, but historically has represented a very small percentage of loan losses. For the commercial loan category, which represents only 13.0% of the total loan portfolio, management relies on Farmer National Bank’s internal loan review procedures and allocates accordingly based on loan classifications. The commercial real estate loan category represents 34.5% 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, 2010, 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 $5.0 million in 2010. Excess balances of federal funds sold were strategically invested throughout the year. The Company also sold $69.4 million in securities in 2010, resulting in net security gains of $2.7 million. The Company sold securities to recognize market appreciation on existing holdings and to further diversify the securities portfolio.

The Company’s 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 Farmers National 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 carrying value of investment securities by type of obligation at the dates indicated:

TYPE

December 31,	2010		2009		2008
U.S. Treasury securities	$	101	$	101	$	800
U.S. government sponsored enterprise debt securities		69,877		99,732		43,881
Mortgage-backed securities		163,437		145,580		165,822
Obligations of state and political subdivisions		80,466		63,432		60,906
Other securities		466		523		196
	$	314,347	$	309,368	$	271,605

A summary of debt securities held at December 31, 2010 classified according to maturity and including weighted average yield for each range of maturities is set forth below:

	December 31, 2010
			Weighted
	Fair		Average
Type and Maturity Grouping	Value		Yield (1)
U.S. Treasury securities
Maturing after one year but within five years	$	101		0.73	%
U.S. government sponsored enterprise
Debt securities
Maturing within one year	$	1,060		0.99	%
Maturing after one year but within five years		55,086		2.67	%
Maturing after five years but within ten years		8,100		3.60	%
Maturing after ten years		5,631		4.81	%
Total U.S. government sponsored enterprise debt securities	$	69,877		2.91	%
Mortgage-backed securities (2)
Maturing within one year	$	38,893		3.73	%
Maturing after one year but within five years		67,379		3.51	%
Maturing after five years but within ten years		29,512		3.17	%
Maturing after ten years		27,653		2.98	%
Total mortgage-backed securities:	$	163,437		3.41	%
Obligations of state and political subdivisions
Maturing within one year	$	1,533		5.24	%
Maturing after one year but within five years		20,892		5.73	%
Maturing after five years but within ten years		37,217		5.63	%
Maturing after ten years		20,824		6.22	%
Total obligations of state and political subdivisions	$	80,466		5.81	%
Corporate debt securities
Maturing after one year but within five years	$	267		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 state 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 $27 thousand, $382 thousand, $680 thousand and $408 thousand for the four ranges of maturities.

(2)

Payments based on contractual maturity.

22

MANAGEMENT’S DISCUSSION
(Table Dollar Amounts In Thousands except Share and 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 7.51% from $717.2 million in 2009 to $771.1 million in 2010. Money market account balances have increased $30.9 million since December 31, 2009. The growth in money market accounts was offset by a decrease in time deposits of $69.0 million as customers have moved deposit dollars from time deposits seeking liquidity. The Company’s focus is on core deposit growth and the Company will continue to price deposit rates to remain competitive within the market and to retain customers. At December 31, 2010, core deposits — savings and money market accounts, time deposits less than $100 thousand, demand deposits and interest bearing demand deposits represented approximately 87.17% of total deposits.

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 $11.5 million at December 31, 2010 compared to $11.4 million at December 31, 2009.

Borrowings

Short-term borrowings decreased $20.3 million or 16.1% since December 31, 2009. Most of this decrease resulted from securities sold under repurchase agreements, decreasing $20.6 million, or 16.5%. Long-term borrowings decreased $2.4 million or 8.97%, mainly as a result of repayment of Federal Home Loan Bank advances.

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

The following table presents, as of December 31, 2010, 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
12/31/2010

	Note												There-
	Ref.		2011		2012		2013		2014		2015		after
Deposits without maturity		—	$	504,955		—		—		—		—		—
Certificates of deposit		7		107,666		46,559		23,719		16,645		59,891		1,615
Repurchase agreements		8		103,753		—		—		—		—		—
Other short-term borrowed funds		8		1,881		—		—		—		—		—
Federal Home Loan Bank advances		9		1,751		812		764		10,969		5,248		5,000
Other long-term borrowed funds		9		60		65		64		—		—		—
Operating leases		5		219		130		130		119		69		—

Note 10 (Commitments and Contingent Liabilities) 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, 2010, 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 9.2% from $80.6 million at December 31, 2009 to $88.0 million in 2010. The increase in equity was a result of net income, offset by mark to market adjustments in the Company’s investment securities and cash dividends paid to stockholders during the past twelve months. During the year, the Company issued 126 thousand shares through the dividend reinvestment program. Stockholders received a total of $0.12 per share cash dividends paid in the past four quarters. Book value increased 8.2% from $5.96 per share at December 31, 2009 to $6.45 per share at December 31, 2010. The Company’s tangible book value increased 10.0% from $5.41 per share at December 31, 2009 to $5.95 per share at December 31, 2010.

Farmers National Bank, as a national bank, is subject to the dividend restrictions set forth by the Office of the Comptroller of the Currency, which 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). Farmers National 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, 2010, Farmers National Bank and the Company are required to have a minimum Tier 1 and Total Capital ratios of 4.00% and 8.00%, respectively. Farmers National Bank and the Company had capital ratios above the minimum levels at December 31, 2010 and 2009. At year-end 2010 and 2009, the most recent regulatory notifications categorized Farmers National Bank as well capitalized under the regulatory framework for prompt corrective action.

23

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

Critical Accounting Policies

The Company follows financial accounting and reporting policies that are in accordance with generally accepted accounting principles (“GAAP”) 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 the consolidated 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 1 (Summary of Significant Accounting Policies), Note 2 (Securities), Note 3 (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 Farmers Trust Company 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 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, 2010, on a consolidated basis, the Company had intangibles of $3.2 million subject to amortization and $3.7 million of goodwill, which was not subject to periodic amortization.

Recent Accounting Pronouncements and Developments

Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements discusses new accounting policies adopted by the Company during 2010 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.

24

MANAGEMENT’S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

March 14, 2011

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, 2010. 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, 2010.

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, 2010, and has issued their Report of Independent Registered Public Accounting Firm, which appears in this Annual Report.

John S. Gulas	Carl D. Culp
President and CEO	Executive Vice President and Treasurer

25

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, 2010 and 2009 and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2010. We also have audited Farmers National Banc Corp.’s internal control over financial reporting as of December 31, 2010, 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 audits 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, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, 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, 2010, based on criteria established in Internal Control — Integrated Framework issued by the COSO.

