Farmers National Banc Corp. Annual Report 2014

FY2014 Annual Report · Farmers National Banc Corp.

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F A R M E R S N A T I O N A L B A N C C O R P. A N N U A L R E P O R T 2 0 1 4

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 (“Farmers National Bank”.)
The Company provides trust services through its
subsidiary, Farmers Trust Company, retirement planning
and consultancy services through its subsidiary,
National Associates, Inc. and insurance services
through Farmers National 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.

Farmers National Bank, chartered in 1887, is a full-service
financial services company engaged in commercial
and retail banking with a total of twenty (20) banking
locations and two (2) trust offices located in the counties
of Mahoning, Columbiana, Trumbull, Stark, Summit and

Cuyahoga in the State of Ohio. In addition, 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.

F A R M E R S N A T I O N A L B A N C C O R P. A N N U A L R E P O R T 2 0 1 4

Financial Highlights

(Amounts in Thousands Except for Per Share Data)

For the Year

Net Income
Return on Average Assets
Return on Average Equity
Cash Dividends

Per Share

Net Income (Basic)
Net Income (Diluted)
Book Value at Year-End

Balances at Year-End

Total Assets
Earning Assets
Total Deposits
Net Loans
Total Stockholders’ Equity

2014

$8,965
0.79%
7.45%
2,236

$0.48
0.48
6.71

2013

$7,780
0.68%
6.66%
2,248

2012

$9,932
0.89%
8.42%
3,382

$0.41
0.41
6.02

$0.53
0.53
6.43

$1,136,967
1,074,434
915,703
656,220
123,560

$1,137,326
1,076,073
915,216
623,116
113,007

$1,139,695
1,082,078
919,009
578,963
120,792

Common Shares Outstanding

18,409

18,776

18,795

Annual Meeting Notice
The Annual Meeting of Shareholders will be held at the St. Michaels Family Center at 300 North Broad
Street, Canfield, OH 44406 at 3:30pm EST, on Thursday, April 16, 2015.

It is this ability to both plan and adapt that ensures
a robust future for Farmers National Bank.

Fellow Shareholders,

Even as little as
five years ago, it
would have been
i m p o s s i b l e t o
predict exactly
h o w o u r B a n k
would grow – what
paths it would
take – to become
the company it is
today. Each year
in recent memory has brought with it
new and strategic opportunities. We’ve
pushed beyond century-old geographic
boundaries, expanded into fee-generating
businesses and nurtured their rapid
growth. In addition, we are positioned to
merge with a quality peer to become the
leading community bank, not just in the
Mahoning Valley, but in all of eastern Ohio.

Once again, we’ve set new records for
achievement in 2014. And while I’ve always
been confident in our bank’s ability to
thrive, I remain humbly impressed by the
fact that we’ve consistently maintained
success through diligent management
of what the market gives us at any given
time. It is this ability to both plan and adapt
that ensures a robust future for Farmers
National Bank.

Capital Planning
During the year, the company repurchased
365,800 shares of its common stock at an
average price of $7.74 for a total purchase
of $2.8 million. In addition to the stock
repurchase, the company successfully
conducted an odd lot buyback program
with the goal of reducing servicing and
administrative costs associated with
shareholders who own 99 or fewer shares.
A total of 6,568 shares were purchased,
which reduced the number of shareholders
who own 99 or fewer shares by nearly
11%. The combination of the repurchase
programs and odd lot buyback reduced
our total common shares outstanding 2%
from December 31, 2014. The company
remains committed to returning capital to
our shareholders when determined to be

an appropriate use of our available capital
resources and over the past three years
has proactively repurchased $4.5 million
of our common stock and distributed $7.9
million in dividends to shareholders.

Asset Quality
The company continues to maintain strong
asset quality. At December 31, 2014,
non- performing loans were $8.5 million, a
7% decrease compared to $9.1 million at
the same time in 2013. Another important
measure of asset quality is our allowance
for loan losses to non-performing loans
ratio, which improved from 83% at
December 31, 2013 to 90% at December
31, 2014. Non-performing assets to total
assets also remain at a safe level, currently
at 0.76%. Management remains diligent
in monitoring local economic conditions
and the impact it may have on the quality
of our loan portfolio.

Loan Production
Deploying assets to our neighbors and
business communities is the heartbeat
of our community banking philosophy.
The increase in loans is a direct result of
Farmers’ focus on loan growth utilizing
a talented lending and credit team,
while adhering to a sound underwriting
discipline. Total loans were $663.9 million
at December 31, 2014, compared to
$630.7 million at December 31, 2013,
an increase of 5%. Most of the increase
in loans has occurred in the commercial
real estate, commercial and industrial and
residential real estate loan portfolios. It is
important to note that the continued growth
in our loan portfolio has allowed our loan
to deposit ratio to improve during the past
two years from 64% at December 31, 2012
to 73% at December 31, 2014.

continually increased in both revenues and
assets under management. In addition,
the percentage of overall fee income
generated has increased substantially
over the past five years contributing to
the Company’s overall growth. In 2009,
fee income represented 15% of total
gross income and in 2014 fee income has
increased to represent 29% of total gross
income.

Farmers Trust Company
The Trust Company achieved record total
assets under management exceeding $1.1
billion at 2014 year end. Total revenue
increased 9% during 2014 to over $6
million for the first time in the Company’s
history. Net income increased 63% to a
record amount. The Charitable Foundation
Division distributed nearly $7 million to
area non-profit organizations, colleges,
hospitals and early intervention programs
for high school students. Plans for 2015
include further implementation of a high-
end financial planning software package to
ensure and enhance its abilities in Estate,
Retirement and Tax Planning for its clients
and prospects.

Farmers National Investments
Since Farmers National Investments’
inception in 2000, they have experienced
continuous year-over-year growth in
revenues and profits. In 2014, the
Investment division continued this trend
by enjoying a record year. Revenues
increased 13% in 2014 to over $1.6 million
and have achieved a 25% annual growth
rate over the last seven years. Additionally,
assets under management at December
31, 2014 were up 10% at $256 million and
have increased at a 26% annual growth
rate over the last seven years.

Wealth Management
Much of Farmers’ success over the past
few years has centered on the commitment
to enhance fee generating businesses
through our robust Wealth Management
platform. Each and every year, the Wealth
Management lines of business have

National Associates, Inc.
To build synergies around our retirement
platform, offered through Farmers Trust
Company, Farmers National Banc Corp.
acquired National Associates in July,
2013. In acquiring NAI, Farmers National
Banc Corp. assumed a professional staff

Our new best-in-class mobile banking app has state-of-the-art
features that we believe rival the big national and regional banks.

independence in operating a community
bank in our own backyard, as we make
local decisions that help support our local
economy. We will strive to see that the new
combined company remains independent
and continues to act in the best interests of
our shareholders, customers, community
and associates at the highest level of
excellence expected of Farmers.

We are quite pleased to provide our
shareholders with such an attractive
strategic growth opportunity. In connection
with the proposed merger, the Company
will file with the Securities and Exchange
Commission a Registration Statement
that will include a joint proxy statement
and a Company prospectus, as well as
other relevant documents concerning
the proposed transaction, that will be
presented to our shareholders at a special
meeting intended to be held in the second
quarter of 2015.

I hope you are as pleased as I am
with the performance of our company
during the last year and are optimistic for
another banner year in 2015. As always, I
welcome your calls and emails. With your
continued support, we are well positioned
to accomplish great things together.

Very truly yours,

Kevin J. Helmick
President & Chief Executive Officer

that is highly qualified and credentialed
and we recently added Aubrey Christ, a
proven industry professional, as President
of NAI to further strengthen the team. NAI
is a leading independent consultant to
retirement plans and offers actuarial, plan
design, compliance and administrative
services. As a third party administrator,
NAI provides services to 401(k), Defined
Benefit, Profit Sharing, Flexible Spending,
403(b), ESOP and other plans. As of
December 31, 2014, NAI manages
200 retirement plans with assets under
administration of $648 million.

Noninterest Expense Management
Your management team understands that
a successful growth strategy includes
the prudent management of noninterest
expenses. As a result of this philosophy,
noninterest expenses were $38.2 million for
the year ended December 31, 2014, 2%
less than the $39.1 million reported in 2013.
Personnel expenses were $1.2 million or
5% lower in 2014 compared to 2013. Other
operating expenses also decreased $457
thousand or 9%. The continued focus
on increasing the aforementioned fee-
based revenues and reducing noninterest
expenses has also contributed to an
improvement in our efficiency ratio to
70.2% from 74.8% in the prior year.

Virtual Banking
One of our primary strategic initiatives
came to fruition in 2014 with the introduction
of a very exciting and relevant upgrade to
our digital banking channels. Nationwide,
the adoption rates of online and mobile
banking users are staggering. At Farmers,
it is also evident that these digital channels
are highly valued by our customers. Over
the past three years, Farmers’ online
banking usage has increased nearly 70%.
Additionally, at the end of 2014, Farmers
mobile banking adoption increased 327%
since its inception in 2012. With our digital
strategy, we plan to manage our Virtual
Banking channels just as we would a
branch made of brick and mortar. We
will continue to invest the resources and

enhancements required to differentiate our
digital platforms in the marketplace.

Our new best-in-class mobile banking app
has state-of-the-art features that we believe
rival the big national and regional banks:
• Remote Deposit – customers take a
picture of a check and it is deposited
directly into their account.
• Picture Pay – Take a picture of a bill,
and the account information is pulled into
the bill pay system alleviating the need to
manually enter the biller information.
• Pin login – Customers will no longer need
to enter their username and password once
they choose a four digit pin to conveniently
access their account information.

National Bancshares Corporation
Acquisition
We were very pleased to announce
the transformative merger of National
Bancshares Corporation, which, once
complete, is expected to increase the size
of our asset base by nearly 50% to $1.7
billion. National Bancshares has a strong
market share and reputation in its core
markets, and its addition will help provide
an attractive low cost funding base for
our growing franchise. We also believe
that this transaction will help Farmers
realize additional operating scale and
drive earnings per share growth as our
management team continues to focus on
achieving above-average returns for our
shareholders. In addition to the financial
benefits, the merger significantly expands
our footprint and customer base. The
combined company will create a top-
performing Midwest community bank
that has the scale, product depth and
efficiency to compete effectively, while
maintaining our community banking
principals and delivering best-in-class
service to our customers.

The combined company will continue to
focus on the community banking model
by serving and fulfilling the needs of
the communities we serve. Together,
we will appreciate the self-reliance and

Board of Directors

From Left to Right
Ralph D. Macali, Anne Frederick Crawford, David Z. Paull, Gregg Strollo, Lance J. Ciroli, Kevin J. Helmick, Terry A. Moore,
Gregory C. Bestic and Earl R. Scott

Lance J. Ciroli 2, 4
Chairman of the Board
Co-founder of NBE Bank Consulting
Services. Retired Assistant Deputy
Comptroller in the Cleveland/Detroit
Field Office, Office of the Comptroller
of the Currency

Gregory C. Bestic 1, 3
CPA, CGMA, Certified Forensic
Accountant, DABFA, FACFEI
Principal with Schroedel, Scullin
& Bestic, LLC - Certified Public
Accountants and Strategic Advisors

Anne Frederick Crawford 2, 3
Attorney-at-Law
Self-employed/Sole Proprietor

Kevin J. Helmick
President and Chief Executive Officer
Farmers National Bank

Ralph D. Macali 1, 4
Vice President of Palmer J. Macali, Inc.
Partner in P.M.R.P. Partnership

Terry A. Moore 2, 3
Managing Director of Krugliak, Wilkins,
Griffiths and Dougherty

David Z. Paull 2, 4
Vice President, Human Resources
Operations and Labor Relations, RTI
International Metals, Inc.

Earl R. Scott 1, 4
Certified Public Accountant (CPA) and
President, Reali, Giampetro & Scott

Gregg Strollo 1, 4
Partner, Architect and President,
Strollo Architects

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

F A R M E R S N A T I O N A L B A N C C O R P. A N N U A L R E P O R T 2 0 1 4

Farmers National Banc Corp. Officers

Kevin J. Helmick,
President and Chief Executive Officer

Carl D. Culp,
Executive Vice President & Treasurer

Management Team and Board of Directors

Kevin J. Helmick,
President and Chief
Executive Officer
Farmers National Bank

Carl D. Culp,
Executive Vice President,
Cashier & Chief Financial Officer
Farmers National Bank

Mark L. Graham,
Executive Vice President,
Chief Credit Officer
Farmers National Bank

Joseph Gerzina,
Senior Vice President,
Chief Lending Officer,
Community President West Region
Farmers National Bank

Brian E. Jackson,
Senior Vice President,
Chief Information Officer
Farmers National Bank

Mark Nicastro,
Senior Vice President,
Director of Human
Resources
Farmers National Bank

Amber Wallace,
Senior Vice President,
Chief Retail and
Marketing Officer
Farmers National Bank

Timothy Shaffer,
Vice President, Director of
Commercial Banking and
Private Client Services,
Mahoning Valley
Farmers National Bank

Dale Sturdevant,
Vice President,
Chief Risk Officer
Farmers National Bank

Wealth Management Executive Officers

James H. Sisek, Esq.,
Chairman and Chief
Legal Counsel
Farmers Trust Company

Joseph J. DePascale,
CPA, CFP®, AIFA®,
CMFS, President
Farmers Trust Company

William Hanshaw, Esq.,
Executive V.P. & Secretary
Farmers Trust Company

Daniel A. Cvercko,
Vice President
Farmers National Investments
Farmers National Insurance

Aubrey Christ,
President
National Associates

5
5

Important Additional Information About the Merger.

In connection with the proposed merger, Farmers will file with the Securities and Exchange Commission (the “SEC”) a

Registration Statement on Form S-4 that will include a joint proxy statement and a Farmers prospectus, as well as other relevant
documents concerning the proposed transaction.

SHAREHOLDERS OF FARMERS AND NATIONAL BANCSHARES AND OTHER INVESTORS ARE URGED TO
CAREFULLY READ THE PROXY STATEMENT/PROSPECTUS TO BE INCLUDED IN THE REGISTRATION STATEMENT
ON FORM S-4, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT FARMERS, NATIONAL BANCSHARES,
THE PROPOSED MERGER, THE PERSONS SOLICITING PROXIES WITH RESPECT TO THE PROPOSED MERGER AND
THEIR INTERESTS IN THE PROPOSED MERGER AND RELATED MATTERS.

The respective directors and executive officers of Farmers and National Bancshares and other persons may be deemed to be
participants in the solicitation of proxies from shareholders of Farmers and National Bancshares with respect to the proposed merger.
Information regarding the directors and executive officers of Farmers is available in its proxy statement filed with the SEC on March
13, 2015. Information regarding directors and executive officers of National Bancshares is available on its website at http://www.
discoverfirstnational.com/. Other information regarding the participants in the solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained in the proxy statement/prospectus to be included in the Registration
Statement on Form S-4 and other relevant materials to be filed with the SEC when they become available.

Investors and security holders will be able to obtain free copies of the registration statement (when available) and other

documents filed with the SEC by Farmers through the website maintained by the SEC at http://www.sec.gov. Copies of the documents
filed with the SEC by Farmers will be available free of charge on Farmers’ website at https://www.farmersbankgroup.com.

This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities nor shall there be
any sale of securities in any jurisdiction in which the offer, solicitation or sale is unlawful before registration or qualification of the
securities under the securities laws of the jurisdiction. No offer of securities shall be made except by means of a prospectus satisfying
the requirements of Section 10 of the Securities Act.

Forward Looking Statements.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are not historical facts, but rather statements based on Farmer’s current expectations regarding its business strategies
and its intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,”
“anticipates,” “intends” and similar expressions, as well as any statements related to future expectations of performance or conditional
verbs, such as “will,” “would,” “should,” “could” or “may.”

