FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the Quarter ended Sept. 30, 2001 Commission file number 2-80339

FARMERS NATIONAL BANC CORP.
(Exact name of registrant as specified in its charter)

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

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

Not applicable
(Former name, former address and former fiscal year,
if changed since last report)

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         No   

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at September 30, 2001
Common Stock, No Par Value	11,824,280 shares

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K

PART I — FINANCIAL INFORMATION

			Page
Item 1. Financial Statements
Included in Part I of this report:
	Farmers National Banc Corp. and Subsidiary
		Consolidated Balance Sheets		1
		Consolidated Statements of Income and Comprehensive Income		2
		Consolidated Statements of Cash Flows		3
	Notes to Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				5-9
Item 3. Quantitative and Qualitative Disclosures About Market Risk				10
PART II — OTHER INFORMATION
Other Information and Signatures				10-12

CONSOLIDATED BALANCE SHEETS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY

					(In Thousands of Dollars)
					September 30,			December 31,
					2001			2000
ASSETS
Cash and due from banks					$	22,774		$	23,350
Federal funds sold						28,728			11,358
				TOTAL CASH AND CASH EQUIVALENTS		51,502			34,708
Long-term interest bearing deposits						0			99
Securities available for sale						139,040			127,761
Loans						442,164			450,711
Less allowance for credit losses						6,487			6,115
				NET LOANS		435,677			444,596
Premises and equipment, net						12,533			12,549
Other assets						5,577			6,409
					$	644,329		$	626,122
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits (all domestic):
		Noninterest-bearing			$	46,965		$	48,935
			Interest-bearing			448,455			419,401
				TOTAL DEPOSITS		495,420			468,336
U. S. Treasury interest-bearing demand note						780			1,009
Securities sold under repurchase agreements						40,966			39,099
Federal Home Loan Bank advances						28,426			43,575
Other liabilities and deferred credits						2,843			3,270
				TOTAL LIABILITIES		568,435			555,289
Stockholders Equity:
	Common Stock — Authorized 25,000,000 shares; issued and outstanding 11,824,280 in 2001 and 11,604,252 in 2000					51,867			49,451
	Retained earnings					23,279			22,226
	Accumulated other comprehensive income					2,509			372
	Treasury stock, at cost; 141,690 shares in 2001 and 87,835 in 2000					(1,761	)		(1,216	)
				TOTAL STOCKHOLDERS EQUITY		75,894			70,833
					$	644,329		$	626,122

1

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY

					(In Thousands except Per Share Data)
					For the Three Months Ended					For the Nine Months Ended
					Sept. 30,		Sept. 30,			Sept. 30,		Sept. 30,
					2001		2000			2001		2000
INTEREST INCOME
Interest and fees on loans					$	9,274	$	9,470		$	28,064	$	27,797
Interest and dividends on securities:
		Taxable interest				1,381		1,482			4,167		4,410
			Nontaxable interest			364		292			966		881
			Dividends			226		192			684		357
			Interest on federal funds sold			245		262			679		767
				TOTAL INTEREST INCOME		11,490		11,698			34,560		34,212
INTEREST EXPENSE
Deposits						4,367		4,368			13,323		12,937
Borrowings						818		1,160			2,731		2,880
				TOTAL INTEREST EXPENSE		5,185		5,528			16,054		15,817
				NET INTEREST INCOME		6,305		6,170			18,506		18,395
Provision for credit losses						270		(65	)		810		655
				NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		6,035		6,235			17,696		17,740
OTHER INCOME
Service charges on deposit accounts						551		505			1,577		1,410
Investment security gains (losses)						35		(9	)		60		(35	)
Gain on sale of mortgage loans, net						0		1			0		4
Other operating income						341		318			894		726
				TOTAL OTHER INCOME		927		815			2,531		2,105
OTHER EXPENSES
Salaries and employee benefits						2,260		2,225			6,639		6,684
Net occupancy expense of premises						272		209			801		696
Furniture and equipment expense, including depreciation						296		299			883		827
Intangible and other taxes						214		180			641		558
Other operating expenses						1,135		1,262			3,382		4,020
				TOTAL OTHER EXPENSES		4,177		4,175			12,346		12,785
			INCOME BEFORE FEDERAL INCOME TAXES			2,785		2,875			7,881		7,060
FEDERAL INCOME TAXES						776		846			2,269		2,085
				NET INCOME	$	2,009	$	2,029		$	5,612	$	4,975
OTHER COMPREHENSIVE INCOME, NET OF TAX:
	Unrealized gains on securities					1,075		790			2,137		776
				COMPREHENSIVE INCOME	$	3,084	$	2,819		$	7,749	$	5,751
* NET INCOME PER SHARE					$	0.17	$	0.17		$	0.48	$	0.43

* Restated to reflect weighted average shares outstanding adjusted for stock dividends and merger accounted for as pooling of interests.