Crowe Horwath LLP

Cleveland, Ohio
March 14, 2011

26

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

December 31,	2010			2009
ASSETS
Cash and due from banks	$	30,772		$	25,713
Federal funds sold		6,533			25,447
TOTAL CASH AND CASH EQUIVALENTS		37,305			51,160
Securities available for sale		314,347			309,368
Loans		590,367			609,395
Less allowance for loan losses		9,307			7,400
NET LOANS		581,060			601,995
Premises and equipment, net		13,944			14,193
Goodwill		3,709			3,709
Other intangibles		3,211			3,791
Bank owned life insurance		11,529			11,438
Other assets		17,646			19,154
TOTAL ASSETS	$	982,751		$	1,014,808
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	77,728		$	68,420
Interest-bearing		683,322			709,132
TOTAL DEPOSITS		761,050			777,552
Short-term borrowings		105,634			125,912
Long-term borrowings		24,733			27,169
Other liabilities		3,286			3,547
TOTAL LIABILITIES		894,703			934,180
Commitments and contingent liabilities
Stockholders’ Equity
Common Stock — Authorized 25,000,000 shares; issued 15,699,184 in 2010 and 15,572,703 in 2009		96,142			95,650
Retained earnings		14,502			7,137
Accumulated other comprehensive income		2,907			3,344
Treasury stock, at cost; 2,053,149 shares in 2010 and 2,053,098 shares in 2009		(25,503	)		(25,503	)
TOTAL STOCKHOLDERS’ EQUITY		88,048			80,628
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	982,751		$	1,014,808

See accompanying notes.

27

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

Years ended December 31,	2010			2009			2008
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	36,875		$	37,634		$	34,965
Taxable securities		8,755			9,399			8,063
Tax exempt securities		2,490			2,447			2,661
Dividends		189			263			388
Federal funds sold		56			32			338
TOTAL INTEREST AND DIVIDEND INCOME		48,365			49,775			46,415
INTEREST EXPENSE
Deposits		9,043			12,726			15,648
Short-term borrowings		872			1,847			2,047
Long-term borrowings		1,083			1,974			2,252
TOTAL INTEREST EXPENSE		10,998			16,547			19,947
NET INTEREST INCOME		37,367			33,228			26,468
Provision for loan losses		8,078			6,050			1,420
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		29,289			27,178			25,048
NONINTEREST INCOME
Service charges on deposit accounts		2,071			2,593			2,685
Bank owned life insurance income, including death benefits		993			621			531
Trust fees		4,900			3,469			0
Insurance agency commissions		234			80			0
Security gains		2,680			1,017			474
Impairment of equity securities		0			(74	)		(2,711	)
Investment commissions		540			344			354
Other operating income		1,792			1,338			1,284
TOTAL NONINTEREST INCOME		13,210			9,388			2,617
NONINTEREST EXPENSE
Salaries and employee benefits		16,406			15,145			11,626
Occupancy and equipment		3,709			3,538			2,898
State and local taxes		900			930			819
Professional fees		1,399			1,020			701
Advertising		637			595			563
FDIC insurance		1,306			1,543			187
Merger related costs		0			453			0
Intangible amortization		580			449			0
Core processing charges		973			231			63
Other operating expenses		5,054			5,751			4,156
TOTAL NONINTEREST EXPENSE		30,964			29,655			21,013
INCOME BEFORE INCOME TAXES		11,535			6,911			6,652
INCOME TAXES		2,544			1,069			987
NET INCOME		8,991			5,842			5,665
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Change in net unrealized gains (losses) on securities, net of reclassifications		(437	)		1,052			2,945
COMPREHENSIVE INCOME	$	8,554		$	6,894		$	8,610
EARNINGS PER SHARE:
Basic	$	0.66		$	0.44		$	0.43
Diluted	$	0.66		$	0.44		$	0.43

See accompanying notes.

28

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

Years ended December 31,	2010			2009			2008
COMMON STOCK
Balance at beginning of year	$	95,650		$	94,217		$	91,741
Stock option expense (1)		0			0			0
126,481 shares issued from dividend reinvestment in 2010, 289,183 in 2009 and 362,414 in 2008		492			1,433			2,476
Balance at end of year		96,142			95,650			94,217
RETAINED EARNINGS
Balance at beginning of year		7,137			6,096			7,233
Net income		8,991			5,842			5,665
Dividends declared:
$.12 cash dividends per share in 2010, $.36 in 2009 and $.52 in 2008		(1,626	)		(4,801	)		(6,802	)
Balance at end of year		14,502			7,137			6,096
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of year		3,344			2,292			(653	)
Change in net unrealized gains (losses) on securities, net of reclassifications and tax effects		(437	)		1,052			2,945
Balance at end of year		2,907			3,344			2,292
TREASURY STOCK, AT COST
Balance at beginning of year		(25,503	)		(25,503	)		(24,401	)
Purchase of 51 shares in 2010, 40 in 2009 and 160,328 in 2008 (2)		0			0			(1,102	)
Balance at end of year		(25,503	)		(25,503	)		(25,503	)
TOTAL STOCKHOLDERS’ EQUITY AT END OF YEAR	$	88,048		$	80,628		$	77,102

(1)	Stock option expense for 2010, 2009 and 2008, was less than $1,000 and rounded to $0.
(2)	Treasury stock repurchased in 2010 and 2009 was less than $1,000 and rounded to $0.

See accompanying notes.

29

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

Years ended December 31,	2010			2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	8,991		$	5,842		$	5,665
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		8,078			6,050			1,420
Depreciation and amortization		1,711			1,530			1,079
Net amortization of securities		3,089			539			271
Security gains		(2,680	)		(1,017	)		(474	)
Loss on sale of other real estate owned		92			47			0
Impairment of securities		0			74			2,711
Federal Home Loan Bank dividends		0			0			(174	)
Earnings on bank owned life insurance		(483	)		(531	)		(531	)
Income recognized from death benefit on bank owned life insurance		(510	)		(90	)		0
Net change in other assets and liabilities		1,587			(7,233	)		(2,114	)
NET CASH FROM OPERATING ACTIVITIES		19,875			5,211			7,853
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and repayments of securities available for sale		62,726			66,715			61,161
Proceeds from sales of securities available for sale		69,383			26,185			31,058
Purchases of securities available for sale		(138,215	)		(126,524	)		(141,650	)
Proceeds from sale of Federal Home Loan Bank stock		0			1,414			0
Purchase of trust entity, net		0			(10,511	)		0
Loan originations and payments, net		12,096			(62,218	)		(39,403	)
Proceeds from sale of other real estate owned		541			269			113
Improvements to real estate owned		(30	)		0			0
Proceeds from BOLI death benefit		902			204			0
Additions to premises and equipment		(783	)		(990	)		(612	)
NET CASH FROM INVESTING ACTIVITIES		6,620			(105,456	)		(89,333	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		(16,502	)		129,542			54,582
Net change in short-term borrowings		(20,278	)		20,477			11,261
Proceeds from Federal Home Loan Bank borrowings and other debt		0			0			25,000
Repayment of Federal Home Loan Bank borrowings and other debt		(2,436	)		(19,295	)		(10,991	)
Repurchase of common stock		0			0			(1,102	)
Cash dividends paid		(1,626	)		(4,801	)		(6,802	)
Proceeds from dividend reinvestment		492			1,433			2,476
NET CASH FROM FINANCING ACTIVITIES		(40,350	)		127,356			74,424
NET CHANGE IN CASH AND CASH EQUIVALENTS		(13,855	)		27,111			(7,056	)
Beginning cash and cash equivalents		51,160			24,049			31,105
Ending cash and cash equivalents	$	37,305		$	51,160		$	24,049
Supplemental cash flow information:
Interest paid	$	11,450		$	16,713		$	20,183
Income taxes paid		1,990			2,215			1,870
Supplemental noncash disclosures:
Transfer of loans to other real estate owned	$	761		$	625		$	178
Farmers National Banc Corp acquired all of the stock of Butler Wick Trust Company for $12 million on March 31, 2009.
The assets acquired and liabilities assumed were as follows:
Fair value of assets acquired				$	12,394
Purchase price					12,125
Liabilities assumed				$	269