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or
contribute to Farmers’ actual results, performance, and achievements to be materially different from those expressed or implied by the
forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, Farmers’ failure to
integrate National Bancshares and its subsidiary in accordance with expectations; deviations from performance expectations related
to National Bancshares and its subsidiary; general economic conditions, including changes in market interest rates and changes in
monetary and fiscal policies of the federal government; legislative and regulatory changes; competitive conditions in the banking
markets served by Farmers’ subsidiaries; the adequacy of the allowance for losses on loans and the level of future provisions for losses
on loans; and other factors disclosed periodically in Farmers’ filings with the SEC.

Because of the risks and uncertainties inherent in forward-looking statements, readers are cautioned not to place undue reliance
on them, whether included in this report or made elsewhere from time to time by Farmers or on Farmers’ behalf. Farmers assumes no
obligation to update any forward-looking statements.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2014
or

 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 001-35296

Farmers National Banc Corp.

(Exact name of registrant as specified in its charter)

Ohio
(State or other jurisdiction of
incorporation or organization)

20 South Broad Street, Canfield, Ohio
(Address of principal executive offices)

34-1371693
(I.R.S. Employer
Identification No.)

44406
(Zip Code)

Registrant’s telephone number, including area code: 330-533-3341
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Shares, no par value

Name of each exchange on which registered
The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:
None
(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  No 

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  No 

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 by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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  No 

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

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
Non-accelerated filer


 (Do not check if a smaller reporting company)

Accelerated filer
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  No 

As of June 30, 2014, the estimated aggregate market value of the ’registrant’s common shares, no par value (the only common equity of the
registrant), held by non-affiliates of the registrant was approximately $146.3 million based upon the last sales price as of June 30, 2014 reported on
NASDAQ. (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 23, 2015, the registrant had outstanding 18,408,612 common shares, no par value.

FARMERS NATIONAL BANC CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014

TABLE OF CONTENTS

PART I
Item 1.
Business. .............................................................................................................................................................................
Item 1A. Risk Factors. .......................................................................................................................................................................
Item 1B. Unresolved Staff Comments. ..............................................................................................................................................
Properties. ...........................................................................................................................................................................
Item 2.
Legal Proceedings. ..............................................................................................................................................................
Item 3.
Mine Safety Disclosures. ....................................................................................................................................................
Item 4.

PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. .........
Item 5.
Selected Financial Data. ......................................................................................................................................................
Item 6.
Management’s Discussion and Analysis of Financial Condition and Results of Operations. .............................................
Item 7.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk. ..............................................................................................
Financial Statements and Supplementary Financial Data. ..................................................................................................
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. ............................................
Item 9.
Item 9A. Controls and Procedures. ....................................................................................................................................................
Item 9B. Other Information. ..............................................................................................................................................................

Item 10. Directors, Executive Officers and Corporate Governance. .................................................................................................
Item 11. Executive Compensation. ...................................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ..........................
Item 13. Certain Relationships and Related Transactions, and Director Independence. ...................................................................
Item 14. Principal Accountant Fees and Services. ............................................................................................................................

PART III

1
11
18
18
20
20

21
22
26
39
41
83
83
83

84
85
86
86
86

Item 15. Exhibits, Financial Statement Schedules. ...........................................................................................................................

PART IV

SIGNATURES

PART I

Item 1. Business.
General
Farmers National Banc Corp.

Farmers National Banc Corp. (the “Company,” “Farmers,” “we,” “our” or “us”), is a one-bank holding company organized in
1983 under the laws of the State of Ohio and registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”).
The Company operates principally through its wholly-owned subsidiaries, The Farmers National Bank of Canfield (the “Bank” or
“Farmers Bank”), Farmers Trust Company (“Trust” or “Farmers Trust”) and National Associates, Inc. (“NAI”). Farmers National
Insurance, LLC (“Insurance” or “Farmers Insurance”) and Farmers of Canfield Investment Co. (“Investments or “Farmers
Investments”) are wholly-owned subsidiaries of the Bank. The Company and its subsidiaries operate in the domestic banking, trust,
retirement consulting, insurance and financial management industries.

The Company’s principal business consists of owning and supervising its subsidiaries. Although Farmers’ directs the overall
policies of its subsidiaries, including lending practices and financial resources, most day-to-day affairs are managed by their respective
officers. Farmers and its subsidiaries had 327 full-time equivalent employees at December 31, 2014.

The Company’s principal executive offices are located at 20 South Broad Street, Canfield, Ohio 44406, and its telephone

number is (330) 533-3341. Farmers’ common shares, no par value, are listed on the NASDAQ Capital Market (the “NASDAQ”)
under the symbol “FMNB.” Farmers’ business activities are managed and financial performance is primarily aggregated and reported
in three lines of business, the Bank segment, the Trust segment and the Retirement planning/consulting segments. For a discussion of
Farmers’ financial performance for the fiscal year ended December 31, 2014, see the Consolidated Financial Statements and Notes to
the Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K.

The Farmers National Bank of Canfield

The Bank is a full-service national banking association engaged in commercial and retail banking mainly in Mahoning,
Trumbull, Columbiana and Stark 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, 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 financial performance throughout

2014, is discussed in Item 7, Management Discussion and Analysis of Financial Condition and Results of Operations of this Annual
Report on Form 10-K.

The Bank faces significant competition in offering financial services to customers. Ohio has a high density of financial service
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.

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 for approximately $12.1 million and renamed the entity Farmers Trust Company. Farmers Trust offers a full
complement of personal and corporate trust services in the areas of estate settlement, trust administration and employee benefit plans.
Farmers Trust operates two offices located in Boardman and Howland, Ohio.

National Associates, Inc.

During 2013, the Company completed the acquisition of all outstanding stock of the retirement planning consultancy National
Associates, Inc. of Cleveland, Ohio. The transaction involved both cash and stock totaling $4.4 million, including up to $1.5 million
of future payments, contingent upon NAI meeting income performance targets. The acquisition is part of the Company’s plan to
increase the levels of noninterest income and to complement the existing retirement service currently being offered. NAI operates
from its office located in Rocky River, Ohio.

Farmers National Insurance, LLC

Farmers Insurance was formed during 2009 and offers a variety of insurance products through licensed representatives. Farmers

Insurance is a subsidiary of Farmers 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.

Farmers of Canfield Investment Company

Farmers of Canfield Investment Company was formed during 2014 with the primary purpose of investing in municipal

securities. Farmers Investments is a subsidiary of Farmers 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.

Investor Relations

The Company maintains an Internet site at http://www.farmersbankgroup.com, which contains an Investor Relations section that
provides access to the Company’s filings with the Securities and Exchange Commission (the “Commission”) Farmers makes available
free of charge on or through its website the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and amendments to such documents filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) as soon as reasonably practicable after the Company has filed these documents with the Commission. In addition,
the Company’s filings with the Commission may be read and copied at the Commission’s 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 Commission’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 and its subsidiaries are subject to extensive regulation by federal and state regulatory agencies. The regulation of

bank holding companies and their subsidiaries is intended primarily for the protection of consumers, depositors, borrowers, the
Deposit Insurance Fund and the banking system as a whole and not for the protection of shareholders. 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 its common shares. 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 that have, or could have a material impact on Farmers 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 the U.S. 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, financial condition or results of operations.

Regulatory Agencies

Bank Holding Company. As a bank holding company, Farmers is subject to regulation under the BHCA and to inspection,

examination and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Federal
Reserve Board has extensive enforcement authority over bank holding companies and may initiate enforcement actions for violations
of laws and regulations and unsafe or unsound practices. The Federal Reserve Board may assess civil money penalties, issue cease and
desist or removal orders and may require that a bank holding company divest subsidiaries, including subsidiary banks. Farmers is also
required to file reports and other information with the Federal Reserve Board regarding its business operations and those of its
subsidiaries.

Subsidiary Bank. The Bank is subject to regulation and examination primarily by the Office of the Comptroller of the Currency

(the “OCC”) and secondarily by the Federal Deposit Insurance Corporation (the “FDIC”). OCC regulations govern permissible
activities, capital requirements, dividend limitations, investments, loans and other matters. The OCC has extensive enforcement
authority over Farmers Bank and may impose sanctions on Farmers Bank and, under certain circumstances, may place Farmers Bank
into receivership.

Farmers Bank is also subject to certain restrictions imposed by the Federal Reserve Act and Federal Reserve Board regulations

regarding such matters as the maintenance of reserves against deposits, extensions of credit to Farmers or any of its subsidiaries,
investments in the stock or other securities of Farmers or its subsidiaries and the taking of such stock or securities as collateral for
loans to any borrower.

Non-Banking Subsidiaries. Farmers’ non-banking subsidiaries are also subject to regulation by the Federal Reserve Board and
other applicable federal and state agencies. In particular, Farmers National Insurance is subject to regulation by the Ohio Department
of Insurance, which requires, amongst other things, the education and licensing of agencies and individual agents and imposes
business conduct rules.

Securities and Exchange Commission and The NASDAQ Stock Market LLC. The Company is also under the regulation and

supervision of the Commission 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 (the “Securities Act”),
and the Exchange Act, and the regulations promulgated there under. Farmers common shares are listed on the NASDAQ under the
symbol “FMNB” and the Company is subject to the rules for NASDAQ listed companies.

Federal Home Loan Bank. Farmers Bank is a member of the Federal Home Loan Bank of Cincinnati (the “FHLB”), which
provides credit to its members in the form of advances. As a member of the FHLB, the Bank must maintain an investment in the
capital stock of the FHLB in a specified amount. Upon the origination or renewal of a loan or advance, the FHLB is required by law to
obtain and maintain a security interest in certain types of collateral. The 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 of 1977 (the “CRA”) and its record of lending to first-
time home buyers.

The Federal Deposit Insurance Corporation. The FDIC is an independent federal agency that 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. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC and
subject to deposit insurance assessments to maintain the Deposit Insurance Fund.

The FDIC may terminate insurance coverage upon a finding that an insured depository institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition, or has violated any applicable law, regulation, rule, order or condition enacted
or imposed by the institution’s regulatory agency.

Dodd-Frank Act

Federal regulators continue to implement many provisions of the Dodd-Frank Act, which was signed into law by President
Obama on July 21, 2010. The Dodd-Frank Act created many new restrictions and an expanded framework of regulatory oversight for
financial institutions, including depository institutions. Many provisions of the Dodd-Frank Act still have not been implemented and
will require interpretation and rule making by federal regulators, including banking regulators and the Securities and Exchange
Commission. In addition, the Consumer Financial Protection Bureau has only recently begun to implement its authority, and there is
significant uncertainty as to how its regulations and other authority will affect the Company’s business. Farmers continues to closely
monitor all relevant sections of the Dodd-Frank Act to ensure continued compliance with these regulatory requirements. The
following discussion summarizes significant aspects of the Dodd-Frank Act that have and may continue to affect Farmers and Farmers
Bank:



the Consumer Financial Protection Bureau has been established and empowered to exercise broad regulatory, supervisory
and enforcement authority with respect to both new and existing consumer financial protection laws;

the Dodd-Frank Act restricts the preemption of state law by federal law and disallows subsidiaries and affiliates of
national banks from availing themselves of such preemption;

the deposit insurance assessment base for federal deposit insurance has been expanded from domestic deposits to average
assets minus average tangible equity;

the Dodd-Frank Act instructs appropriate federal banking agencies to make the capital requirements for banks and savings
and loan holding companies and insured depository institutions countercyclical so that the amount of capital required to be
maintained increases in times of economic expansion and decreases in times of economic contraction, consistent with
safety and soundness;

the prohibition on the payment of interest on demand deposits has been repealed, effective July 21, 2011, thereby
permitting depository institutions to pay interest on business transaction and other accounts;

the standard maximum amount of deposit insurance per customer has been permanently increased to $250,000 and non-
interest-bearing transaction accounts had unlimited deposit insurance through January 1, 2013;

bank holding companies, such as Farmers, are required to be well capitalized and well managed and must continue to be
both well capitalized and well managed in order to acquire banks located outside their home state;

the Dodd-Frank Act extended the 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 under certain circumstances;

new corporate governance requirements, which are generally applicable to most larger public companies, now require new
compensation practices, including, but not limited to, providing shareholders the opportunity to cast a non-binding vote on
executive compensation, to consider the independence of compensation advisors and new executive compensation
disclosure requirements;

the Dodd-Frank Act amended the Electronic Fund Transfer Act to, among other things, give the Federal Reserve Board
the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers
having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to
the actual cost of a transaction to the issuer; and

the authority of the Federal Reserve Board to examine bank holding companies and their non-bank subsidiaries was
expanded.

Community banking organizations, such as the Company and the Bank, become subject to the new rule capital requirements on

January 1, 2015 and certain provisions of the new rule will be phased in over the period of 2015 through 2019 as described further
below under Capital Adequacy.

Bank Holding Company Regulation

As a bank holding company, Farmers’ 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 closely related to banking as to be a proper incident thereto. 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.

The BHCA also governs interstate banking and restricts Farmers’ nonbanking activities 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 under the caption “Dividends and Transactions with Affiliates” in this Item 1.

The Gramm-Leach-Bliley Act of 1999 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. Farmers has not elected to seek financial holding company status.

Regulation of Nationally-Chartered Banks

As a national banking association, Farmers 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, Farmers 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 CRA, and fair housing laws, and the effectiveness of the entities in restricting
money laundering activities. In addition, the establishment of branches by Farmers Bank is subject to the prior approval of the OCC.
The OCC has the authority to impose sanctions on the Bank and, under certain circumstances, may place Farmers Bank into
receivership.

The Bank is also an insured institution as a member of the Deposit Insurance Fund. As a result, it is subject to regulation and

deposit insurance assessments by the FDIC.

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 Farmers Bank and its other subsidiaries. Various
federal and state statutory provisions and regulations limit the amount of dividends that Farmers Bank may pay to Farmers without
regulatory approval. Farmers 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, 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
Farmers Bank’s net income for the year combined with its retained net income for the two preceding years.

In addition, Farmers and Farmers Bank are subject to other regulatory policies and requirements relating to the payment of

dividends, including requirements to maintain adequate capital above regulatory minimums. The federal banking agencies are
authorized to determine under certain circumstances that the payment of dividends would be an unsafe or unsound practice and to
prohibit payment thereof. The federal banking agencies have stated that paying dividends that deplete a bank’s capital base to an
inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends
only out of current operating earnings. In addition, in 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 Farmers to pay dividends in the
future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines.

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 and affiliates, whether in the form of loans and other extensions of credit, investments and asset purchases,
or 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) that may take place and generally require
those transactions to be on an arm’s-length basis. In general, these regulations require that any “covered transaction” by Farmers Bank
with an affiliate must be secured by designated amounts of specified collateral and must be limited, as to any one of Farmers or its
non-bank subsidiaries, to 10% of Farmers Bank’s capital stock and surplus, and, as to Farmers and all such non-bank subsidiaries in
the aggregate, to 20% of Farmers Bank’s capital stock and surplus. The Dodd-Frank Act significantly expanded the coverage and

scope of the limitations on affiliate transactions within a banking organization including, for example, the requirement that the 10% of
capital limit on covered transactions apply to financial subsidiaries. “Covered transactions” are 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, certain derivative transactions that create a credit exposure to an 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 Farmers’ bankruptcy, any commitment by Farmers to a federal bank regulatory agency to maintain the
capital of Farmers Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

The Federal Deposit Insurance Act of 1950, as amended, 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.

Capital Adequacy

Both Farmers and Farmers Bank are subject to risk-based capital requirements imposed by their respective primary federal

banking regulator. These capital guidelines 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. The guidelines
provide a systematic analytical framework for evaluating capital levels and make 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.

Under the guidelines, the minimum 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 “Tier 1”
capital, which consists of: (i) common shareholders’ equity; (ii) minority interests in certain equity accounts of consolidated
subsidiaries; and (iii) a limited amount of qualifying preferred stock and qualified trust preferred securities (although the Tier 1 capital
treatment of trust preferred securities will be phased out under the Dodd-Frank Act in certain circumstances), less goodwill and certain
other intangible assets, including unrealized net gains and losses, after applicable taxes, on available-for-sale securities carried at fair
value. The remainder of total risk-based capital (“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 on Farmers and Farmers Bank’s 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 classifications 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.