2

CONSOLIDATED STATEMENTS OF CASH FLOWS
FARMERS NATIONAL BANC CORP. AND SUBSIDIARY

					(In Thousands of Dollars)
					Nine Months Ended
					September 30,			September 30,
					2001			2000
CASH FLOW FROM OPERATING ACTIVITIES
	Interest received				$	35,921		$	35,632
	Fees and commissions received					2,543			2,122
	Interest paid					(16,261	)		(15,925	)
	Cash paid to suppliers and employees					(12,022	)		(12,878	)
	Income taxes paid					(2,434	)		(2,111	)
			NET CASH PROVIDED BY OPERATING ACTIVITIES			7,747			6,840
CASH FLOWS FROM INVESTING ACTIVITIES
	Decrease in interest-bearing time deposits maturing in more than 90 days					99			99
	Proceeds from maturities and repayments of securities available for sale					20,874			16,115
	Proceeds from sales of securities available for sale					8,144			2,451
	Purchases of securities available for sale					(37,488	)		(28,725	)
	Net decrease (increase) in loans made to customers					7,149			(13,021	)
	Purchases of premises and equipment					(575	)		(462	)
				NET CASH USED IN INVESTING ACTIVITIES		(1,797	)		(23,543	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Net increase (decrease) in deposits					27,191			(9,940	)
	Net increase (decrease) in short-term borrowings					1,596			(3,228	)
	Net increase (decrease) in Federal Home Loan Bank borrowings					(15,150	)		23,645
	Net increase in federal funds purchased					0			1,400
	Purchase of Treasury Stock					(545	)		(1,085	)
	Dividends paid					(4,664	)		(3,055	)
	Proceeds from sale of common stock					2,416			2,196
			NET CASH PROVIDED BY FINANCING ACTIVITIES			10,844			9,933
			NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			16,794			(6,770	)
CASH AND CASH EQUIVALENTS
	Beginning of period					34,708			41,026
	End of period				$	51,502		$	34,256
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS
	Net income				$	5,612		$	4,975
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation				549			637
		Amortization and accretion				1,647			1,377
		Provision for credit losses				810			655
		(Gain) Loss on sale of investment securities				(60	)		35
		Other				(811	)		(839	)
			NET CASH PROVIDED BY OPERATING ACTIVITIES		$	7,747		$	6,840

3

FARMERS NATIONAL BANC CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management Representation:

         The financial statements for September 30, 2001 and 2000 have been prepared by management without audit and, therefore, have not been certified by our Independent Certified Public Accountants.

         In the opinion of the management of the registrant, the accompanying consolidated financial statements for the nine month period ending September 30, 2001 and 2000 include all adjustments, consisting of only normal recurring adjustments necessary for a fair statement of the results for the periods.

		(In Thousands of Dollars)
		Nine Months Ended
Stockholders Equity		September 30, 2001
Common Stock
	Balance 1/1/01		49,451
	273,883 shares sold		2,416
	Balance 9/30/01		51,867
Retained Earnings
	Balance 1/1/01		22,226
	Net Income		5,612
	Dividends Declared: $.39 Cash dividends on common stock		(4,559	)
	Balance 9/30/01		23,279
Accumulated Other Comprehensive Income
	Balance 1/1/01		372
	Net change in unrealized appreciation on available for securities, net of income taxes		2,137
	Balance 9/30/01		2,509
Treasury Stock, At Cost
Balance 1/1/01			(1,216	)
Shares Purchased			(545	)
Balance 9/30/01			(1,761	)
Total Stockholders Equity at 9/30/01			75,894

4

Item 2. Management’s Discussion and Analysis of Financial Condition and
             Results of Operations

Forward Looking Statements

         The following financial review presents an analysis of the assets and liability structure of the Corporation and a discussion of the results of operations for each of the periods presented in this quarterly report of liquidity, capital and credit quality. Certain statements in this report that relate to Farmers National Banc Corp.’s plans, objectives, or future performance may be deemed to be forward-looking statements within the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current expectations. Actual strategies and results in future periods may differ materially from those currently expected because of various risks and uncertainties.

         Among the important factors that could cause actual results to differ materially are interest rates, changes in the mix of the company’s business, competitive pressures, general economic conditions and the risk factors detailed in the company’s other periodic reports and registration statements filed with the Securities and Exchange Commission.