See accompanying notes.

30

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

NOTE 1 — 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 (Bank) of Canfield and Farmers Trust Company. The consolidated financial statements also include the accounts of the Farmers National Bank of Canfield’s subsidiary, Farmers National Insurance. Together the entities are 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 services through its subsidiary, Farmers Trust Company, and insurance services through the Bank’s subsidiary, Farmers National Insurance. 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. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses 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 the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) other-than-temporary impairment (OTTI) related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

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 nonaccrual 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 nonaccrual 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.

31

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

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.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

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 considers the guidance on troubled debt restructuring for individual consumer and residential loans when evaluating for impairment disclosure. Troubled debt restructurings are measured at the present value of estimated future cash flow using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent 2 years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified:

Commercial Loans. Commercial credit is extended to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or other projects. The majority of these borrowers are customers doing business within our geographic regions. These loans are generally underwritten individually and secured with the assets of the company and the personal guarantee of the business owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and the underlying collateral provided by the borrower.

Commercial Real Estate Loans. Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and property type.

Consumer Loans. Consumer loans are primarily comprised of loans made directly to consumers and indirectly through automobile dealerships. These loans have a specific matrix which consists of several factors including debt to income, type of collateral and loan to collateral value, credit history and relationship with the borrower. Consumer lending uses risk-based pricing in the underwriting process.

Residential Mortgage Loans. Residential mortgage loans represent loans to consumers for the purchase or refinance of a residence. These loans are generally financed up to 15 years, and in most cases, are extended to borrowers to finance their primary residence. Real estate market values at the time of origination directly affect the amount of credit extended and, in the event of default, subsequent changes in these values may impact the severity of losses.

Foreclosed Assets:

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. The balance of foreclosed assets was $532 thousand and $374 thousand at December 31, 2010 and 2009, respectively. 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.

32

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

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. The Bank is also a member of and owns stock in the Federal Reserve Bank. These stocks are carried at cost, classified as restricted securities included in other assets, and periodically evaluated for impairment based on ultimate recovery of par value. 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 is 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.

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.

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 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 Common 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 or loss. Other comprehensive income or loss consists solely of unrealized gains and losses on securities available for sale and is recognized as a separate component of equity, net of tax effects.

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 was required to meet regulatory reserve and clearing requirements.

Equity:

Treasury stock is carried at cost.

Dividend Restriction:

Regulations require maintaining certain capital levels and may limit the dividends paid by the Bank 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 4. 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.

33

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

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 Note 19.

Adoption of New Accounting Standards:

In June 2009, the FASB issued guidance on accounting for transfers of financial assets. This guidance amends previous guidance relating to the transfers of financial assets and eliminates the concept of a qualifying special purpose entity. This guidance must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. This guidance must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. Additionally, the disclosure provisions of this guidance were also amended and apply to transfers that occurred both before and after the effective date of this Statement. The adoption of this guidance did not have a material effect on the results of operations or financial position.

NOTE 2 — SECURITIES AVAILABLE FOR SALE

The following table summarizes the amortized cost and fair value of the available-for-sale securities portfolio at December 31, 2010 and 2009 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
2010	Cost		Gains		Losses			Value
U.S. Treasury and U.S. government sponsored entities	$	67,376	$	2,768	$	(166	)	$	69,978
State and political subdivisions		81,397		1,215		(2,146	)		80,466
Mortgage-backed securities — residential		140,681		4,099		(1,003	)		143,777
Collateralized mortgage obligations		20,021		1		(362	)		19,660
Equity securities		149		66		(16	)		199
Other securities		250		17		0			267
TOTALS	$	309,874	$	8,166	$	(3,693	)	$	314,347

			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
Equity securities		149		129		(19	)		259
Other securities		250		14		0			264
TOTALS	$	304,178	$	6,404	$	(1,214	)	$	309,368

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

	2010			2009			2008
Proceeds	$	69,383		$	26,185		$	31,058
Gross gains		2,685			1,019			523
Gross losses		(5	)		(2	)		(49	)

The tax provision related to these net realized gains was $938,000, $356,000, and $166,000 respectively.

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, 2010
	Amortized		Fair
Available for sale	Cost		Value
Maturity
Within one year	$	2,588	$	2,593
One to five years		73,969		76,346
Five to ten years		46,151		45,317
Beyond ten years		26,315		26,455
Mortgage-backed securities		160,702		163,437
TOTALS	$	309,725	$	314,148

Securities with a carrying amount of $182 million at December 31, 2010 and $206 million at December 31, 2009 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.

34

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

The following table summarizes the investment securities with unrealized losses at December 31, 2010 and December 31, 2009 aggregated by major security type and length of time in a continuous unrealized loss position:

2010	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. Treasury and U.S. government sponsored entities	$	8,458	$	(160	)	$	313	$	(6	)	$	8,771	$	(166	)
State and political subdivisions		36,118		(1,981	)		790		(165	)		36,908		(2,146	)
Mortgage-backed securities — residential		45,567		(1,002	)		26		(1	)		45,593		(1,003	)
Collateralized mortgage obligations		19,594		(362	)		0		0			19,594		(362	)
Equity securities		0		0			8		(16	)		8		(16	)
Total temporarily impaired	$	109,737	$	(3,505	)	$	1,137	$	(188	)	$	110,874	$	(3,693	)

2009	Less than 12 Months					12 Months or More					Total
	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	)

The Company’s equity securities include preferred Federal National Mortgage Association (FNMA) and local and regional bank holdings. For the year ended December 31, 2009, the Company recognized a $74 thousand pre-tax charge for the other-than-temporary decline in fair value on its local and regional bank holdings. During 2008, the Company made the determination that an impairment of the FNMA stock was other-than-temporary and recorded a $2.7 million pre-tax impairment charge. 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. No other-than-temporary impairment was recognized for the year ended December 31, 2010.