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
6

certain assets) or has consolidated on-balance sheet foreign exposure of at least $10 billion, and making it voluntary for other banks.
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 (discussed below) otherwise would permit lower requirements. In June 2011, the federal banking agencies adopted a
rule applicable to only large, internationally active banks requiring their risk-based capital to meet the higher of the minimum
requirements under Basel III or under the risk-based capital rules generally applicable to United States banks.

In December 2010 and January 2011, the Basel Committee released its framework for strengthening international capital and

liquidity regulation (Basel III). Basel III, when implemented by the U.S. banking agencies and fully phased-in, 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).

Basel III also provides for a “countercyclical capital buffer,” generally imposed when federal banking 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 implementation of the Basel III capital framework was initially scheduled to commence on January 1, 2013, but had
previously been delayed. Community banking organizations such as Farmers and Farmers Bank will now begin transitioning to new
capital rules on January 1, 2015. The new minimum capital requirements are effective on January 1, 2015, whereas a new capital
conservation buffer and deductions from common equity capital phase in from January 1, 2016, through January 1, 2019, and most
deductions from common equity tier 1 capital will phase in from January 1, 2015, through January 1, 2019. Banking institutions 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.

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.

The following is a summary of the other major changes from the current general risk-based capital rule:



replacement of the external credit ratings approach to standards of creditworthiness with a simplified supervisory formula
approach;

stricter limitations on the extent to which mortgage servicing assets, deferred tax assets and significant investments in
unconsolidated financial institutions may be included in common equity tier 1 capital and the risk weight to be assigned to
any amounts of such assets not deducted; and

increased risk weights for past-due loans, certain commercial real estate loans and some equity exposures, and selected
other changes in risk weights and credit conversion factors.

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 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.

Volcker Rule

In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision of the Dodd-Frank

Act (the "Volcker Rule"). The Volcker Rule places limits on the trading activity of insured depository institutions and entities
affiliated with a depository institution, subject to certain exceptions. The trading activity includes a purchase or sale as principal of a
security, derivative, commodity future or option on any such instrument in order to benefit from short-term price movements or to
realize short-term profits. The Volcker Rule exempts specified U.S. Government, agency and/or municipal obligations, and it excepts
trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a
fiduciary on behalf of customers, to satisfy a debt previously contracted, repurchase and securities lending agreements and risk-
mitigating hedging activities.

The Volcker Rule also prohibits a banking entity from having an ownership interest in, or certain relationships with, a hedge

fund or private equity fund, with a number of exceptions.

The Bank does not engage in any of the trading activities or own any of the types of funds regulated by the Volcker Rule.

Prompt Corrective Action

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.

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 Farmers Bank, the Company is subject to such provisions.

Deposit Insurance

Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund of the FDIC, and
Farmers Bank is assessed deposit insurance premiums to maintain the Deposit Insurance Fund. Insurance premiums for each insured
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 deemed by the FDIC to be relevant to the risk posed to the Deposit Insurance Fund by
the institution. The assessment rate is then applied to the amount of the institution’s deposits to determine the institution’s insurance
premium.

On February 7, 2011, the FDIC approved a final rule that changed the deposit insurance assessment base, as required by the

Dodd-Frank Act. As adopted, the final rule changed the deposit insurance assessment base from domestic deposits to average assets
minus average tangible equity. In addition, the final rule also adopted a new large-bank pricing assessment scheme and established a
target size for the Deposit Insurance Fund. Specifically, the final rule set a target size for the Deposit Insurance Fund at 2 percent of
insured deposits and implements a lower assessment rate schedule when the fund reaches 1.15 percent and, in lieu of dividends,
provides for a lower rate schedule when the reserve ratio reaches 2 percent and 2.5 percent. The final rule also created a scorecard-
based assessment system for banks with more than $10 billion in assets. The final rule went into effect beginning with the second
quarter of 2011.

As insurer, the FDIC is authorized to conduct examinations of and to require reporting by federally-insured institutions. It also

may prohibit any federally-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a
serious threat to the Deposit Insurance Fund. The FDIC also has the authority to take enforcement actions against insured institutions.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and
unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC or written agreement entered into with the FDIC. The management of the Bank does not
know of any practice, condition or violation that might lead to termination of deposit insurance.

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 in order to influence general economic conditions, primarily through open market operations in
U.S. government securities, changes in the discount rate on bank borrowings and changes in the reserve requirements against
depository institutions’ deposits. These policies and regulations significantly affect the overall growth and distribution of loans,
investments and deposits, as well as interest rates charged on loans and paid on deposits.

The monetary policies of the Federal Reserve board have had a significant effect on operations and results of financial
institutions in the past and are expected to have significant effects in the future. In view of the changing conditions in the economy,
the money markets and activities of monetary and fiscal authorities, Farmers can make no predictions as to future changes in interest
rates, credit availability or deposit levels.

Community Reinvestment Act

The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and

sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by,
among other things, providing credit to low- and moderate-income individuals and communities. Depository institutions are
periodically examined for compliance with the CRA and are assigned ratings. In order for a bank holding company to commence any
new activity permitted by the BHCA, or to acquire any company engaged in any new activity permitted by the BHCA, each insured
depository institution subsidiary of the bank holding company must have received a rating of at least “satisfactory” in its most recent
examination under the CRA. Furthermore, banking regulators take into account CRA ratings when considering approval of a proposed
transaction. Farmers received a rating of “satisfactory” in its most recent CRA examination.

Customer Privacy

Farmers Bank is subject to regulations limiting the ability of 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 customers to prevent disclosure of certain personal information to a nonaffiliated third party. These regulations
affect how consumer information is transmitted and conveyed to outside vendors.

Anti-Money Laundering and the USA Patriot Act

The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of

2001 (the “USA Patriot Act”) 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 USA Patriot Act 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
agencies 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.

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 Commission. 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
Farmers’ corporate governance practices, on the Company’s website at www.farmersbankgroup.com.

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.

Executive and Incentive Compensation

In June 2010, the Federal Reserve Board, OCC and FDIC issued joint interagency guidance on incentive compensation policies

(the “Joint Guidance”) 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. This 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.

Pursuant to the Joint Guidance, the Federal Reserve Board will review as part of a regular, risk-focused examination process, the

incentive compensation arrangements of financial institutions such as Farmers. Such 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 banking agencies jointly issued proposed rules on incentive-based compensation arrangements

under applicable provisions of the Dodd-Frank Act (the “Proposed Rules”). The Proposed Rules generally apply to financial
institutions with $1.0 billion or more in assets that maintain incentive-based compensation arrangements for certain covered
employees. The Proposed Rules: (i) prohibit 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) prohibit 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) require covered
financial institutions to maintain policies and procedures appropriate to their size, complexity and use of incentive-based
compensation to help ensure compliance with the Proposed Rules; and (iv) require 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.

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

the U.S. Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or
contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution
regulatory system. Such legislation could change the operating environment for Farmers 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. Farmers cannot predict the scope and timing of any such future legislation and, if
enacted, the effect that it could have on its business, financial condition or results of operations.

Summary

To the extent that the foregoing 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 agreements. Also, such statutes, regulations
and policies are continually under review by the U.S. Congress and state legislatures as well as 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 Farmers and its business, financial condition or results of
operations.

Item 1A. Risk Factors.

The following are certain risk factors that could materially and negatively affect our business, results of operations, cash flows

or financial condition. These risk factors should be considered in connection with evaluating the forward-looking statements contained
in this Annual Report on Form 10-K because these factors could cause our actual results or financial condition to differ materially
from those projected in forward-looking statements. The risks that are discussed below are not the only ones we face. If any of the
following risks occur, our business, financial condition or results of operations could be negatively affected. 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.

Beginning in the latter half of 2007 through 2009, the U.S. economy was in recession and business activity across a wide range
of industries and regions in the U. S. was greatly reduced. Although economic conditions have improved, certain sectors, such as real
estate and manufacturing, remain weak and unemployment remains high. It is also possible that recent improvements may be reversed
if current economic turmoil in Europe becomes global or the United States Congress fails to resolve certain critical fiscal policies it is
now facing, including the automatic budget cuts contemplated in the sequester arrangement and raising the federal government’s debt
ceiling in time to avoid a default. In addition, many local governments and many businesses are still in serious difficulty due to
depressed consumer spending and continued decreased liquidity in the credit markets.

Market conditions have also led to poor financial performance resulting in the failure and merger of a number of financial
institutions. These failures, as well as possible future failures, have had a significant negative impact on the capitalization levels and of
the Deposit Insurance Fund, which has led to a significant increase in deposit insurance premiums paid by financial institutions.

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, governmental
fiscal policies, 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. Moreover, the Financial Accounting Standards Board may change its requirements for establishing the loan
loss allowance. The substantial majority of our loans are to individuals and businesses in the Mahoning Valley and Stark County (the
“Valley”). Consequently, further significant declines in the economy in the Valley could have a material adverse effect on our
business, financial condition or 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 earnings and cash flow are dependent upon our net interest income. Net interest income is the difference between the
interest income generated by our interest-earning assets (consisting primarily of loans and, to a lesser extent, securities) and the
interest expense generated by our interest-bearing liabilities (consisting primarily of deposits and wholesale borrowings). Our level of
net interest income is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-
bearing liabilities and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both
the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by external factors,
such as the local economy, competition for loans and deposits, the monetary policy of the Federal Reserve Board and market interest
rates.

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. While we have taken measures intended to manage the risks of operating in a
changing interest rate environment, there can be no assurance that such measures will be effective in avoiding undue interest rate risk.
See additional interest rate risk discussion under the Market Risk section found in Item 7A of this Annual Report on Form 10-K.

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 credit, trading, clearing or

other relationships between 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 financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms
and exchanges, with which we and our subsidiaries interact on a daily basis, and therefore could adversely affect our business,
financial condition or results of operations.

Risks Related to Our Business

We extend credit to a variety of customers based on internally set standards and judgment. We manage 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
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, 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 adhere to corporate
policy and problem loans 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.

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

As of December 31, 2014, approximately 61.2% of our loan portfolio consisted of commercial real estate and residential real

estate 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 business depends significantly on general economic conditions in Ohio. Accordingly, the ability of our borrowers to repay
their loans, and the value of the collateral securing such loans, may be significantly affected by economic conditions in the regions we
serve or by changes in the local real estate markets. A significant decline in general economic conditions caused by inflation,
recession, unemployment, acts of terrorism, or other factors beyond our control could therefore have an adverse effect on our business,
financial condition or results of operations.

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 us 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.

As of December 31, 2014, approximately 18.1% of our loan portfolio consisted of commercial and industrial 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 and cause a significant increase in non-performing
loans. 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. An
increase in non-performing loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses and
an increase in loan charge-offs, all of which could have a material adverse effect on our business, financial condition or results of
operations.

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

We maintain an allowance for loan losses to cover current, probable 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 business, financial condition or results of operations.

We are subject to certain risks with respect to liquidity.

“Liquidity” refers to our ability to generate sufficient cash flows to support our operations and to fulfill our obligations,
including commitments to originate loans, to repay our wholesale borrowings and other liabilities and to satisfy the withdrawal of
deposits by our customers. Our primary source of liquidity is our core deposit base, which is raised through our retail branch system.
Core deposits – savings and money market accounts, time deposits less than $100 thousand and demand deposits—comprised
approximately 91.1% of total deposits at December 31, 2014. Additional available unused wholesale sources of liquidity include
advances from the FHLB, issuances through dealers in the capital markets and access to certificates of deposit issued through brokers.
Liquidity is further provided by unencumbered, or unpledged, investment securities that totaled $234 million at December 31, 2014.
An inability to raise funds through deposits, borrowings, the sale or pledging as collateral of loans and other assets could have a
substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be
impaired by factors that affect us specifically or the financial services industry in general. Factors that could negatively affect our
access to liquidity sources include a decrease in the level of our business activity due to a market downturn or negative regulatory
action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as severe disruption of the
financial markets or negative news and expectations about the prospects for the financial services industry as a whole, as evidenced by
recent turmoil in the domestic and worldwide credit markets.

Our business strategy includes continuing our growth plans. Our business, financial condition or 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 or results of operations.

Strong competition within the market in which we operate 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 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 business, financial condition or 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, financial condition or results of operations.

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. 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. 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. Further discussion of our ability to pay dividends can be found under the caption
“Dividends and Transactions with Affiliates” in Item 1 of this Annual Report on Form 10-K.

We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations.
Federal banking agencies have proposed extensive changes to their capital requirements, including raising required amounts and
eliminating the inclusion of certain instruments from the calculation of capital. The final form of such regulations and their impact on
the Company is unknown at this time but may require us to raise additional capital. In addition, we may elect to raise capital to support
our business or to finance acquisitions, if any, or for other anticipated reasons. Our ability to raise additional capital, if needed, will
depend on financial performance, conditions in the capital markets, economic conditions and a number of other factors, including the
satisfaction or release of preemptive rights in the event of a common share offering, many of which are outside our control. Therefore,
there can be no assurance additional capital can be raised when needed or that capital can be raised on acceptable terms. The inability
to raise capital may have a material adverse effect on our business, financial condition or results of operations.

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.

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 Deposit Insurance Fund to resolve the cost of bank failures. Since 2007, the number of bank failures

has increased significantly, which dramatically increased resolution costs of the FDIC and depleted the Deposit Insurance Fund. Also
during this period, the FDIC and the U.S. Congress have instituted a program to further insure customer deposits at FDIC-member
banks: (i) deposit accounts are now insured up to $250,000 per customer (up from $100,000). This has placed additional stress on the
Deposit Insurance Fund.

Since late 2008, the FDIC has taken various actions intended to maintain a strong funding position and restore reserve ratios of

the Deposit Insurance Fund. These actions have included increasing assessment rates for all insured institutions, requiring riskier
institutions to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and unsecured debt levels,
imposing special assessments and requiring insured depository institutions to prepay their quarterly risk-based assessments for the
fourth quarter of 2009 and full years 2010 through 2012. In addition, on February 7, 2011, the FDIC approved a final rule that
changed the deposit insurance assessment base and assessment rate schedule, adopted a new large-bank pricing assessment scheme,
and set a target size for the Deposit Insurance Fund. The rule, as mandated by the Dodd-Frank Act, finalized a target size for the
Deposit Insurance Fund at 2 percent of insured deposits. The final rule went into effect beginning with the second quarter of 2011.

We have a limited ability to control the amount of premiums we are required to pay for FDIC insurance. If there are additional

financial institution failures or other significant legislative or regulatory changes, the FDIC may be required to increase assessment
rates or take actions similar to those taken during 2009. Increases in FDIC insurance 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.

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 Fund, 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 an 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.

In addition to laws, regulations and actions directed at the operations of banks, proposals to reform the housing finance market

consider winding down Fannie Mae and Freddie Mac, which could negatively affect our sales of loans.

Continued regulatory changes implemented under the Dodd-Frank Act may adversely impact our business, financial

condition or results of operations.

On July 21, 2010, the Dodd-Frank Act was signed into law as an intended comprehensive overhaul of the financial services

industry within the U.S. There are a number of reform provisions that are likely to significantly impact the ways in which banks and
bank holding companies do business. A detailed discussion regarding the Dodd-Frank Act can be found under the caption “Dodd-
Frank Act” in Item 1 of this Annual Report on Form 10-K.

While the ultimate effect of the changes effected and to be implemented under the Dodd-Frank Act cannot currently be
determined, the law and its implementing rules and regulations are expected to result in increased compliance costs and fees paid to
regulators, along with possible restrictions on our banking operations, all of which may have a material adverse affect on our business,
financial condition or results of operations.

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. 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 or 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 business, financial condition or results
of operations.