Results of Operations

         The Corporation’s net income for the first nine months of 2001 was $5.612 million, or $.48 per share, which is a 12.8% increase compared with the $4.975 million, or $.43 per share earned during the same period last year. Return on average assets and return on average equity for the first nine months of 2001 were 1.18% and 10.27% respectively, compared to 1.08% and 9.90% for the same period in 2000.

         The increase in net income for the first nine months of 2001 was the result of increases in other income and lower levels of noninterest expense. The Corporation’s net interest income was slightly higher in 2001 compared to the same period in 2000. The slight increase in average loan balances was offset by a decrease in overall yields. The Corporation’s average balance of investment securities has increased 6.79% from September, 2000 to September, 2001. Although this growth has increased income on securities by $81 thousand or 1.26% over the same time period, it was partially offset by a decrease in the yield on investment securities. Interest expense on deposits and borrowings is 1.50% higher for the first nine months of 2001 compared to the first nine months of 2000. This is the result of both an increase of $386 thousand in interest expense on deposits and an decrease of $149 thousand in interest expense on borrowings. The cost of time deposits increased from 5.56% in 2000 to 5.70% in 2001, while borrowing costs decreased from 5.62% in 2000 to 5.06% in 2001.

         Provision for credit losses of $270 thousand for the quarter ended September 30, 2001 was $335 thousand higher than the $65 thousand credit reported in 2000. The provision was lower in 2000 primarily because of recoveries received in a favorable insurance settlement.

         Other income increased 20.24% from $2.105 million in 2000 to $2.531 million in 2001. This growth is the result of an increase in service charges related to deposit accounts coupled with an increase in other operating income. The Corporation’s total other expenses for the first nine months of 2001 decreased 3.43% from $12.785 million in 2000 to $12.346 million in 2001. The decrease in other operating expenses is due primarily to the acquisition of Security Financial Corporation on November 30, 2000. The merger provided cost savings though the consolidation of operations. Management will continue to closely monitor noninterest expenses.

5

Results of Operations (Continued)

         On November 30, 2000, Security Financial Corp. merged with and into Farmers National Banc Corp. The merger was accounted for under the pooling-of-interests method. The consolidated financial statements for 2000 have been reclassified to conform with the presentation for 2001. Such reclassifications had no effect on net results from operations.

Liquidity

         The Corporation maintains, in the opinion of management, liquidity sufficient to satisfy depositors’ requirements and meet the credit needs of customers. The Corporation depends on its ability to maintain its market share of deposits as well as acquiring new funds. The Corporation’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 Corporation include assets considered relatively liquid such as short-term investment securities, federal funds sold and cash and due from banks.

         Cash flows generated from operating activities increased to $7.747 million compared to $6.840 million for the same period in 2000. This increase of $907 thousand is mainly the result of a decrease in cash paid to suppliers and employees. Net cash flows used in investing activities amounted to $1.797 million in 2001 compared to $23.543 million for the same period in 2000. Most of the current period’s decrease came from repayments of loans made to customers outpacing new loan growth.

         Net cash flows provided by financing activities were $10.844 million in 2001 compared to $9.933 million in 2000. In 2001, $27.191 million was generated from increases in deposits and $15.150 million was used to repay Federal Home Loan Bank borrowings.

Capital Resources

         The capital management function is a continuous process which consists of providing capital for both the current financial position and the anticipated future growth of the Corporation. As of September 30, 2001, the corporation’s total risk-based capital ratio stood at 17.83%, and the Tier I risk-based capital ratio and Tier I leverage ratio were at 16.56% and 11.40%, respectively. Regulations established by the Federal Deposit Insurance Corporation Improvement Act require that for a bank to be considered well capitalized, it must have a total risk-based capital ratio of 10%, a Tier I risk-based capital ratio of 6% and a Tier I leverage ratio of 5%.

6

Loan Portfolio

The following shows the composition of loans at the dates indicated:

		(In Thousands of Dollars)
		Sept. 30,		Dec. 31,
		2001		2000
Commercial, financial and agricultural			20,163		17,916
Real Estate — mortgage			260,008		267,529
Installment loans to individuals			161,993		165,266
	Total Loans		442,164		450,711

The following table sets forth aggregate loans in each of the following categories for the dates indicated:

	(In Thousands of Dollars)
	Sept. 30,		Dec. 31,
	2001		2000
Loans accounted for on a nonaccrual basis		1,564		664
Loans contractually past due 90 days or more as to interest or principal payments (not included in nonaccrual loans above)		1,299		669
Loans considered troubled debt restructurings (not included in nonaccrual or contractually past due above)		0		0

Management knows of no loans not included in the table above where serious doubt exists as to the ability of the borrower to comply with the current loan repayment terms.