As of December 31, 2010, the Company’s security portfolio consisted of 406 securities, 97 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’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 2010 and 2009 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 Company 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 Company does not consider these securities to be other-than-temporarily impaired at December 31, 2010.

Collateralized mortgage obligations:

The Company’s securities portfolio includes collateralized mortgage obligations with a market value of $19.6 million which had unrealized losses of approximately $362 thousand at December 31, 2010. The Company monitors to insure it has adequate credit support and as of December 31, 2010, the Company believes there is no OTTI and does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery.

35

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

NOTE 3 — LOANS

Loans at year end were as follows:

	2010			2009
Commercial real estate
Owner occupied	$	111,261		$	114,942
Non-owner occupied		84,758			79,433
Other		8,416			22,101
Commercial		76,635			75,893
Residential real estate
1-4 family residential		154,132			154,417
Home equity lines of credit		23,624			27,138
Consumer
Indirect		116,999			120,977
Direct		11,302			11,027
Other		1,485			1,522
Subtotal		588,612			607,450
Net deferred loan (fees) costs		1,755			1,945
Allowance for loan losses		(9,307	)		(7,400	)
NET LOANS	$	581,060		$	601,995

Activity in the allowance for loan losses was as follows:

	2010			2009			2008
Balance at beginning of year	$	7,400		$	5,553		$	5,459
Provision for loan losses		8,078			6,050			1,420
Loans charged-off		(6,745	)		(4,799	)		(1,731	)
Recoveries		574			596			405
Balance at end of year	$	9,307		$	7,400		$	5,553

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2010. The recorded investment in loans includes the unpaid principal balance and unamortized loan origination fees and costs, but excludes accrued interest receivable which is not considered to be material.

	Commercial				Residential
Allowance for loan losses:	Real Estate		Commercial		Real Estate		Consumer		Unallocated		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	547	$	58		—		—		—	$	605
Collectively evaluated for impairment		5,233		1,649	$	881	$	875	$	64		8,702
Total ending allowance balance	$	5,780	$	1,707	$	881	$	875	$	64	$	9,307
Loans:
Loans individually evaluated for impairment	$	6,045	$	1,015		—		—		—	$	7,060
Loans collectively evaluated for impairment		197,849		75,620	$	177,067	$	132,771		—		583,307
Total ending loans balance	$	203,894	$	76,635	$	177,067	$	132,771		—	$	590,367

36

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

Individually impaired loans were as follows:

	2010		2009
Year-end loans with no allocated allowance for loan losses	$	2,452	$	425
Year-end loans with allocated allowance for loan losses		4,630		13,071
	$	7,082	$	13,496
Amount of the allowance for loan losses allocated	$	605	$	2,058

	2010		2009		2008
Average of individually impaired loans during year	$	7,755	$	11,407	$	1,157

Interest income recognized during impairment for all periods was immaterial.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010:

	Unpaid				Allowance for
	Principal		Recorded		Loan Losses
	Balance		Investment		Allocated
With no related allowance recorded:
Commercial real estate
Owner occupied	$	821	$	818	$	—
Non-owner occupied		466		465		—
Other		365		364		—
Commercial		800		798		—
Residential real estate
1 - 4 family residential		—		—		—
Home equity lines of credit		—		—		—
Consumer
Indirect		—		—		—
Direct		—		—		—
Other		—		—		—
With an allowance recorded:
Commercial real estate
Owner occupied		3,147		3,141		134
Non-owner occupied		167		167		3
Other		1,097		1,090		435
Commercial		219		217		33
Residential real estate
1 - 4 family residential		—		—		—
Home equity lines of credit		—		—		—
Consumer
Indirect		—		—		—
Direct		—		—		—
Other		—		—		—
Total	$	7,082	$	7,060	$	605

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2010:

			Loans Past Due
			Over 90 Days
			Still
	Nonaccrual		Accruing
Commercial real estate
Owner occupied	$	1,960	$	—
Non-owner occupied		550		—
Other		1,462		—
Commercial		400		—
Residential real estate
1 - 4 family residential		3,362		190
Home equity lines of credit		815		10
Consumer
Indirect		27		53
Direct		—		48
Other		—		24
Total	$	8,576	$	325

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.

At December 31, 2009, there were $9.6 million of nonaccrual loans and $469 thousand of loans past due over 90 days and still accruing.

37

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

The following table presents the aging of the recorded investment in past due loans as of December 31, 2010 by class of loans:

	30 - 59		60 - 89		Greater Than
	Days		Days		90 Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Commercial real estate
Owner occupied	$	407	$	91	$	1,960	$	2,458	$	108,509	$	110,967
Non-owner occupied		499		59		550		1,108		75,281		76,389
Other		—		—		1,462		1,462		15,076		16,538
Commercial		286		275		400		961		75,674		76,635
Residential real estate
1 - 4 family residential		2,981		435		3,552		6,968		146,475		153,443
Home equity lines of credit		334		16		825		1,175		22,449		23,624
Consumer
Indirect		1,668		519		80		2,267		117,716		119,983
Direct		253		91		48		392		10,911		11,303
Other		9		1		24		34		1,451		1,485
Total	$	6,437	$	1,487	$	8,901	$	16,825	$	573,542	$	590,367

TROUBLED DEBT RESTRUCTURINGS:

Included in loans individually impaired are loans with balances of $3.0 million and $5.4 million for which the Company has modified the repayment terms in 2010 and 2009. The Company has allocated $40 thousand and $333 thousand of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2010 and 2009. There are no commitments to lend additional amounts to borrowers with loans that are classified as troubled debt restructurings at December 31, 2010. The Company had committed to lend additional amounts totaling up to $24 thousand as of December 31, 2009 to customers with outstanding loans that are classified as troubled debt restructurings.

CREDIT QUALITY INDICATORS:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
Commercial real estate
Owner occupied	$	91,976	$	3,893	$	15,098	$	—	$	—
Non-owner occupied		63,502		1,075		11,812		—		—
Other		12,005		786		3,747		—		—
Commercial		65,358		4,076		7,201		—		—
Total	$	232,841	$	9,830	$	37,858	$	—	$	—

38

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

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential, consumer and indirect loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential, consumer and indirect auto loans based on payment activity as of December 31, 2010. Nonperforming loans are loans past due 90 days and still accruing interest and nonaccrual loans.

	Residential Real Estate
	1-4 Family		Home Equity		Consumer
	Residential		Lines of Credit		Indirect		Direct		Other
Performing	$	149,891	$	22,799	$	119,903	$	11,255	$	1,461
Nonperforming		3,552		825		80		48		24
Total	$	153,443	$	23,624	$	119,983	$	11,303	$	1,485

NOTE 4 — 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.