Changes in tax laws could adversely affect our performance.

We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding

and ad valorem taxes. Changes to our taxes could have a material adverse effect on our results of operations. On January 1, 2014 the
State of Ohio replaced the current franchise tax for financial institutions with the new Ohio Financial Institutions Tax. The Company
has determined that this new tax will have a non-material positive effect on the Company. In addition, our customers are subject to a
wide variety of federal, state and local taxes. Changes in taxes paid by our customers may adversely affect their ability to purchase
homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative
effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in
which we have invested.

Changes to the healthcare laws in the United States may increase the number of employees who choose to participate in our

healthcare plans, which may significantly increase our healthcare costs and negatively impact our financial results.

We offer healthcare coverage to our eligible employees with part of the cost subsidized by the Company. With recent changes to

the healthcare laws in the United States becoming effective in 2014, more of our employees may choose to participate in our health
insurance plans, which could increase our costs for such coverage and material adversely impact our costs of operations.

Anti-takeover provisions could delay or prevent an acquisition or change in control by a third party.

Provisions of the Ohio General Corporation Law, our Articles of Incorporation, and our Amended Code of Regulations,
including a staggered board and supermajority voting requirements, could make it more difficult for a third party to acquire control of
us or could have the effect of discouraging a third party from attempting to acquire control of us.

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 business, financial condition or results of operations.

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 business, financial condition or results of operations. 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 Farmers 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 Farmers 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

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

Mineral Ridge Office ............................ 3826 South Main Street, Mineral Ridge, Ohio

Niles Operation Center ......................... 51 South Main Street, Niles, Ohio

Canton Office ........................................ 4518 Fulton Dr., Canton, Ohio

McClurg Road Office ........................... 42 McClurg Rd., Boardman, Ohio

Howland Office..................................... 1625 Niles-Cortland Rd., Warren, Ohio

Fairlawn Office ..................................... 2820 W. Market St., Suite 120, Akron, Ohio

Wealth Management Building .............. 2 S. Broad Street, Canfield, Ohio

The Bank owns all locations except the Colonial Plaza, Canton and Fairlawn offices, which are leased.

Farmers Trust Company Property
Farmers Trust Company operates from two locations owned by the Bank:

Boardman Office................................... 42 McClurg Rd., Boardman, Ohio

Howland Office..................................... 1625 Niles-Cortland Rd., Warren, Ohio

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

Wealth Management Building .............. 2 S. Broad Street, Canfield, Ohio

National Associates, Inc. Property
National Associates, Inc. operates from one location which is leased:

Rocky River Office ............................... 20325 Center Ridge Rd., Cleveland, 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. Mine Safety Disclosures

Not applicable.

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.

Farmers’ common shares currently trade under the symbol “FMNB” on the Nasdaq Capital Market. Farmers had 18,408,612
common shares outstanding and approximately 3,143 holders of record of common shares at February 23, 2015. The following table
sets forth price ranges and dividend information for Farmers’ common shares for the calendar quarters indicated. Quotations reflect
inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions. Certain limitations
and restrictions on the ability of Farmers to continue to pay quarterly dividends are described under the caption “Capital Resources” in
Item 7 of this Part II, and under the caption “Dividends and Transactions with Affiliates” in Item 1 of Part I.

Quarter Ended
High ...................................................................................... $
Low ....................................................................................... $
Cash dividends paid per share ............................................... $

March 31,
2014

June 30,
2014

September 30,
2014

December 31,
2014

7.75 $
6.53 $
0.03 $

7.89 $
7.35 $
0.03 $

8.71 $
7.10 $
0.03 $

8.68
7.40
0.03

March 31,
2013

June 30,
2013

September 30,
2013

December 31,
2013

6.90 $
6.13 $
0.03 $

6.70 $
5.81 $
0.03 $

6.58 $
6.10 $
0.03 $

6.59
6.11
0.03

Purchases of Common Shares by Farmers.

In September 2012, the Company announced that its Board of Directors approved a share repurchase program under which the

Company was authorized to repurchase up to 920,000 shares of its common stock in the open market or in privately negotiated
transactions, subject to market and other conditions (the “Program”). The Program may be modified, suspended or terminated by the
Company at any time. During the course of 2014, 2013 and 2012 the Company repurchased 372,368 shares, 247,845 shares and 7,221
shares of its common stock.

The following table summarizes the treasury stock activity under the program during the year ended December 31, 2014.

Total Number
of Shares
Purchased

Average Price
Paid per Share

Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program

Maximum
Number of
Shares that
May Yet be
Purchased
Under the
Program

7.65
7.87
7.77
7.74

255,066
148,000
73,500
150,868
627,434

664,934
516,934
443,434
292,566
292,566

Balance at December 31, 2013

Period

August 1-31 ...........................................................................
September 1-30 ......................................................................
October 1-31 ..........................................................................
Balance at December 31, 2014 ....................................................

148,000 $
73,500
150,868
372,368 $

Item 6. Selected Financial Data.

For the Years Ending December 31,

SELECTED FINANCIAL DATA
(Table Dollar Amounts in Thousands except Per Share Data)
2014

2013

2012

2011

2010

Summary of Earnings
Total Interest and Dividend Income

(including fees on loans) ........................................................$
Total Interest Expense ...............................................................
Net Interest Income ...................................................................
Provision for Loan Losses .........................................................
Noninterest Income (1) .............................................................
Noninterest Expense .................................................................
Income Before Income Taxes ...................................................
Income Taxes ............................................................................
NET INCOME ..........................................................................$

40,915 $
4,579
36,336
1,880
15,303
38,162
11,597
2,632
8,965 $

40,959 $
5,063
35,896
1,290
13,914
39,057
9,463
1,683
7,780 $

43,110 $
6,212
36,898
725
12,578
35,764
12,987
3,055
9,932 $

44,434 $
7,837
36,597
3,650
12,539
33,728
11,758
2,540
9,218 $

48,365
10,998
37,367
8,078
13,210
30,964
11,535
2,544
8,991

Per Share Data
Basic earnings per share ............................................................$
Diluted earnings per share .........................................................
Cash Dividends Paid .................................................................
Book Value at Year-End ...........................................................
Tangible Book Value (2) ...........................................................

0.48 $
0.48
0.12
6.71
6.23

0.41 $
0.41
0.12
6.02
5.47

0.53 $
0.53
0.18
6.43
6.11

0.50 $
0.50
0.12
6.10
5.76

0.66
0.66
0.12
6.45
5.95

Balances at Year-End
Total Assets ...............................................................................$ 1,136,967 $ 1,137,326 $ 1,139,695 $ 1,067,871 $ 982,751
915,224
Earning Assets .......................................................................... 1,074,434
761,050
Total Deposits ...........................................................................
915,703
105,634
Short-Term Borrowings ............................................................
59,136
24,733
Long-Term Borrowings ............................................................
28,381
0
Loans Held for Sale ...................................................................
511
581,060
Net Loans ..................................................................................
656,220
88,048
Total Stockholders' Equity ........................................................
123,560

1,076,073 1,082,078 1,014,997
840,125
98,088
11,263
677
561,986
114,445

919,009
79,886
10,423
3,624
578,963
120,792

915,216
81,617
19,822
158
623,116
113,007

Average Balances
Total Assets ...............................................................................$ 1,141,047 $ 1,141,770 $ 1,118,322 $ 1,035,392 $1,030,516
85,968
Total Stockholders' Equity ........................................................

118,011

116,735

105,276

120,352

Significant Ratios
Return on Average Assets (ROA) .............................................
Return on Average Equity (ROE) .............................................
Average Earning Assets/Average Assets ..................................
Average Equity/Average Assets................................................
Loans/Deposits ..........................................................................
Allowance for Loan Losses/Total Loans ..................................
Allowance for Loan Losses/Nonperforming Loans ..................
Efficiency Ratio (On tax equivalent basis) ................................
Net Interest Margin ...................................................................
Dividend Payout Rate ...............................................................
Tangible Common Equity Ratio (3) ..........................................

0.79%
7.45
93.02
10.55
72.50
1.15
89.99
70.24
3.59
24.95
10.17

0.68%
6.66
92.90
10.22
68.91
1.20
83.25
74.82
3.58
28.89
9.11

0.89 %
8.42
92.13
10.55
63.83
1.30
93.01
69.94
3.76
34.05
10.12

0.89%
8.76
92.64
10.17
68.06
1.72
89.19
67.14
4.01
24.31
10.18

0.87%
10.46
92.28
8.34
77.57
1.58
104.56
61.10
4.10
18.08
8.31

(1) Noninterest income includes a securities impairment charge of $3 thousand and $11 thousand for the years ended December 31,

2013 and 2011

(2) Tangible book value per share is Total Stockholders’ Equity minus goodwill and other intangible assets divided by the number

of shares outstanding.

(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 U.S.GAAP or by applicable bank
regulatory requirements, but is a metric used by management to evaluate the adequacy of our capital levels. Since there is no
authoritative requirement to calculate the tangible common equity ratio, our 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, 2014, 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,
Stockholders' Equity .................................................................... $
Less Goodwill and other intangibles ............................................
Tangible Common Equity ............................................................ $

2014
123,560 $
8,813
114,747 $

2013
113,007 $
10,343
102,664 $

2012
120,792 $
6,032
114,760 $

2011
114,445 $
6,441
108,004 $

2010
88,048
6,920
81,128

Reconciliation of Total Assets to Tangible Assets

December 31,
2010
Total Assets ...................................................................................$ 1,136,967 $ 1,137,326 $ 1,139,695 $ 1,067,871 $ 982,751
Less Goodwill and other intangibles .............................................
6,920
Tangible Assets .............................................................................$ 1,128,154 $ 1,126,983 $ 1,133,663 $ 1,061,430 $ 975,831

10,343

6,032

8,813

6,441

2012

2011

2014

2013

Average Balance Sheets and Related Yields and Rates
(Table Dollar Amounts in Thousands except Per Share Data)

Years ended December 31,

2014

2013

2012

AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE

AVERAGE

EARNING ASSETS
Loans (1) (3) (5) ................... $ 631,011 $
Taxable securities (2) ........... 332,273
Tax-exempt securities (2) (5) ...
81,529
Equity securities (4) (5) ........
4,282
Federal funds sold and other

cash .................................

12,331
Total earning assets .............. 1,061,426

NONEARNING ASSETS

Cash and due from banks .....
Premises and equipment .......
Allowance for Loan Losses ....
Unrealized gains on

20,355
17,392
(7,338 )

securities ..........................
(2,003 )
Other assets (1).....................
51,215
Total Assets .......................... $ 1,141,047

INTEREST-BEARING
LIABILITIES

Time deposits ....................... $ 217,126 $
Savings deposits ................... 408,956
Demand deposits .................. 127,066
Short term borrowings .........
72,870
Long term borrowings ..........
21,240
Total Interest-Bearing

31,390 4.97% $ 595,560 $
351,898
7,282 2.19
87,001
3,839 4.71
4,323
190 4.44

31,211 5.24 % $ 564,952 $
7,062 2.01 334,470
73,979
4,487 5.16
4,363
196 4.53

32,249 5.71%
8,099 2.42
4,308 5.82
206 4.72

19 0.15
42,720 4.02

21,964
1,060,746

35 0.16

52,585
42,991 4.05 1,030,349

100 0.19
44,962 4.36

20,085
17,912
(7,451)

2,623
47,855
$ 1,141,770

21,171
17,663
(9,017 )

13,766
44,390
$ 1,118,322

3,506 1.61% $ 230,232 $
415,179
124,990
91,653
16,597

466 0.11
36 0.03
46 0.06
525 2.47

3,858 1.68 % $ 247,428 $
664 0.16 413,497
38 0.03 116,409
93,730
51 0.06
10,568
452 2.72

4,700 1.90%
976 0.24
43 0.04
103 0.11
390 3.69

Liabilities ........................ 847,258

4,579 0.54

878,651

5,063 0.58 881,632

6,212 0.70

NONINTEREST-
BEARING LIABILITIES
AND STOCKHOLDERS'
EQUITY

Demand deposits .................. 163,644
Other Liabilities ...................
9,793
Stockholders' equity ............. 120,352
Total Liabilities and .............
Stockholders' Equity ............ $ 1,141,047

140,111
6,273
116,735

114,616
4,063
118,011

$ 1,141,770

$ 1,118,322

Net interest income and
interest
rate spread ...........................

38,141 3.48%

37,928 3.47 %

38,750 3.66%

Net interest margin ...............

3.59%

3.58 %

3.76%

(1) Non-accrual loans and overdraft deposits are included in other assets.

(2)

(3)

Includes unamortized discounts and premiums. Average balance and yield are computed using the average historical amortized
cost.
Interest on loans includes fee income of $2.5 million, $2.4 million and $2.2 million for 2014, 2013 and 2012 respectively and is
reduced by amortization of $2.1 million, $2.1 million and $1.9 million for 2014, 2013 and 2012 respectively.
(4) Equity securities include restricted stock, which is included in other assets on the consolidated balance sheets.
(5) For 2014, adjustments of $489 thousand and $1.3 million were made to tax equate income on tax exempt loans and tax exempt
securities. For 2013, adjustments of $494 thousand and $1.5 million were made to tax equate income on tax exempt loans and
tax exempt securities. For 2012, adjustments of $375 thousand and $1.5 million were made to tax equate income on tax exempt
loans and tax exempt securities. These adjustments are based on a marginal federal income tax rate of 35%, less disallowances.

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

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

Tax Equivalent Interest Income
Loans ................................................. $
Taxable securities ..............................
Tax-exempt securities .......................
Equity securities ................................
Funds sold and other cash .................
Total interest income ........................... $

Interest Expense
Time deposits .................................... $
Savings deposits ................................
Demand deposits ...............................
Short term borrowings ......................
Long term borrowings .......................
Total interest expense .......................... $

Increase (decrease) in tax equivalent
net interest income ............................ $

2014 change from 2013

2013 change from 2012

Net
Change

Change Due Change Due
To Volume

To Rate

Net
Change

Change Due Change Due
To Volume

To Rate

179 $
220
(648)
(6)
(16)
(271) $

(352) $
(198)
(2)
(5)
73
(484) $

1,858 $
(394)
(282)
(2)
(15)
1,165 $

(220) $
(10)
1
(10)
126
(113) $

(1,679) $
614
(366)
(4)
(1)
(1,436) $

(132) $
(188)
(3)
5
(53)
(371) $

(1,038 ) $
(1,037 )
179
(10 )
(65 )
(1,971 ) $

(842 ) $
(312 )
(5 )
(52 )
62
(1,149 ) $

1,747 $
422
758
(2)
(58)
2,867 $

(327) $
4
3
(2)
222
(100) $

(2,785)
(1,459)
(579)
(8)
(7)
(4,838)

(515)
(316)
(8)
(50)
(160)
(1,049)

213 $

1,278 $

(1,065) $

(822 ) $

2,967 $

(3,789)

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.

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

The following presents a discussion and analysis of Farmers’ financial condition and results of operations by its management.
The review highlights the principal factors affecting earnings and the significant changes in balance sheet items for the years 2014,
2013 and 2012. Financial information for prior years is presented when appropriate. The objective of this financial review is to
enhance the reader’s understanding of the accompanying tables and charts, the consolidated financial statements, notes to financial
statements, and financial statistics appearing elsewhere in this Annual Report on Form 10-K. Where applicable, this discussion also
reflects management’s insights of known events and trends that have or may reasonably be expected to have a material effect on
Farmers’ business, financial condition or results of operations.

Cautionary Note Regarding Forward Looking Statements

Discussions in this Annual Report on Form 10-K 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 Farmers’ filings with
the Securities and Exchange Commission, including without limitation the risk factors disclosed in Item 1A, “Risk Factors” of this
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 Farmers 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 Farmers 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 similar items.

Other factors not currently anticipated may also materially and adversely affect Farmers’ business, financial condition, results of

operations or cash flows. There can be no assurance that future results will meet expectations. While the Company believes that the
forward-looking statements in this Annual Report on Form 10-K 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. Farmers 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, 2014 and 2013.