The following shows the amounts of contracted interest income and interest income reflected in income on loans accounted for on a nonaccrual basis and loans considered troubled debt restructuring for the periods indicated:

	(In Thousands of Dollars)
	Sept. 30,		Dec. 31,
	2001		2000
Gross interest that would have been recorded if the loans had been current in accordance with their original terms		32		107
Interest income included in income on the loans		0		4

7

Risk Elements (Continued)

A loan is placed on a nonaccrual basis whenever sufficient information is received to question the collectibility of the loan. Generally, once a loan is placed on a nonaccrual basis, interest that may be accrued and not collected on the loan is charged against earnings.

As of September 30, 2001, there were no concentrations of loans exceeding 10% of total loans which are not disclosed as a category of loans. As of that date also, there are no other interest-earning assets that are either nonaccrual, past due or restructured.

Summary of Credit Loss Experience

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

		(In Thousands of Dollars)
		Nine Months			Year
		Ended			Ended
		Sept. 30,			Dec. 31,
		2001			2000
Balance at beginning of period			6,115			5,778
Loan losses:
	Commercial, financial & agricultural		(39	)		(50	)
	Real estate — mortgage		(21	)		(343	)
	Installment loans to individuals		(776	)		(1,250	)
			(836	)		(1,643	)
Recoveries on previous loan losses:
	Commercial, financial & agricultural		0			23
	Real estate — mortgage		34			8
	Installment loans to individuals		364			1,084
			398			1,115
Net loan losses			(438	)		(528	)
Provision charged to operations (1)			810			865
Balance at end of period			6,487			6,115
Ratio of net credit losses to average net loans outstanding			.13	%		.12	%

8

Summary of Credit Loss Experience (cont’d)

(1)  The provision for possible credit 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 credit loss 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 possible credit losses has been allocated according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within the following categories of loans as of the dates indicated.

	(In Thousands of Dollars)
	Sept. 30,		Dec. 31,
Types of Loans	2001		2000
Commercial, financial & agricultural		2,064		549
Real estate — mortgage		1,834		2,878
Installment		2,589		2,688
Total		6,487		6,115

The allocation of the allowance as shown above should not be interpreted as an indication that charge-offs in 2001 will occur in the same proportions or that the allocation indicates future charge-off trends. Furthermore, the portion allocated to each loan category is not the total amount available for future losses that might occur within such categories since the total allowance is a general allowance applicable to the entire portfolio.

The percentage of loans in each category to total loans is summarized as follows:

	Sept. 30,			Dec. 31,
Types of Loans	2001			2000
Commercial, financial & agricultural		4.6	%		4.0	%
Real Estate — mortgage		58.8	%		59.3	%
Installment loans to individuals		36.6	%		36.7	%
		100.0	%		100.0	%

9

Item 3. Quantitative and Qualitative Disclosures About Market Risk

         There are no material changes from the end of the preceding fiscal year that would cause additional disclosure of the bank’s exposure to market risk.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

         There are no material pending legal proceedings to which the registrant or its subsidiary is a party, or of which any of their property is the subject, except proceedings which arise in the ordinary course of business. In the opinion of management, pending legal proceedings will not have a material effect on the consolidated financial position of the registrant and its subsidiary.

Item 2. Changes in Securities

                  Not applicable.

Item 3. Defaults Upon Senior Securities

                  Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

                  Not applicable.

Item 5. Other Information

                  The Corporation filed Form S-3 on October 3, 2001. This filing amended the Corporation’s dividend reinvestment plan.

Item 6. Exhibits and Reports on Form 8-K

(a)  The following exhibits are filed or incorporated by references as part of this report:

2.	Not applicable.
3(i).	Not applicable.
3(ii).	Not applicable.

4.     The registrant agrees to furnish to the Commission upon request copies of all instruments not filed herewith defining the rights of holders of long-term debt of the registrant and its subsidiaries.

10.	Not applicable.
11.	Not applicable.
15.	Not applicable.
18.	Not applicable.

10

19.	Not applicable.
22.	Not applicable.
23.	Not applicable.
24.	Not applicable.
99.	Not applicable.

(b)  - Reports on Form 8-K

         No reports on Form 8-K were filed for the three months ended September 30, 2001.

11

                  SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

                                FARMERS NATIONAL BANC CORP.

Dated: November 13, 2001

/s/Frank L. Paden
Frank L. Paden
President and Secretary

Dated: November 13, 2001

/s/Carl D. Culp
Carl D. Culp
Executive Vice President
and Treasurer

12