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, 2010 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	$	69,978	$	0	$	69,978	$	0
State and political subdivisions		80,466		0		80,466		0
Mortgage-backed securities — residential		143,777		0		143,765		12
Collateralized mortgage obligations		19,660		0		19,660		0
Equity securities		199		199		0		0
Other securities		267		0		267		0
Total investment securities	$	314,347	$	199	$	314,136	$	12

	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
State 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

There were no significant transfers between Level 1 and Level 2 during 2010.

39

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

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:

	Investment Securities
	Available-for-Sale
	(Level 3)
	2010			2009
Balance of recurring Level 3 assets at January 1	$	13		$	8,977
Total unrealized gains or losses:
Included in other comprehensive income		0			(379	)
Purchases, sales, issuances and settlements, net		(1	)		(1,613	)
Transfers in and/or out of Level 3		0			(6,972	)
Balance of recurring Level 3 assets at December 31	$	12		$	13

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, 2010 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
Impaired Loans
Commercial Real Estate
Owner occupied	$	1,239		0		0	$	1,239
Non-owner occupied		164		0		0		164
Other		662		0		0		662
Commercial		186		0		0		186

	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
Impaired loans	$	5,904	$	0	$	0	$	5,904

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $2.8 million, net of a valuation allowance of $565 thousand at December 31, 2010. Loans measured at fair value throughout the year resulted in an additional provision for loan losses of $2.2 million for the year ending December 31, 2010. At December 31, 2009, impaired loans had a carrying amount of $7.6 million, with a valuation allowance of $1.7 million. Loans measured at fair value throughout the year resulted in an additional provision for loan losses of $1.5 million for the year ending December 31, 2009. Excluded from the fair value of impaired loans disclosed above are $1.8 million and $5.4 million of loans classified as troubled debt restructurings at December 31, 2010 and 2009.

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments, at December 31, 2010 and December 31, 2009 are as follows:

	2010				2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets
Cash, due from banks, federal funds sold and money market investments	$	37,305	$	37,305	$	51,160	$	51,160
Securities available-for-sale		314,347		314,347		309,368		309,368
Restricted stock		3,977		n/a		3,977		n/a
Loans, net		581,060		590,331		601,995		609,127
Accrued interest receivable		4,125		4,125		4,370		4,370
Financial liabilities
Deposits	$	761,050	$	764,170	$	777,552	$	781,703
Short-term borrowings		105,634		105,634		125,912		125,912
Long-term borrowings		24,733		27,080		27,169		28,990
Accrued interest payable		703		703		1,155		1,155

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 credit risk. 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 5 — PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

	2010			2009
Land	$	3,079		$	2,834
Buildings		15,921			15,812
Furniture, fixtures and equipment		9,676			9,247
Leasehold improvements		203			203
		28,879			28,096
Less accumulated depreciation		(14,935	)		(13,903	)
NET BOOK VALUE	$	13,944		$	14,193

Depreciation expense was $1.0 million for the year ended December 31, 2010, $980 thousand for 2009 and $989 thousand for 2008.

40

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

The Company leases certain branch properties under operating leases. Rent expense was $257, $203 and $73 thousand for 2010, 2009 and 2008. In addition to rent expense, under the leases, common area maintenance and property taxes are paid and the amount can fluctuate according to the costs incurred. Rent commitments, before considering renewal options that generally are present, were as follows:

2011	$	219
2012		130
2013		130
2014		119
2015		69
TOTAL	$	667

NOTE 6 — GOODWILL AND INTANGIBLE ASSETS

The acquisition of Farmers Trust Company on March 31, 2009, more fully described in Note 18, resulted in $3.7 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:

	2010					2009
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
Amortized intangible assets:
Customer relationship intangibles	$	3,990	$	(810	)	$	3,990	$	(355	)
Non-compete contracts		250		(219	)		250		(94	)
TOTAL	$	4,240	$	(1,029	)	$	4,240	$	(449	)

Aggregate amortization expense was $580 thousand and $449 thousand for 2010 and 2009.

Estimated amortization expense for each of the next five years:

2011	$	479
2012		409
2013		393
2014		354
2015		319
Thereafter		1,257

NOTE 7 — INTEREST BEARING DEPOSITS

Time deposits of $100 thousand or more were $97.4 million and $131.0 million at year-end 2010 and 2009.

Following is a summary of scheduled maturities of certificates of deposit during the years following December 31, 2010:

2011	$	107,666
2012		46,559
2013		23,719
2014		16,645
2015		59,891
Thereafter		1,615
TOTAL	$	256,095

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

	2010		2009
Demand	$	109,403	$	106,410
Money Market		229,605		198,747
Savings		88,219		78,901
Certificates of Deposit		256,095		325,074
TOTAL	$	683,322	$	709,132

NOTE 8 — 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 $166.0 million and $152.3 million at year-end 2010 and 2009.

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 segregated safekeeping accounts at the Federal Reserve Bank and Farmers Trust Company. Information concerning securities sold under agreements to repurchase is summarized as follows:

	2010			2009			2008
Average balance during the year	$	142,871		$	123,119		$	77,952
Average interest rate during the year		0.58	%		1.49	%		2.60	%
Maximum month-end balance during the year	$	148,765		$	148,765		$	101,706
Weighted average year-end interest rate		0.40	%		1.23	%		2.30	%
Balance at year-end	$	103,753		$	124,313		$	83,874

The Bank has a short-term U.S. Treasury interest-bearing demand note with a balance of $781 thousand at December 31, 2010 and $849 thousand at December 31, 2009. The demand note was interest free at December 31, 2010 and 2009.

41

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

The Bank has access to a line of credit in the amount of $8 million at a major domestic bank that is below prime rate. The line and terms are periodically reviewed by the bank and are generally subject to withdrawal at their discretion. There were no borrowings under this line at December 31, 2010 or 2009.

Farmers National Banc Corp has an unsecured $1.5 million revolving line of credit. The line can be renewed annually. The outstanding balance was $1.1 million and $750 thousand at December 31, 2010 and 2009. The interest rate is prime with a floor of 4.5%. The interest rate at December 31, 2010 and 2009 was 4.5%.

NOTE 9 — 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:

	2010					2009
			Weighted					Weighted
			Average					Average
	Amount		Rate			Amount		Rate
Fixed-rate constant payment advances, at rates from 3.16% to 5.25% at December 31, 2010	$	4,544		4.65	%	$	6,924		4.62	%
Convertible and putable fixed-rate advances, at rates from 2.82% to 4.88% at December 31, 2010		20,000		4.12	%		20,000		4.12	%
Total advances	$	24,544		4.22	%	$	26,924		4.25	%

At year end 2010 and 2009, $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 2010 and 2009, $15 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.