The Company’s net income totaled $9.0 million during 2014, compared to $7.8 million for 2013. On a per share basis, diluted

earnings per share were $0.48 as compared to $0.41 diluted earnings per share for 2013. Common comparative ratios for results of
operations include the return on average assets and return on average stockholders’ equity. For 2014, the return on average equity was
7.45%, compared to 6.66% for 2013. The return on average assets was 0.79% for 2014 and 0.68% for 2013.

The results for 2014 included $457 thousand in gains on sales of securities, compared to $863 thousand in 2013.

During 2013, the Company completed the acquisition of all outstanding stock of the retirement planning consultancy National
Associates, Inc. of Cleveland, Ohio. The company is a leading independent consultant to retirement plans and offers actuarial, plan
design, compliance and administrative services. As a third party administrator, NAI provides services to 401(k), defined benefit, profit
sharing, flexible spending, 403(b), ESOP and other plans. In acquiring NAI, the Company assumes a professional staff that is highly
qualified and credentialed. Synergies and the cost savings resulting from the combining of the operations of the companies will help
drive an increase of non-interest income.

NAI contributed $1.8 million of gross revenues to the Company resulting in a net loss of $671 thousand for the year ended
December 31, 2014. The net loss was mainly due to the $764 thousand goodwill impairment charge. The goodwill was partially
impaired as described in Note 6, by an amount equal to the reduction in the contingent consideration payable. The two adjustments
offset resulting in a zero impact to the Company’s consolidated statements of income for year ended December 31, 2014.

During January of 2015, the Company announced a definitive agreement had been reached to acquire National Bancshares
Corporation, the holding company of First National Bank of Orrville and will be merged with and into Farmers National Bank of
Canfield. At the completion of the transaction, which is expected to occur during the first quarter of 2015, First National Bank of
Orrville branches will become branches of Farmers National Bank of Canfield. Pursuant to the Agreement, each shareholder of
National Bancshares will be entitled to elect to receive either $32.15 per share in cash or 4.034 shares of Farmers’ common stock,
subject to an overall limitation of 80% of the shares being exchanged for stock and 20% for cash. Based on Farmers’ volume
weighted average stock price over the last 20 trading days of $7.97, as of January 26, 2015, the transaction is valued at approximately
$74.0 million. The merger is expected to qualify as a tax-free reorganization for those shareholders electing to receive Farmers’ stock.
The transaction is subject to receipt of National Bancshares’ shareholder approval, the Company’s shareholder approval and
customary regulatory approvals. The Company estimates that, following the closing, it will have approximately $1.7 billion in assets
and 33 banking locations throughout Ohio. Farmers expects the transaction to be accretive to earnings per share in the first full year of
operations, excluding any one-time restructuring charges, and that the Bank will exceed “well-capitalized” thresholds under all
regulatory definitions. The transaction helps the Company achieve additional operating scale and drive earnings per share growth as
the management team continues to focus on achieving above-average returns for shareholders. In addition to the financial benefits, the
merger is a significant step in the Company’s strategy to expand the Bank’s footprint. The combined company will create a top-
performing Midwest community bank that has the scale, product depth and efficiency to compete effectively and deliver best-in-class
service to customers, while providing employees with a compelling corporate culture and enhanced advancement potential.

Net Interest Income

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 2014, taxable equivalent net interest income increased
$213 thousand, or 0.56%, from 2013. Interest-earning assets averaged $1.061 billion during 2014, increasing $680 thousand compared
to 2013. The Company’s interest-bearing liabilities decreased 3.57% from $878.7 million in 2013 to $847.3 million in 2014.

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 2014 was 3.48%,
increasing from 3.47% in 2013. 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 2014, the net interest margin, measured on a fully taxable equivalent basis, increased to 3.59%,
compared to 3.58% in 2013.

The increase in net interest margin is largely a result of interest bearing liabilities repricing at lower rates. As long term time

deposits mature they are being renewed at lesser rates or moving to more liquid accounts at lower interest rates. Total taxable
equivalent interest income was $42.7 million for 2014, which is $271 thousand less than the $43.0 million reported in 2013. In
comparing the years ending December 31, 2014 and 2013, yields on earning assets decreased 3 basis points while the cost of interest
bearing liabilities decreased similarly at 4 basis points. Average loans increased $35.5 million, or 5.95%, in 2014, however the yields
decreased from 5.24% in 2013 to 4.97% in 2014. Tax equated income from securities, federal funds and other decreased $450
thousand, or 3.82%, in 2014. Even though tax equated income decreased Farmers saw its yields on these assets increase from 2.53% in
2013 to 2.63% in 2014, with taxable securities increasing 18 basis points. This can be attributed to a reduction in amortization expense
due to the reduction of prepayments in the mortgage backed security portfolio. The average balance of investment securities and
federal funds sold decreased from $465.2 million in 2013 to $430.4 million in 2014.

Total interest expense amounted to $4.6 million for 2014, a 9.6% decrease from $5.1 million reported in 2013. The decrease in
2014 is the result of lower rates of interest paid on interest-bearing deposits and repurchase agreements. The cost of interest-bearing
liabilities decreased from 0.58% in 2013 to 0.54% in 2014.

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 $1.4 million in 2014. The increase in noninterest income is due to several factors.
Retirement plan consulting fees increased to $1.8 million compared to $628 thousand in 2013, reflecting a full twelve months this year
compared to six months of income earned from the newly acquired entity, NAI in 2013. Service charges on deposit accounts increased
from $2.4 million in 2013 to $2.6 million in 2014 as the Company made adjustments to the service charge structure of its deposit
accounts. Trust fees also increased $509 thousand, insurance agency commissions increased $111 thousand and investment
commissions increased $37 thousand, as management continues to focus on diversifying revenue sources to decrease the reliance on
net interest income as the main driver of revenue.

Noninterest Expenses

Noninterest expense for 2014 was $38.2 million, compared to $39.1 million in 2013, representing a decrease of $895 thousand,
or 2.3%. Most of the decrease was a result of a 5.3% decrease in salary and employee benefits, mainly due to severance costs recorded
in 2013 and not in 2014. State and local taxes decreased $435 thousand to $878 thousand in 2014 compared to $1.3 million in 2013.
The decrease is the result of the new and reduced financial institution’s tax rate by the state of Ohio in 2014. Merger related costs also
decreased $330 thousand in 2014.

Professional fees increased 10.8% as a result of corporate legal and consulting fees related to compensation practices and other

business advisory fees. Intangible amortization increased $143 thousand as a result of a full twelve months of amortization of
intangible assets related to the acquisition of NAI. Advertising increased $201 thousand.

The Company’s tax equivalent efficiency ratio for the twelve month period ended December 31, 2014 was 70.24%, compared to

74.82% for the same period in 2013. The main factor leading to the improvement in the efficiency ratio was the decrease in
noninterest expenses and increase in noninterest income as explained earlier in this section. The efficiency ratio is calculated as
follows: non-interest expense divided by the sum of tax equivalent net interest income plus non-interest income, excluding security
gains and losses and intangible amortization. This ratio is a measure of the expense incurred to generate a dollar of revenue.
Management will continue to closely monitor and keep the increases in other expenses to a minimum.

Income Taxes

Income tax expense totaled $2.6 million for 2014 and $1.7 million in 2013. Income taxes are computed using the appropriate

effective tax rates for each period. The increase in the current year tax expense can be mainly attributed to the $2.1 million increase in
income before taxes. 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 22.7% for 2014 and 17.8% for 2013. The effective tax rate increase compared to the same
period in 2013 was primarily due to an increase in taxable noninterest income relative to tax exempt income from securities, loans and
bank owned life insurance. Refer to Note 14 to the consolidated financial statements for additional information regarding the effective
tax rate.

Comparison of Operating Results for the Years Ended December 31, 2013 and 2012.

The Company’s net income totaled $7.8 million during 2013, compared to $9.9 million for 2012. On a per share basis, diluted
earnings per share were $0.41 as compared to $0.53 diluted earnings per share for 2012. For 2013, the return on average equity was
6.66%, compared to 8.42% for 2012. The return on average assets was 0.68% for 2013 and 0.89% for 2012.

The results for 2013 included $863 thousand in gains on sales of securities, compared to $1.1 million in 2012.

Net Interest Income

For 2013, taxable equivalent net interest income decreased $822 thousand, or 2.12%, from 2012. Interest-earning assets
averaged $1.061 billion during 2013, increasing $30.4 million, or 2.95%, compared to 2012. The Company’s interest-bearing
liabilities decreased 0.34% from $881.6 million in 2012 to $878.7 million in 2013.

Total taxable equivalent interest income was $43.0 million for 2013, which is $2.0 million less than the $45.0 million reported

in 2012. In comparing the years ending December 31, 2013 and 2012, yields on earning assets decreased 31 basis points while the cost
of interest bearing liabilities decreased 12 basis points. Average loans increased $30.6 million, or 5.42%, in 2013, however the yields
decreased from 5.71% in 2012 to 5.24% in 2013. Tax equated income from securities, federal funds and other decreased $933
thousand, or 7.3%, in 2013, Farmers saw its yields on these assets decreased from 2.73% in 2012 to 2.53% in 2013. The average
balance of investment securities and federal funds sold decreased slightly from $465.4 million in 2012 to $465.2 million in 2013.

Total interest expense amounted to $5.1 million for 2013, a 18.5% decrease from $6.2 million reported in 2012. The decrease in

2013 is the result of lower rates of interest paid on interest-bearing deposits and repurchase agreements. The cost of interest-bearing
liabilities decreased from 0.70% in 2012 to 0.58% in 2013.

Noninterest Income

Total noninterest income increased by $1.3 million in 2013. The increase in noninterest income is due to several factors.
Retirement plan consulting fees increased to $477 thousand compared to none in 2012 reflecting the income earned from the newly
acquired entity, NAI. Service charges on deposit accounts increased from $2.0 million in 2012 to $2.4 million in 2013 as the Company
made adjustments to the service charge structure of its deposit accounts. Bank owned life insurance income increased $170 thousand
as the Company received tax free death benefits, which are included in income. Insurance agency commissions also increased $119
thousand and trust fees increased $86 thousand, as management continues to focus on diversifying revenue sources to decrease the
reliance on net interest income as the main driver of revenue. Other operating income also increased $406 thousand, which is
primarily the result of a gain on the sale of land that was owned by the Company.

Noninterest Expenses

Noninterest expense for 2013 was $39.1 million, compared to $35.8 million in 2012, representing an increase of $3.3 million, or

9.2%. Most of the increase was a result of an 11.7% increase in salary and employee benefits, mainly due to $1.3 million recorded in
severance costs. The majority of the severance costs were associated with the departure of the Company’s President and CEO in 2013.
The Company underwent a cost reduction program in 2013 that included the closure of two retail branch locations and the elimination
of several full time positions. The reduction in the number of employees in the bank was offset by the employees included in the
acquisition of NAI. Including the 17 employees of NAI, we have 328 full time equivalent employees compared to 335 one year ago.

Professional fees increased 16% as a result of corporate legal and consulting fees related to compensation practices and other
business advisory fees. Intangible amortization increased $215 thousand as a result of the amortization of intangible assets related to
the acquisition of NAI. Merger related costs also increased $330 thousand, and other operating expenses increased $193 thousand.
State and local taxes also increased $110 thousand or 9.1% as a result of an increase in intangible tax paid to the State of Ohio due to
higher levels of stockholders’ equity.

Income Taxes

Income tax expense totaled $1.7 million for 2013 and $3.1 million in 2012. The effective income tax rate was 17.8% for 2013

and 23.5% for 2012.

Liquidity

Farmers 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 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, Farmers has additional sources of liquidity available which help to insure that adequate funds are

available as needed. These other sources include, but are not limited to, loan repayments, the ability to obtain deposits through the
adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at two major domestic
banks. At December 31, 2014, Farmers had not borrowed against these lines of credit. Management feels that its liquidity position is
more than adequate and will continue to monitor the position on a monthly basis. The Company also has additional borrowing
capacity with the 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, 2014, the Bank is eligible to
borrow an additional $81.9 million from the FHLB under various fixed rate and variable rate credit facilities. Advances outstanding
from the FHLB at December 31, 2014 amounted to $28.4 million.

Farmers’ primary investing activities are originating loans and purchasing securities. During 2014, net cash provided by
investing activities amounted to $6.2 million, compared to $28.0 million used in 2013. Net increases in loans were $35.4 million in
2014, compared to $45.5 in 2013. The cash used by lending activities during 2014 can be attributed to the activity in the commercial
real estate, residential real estate and commercial loan portfolios. Purchases of securities available for sale were $64.4 million in 2014,
compared to $149.9 million in 2013 and proceeds from maturities and sales of securities available for sale were $106.6 million in
2014, compared to $169.0 million in 2013. There was $2.1 million used to purchase National Associates Inc. during the year ended
December 31, 2013.

Farmers’ primary financing activities are obtaining deposits, repurchase agreements and other borrowings. Net cash used in

financing activities amounted to $18.5 million for 2014, compared to $3.5 million provided in 2013. The majority of this change can
be attributed to the change in short-term borrowings. Short-term borrowings decreased $22.5 million in 2014 compared to an $1.7
million increase in 2013. The Company used $1.6 million for the acquisition of treasury shares in 2013 compared to $2.9 million in
2014. Deposits provided $487 thousand during 2014 and used $3.8 million during 2013.

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.

Balances include unamortized loan origination fees and costs.

2014

Years Ended December 31,
2013
34.2%$198,041 34.6 %$203,894 34.5%
Commercial Real Estate .......... $ 222,573 33.5 % $217,362
16.6 74,875 13.1 76,635 13.0%
105,023
Commercial ............................. 120,150 18.1
26.6 167,031 29.2 177,067 30.0%
170,151
Residential Real Estate ............ 183,853 27.7
Consumer ................................ 137,276 20.7
22.6 131,859 23.1 132,771 22.5%
138,148
Total Loans ............................. $ 663,852 100.0 % $630,684 100.0%$586,592 100.0%$571,806 100.0 %$590,367 100.0%

2012
34.4%$200,651
16.7 97,112
27.0 156,182
21.9 132,647

2010

2011

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, 2014:

Types of Loans
Commercial ...............................................................$
Commercial Real Estate ............................................$

1 Year or less 1 to 5 Years

25,770 $
63,651 $

Over 5 Years
48,862
27,565

45,518 $
131,357 $

The amounts of commercial and commercial real estate loans as of December 31, 2014, based on remaining scheduled

repayments of principal, are shown in the following table:

Loan Sensitivities
Floating or Adjustable Rates of Interest ....................$
Fixed Rates of Interest ...............................................
Total Loans ................................................................$

1 Year or less Over 1 Year

Total

76,814 $
12,607
89,421 $

118,151 $
135,151
253,302 $

194,965
147,758
342,723

Total loans were $663.9 million at year-end 2014, compared to $630.7 million at year-end 2013. This represents an increase of
5.3%. The increase in loans has mainly occurred in the commercial, residential real estate and commercial real estate loan portfolios.
Loans comprised 59.5% of the Bank’s average earning assets in 2014, compared to 56.1% in 2013. The product mix in the loan
portfolio includes commercial loans comprising 18.1%, residential real estate loans 27.7%, commercial real estate loans 33.5% and
consumer loans 20.7% at December 31, 2014 compared with 16.7%, 27.0%, 34.4% and 21.9%, respectively, at December 31, 2013.

Loans contributed 73.5% of total taxable equivalent interest income in 2014 and 72.6% in 2013. Loan yields were 4.97% in
2014, 95 basis points greater than the average rate for total earning assets. Management recognizes that while the loan portfolio holds
some of the Bank’s’ highest yielding assets, it is inherently the most risky portfolio. Accordingly, management attempts to balance
credit risk versus return with conservative credit standards. Management has developed and maintains comprehensive underwriting
guidelines and a loan review function that monitors credits during and after the approval process. To minimize risks associated with
changes in the borrower’s future repayment capacity, the Bank generally requires scheduled periodic principal and interest payments
on all types of loans and normally requires collateral. Commercial loans at December 31, 2014 increased 14.4% from year-end 2013
with outstanding balances of $120.2 million. The Bank’s commercial loans are granted to customers within the immediate trade area
of the Bank. The mix is diverse, covering a wide range of borrowers, business types and local municipalities. The Bank monitors and
controls concentrations within a particular industry or segment of the economy. These loans are made for purposes such as equipment
purchases, capital and leasehold improvements, the purchase of inventory, general working capital and small business lines of credit.

Residential real estate mortgage loans increased 8.1% to $183.9 million at December 31, 2014, compared to $170.2 million in
2013. Farmers originated both fixed rate and adjustable rate mortgages during 2014. Fixed rate terms are generally limited to fifteen
year terms while adjustable rate products are offered with maturities up to thirty years.

Commercial real estate loans increased from $217.4 million at December 31, 2013 to $222.6 million at December 31, 2014, an
increase of 2.4%. The Company’s commercial real estate loan portfolio includes loans for owner occupied and non-owner occupied
real estate. These loans are made to finance properties such as office and industrial buildings, hotels and retail shopping centers.

The growth in the commercial and commercial real estate loan portfolios was consistent with the improvements in the local

economy. Several new projects announced in the Mahoning Valley and Stark County, along with decreased levels of unemployment
have led small business owners to expand or make additional investments in their operations.

Summary of Loan Loss Experience

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

Years Ended December 31,
Balance at Beginning of Year ................................$
Charge-Offs: ..........................................................
Commercial Real Estate .......................................
Commercial ..........................................................
Residential Real Estate .........................................
Consumer .............................................................
Total Charge-Offs ................................................
Recoveries on Previous Charge-Offs:
Commercial Real Estate .......................................
Commercial ..........................................................
Residential Real Estate .........................................
Consumer .............................................................
Total Recoveries ..................................................
Net Charge-Offs .....................................................
Provision For Loan Losses .....................................
Balance at End of Year ..........................................$
Ratio of Net Charge-Offs to Average
Loans Outstanding ...............................................

2014

2013

2012

2011

2010

7,568 $

7,629 $

9,820 $

9,307 $

7,400

(151)
(185)
(585)
(2,213)
(3,134)

125
29
77
1,087
1,318
(1,816)
1,880
7,632 $

(505)
(99)
(326)
(1,723)
(2,653)

171
262
47
822
1,302
(1,351)
1,290
7,568 $

(1,225 )
(918 )
(806 )
(1,002 )
(3,951 )

253
50
104
628
1,035
(2,916 )
725
7,629 $

(1,246)
(414)
(1,736)
(1,125)
(4,521)

44
39
452
849
1,384
(3,137)
3,650
9,820 $

(1,910)
(2,898)
(760)
(1,177)
(6,745)

26
8
2
538
574
(6,171)
8,078
9,307

0.28%

0.23%

0.52 %

0.56%

1.02%

Provisions charged to operations amounted to $1.9 million in 2014, compared to $1.3 million in 2013, an increase of $590
thousand. This increase is primarily due to an increase in the level of charge-offs and the overall $33.2 million increase in total loans,
which are factors considered in management’s estimate of loan loss provisions and the adequacy of the allowance for loan losses. Net
charge-offs for the year ended December 31, 2014 were $1.8 million, $465 thousand higher than net charge-offs for the year ended
December 31, 2013. The allowance for loan losses to total loans decreased from 1.20% at December 31, 2013 to 1.15% at December
31, 2014. Conversely, nonperforming loans to total loans decreased from 1.44% at December 31, 2013 to 1.28% at December 31,
2014. The change in this ratio was the result of a decrease in nonperforming loans of $596 thousand from December 31, 2013. In
determining the estimate of the allowance for loan losses, management computes the historical loss percentage based upon the loss
history of the past 12 quarters. The Company believes that using a loss history of the previous 12 quarters helps mitigate volatility in
the timing of charge-offs and better reflects probable incurred losses.

The provision for loan losses charged to operating expense is based on management’s judgment after taking into consideration

all factors connected with the collectability 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 $64 thousand during the year. Aside from the various credit quality metrics discussed

above, another reason for the increase in the current year allowance for loan losses was an increase in probable incurred losses
associated with the commercial loan portfolio. At December 31, 2014, loans individually evaluated for impairment totaled $1.9
million with an allowance allocation of $272 thousand compared to commercial loans individually evaluated for impairment of $2.4
million with an allowance for loan losses of $110 thousand at December 31, 2013. The commercial real estate loan portfolio
experienced a negative provision of $50 thousand, even though the portfolio’s loan balances increased by 2.2% during 2014. This can
be attributed to the reduction in adversely classified commercial real estate loans during the year. The commercial loan portfolio’s
allowance for loan losses had a provision of $357 thousand and the residential real estate loan portfolio had a provision of $233
thousand while the consumer loan portfolio had a provision of $1.4 million for year ended December 31, 2014. 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 financial reporting process due to the

timing of when a loan is identified as impaired and the need to timely close Farmers’ 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 Farmers identifies a loan
as impaired and also concludes that the loan is collateral dependent, Farmers performs an internal collateral valuation as an interim
measure. Farmers 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 internally generated estimate before the
release of interim or annual financial statements, Farmers adjusts the associated specific loss reserve and, if necessary, Farmers’
consolidated financial statements for the difference.

The ratio of the allowance for loan losses to non-performing loans at December 31, 2014 was 89.99%, compared to 83.25% at
December 31, 2013. The decrease in non-performing loans is primarily related to the commercial and consumer loan portfolios. The
non-performing consumer loans decreased $150 thousand during 2014. The balance in the allowance for loan losses remained at $7.6
million or 1.15% of loans at December 31, 2014. This ratio has decreased from the 1.20% reported at December 31, 2013.

3,972
400
4,177
27
8,576
325
8,901

532
9,433

2,974
0
1.51%
0.96%
7,924

Nonperforming Assets
December 31,
Nonaccrual loans:
Commercial Real Estate ........................................................$
Commercial ...........................................................................
Residential Real Estate ..........................................................
Consumer ..............................................................................
Total Nonaccrual Loans ........................................................$
Loans Past Due 90 Days or More ...........................................
Total Nonperforming Loans ....................................................$

2014

2013

2012

2011

2010

3,356 $
1,645
2,881
126
8,008 $
473
8,481 $

3,211 $
1,993
2,864
363
8,431 $
646
9,077 $

3,915 $
1,081
2,636
0
7,632 $
596
8,228 $

6,025 $
527
4,196
12
10,760 $
250
11,010 $

Other Real Estate Owned ........................................................
Total Nonperforming Assets ...................................................$

148
8,629 $

171
9,248 $

334
8,562 $

585
11,595 $

Loans modified in troubled debt restructuring ........................$
TDRs included in Nonaccrual Loans ......................................$
Percentage of Nonperforming Loans to Loans ........................
Percentage of Nonperforming Assets to Total Assets .............
Loans Delinquent 30-89 days ..................................................
Percentage of Loans Delinquent 30-89 days

8,110 $
1,436 $
1.28%
0.76%
5,426

8,280 $
1,957 $
1.44%
0.81%
3,658

7,642 $
818 $
1.40 %
0.75 %
3,702

4,277 $
471 $
1.93%
1.09%
3,471

to Total Loans ....................................................................

0.82%

0.58%

0.63 %

0.61%

1.34%

The Company has forgone interest income of approximately $441 thousand from nonaccrual loans as of December 31, 2014 that

would have been earned, over the life of the loans, if all loans had performed in accordance with their original terms.

Net charge-offs as a percentage of average loans outstanding increased from 0.23% for 2013 to 0.28% for 2014. The primary

reason for the increase was gross charge-offs in the consumer portfolio increased by $490 thousand or 28.4% from 2013 to 2014. The
majority of the charge-offs in the consumer portfolio were related to indirect auto loans.

A significant allocation in the allowance for loan losses is for performing commercial and commercial real estate loans
classified by the internal loan review as substandard. The loss experience on the average balance of this category of loans for the past
three years has been approximately 3.3% of the principal balance of these loans, which is management’s allocation for these loans.
This equates to an allocation of approximately $250 thousand at the end of 2014 compared to an allocation of $295 thousand at the
end of 2013. The allocation decreased due to a decrease in the historical loss experience for the substandard loans. The actual loss
experience may be more or less than the amount allocated. At December 31, 2014, the amount of substandard loans that continue to
accrue interest is $8.5 million. As always, management is working to address weaknesses in each of these specific loans that may
result in loss.

December 31,

2014

2013

2012

2011

2010

Loans to
Total
Loans Amount

Amount

Loans to

Total
Loans Amount

Loans
to
Total
Loans

Commercial Real
Estate ............................$
Commercial ..................
Residential

Real Estate ...............
Consumer .....................
Unallocated ..................
$

2,676
1,420

33.5 % $
18.1 %

2,752
1,219

34.4%$
16.7%

3,392
1,453

34.2%$
16.6%

4,880
1,529

34.6 %$
13.1 %

5,780 34.5%
1,707 13.0%

1,689
1,663
184

27.7 %
20.7 %
0

7,632 100.0 % $

1,964
1,419
214
7,568

27.0%
21.9%
0
100.0%$

1,569
951
264
7,629

26.6%
22.6%
0
100.0%$

1,802
972
637

29.2 %
23.1 %
0
9,820 100.0 %$

881 30.0%
875 22.5%
0
64
9,307 100.0%

The allowance allocated to each of the four loan categories should not be interpreted as an indication that charge-offs in 2015

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 consumer loan category represents approximately 20.7% of total
loans and in 2014, the net loan losses accounted for 62.0% of the losses of the entire loan portfolio. For the commercial loan category,
which represents 18.1% of the total loan portfolio, management relies on the Bank’s internal loan review procedures and allocates
accordingly based on loan classifications. The net charge-offs in the commercial real estate portfolio which represents 33.5% of the
total portfolio, was $26 thousand for 2014.

There were no loans other than those identified above, that management has known information about possible credit problems

of borrowers and their ability to comply with the loan repayment terms. Management is actively monitoring certain borrowers’
financial condition and loans which management wants to more closely monitor due to special circumstances. These loans and their
potential loss exposure have been considered in management’s analysis of the adequacy of the allowance for loan losses.

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, 2014, 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 decreased $33.2 million in 2014. Maturing security funds were used to fund loan portfolio

growth. Excess balances of federal funds sold were strategically invested throughout the year. The Company’s investment strategy is
to maintain a diverse investment security portfolio with a higher concentration in mortgage-backed securities that are issued by U.S.
Government sponsored enterprises and tax-free municipal securities. Farmers sold $57.1 million in securities in 2014, resulting in net
security gains of $457 thousand. Farmers recognized market appreciation on faster paying mortgage-backed securities and lower rated
municipal securities, and reinvested in new mortgage-backed securities and higher rated municipal securities to further diversify the
securities portfolio. During 2014 the Company created the Investments subsidiary to hold municipal securities and take advantage of
more favorable tax treatment. At December 31, 2014, the Investments entity had a balance of $29.5 million in municipal securities.

Farmers’ objective in managing the investment portfolio is to preserve and enhance corporate liquidity through investment in

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

The Volcker Rule places limits on the trading activity of insured depository institutions and entities affiliated with a depository

institution, subject to certain exceptions. The Bank does not engage in any of the trading activities or own any of the types of funds
regulated by the Volcker Rule.

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. 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,
U.S. Treasury securities ................................................................................................$
U.S. government sponsored enterprise debt securities ..................................................
Mortgage-backed securities - residential and collateralized mortgage obligations .......
Small Business Administration .....................................................................................
Obligations of states and political subdivisons .............................................................
Equity securities ............................................................................................................
Corporate bonds ............................................................................................................
$

2014

2013

2012

844 $
23,977
249,537
22,419
91,881
240
931
389,829 $

100 $
51,210
251,656
23,573
94,734
187
1,525
422,985 $

100
67,878
276,813
21,444
95,288
437
2,128
464,088

A summary of debt securities held at December 31, 2014 classified according to maturity and including weighted average yield

for each range of maturities is set forth below:

Type and Maturity Grouping

December 31, 2014

Fair Value

Weighted
Average
Yield (1)

U.S. Treasury securities

Maturing within one year ...............................................................................................................$
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years ................................................................................
Total U.S. Treasury securities ........................................................................................................$

U.S. government sponsored enterprise debt securities
Maturing within one year ...............................................................................................................$
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years ...............................................................................
Maturing after ten years .................................................................................................................
Total U.S. government sponsored enterprise debt securities .......................................................$

Mortgage-backed securities - residential and collateralized mortgage obligations (2)
Maturing within one year ...............................................................................................................$
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years ...............................................................................
Maturing after ten years .................................................................................................................
Total mortgage-backed securities ................................................................................................$

Small Business Administration
Maturing within one year ...............................................................................................................$
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years ...............................................................................
Total small business administration .............................................................................................$

Obligations of states and political subdivisions
Maturing within one year ...............................................................................................................$
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years ...............................................................................
Maturing after ten years .................................................................................................................
Total obligations of states and political subdivisions ..................................................................$

Corporate bonds
Maturing after one year but within five years ................................................................................
Maturing after five years but within ten years ................................................................................
Total other securities ...................................................................................................................$

100
447
297
844

5,097
18,683
97
100
23,977

28,533
84,857
65,088
71,059
249,537

19
77
22,323
22,419

7,283
35,112
40,497
8,989
91,881

828
103
931

0.36%
1.63%
2.08%
1.64%

1.03%
2.00%
2.65%
3.23%
1.80%

2.29%
2.27%
2.28%
2.37%
2.30%

2.55%
2.54%
1.90%
1.90%

5.29%
2.98%
3.87%
4.43%
3.70%

1.45%
2.64%
1.57%

(1) The weighted average yield has been computed by dividing the total contractual interest income adjusted for amortization of

premium or accretion of discount over the life of the security by the par value of the securities outstanding. The weighted
average yield of tax-exempt obligations of states and political subdivisions has been calculated on a fully taxable equivalent
basis. The amounts of adjustments to interest which are based on the statutory tax rate of 35% were $99 thousand, $161
thousand, $270 thousand and $104 thousand for the four ranges of maturities.

(2) Payments based on contractual maturity.

Premises and Equipment

Premises and equipment decreased $138 thousand in 2014. The decrease was the net result of normal depreciation and asset

additions throughout the year.

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 slightly from $910.5 million
in 2013 to $916.8 million in 2014. Average savings deposits decreased $6.2 million and average noninterest bearing deposits
increased $23.5 million since December 31, 2013. The growth in savings and noninterest deposits were offset by a decrease of $18.9
million in money market accounts. With interest rates continuing to be low, customers have little incentive to commit funds to term
deposit accounts. Time deposits decreased $13.1 million as customers moved deposit dollars from time deposits seeking liquidity. The
Company’s focus is on core deposit growth and Farmers will continue to price deposit rates to remain competitive within the market
and to retain customers. At December 31, 2014, core deposits – savings and money market accounts, time deposits less than $100
thousand, demand deposits and interest bearing demand deposits represented approximately 91.1% of total deposits.

Bank Owned Life Insurance

Farmers’ 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 was $16.4 million at
December 31, 2014 compared to $15.9 million at December 31, 2013.

Borrowings

Short-term borrowings decreased $22.5 million or 27.5% since December 31, 2013 as securities sold under agreements to
repurchase decreased $16.5 million. Long-term borrowings increased $8.6 million or 43.2%, as a result of a new $10 million Federal
Home Loan Bank advance. See Note 9 within Item 8 of this Annual report on Form 10-K for additional detail.

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

The following table presents, as of December 31, 2014, 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 the referenced note to the consolidated financial statements.