Federal Home Loan Bank advances are secured by a blanket pledge of residential mortgage loans totaling $95.3 million and $108.2 million at year end 2010 and 2009. Based on this collateral and the Company’s holdings of FHLB stock, the Bank is eligible to borrow an additional $53.3 million at year end 2010. 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:
2011	$	1,751
2012		812
2013		764
2014		10,969
2015		5,248
Later years		5,000
TOTAL	$	24,544

The Bank has a note payable secured by real estate totaling $189 thousand in 2010 and $245 thousand in 2009. This note carries a fixed interest rate of 7.50%. Scheduled principal repayments of the note payable are as follows:

Maturing in:
2011	$	60
2012		65
2013		64
TOTAL	$	189

NOTE 10 — 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:

	2010				2009
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Commitments to make loans	$	1,265	$	4,617	$	845	$	8,872
Unused lines of credit	$	29,999	$	32,462	$	33,368	$	34,619

Commitments to make loans are generally made for periods of 30 days or less. The fixed rate loan commitments for 2010 have interest rates ranging from 4.75% to 6.25% and maturities ranging from fifteen to thirty years. The fixed rate commitments for 2009 have interest rates ranging from 4.75% to 5.88% and maturities ranging from fifteen to thirty years. Fixed rate unused lines of credit have interest rates ranging from 3.25% to 18.00% at December 31, 2010 as well as 3.25% to 18.00% at December 31, 2009.

Standby letters of credit are considered financial guarantees. The standby letters of credit have a contractual value of $3.2 million in 2010 and $3.6 million in 2009. The carrying amount of these items on the balance sheet is not material.

42

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

NOTE 11 — 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 thousand 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 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, 2010 and 2009 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 2010 or 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 2010 is as follows:

						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual
	Shares			Price		Life
Outstanding at beginning of year		37,000		$	10.40	2.8 yrs
Granted		0
Exercised		0
Forfeited or expired		(8,500	)		11.00
Outstanding at end of year		28,500		$	10.22	2.0 yrs
Exercisable at end of year		25,500		$	10.65	1.4 yrs

The Company expects all outstanding options to vest. As of December 31, 2010, the total unrecognized compensation cost related to nonvested stock options granted under the Plan was immaterial.

NOTE 12 — REGULATORY MATTERS

Banks and bank holding companies are subject to various regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action by regulators that, if undertaken, could have a direct material effect on the financial statements. Management believes as of December 31, 2010, the Company and Bank meet all capital adequacy requirements to which they are 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 2010 and 2009, 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. During 2011, the Bank could, without prior approval, declare dividends of approximately $1.2 million plus any 2011 net profits retained to the date of the dividend declaration.

Due to the continuing growth in the Bank’s business and the increase in its allowance for loan losses associated with current economic conditions, senior management and the Board have determined that higher levels of capital are appropriate. The OCC concurred in the Board’s view that additional capital would be beneficial in supporting its continued growth and operations. As a result, effective February 2, 2010, the OCC proposed and the Bank accepted the following individual minimum capital requirements for Farmers National Bank: Tier I Capital to Adjusted Total Assets of 7.20% and Total Capital to Risk-Weighted Assets of 11.00%. As of December 31, 2010, the Bank is in compliance with these minimum capital requirements.

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table Dollar Amounts In Thousands except Share and 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
2010
Total Capital to risk weighted assets	Consolidated	$	85,942		13.99	%	$	49,143		8.00	%		N/A		N/A
	Bank		81,936		13.36	%		49,056		8.00	%	$	61,320		10.00	%
Tier I Capital to risk weighted assets	Consolidated		78,220		12.73	%		24,572		4.00	%		N/A		N/A
	Bank		74,238		12.11	%		24,528		4.00	%		36,792		6.00	%
Tier I Capital to average assets	Consolidated		78,220		7.65	%		40,885		4.00	%		N/A		N/A
	Bank		74,238		7.38	%		40,225		4.00	%		50,282		5.00	%
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	%

NOTE 13 — 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 90 days 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 $268 thousand, $236 thousand and $182 thousand for the years ended December 31, 2010, 2009 and 2008, respectively.

The Company maintains a deferred compensation plan for certain existing employees and retirees. Expense under the Plan was $43 thousand, $21 thousand and $26 thousand for the years ended December 31, 2010, 2009 and 2008, respectively. The liability under the Plan at December 31, 2010 and 2009 was $257 thousand and $383 thousand.

The Company also has a postretirement benefit plan covering individuals retired from the Company 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 Company’s share of costs for recent and future retirees. Expense under this plan for 2010, 2009, and 2008 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 14 — INCOME TAXES

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

	2010			2009			2008
Current expense	$	3,332		$	1,875		$	1,911
Deferred expense		(788	)		(806	)		(924	)
TOTALS	$	2,544		$	1,069		$	987

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

	2010			2009			2008
Statutory tax	$	4,037		$	2,419		$	2,328
Effect of nontaxable interest		(1,062	)		(1,060	)		(1,053	)
Bank owned life insurance, net		(158	)		(172	)		(172	)
Effect of nontaxable life insurance death proceeds		(179	)		(32	)		0
Other		(94	)		(86	)		(116	)
ACTUAL TAX	$	2,544		$	1,069		$	987

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

	2010		2009
Deferred tax assets:
Allowance for credit losses	$	3,257	$	2,590
Security valuation		1,771		1,771
Deferred and accrued compensation		314		317
Deferred loan fees and costs		432		436
Capital loss carryover		11		11
Post-retirement benefits		165		155
Other		214		132
Gross deferred tax assets	$	6,164	$	5,412

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Table Dollar Amounts In Thousands except Share and Per Share Data)

Deferred tax liabilities:
Depreciation	$	(753	)	$	(742	)
Net unrealized gain on securities available for sale		(1,566	)		(1,846	)
Federal Home Loan Bank dividends		(482	)		(482	)
Prepaid expenditures		(93	)		(124	)
Other		(16	)		(32	)
Gross deferred tax liabilities		(2,910	)		(3,226	)
NET DEFERRED TAX ASSET	$	3,254		$	2,186

No valuation allowance for deferred tax assets was recorded at December 31, 2010 and 2009. Income taxes applicable to realized investment securities gains in 2010, 2009 and 2008 were $938 thousand, $356 thousand and $166 thousand, respectively. The capital loss carryover of $33 thousand, which can be used to offset future capital gain income, expires on December 31, 2013.

At December 31, 2010 and December 31, 2009, 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.

There were no penalties or interest recorded in the income statement for the years ended December 31, 2010, 2009 and 2008 and no amounts accrued for penalties or interest as of December 31, 2010 and 2009.

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 2007. The tax years 2007 — 2009 remain open to examination by the U.S. taxing authority.

NOTE 15 — RELATED PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates during 2010 were as follows:

Total loans at December 31, 2009	$	5,133
New loans		400
Effect of changes in composition of related parties		0
Repayments		(698	)
Total loans at December 31, 2010	$	4,835

Deposits from principal officers, directors, and their affiliates at year-end 2010 and 2009 were $751 thousand and $1.8 million.