Commitments
12/31/2014

Deposit without maturity .....................
Certificates of deposit ..........................
Repurchase agreements ........................
Other short-term borrowed funds .........
Federal Home Loan Bank advances .....
Operating leases ...................................

Note
Ref.

7
8
8
9
5

2015
708,752
103,868
58,786
350
16,398
274

2016

2017

2018

2019

Thereafter

44,741

16,913

11,443

19,933

10,053

1,176
210

6,089
219

1,008
202

931
194

2,779
515

Note 10 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, 2014, the Company had no unconsolidated, related special purpose entities, nor did the Company engage in
derivatives and hedging contracts 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. The Company does
utilize interest-rate swaps as a way of helping manage interest rate risk and not as derivatives for trading purposes. See Note 19 within
Item 8 of this Annual report on Form 10-K for additional detail.

Capital Resources

Total Stockholders’ Equity increased 9.3% from $113.0 million at December 31, 2013 to $123.6 million in 2014. The increase
in equity was mainly the result of a $6.6 million increase in accumulated other comprehensive income. The change in accumulated
other comprehensive income was mainly due to a swing from unrealized losses on the investment security portfolio in 2013 to
unrealized gains in 2014. Net income during the past twelve months was offset by dividends paid. During the year, shareholders
received a total of $0.12 per share cash dividends paid in the past four quarters. Book value increased 11.5% from $6.02 per share at
December 31, 2013 to $6.71 per share at December 31, 2014. The Company’s tangible book value also increased from $5.47 per share
at December 31, 2013 to $6.23 per share at December 31, 2014. Additionally, the Company obtained $2.9 million in treasury share
repurchases in 2014.

The Bank, as a national chartered bank, is subject to the dividend restrictions set forth by the OCC. The OCC 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 and Farmers Bank are required to maintain minimum amounts of capital to total “risk weighted” assets, as defined
by the banking regulators. At December 31, 2014, Farmers Bank and Farmers are required to have a minimum Tier 1 and Total
Capital ratios of 4.00% and 8.00%, respectively. Farmers Bank and Farmers had capital ratios above the minimum levels at
December 31, 2014 and 2013. At year-end 2014 and 2013, the most recent regulatory notifications categorized Farmers Bank as well
capitalized under the regulatory framework for prompt corrective action.

During 2013, the Federal banking regulators approved a final rule to implement revised capital adequacy standards of the Basel
Committee on Banking Supervision, commonly called Basel III, and to address relevant provisions of the Dodd-Frank Act. The final
rule strengthens the definition of regulatory capital, increases risk-based capital requirements, makes selected changes to the
calculation of risk-weighted assets, and adjusts the prompt corrective action thresholds. Community banking organizations, such as
the Company and the Bank, become subject to the new rule on January 1, 2015 and certain provisions of the new rule will be phased
in over the period of 2015 through 2019. The Bank will retain, through a one-time election, the existing treatment for most
accumulated other comprehensive income, such that unrealized gains and losses on securities available for sale will not affect
regulatory capital amounts and ratios. The Bank’s management expects the Bank to fall within the new regulatory capital ratio
guidelines.

Critical Accounting Policies

The Company follows financial accounting and reporting policies that are in accordance with generally accepted accounting
principles in the United States of America and conform to general practices within the banking industry. Some of these accounting
policies are considered to be critical accounting policies. Critical accounting policies are those policies that require management’s
most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are
inherently uncertain. The Company has identified three accounting policies that are critical accounting policies and an understanding
of these policies is necessary to understand the financial statements. These policies relate to determining the adequacy of the
allowance for loan losses, if there are any securities that are other-than-temporarily impaired and if there is any impairment of
goodwill and intangibles. Additional information regarding these policies is included in the notes to the consolidated financial
statements, including Note 1 (Summary of Significant Accounting Policies), Note 2 (Securities) and 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.

Farmers 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 Farmers has the intent to sell the debt security or more likely than not will be required to sell
the debt security before its anticipated recovery.

Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment

than most other significant accounting policies. GAAP establishes standards for the amortization of acquired intangible assets and the
impairment assessment of goodwill. Goodwill arising from business combinations represents the value attributable to unidentifiable
intangible assets in the business acquired. The Company’s goodwill relates to the value inherent in the banking industry and that value
is dependent upon the ability of the Company’s Trust 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
goodwill, which resides on the books of Farmers Trust and NAI, is estimated by reviewing the past and projected operating results for
the subsidiaries and industry comparable information.

At December 31, 2014, on a consolidated basis, Farmers had intangibles of $3.2 million subject to amortization and $5.6 million

of goodwill, which was not subject to periodic amortization.

Recent Accounting Pronouncements and Developments

Note 1 to the consolidated financial statements discusses new accounting policies adopted by Farmers during 2014 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.

Item 7A. Quantitative and Qualitative Disclosures About 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 300 basis point increase and
100 basis point decrease in market interest rates:

Changes In Interest Rate (basis points)
Net Interest Income Change

+300 ............................................................................
+200 ............................................................................
+100 ............................................................................
-100 .............................................................................

Net Present Value Of Equity Change

2014
Result

2013
Result

ALCO

Guidelines

2.2%
1.9%
1.2%
-4.0%

-4.6%
-1.3%
0.8%
-6.7%

-3.3 %
-1.9 %
-0.8 %
-2.8 %

-8.7 %
-3.8 %
-0.5 %
-11.2 %

15%
10%
5%
5%

20%
15%
10%
10%

All interest rate change results fall within policy limits for the year ended December 31, 2014. It should be noted that at

December 31, 2013 the change in the net present value of equity exceeded policy when the simulation model assumed a sudden
decrease in rates of 100 basis points (1%). This is 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. The remaining results for 2013 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.

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.

Item 8. Financial Statements and Supplementary Financial Data.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Farmers National Banc Corp. (the “Company”) is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(1) promulgated under the Securities
Exchange Act of 1934 as a process designed by, or under the supervision of; our principal executive and principal financial officers
and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
our assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
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. 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 our internal control over financial reporting as of December 31, 2014. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in the 2013 Internal Control-Integrated Framework. Based on that assessment, we believe that, as of December 31, 2014,
our internal control over financial reporting is effective based on those criteria.

Crowe Horwath LLP has audited the effectiveness of the Company’s internal control over financial reporting as of December 31,
2014, as stated in their report dated February 27, 2015.

Kevin J. Helmick
President and Chief Executive Officer

Carl D. Culp
Executive Vice President and Treasurer

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. (the “Company”) as of December 31,
2014 and 2013, and the related consolidated statements of income, comprehensive income (loss), stockholders’ equity, and cash flows
for each of the years in the three-year period ended December 31, 2014. We also have audited the Company’s internal control over
financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’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 financial statements referred to above present fairly, in all material respects, the financial position of Farmers
National Banc Corp. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2014, based on criteria established in the 2013 Internal Control – Integrated Framework issued by COSO.

Cleveland, Ohio
February 27, 2015

Crowe Horwath LLP

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

December 31,

2014

2013

ASSETS
Cash and due from banks ........................................................................................................... $
Federal funds sold and other ......................................................................................................
TOTAL CASH AND CASH EQUIVALENTS

Securities available for sale ........................................................................................................
Loans held for sale .....................................................................................................................

Loans ..........................................................................................................................................
Less allowance for loan losses ...................................................................................................
NET LOANS

Premises and equipment, net ......................................................................................................
Goodwill ....................................................................................................................................
Other intangibles ........................................................................................................................
Bank owned life insurance .........................................................................................................
Other assets ................................................................................................................................
TOTAL ASSETS $

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing ............................................................................................................ $
Interest-bearing ..................................................................................................................
TOTAL DEPOSITS

Short-term borrowings ...............................................................................................................
Long-term borrowings ...............................................................................................................
Other liabilities ...........................................................................................................................
TOTAL LIABILITIES

Commitments and contingent liabilities

11,410 $
16,018
27,428

389,829
511

663,852
7,632
656,220

17,049
5,591
3,222
16,367
20,750
1,136,967 $

184,697 $
731,006
915,703

59,136
28,381
10,187
1,013,407

12,957
14,556
27,513

422,985
158

630,684
7,568
623,116

17,187
6,354
3,989
15,908
20,116
1,137,326

155,893
759,323
915,216

81,617
19,822
7,664
1,024,319

Stockholders' Equity
Common Stock - Authorized 35,000,000 shares; issued 19,031,059 .................................
Retained earnings .......................................................................................................................
Accumulated other comprehensive income (loss) ......................................................................
Treasury stock, at cost; 622,447 shares in 2014 and 255,079 shares in 2013 ............................
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $

106,021
20,944
1,093
(4,498 )
123,560
1,136,967 $

105,905
14,215
(5,465)
(1,648)
113,007
1,137,326

See accompanying notes.

CONSOLIDATED STATEMENTS OF INCOME
(Table Dollar Amounts in Thousands except Per Share Data)

2014

2013

2012

Years ended December 31,
INTEREST AND DIVIDEND INCOME

Loans, including fees ............................................................................ $
Taxable securities .................................................................................
Tax exempt securities ...........................................................................
Dividends .............................................................................................
Federal funds sold and other interest income .......................................
TOTAL INTEREST AND DIVIDEND INCOME

INTEREST EXPENSE

Deposits ................................................................................................
Short-term borrowings .........................................................................
Long-term borrowings ..........................................................................
TOTAL INTEREST EXPENSE
NET INTEREST INCOME
Provision for loan losses .......................................................................
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES

NONINTEREST INCOME

Service charges on deposit accounts ....................................................
Bank owned life insurance income, including death benefits ..............
Trust fees ..............................................................................................
Insurance agency commissions ............................................................
Security gains .......................................................................................
Impairment of equity securities ............................................................
Retirement plan consulting fees ...........................................................
Investment commissions ......................................................................
Net gains on sale of loans .....................................................................
Other operating income ........................................................................
TOTAL NONINTEREST INCOME

NONINTEREST EXPENSE

Salaries and employee benefits ............................................................
Occupancy and equipment ...................................................................
State and local taxes .............................................................................
Professional fees ...................................................................................
Merger related costs .............................................................................
Advertising ...........................................................................................
FDIC insurance ....................................................................................
Intangible amortization .........................................................................
Core processing charges .......................................................................
Other operating expenses .....................................................................
TOTAL NONINTEREST EXPENSE
INCOME BEFORE INCOME TAXES

30,901 $
7,282
2,523
190
19

40,915

4,008
46
525
4,579
36,336
1,880

30,717 $
7,062
2,949
196
35
40,959

4,560
51
452
5,063
35,896
1,290

34,456

34,606

2,627
459
6,092
354
457

0
1,809
1,026
358

2,121
15,303

20,878
4,505
878
2,451
0

1,112
733
767
1,571
5,267
38,162
11,597

2,370
696
5,583
243
863
(3 )
628
989
505
2,040
13,914

22,054
4,189
1,313
2,212
330
911
719
624
1,354
5,351
39,057
9,463

31,874
8,099
2,831
206
100
43,110

5,719
103
390
6,212
36,898
725

36,173

2,043
526
5,497
124
1,059
0
0
946
598
1,785
12,578

19,746
4,179
1,203
1,967
0
973
710
409
1,419
5,158
35,764
12,987

3,055
9,932

INCOME TAXES

EARNINGS PER SHARE:

NET INCOME $

2,632
8,965 $

1,683
7,780 $

Basic and Diluted ................................................................................. $

0.48 $

0.41 $

0.53

See accompanying notes.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Table Dollar Amounts in Thousands except Per Share Data)

Years ended December 31,

2014

2013

2012

NET INCOME ................................................................................................. $

8,965 $

7,780 $

9,932

Other comprehensive income (loss):

Net unrealized holding gains (losses) on available for sale securities ........
Reclassification adjustment for gains realized in income ...........................
Net unrealized holding gains (losses) ............................................................
Income tax effect ........................................................................................
Unrealized holding gains (losses), net of reclassification and tax .................

Change in funded status of post-retirement health plan ................................
Income tax effect ........................................................................................
Change in funded status of post-retirement health plan, net of tax ...............

10,486
(457)
10,029
(3,510)
6,519

60
(21)
39

(19,310)
(860)
(20,170)
7,060
(13,110)

(3)
1
(2)

Other comprehensive income (loss), net of tax .............................................

6,558

(13,112)

307
(1,059)
(752)
263
(489)

131
(46)
85

(404)

TOTAL COMPREHENSIVE INCOME (LOSS) $

15,523 $

(5,332) $

9,528

See accompanying notes.

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

2014

2013

2012

Years ended December 31,

COMMON STOCK

Balance at beginning of year .................................................................................................. $
Stock option expense (1) ........................................................................................................
Issued 44,845 shares from dividend reinvestment ..................................................................
Issued 228,777 shares as part of the acquisition of National Associates, Inc. ........................
Accrual for 46,957 shares as part of the long term incentive plan .........................................
Balance at end of year ............................................................................................................

105,905 $ 104,504 $
1
0
1,400
0
105,905

0
0
0
116
106,021

104,261
0
243
0
0
104,504

RETAINED EARNINGS

Balance at beginning of year ..................................................................................................
Net income .............................................................................................................................
Dividends declared:

14,215
8,965

8,683
7,780

2,133
9,932

$.12 cash dividends per share in 2014 and 2013, $.18 in 2012 ...........................................
Balance at end of year ............................................................................................................

(2,236 )
20,944

(2,248)
14,215

(3,382)
8,683

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Balance at beginning of year ..................................................................................................
Other comprehensive income (loss) .......................................................................................
Balance at end of year ............................................................................................................

(5,465 )
6,558
1,093

7,647
(13,112)
(5,465)

8,051
(404)
7,647

TREASURY STOCK, AT COST

Balance at beginning of year ..................................................................................................
Reissued 5,000 treasury shares to satisfy exercised stock options .........................................
Purchased 372,368 shares in 2014, 247,845 shares in 2013 and 7,221 shares in 2012 ..........
Balance at end of year ............................................................................................................
TOTAL STOCKHOLDERS' EQUITY AT END OF YEAR $

(1,648 )
32
(2,882 )
(4,498 )

(42)
0
(1,606)
(1,648)
123,560 $ 113,007 $

0
0
(42)
(42)
120,792

(1) Stock option expense for 2012 was less than $1,000 and rounded to $0.

See accompanying notes.