NOTE 16 — EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

	2010		2009		2008
Basic EPS
Net income	$	8,991	$	5,842	$	5,665
Weighted average shares outstanding		13,563,734		13,363,445		13,103,761
Basic earnings per share	$	.66	$	.44	$	.43
Diluted EPS
Net income	$	8,991	$	5,842	$	5,665
Weighted average shares outstanding for basic earnings per share		13,563,734		13,363,445		13,103,761
Effect of Stock Options		0		0		0
Weighted average shares for diluted earnings per share		13,563,734		13,363,445		13,103,761
Diluted earnings per share	$	.66	$	.44	$	.43

Stock options for 28,500, 37,000 and 44,500 shares of common stock were not considered in computing diluted earnings per share for 2010, 2009 and 2008, respectively, because they were antidilutive.

NOTE 17 — OTHER COMPREHENSIVE INCOME (LOSS)

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

	2010			2009			2008
Net unrealized holding gains (losses) on available for sale securities	$	1,963		$	2,607		$	2,294
Reclassification adjustment for (gains) losses realized in income		(2,680	)		(943	)		2,237
Net unrealized gains (losses)		(717	)		1,664			4,531
Tax effect		280			(612	)		(1,586	)
Net-of-tax amount	$	(437	)	$	1,052		$	2,945

Reclassification adjustment for (gains) losses realized in income includes other-than-temporary impairment losses of $74 thousand and $2.7 million for 2009 and 2008. All impairment losses relate to equity securities thus all other-than-temporary impairment has been recognized in net income.

NOTE 18 — 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 $12.1 million. 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 $3.7 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 $3.7 million. The fair value of $4.2 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

45

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

NOTE 19 — SEGMENT INFORMATION

The reportable segments are 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.

Accounting policies for segments are the same as those described in Note 1. Segment performance is evaluated using operating income. Income taxes are calculated on operating income. Transactions among segments are made at fair value.

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

	Trust		Bank					Consolidated
December 31, 2010	Segment		Segment		Others			Totals
Assets
Cash and due from banks	$	1,122	$	36,343	$	(160	)	$	37,305
Securities available for sale		2,627		311,601		119			314,347
Net loans		0		581,060		0			581,060
Premises and equipment, net		113		13,831		0			13,944
Goodwill and other intangibles		6,920		0		0			6,920
Other assets		425		28,336		414			29,175
Total Assets	$	11,207	$	971,171	$	373		$	982,751
Liabilities and Stockholders’ Equity
Deposits, borrowings and other liabilities	$	368	$	894,052	$	283		$	894,703
Stockholders’ equity		10,839		77,119		90			88,048
Total Liabilities and Stockholders’ Equity	$	11,207	$	971,171	$	373		$	982,751

	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 and other intangibles		7,500		0		0			7,500
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 2010	Segment		Segment		Others			Totals
Net interest income	$	61	$	37,349	$	(43	)	$	37,367
Provision for loan losses		0		8,078		0			8,078
Service fees, security gains and other noninterest income		5,053		7,835		318			13,210
Noninterest expense		4,588		25,893		479			30,964
Income before taxes		526		11,213		(204	)		11,535
Income tax		182		2,445		(83	)		2,544
Net Income	$	344	$	8,768	$	(121	)	$	8,991

	Trust		Bank					Consolidated
For year ended 2009	Segment		Segment		Others			Totals
Net interest income	$	66	$	33,154	$	8		$	33,228
Provision for loan losses		0		6,050		0			6,050
Service fees, security gains and other noninterest income		3,467		6,057		(136	)		9,388
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 for 2010.

NOTE 20 — SUBSEQUENT EVENT

On December 20, 2010 the Company announced the terms of its offering of 5 million common shares of Farmers National Banc Corp stock. The offering of the 5 million shares at $3 per share involved a rights offering with existing shareholders, an offering with standby investors and an offering to the public. At the close of the offering on February 4, 2011 all 5 million shares had been sold and the gross amount of $15 million was raised.

After advisory fees, selling agent commissions and expenses, the estimated net proceeds will be approximately $14.1 million. The Company intends to contribute $8 to $10 million to the Bank for general operating purposes which may include, among others, payment of expenses, payments of dividends, and pursuing strategic opportunities which may be presented to the Bank from time to time.

46

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

NOTE 21 — QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarter Ended 2010	March 31			June 30		September 30		December 31
Total interest income	$	12,126		$	12,099	$	12,160	$	11,980
Total interest expense		3,312			2,923		2,545		2,218
Net interest income		8,814			9,176		9,615		9,762
Provision for loan losses		2,778			1,600		1,500		2,200
Other income		2,336			2,721		3,697		4,456
Other expense		7,532			7,645		7,917		7,870
Income before income taxes		840			2,652		3,895		4,148
Income taxes		(7	)		618		1,041		892
Net income	$	847		$	2,034	$	2,854	$	3,256
Earnings per share — basic and diluted	$	0.06		$	0.15	$	0.21	$	0.24

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

During the third and fourth quarters of 2010, the Bank sold certain investment securities and recognized security gains of $2.6 million.

NOTE 22 — 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, 2010			December 31, 2009
Assets:
Cash	$	691		$	275
Investment in subsidiaries		87,957			80,962
Securities available for sale		119			115
Other		449			237
TOTAL ASSETS	$	89,216		$	81,589
Liabilities:
Other liabilities	$	34		$	171
Note payable		1,100			750
Other accounts payable		34			40
TOTAL LIABILITIES		1,168			961
Stockholders’ equity:
Common stock		96,142			95,650
Retained earnings		14,502			7,137
Accumulated other comprehensive income (loss)		2,907			3,344
Treasury stock, at cost; 2,053,149 shares in 2010 and 2,053,098 shares in 2009		(25,503	)		(25,503	)
TOTAL STOCKHOLDERS’ EQUITY		88,048			80,628
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	89,216		$	81,589

47

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

STATEMENTS OF INCOME

Years ended December 31,	2010			2009			2008
Income:
Dividends from subsidiary	$	1,730		$	13,746		$	0
Interest and dividends on securities		3			8			45
Security gains/(losses)		0			(74	)		(87	)
Other income		225			0			0
TOTAL INCOME		1,958			13,680			(42	)
Interest on borrowings		(46	)		0			0
Other expenses		(465	)		(557	)		(249	)
Income before income tax benefit and undistributed subsidiary income		1,447			13,123			(291	)
Income tax benefit		109			212			99
Equity in undistributed net income of subsidiaries (dividends in excess of net income)		7,435			(7,493	)		5,857
NET INCOME	$	8,991		$	5,842		$	5,665

STATEMENTS OF CASH FLOWS

Years ended December 31,	2010			2009			2008
Cash flows from operating activities:
Net income	$	8,991		$	5,842		$	5,665
Adjustments to reconcile net income to net cash provided by operating activities:
Security (gains)/losses		0			0			49
Impairment of securities		0			74			38
Dividends in excess of net income (Equity in undistributed net income of subsidiary)		(7,435	)		7,493			(5,857	)
Other		(356	)		(290	)		(102	)
NET CASH FROM OPERATING ACTIVITIES		1,200			13,119			(207	)
Cash flows from investing activities:
Proceeds from maturities of investment securities available for sale		0			800			1,600
Proceeds from sales of securities available for sale		0			0			61
Investment in subsidiaries		0			(12,260	)		0
Purchases of securities available for sale		0			(1	)		(1,587	)
NET CASH FROM INVESTING ACTIVITIES		0			(11,461	)		74
Cash flows from financing activities:
Purchase of treasury stock		0			0			(1,102	)
Dividends paid		(1,626	)		(4,801	)		(6,802	)
Proceeds of borrowings		350			750			0
Proceeds from dividend reinvestment		492			1,433			2,476
NET CASH FROM FINANCING ACTIVITIES		(784	)		(2,618	)		(5,428	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		416			(960	)		(5,561	)
Beginning cash and cash equivalents		275			1,235			6,796
Ending cash and cash equivalents	$	691		$	275		$	1,235

48

COMMUNITY GIVING

INVESTING IN OUR COMMUNITIES

Farmers National Bank continues to “Stand Strong” by giving back to our community. As a community bank, Farmers has the honor and privilege of supporting the organizations that make our Valley a better place in which to live. Local decision-making gives us the ability to financially support the projects and services that make the biggest positive impact on our neighbors and in our communities. By doing so, Farmers believes we are supporting important efforts that attract new residents and businesses to the Valley. In 2010, over 250 local organizations received our financial support as we donated $155,116 to enhance and improve the communities in which we live and work. Commitment — whether to our home area or our neighbors — is a bedrock principle for Farmers. Our founders saw the importance of community engagement back in 1887 and we are proud to continue the tradition 124 years later.

In 2010, Farmers National Bank introduced a new mascot, Rocky, the Rock-Solid dog. Pictured above: Rocky with the YSU Cheerleaders at the Farmers National Bank tailgate event.

49

FARMERS NATIONAL FINANCIAL GROUP

FARMERS NATIONAL INVESTMENTS

Farmers National Investments experienced unprecedented growth during a time of significant economic uncertainty in the financial market. Our customers demonstrated confidence in our experienced and trusted financial advisors, leading to a 67% increase in Gross Revenues. Farmers National Investments produced over $1 Million in Gross Revenues in 2010. In addition, they grew their portfolios over 35% and now have over $143 Million in Assets Under Management.

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.

From left to right: Vince Dobransky, Phil Lammers, Dan Cvercko, Steve Fisher

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.

David G. Frank, CLU, ChFC
Insurance Director

FARMERS NATIONAL INSURANCE

In March 2010, Farmers National Insurance became a fully operational agency offering life, health, property casualty and Medicare supplemental products. In the first nine months of operation, Farmers National Insurance sold over 100 Property and Casualty Insurance policies resulting in additional fee income for the Bank’s income statement. With a wide array of products and services, the Insurance agency expects to bolster their sales throughout the next fiscal year.

Farmers National Insurance offers:

• Auto Insurance

• Homeowners Insurance

• Personal Liability Insurance

• Business Insurance

• Pet Insurance

• Dental & Health Insurance

• Medicare Supplements

50

BOARD OF DIRECTORS

From left to right: Anne Frederick Crawford, John S. Gulas, Joseph D. Lane, Ronald V. Wertz, Lance J. Ciroli, Benjamin R. Brown- Retired, Earl R. Scott, Ralph D. Macali, Frank L. Paden. Not pictured: James R. Fisher- Retired, David Z. Paull

John S. Gulas
President & Chief Executive Officer

Frank L. Paden
Executive Chairman of the Board

Benjamin R. Brown, Retired
President and Owner, Castruction Company

Lance J. Ciroli ^{2, 3, 5}
Co-founder of NBE Bank Consulting
Services Retired Assistant Deputy Comptroller in the Cleveland/
Detroit Field Office, Office of the Comptroller of the Currency

Anne Frederick Crawford ^{2, 3, 4}
Attorney-at-Law
Self-employed/Sole Proprietor

James R. Fisher, Retired
Certified Public Accountant (CPA) 
Owner/Director, Akron Auto Auction, Inc.

Joseph D. Lane ^{2, 4}
Attorney and Principal of Lane & Rusu Co. L.P.A.
President & CEO of Lane Funeral Homes, Inc. and
Lane Life Paramedics Ambulance Services

Ralph D. Macali ^{1, 2, 5}
Vice President of Palmer J. Macali, Inc.
Partner in P.M.R.P. Partnership
Partner in the Macali Family Limited Partnership

David Z. Paull ^{1, 2, 3}
Vice President, Human Resources Operations and
Labor Relations, RTI International Metals, Inc.

Earl R. Scott ^{1, 2, 5}
Certified Public Accountant (CPA) and President,
Reali, Giampetro & Scott

Ronald V. Wertz ^{2, 3, 4}
Retired Vice President, CPCU, CIC, Risk
Management Consultant, Acordia Insurance

1	Audit Committee
2	Board Loan Committee
3	Compensation Committee
4	Corporate Governance and Nominating Committee
5	Risk Management Committee

2010 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/Wealth Management, Bradley S. Henderson, Vice President Facilities Management/Security, Carl D. Culp, Executive Vice President, Cashier & CFO, Mark A. Nicastro, Vice President, Director of Human Resources, John S. Gulas, President & CEO, Frank L. Paden, Executive Chairman of the Board, Amber B. Wallace, Senior Vice President, Director of Marketing

51

EX-21

Exhibit 21

Subsidiaries of Farmers National Banc Corp.

Farmers National Banc Corp.
—The Farmers National Bank of Canfield
—Farmers Trust Company

EX-23

Exhibit 23

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 14, 2011, relating to the consolidated financial statements and effectiveness of internal control over financial reporting, appearing in the Annual Report on Form 10-K of Farmers National Banc Corp. for the year ended December 31, 2010.

Crowe Horwath LLP

Cleveland, Ohio
March 14, 2011

EX-31.1

Exhibit 31.1

CERTIFICATIONS

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

I, John S. Gulas, 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/ John S. Gulas John S. Gulas

President and Chief Executive Officer

March 14, 2011

EX-31.2

Exhibit 31.2

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 enti ties, 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 pur poses in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and pre sented in this report our conclusions about the effectiveness of the disclosure controls and proce dures, 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 evalua tion 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 abili ty 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

Executive Vice President and Chief Financial Officer

March 14, 2011

EX-32.1

Exhibit 32.1

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, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I John S. Gulas, 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/ John S. Gulas John S. Gulas

President and Chief Executive Officer

March 14, 2011

EX-32.2

Exhibit 32.2

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, 2010 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

Executive Vice President and Chief Financial Officer

March 14, 2011