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

Years ended December 31,

2014

2013

2012

CASH FLOWS FROM OPERATING ACTIVITIES

Net income ...................................................................................................................... $
Adjustments to reconcile net income to net cash from operating activities:

Provision for loan losses ...............................................................................................
Depreciation and amortization ......................................................................................
Net amortization of securities .......................................................................................
Security gains ...............................................................................................................
Impairment of equity securities ....................................................................................
(Gain) Loss on sale of other real estate owned .............................................................
Earnings on bank owned life insurance ........................................................................
Income recognized from death benefit on bank owned life insurance..........................
Origination of loans held for sale .................................................................................
Proceeds from loans held for sale .................................................................................
Net gains on sale of loans .............................................................................................
Net change in other assets and liabilities ......................................................................
NET CASH FROM OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from maturities and repayments of securities available for sale....................
Proceeds from sales of securities available for sale......................................................
Purchases of securities available for sale ......................................................................
Loan originations and payments, net ............................................................................
Proceeds from sale of other real estate owned ..............................................................
Proceeds from BOLI death benefit ...............................................................................
Proceeds from sale of land ............................................................................................
Additions to premises and equipment ...........................................................................
Purchase of National Associates Inc, net ......................................................................
NET CASH FROM INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

Net change in deposits ..................................................................................................
Net change in short-term borrowings ...........................................................................
Repayment of Federal Home Loan Bank borrowings and other debt...........................
New advances for long term borrowing .......................................................................
Cash dividends paid ......................................................................................................
Proceeds from dividend reinvestment ...........................................................................
Proceeds from reissuance of treasury shares ................................................................
Repurchase of common shares .....................................................................................
NET CASH FROM FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS

8,965 $

7,780 $

9,932

1,880
1,981
1,472
(457 )
0
53
(459 )
0
(15,911 )
15,916
(358 )
(830 )
12,252

49,401
57,170
(64,400 )
(35,352 )
337
0
0
(972 )
0
6,184

487
(22,481 )
(1,441 )
10,000
(2,236 )
0
32
(2,882 )
(18,521 )
(85 )

1,290
1,945
2,646
(863)
3
75
(478)
(218)
(25,085)
29,056
(505)
(1,394)
14,252

75,015
94,016
(149,886)
(45,529)
282
329
118
(215)
(2,111)
(27,981)

(3,793)
1,731
(601)
10,000
(2,248)
0
0
(1,606)
3,483
(10,246)

725
1,738
2,711
(1,059)
0
(61)
(526)
0
(35,237)
32,888
(598)
457
10,970

84,490
91,197
(237,393)
(19,278)
1,888
0
0
(3,198)
0
(82,294)

78,884
(18,202)
(840)
0
(3,382)
243
0
(42)
56,661
(14,663)

Beginning cash and cash equivalents ............................................................................
Ending cash and cash equivalents................................................................................. $

27,513
27,428 $

37,759
27,513 $

52,422
37,759

Supplemental cash flow information:

Interest paid .................................................................................................................. $
Income taxes paid ......................................................................................................... $

4,623 $
1,925 $

5,095 $
1,130 $

Supplemental noncash disclosures:

Transfer of loans and property to other real estate owned ............................................ $
Issuance of stock for NAI acquisition ........................................................................... $
Contingent consideration for NAI acquisition .............................................................. $
Security purchases not settled ....................................................................................... $

368 $
0 $
0 $
0 $

193 $
1,400 $
920 $
0 $

6,318
2,065

1,576
0
0
4,758

See accompanying notes.
47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands except 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, Farmers Trust Company (“Trust”) and National
Associates, Inc. (“NAI”). The consolidated financial statements also include the accounts of the Farmers National Bank of Canfield’s
subsidiaries; Farmers National Insurance (“Insurance”) and Farmers of Canfield Investment Co. (“Investments”). 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, including wealth management services and mortgage banking
activity, through the Bank. 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
twenty (20) locations. During 2013, the Company acquired NAI, a retirement plan consulting firm located in Cleveland, Ohio.
Therefore the Company provides retirement consulting services through NAI. The Company provides trust services through its
subsidiary, Trust and insurance services through the Bank’s subsidiary, Insurance. The primary purpose of Investments, the new
subsidiary of the Bank in 2014, is to invest in municipal securities. 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.

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 recorded 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 Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate
cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights released. Gains and losses on sales of mortgage loans are based
on the difference between the selling price and the carrying value of the related loan sold.

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 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.

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

Derivatives: Derivative financial instruments are recognized as assets or liabilities at fair value. The Company’s derivatives are
interest-rate swap agreements, which are used as part of its asset and liability management strategy to help manage its interest rate risk
position. The Company does not use derivatives for trading or balance sheet hedging purposes. The derivative transactions are
considered instruments with no hedging designation, otherwise known as stand-alone derivatives. Changes in the fair value of the
derivatives are reported currently in earnings, as other noninterest income.

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, Columbiana, Stark and Cuyahoga counties.
Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy of the five county area.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred loan losses, increased by the
provision for loan losses and decreased by charge-offs less recoveries. The allowance is based on management’s judgment taking into
consideration past loss experience, reviews of individual loans, current economic conditions and other factors considered relevant by
management at the financial statement date. While management uses the best information available to establish the allowance, future
adjustments to the allowance may be necessary, which may be material, if economic conditions differ substantially from the
assumptions used in estimating the allowance. If additions to the original estimate of the allowance for loan losses are deemed
necessary, they will be reported in earnings in the period in which they become reasonably estimable and probable. 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 $300 thousand, individually or
in the aggregate, 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, such as consumer and residential real estate loans are collectively evaluated for impairment and accordingly, they
are not separately identified for impairment disclosures. Non-real estate secured consumer loans in bankruptcy where debt has not
been reaffirmed are considered troubled debt restructurings and are evaluated individually to ensure that accurate accounting treatment
is in place.

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 for the most recent
twelve quarters. The formula for calculating the allowance for loan losses requires that the historical loss percentage be applied to
homogeneous and all risk rated loans. 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 Real Estate 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. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after
acquisition are expensed.

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

Restricted Stock: The Bank is a member of the Federal Home Loan Bank (FHLB) system. Members are required to own a certain
amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. 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 tests associated with the acquisition
of the Trust and NAI. Intangible assets with definite useful lives are amortized over their estimated useful lives. Goodwill is the only
intangible asset with an indefinite life on the balance sheet. Non-compete contracts are amortized on a straight line basis, over the term
of the agreements. Customer relationship and trade name intangibles are amortized over an average of 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 and restricted stock awards issued to employees,
based on the fair value of these awards at the date of grant. The market price of the Company’s common stock at the grant date is used
for restricted stock awards. 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 and discretionary 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 (Loss): Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other
comprehensive income (loss) consists of unrealized gains and losses on securities available for sale and changes in the funded status of
the post-retirement health plan, which are recognized as separate components 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: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank and
Trust 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 these estimates.

Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations
are managed and financial performance is primarily aggregated and reported in three lines of business, the Bank, Trust and Retirement
consulting segments. The Company discloses segment information in Note 20.

Reclassification: Some items in the prior year financial statements were reclassified to conform to the current presentation.
Reclassifications had no effect on prior year net income or stockholders’ equity.

Adoption of New Accounting Standards: In May 2014, FASB issued Accounting Standards Update 2014-09, Revenue from
Contracts with Customers (Topic 606). The ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for
entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial
assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual
reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2016. Early adoption is not
permitted. Management is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial
statements.

In January 2014, the FASB issued ASU 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage
Loans upon Foreclosure.” The objective of the amendments in ASU 2014-04 to Topic 310, “Receivables - Troubled Debt
Restructurings by Creditors,” is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is,
when a creditor should be considered to have received physical possession of residential real estate property collateralizing a
consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The
amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. An entity can
elect to adopt the amendments using either a modified retrospective transition method or a prospective transition method. Early
adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated
financial statements.

In January 2014, the FASB amended existing guidance on ASU 2014-1, “Investments - Equity Method and Joint Ventures (Topic 323)
- Accounting for Investments in Qualified Affordable Housing Projects” to eliminate the effective yield election and to permit
reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using
the proportional amortization method if certain conditions are met. Disclosures for a change in accounting principle are required upon
transition. The amendments are effective for annual periods and interim reporting periods beginning after December 15, 2014. The
amendments in this standard should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield
method before the date of adoption of this standard may continue to apply it for preexisting investments. Early adoption is permitted.
The adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.

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, 2014
and 2013 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income
(loss) were as follows:

2014

Gross

Amortized

Unrealized

Cost

Gains

Losses

Fair Value

U.S. Treasury and U.S. government sponsored entities ............ $
State and political subdivisions .................................................
Corporate bonds ........................................................................
Mortgage-backed securities – residential ..................................
Collateralized mortgage obligations ..........................................
Small Business Administration .................................................
Equity securities ........................................................................
Totals $

24,515 $
90,369
936
223,216
25,988
23,193
120
388,337 $

418 $
2,183
3
2,395
98
1
121
5,219 $

(112) $
(671)
(8)
(1,249)
(911)
(775)
(1)
(3,727) $

24,821
91,881
931
224,362
25,175
22,419
240
389,829

2013

Gross

Amortized

Unrealized

Cost

Gains

Losses

Fair Value

U.S. Treasury and U.S. government sponsored entities ............. $
State and political subdivisions ..................................................
Corporate bonds .........................................................................
Mortgage-backed securities – residential ...................................
Collateralized mortgage obligations ...........................................
Small Business Administration ..................................................
Equity securities .........................................................................
Totals $

50,942 $
96,239
1,540
226,865
30,227
25,592
117
431,522 $

755 $
1,302
0
1,199
162
1
70
3,489 $

(387) $
(2,807)
(15)
(5,084)
(1,713)
(2,020)
0
(12,026) $

51,310
94,734
1,525
222,980
28,676
23,573
187
422,985

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

Proceeds ................................................................................................................... $
Gross gains ...............................................................................................................
Gross losses ..............................................................................................................

2014
57,170 $
758
(301 )

2013
94,016 $
1,924
(1,061)

2012
91,197
1,258
(199)

The tax provision related to these net realized gains was $160 thousand, $301 thousand and $370 thousand 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. Securities not
due at a single maturity date are shown separately.

Available for sale

Maturity

Within one year ............................................................................................................................. $
One to five years ............................................................................................................................
Five to ten years .............................................................................................................................
Beyond ten years ...........................................................................................................................
Mortgage-backed securities, collateralized mortgage obligations and Small Business

December 31, 2014

Amortized
Cost

Fair Value

12,359 $
54,555
39,859
9,086

12,480
55,070
40,994
9,089

Administration ..........................................................................................................................
Totals $

272,397
388,256 $

271,956
389,589

Securities with a carrying amount of $149 million at December 31, 2014 and $164 million at December 31, 2013 were pledged to
secure public deposits and repurchase agreements. The Trust company had securities, with a carrying amount of $100 thousand, at
year-end 2014 and 2013, pledged to qualify as a fiduciary in the State of Ohio.

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

The following table summarizes the investment securities with unrealized losses at December 31, 2014 and 2013 aggregated by major
security type and length of time in a continuous unrealized loss position. Unrealized losses for Equity securities had unrealized losses
that rounded to less than $1 thousand for year 2013.

2014

Description of Securities

Less than 12 Months

Fair
Value

Unrealized
Loss

12 Months or More
Fair
Value

Unrealized
Loss

Total
Fair
Value

Unrealized
Loss

U.S. Treasury and U.S. government

sponsored entities ............................ $
State and political subdivisions ..........
Corporate bonds .................................
Mortgage-backed securities –

residential ......................................
Collateralized mortgage obligations ...
Small Business Administration ..........
Equity securities .................................
Total temporarily impaired $

498 $
987
0

25,770
0
0
26
27,281 $

(2) $

(11)
0

(202)
0
0
(1)
(216) $

10,159 $
24,063
476

55,576
19,541
22,319
0
132,134 $

(110 ) $
(660 )
(8 )

10,657 $
25,050
476

(1,047 )
(911 )
(775 )
0
(3,511 ) $

81,346
19,541
22,319
26
159,415 $

(112)
(671)
(8)

(1,249)
(911)
(775)
(1)
(3,727)

2013

Description of Securities

Less than 12 Months

Fair
Value

Unrealized
Loss

12 Months or More
Fair
Value

Unrealized
Loss

Total
Fair
Value

Unrealized
Loss

U.S. Treasury and U.S. government

sponsored entities ............................ $
State and political subdivisions ..........
Corporate bonds .................................
Mortgage-backed securities –

20,776 $
34,851
1,052

141,024
5,283
6,927
7
209,920 $

(387) $

(1,855)
(2)

(3,735)
(450)
(491)
0

(6,920) $

0 $
7,492
473

27,026
15,726
16,520
0
67,237 $

0 $

(952 )
(13 )

20,776 $
42,343
1,525

(1,349 )
(1,263 )
(1,529 )
0
(5,106 ) $

168,050
21,009
23,447
7
277,157 $

(387)
(2,807)
(15)

(5,084)
(1,713)
(2,020)
0
(12,026)

The Company’s equity securities include local and regional bank holdings. During the year ended December 31, 2013 a $3 thousand
pre-tax charge was recognized for the other-than-temporary decline in fair value on these equity holdings. The Company recognized
an other-than-temporary impairment that was less than $1 thousand and rounded to zero for year ended December 31, 2012. No other-
than-temporary impairments were recognized during 2014. 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.

As of December 31, 2014, the Company’s security portfolio consisted of 376 securities, 91 of which were in an unrealized loss
position. The majority of unrealized losses are related to the Company’s holdings in securities issued by state and political
subdivisions, mortgage-backed securities - residential, collateralized mortgage obligations and Small Business Administration, as
discussed below:

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 and is not required 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 - residential

All of the Company’s holdings of mortgage-backed securities—residential at year end 2014 and 2013 were issued by U.S.
Government sponsored enterprises. Unrealized losses on mortgage-backed securities—residential 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—residential 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, 2014 and 2013.

Collateralized mortgage obligations

The Company’s portfolio includes collateralized mortgage obligations issued by U.S. Government sponsored enterprises. The decline
in fair value is attributable to changes in interest rates and illiquidity, and not credit quality. The Company does not have the intent to
sell these collateralized mortgage obligations and it is likely that it will not be required to sell the securities before their anticipated
recovery. The Company monitors all securities to ensure adequate credit support and as of December 31, 2014 and 2013, the
Company believes there is no other-than-temporary impairment.

Small Business Administration

The Company’s holdings of Small Business Administration securities are issued and backed by the full faith and credit of the U.S.
Government. Unrealized losses on these Small Business Administration 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 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, 2014 and 2013.

Loans at year end were as follows:

NOTE 3 - LOANS

Commercial real estate

Owner occupied ............................................................................................. $
Non-owner occupied ......................................................................................
Other ..............................................................................................................
Commercial ........................................................................................................
Residential real estate

1-4 family residential .....................................................................................
Home equity lines of credit ............................................................................

Consumer

Indirect ...........................................................................................................
Direct .............................................................................................................
Other ..............................................................................................................
Subtotal .................................................................................................... $
Net deferred loan (fees) costs ..............................................................................
Allowance for loan losses ...................................................................................
Net loans ............................................................................................. $

2014

2013

74,829 $
122,228
26,137
120,493

153,055
31,255

120,931
9,071
3,626
661,625 $
2,227
(7,632 )
656,220 $

86,286
107,625
24,381
105,023

144,225
26,448

121,446
10,237
3,031
628,702
1,982
(7,568)
623,116

The following tables present the activity in the allowance for loan losses by portfolio segment for years ended December 31, 2014,
2013 and 2012:

December 31, 2014

Allowance for loan losses

Commercial
Real Estate Commercial Real Estate Consumer Unallocated Total

Residential

Beginning balance .......................................... $
Provision for loan losses ................................
Loans charged off ..........................................
Recoveries ......................................................
Total ending allowance balance ............................. $

2,752 $
(50)
(151)
125
2,676 $

1,219 $
357
(185)
29
1,420 $

1,964 $
233
(585)
77
1,689 $

1,419 $
1,370
(2,213 )
1,087
1,663 $

214 $ 7,568
1,880
(30)
(3,134)
0
1,318
0
184 $ 7,632

December 31, 2013

Allowance for loan losses

Commercial
Real Estate Commercial Real Estate Consumer Unallocated Total

Residential

3,392 $
(306)
(505)
171
2,752 $

1,453 $
(397)
(99)
262
1,219 $

1,569 $
674
(326)
47
1,964 $

951 $
1,369
(1,723 )
822
1,419 $

264 $ 7,629
1,290
(50)
(2,653)
0
1,302
0
214 $ 7,568

December 31, 2012

Allowance for loan losses

Commercial
Real Estate Commercial Real Estate Consumer Unallocated Total

Residential

4,880 $
(516)
(1,225)
253
3,392 $

1,529 $
792
(918)
50
1,453 $

1,802 $
469
(806)
104
1,569 $

972 $
353
(1,002 )
628
951 $

637 $ 9,820
725
(373)
(3,951)
0
1,035
0
264 $ 7,629

The following tables present 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, 2014 and 2013. 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.

December 31, 2014

Allowance for loan losses:
Ending allowance balance attributable to loans:

Commercial
Real Estate

Residential

Commercial

Real Estate

Consumer Unallocated

Total

Individually evaluated for impairment ........... $
Collectively evaluated for impairment ...........
Total ending allowance balance ............................. $

514 $

2,162
2,676 $

272 $

1,148
1,420 $

88 $

1,601
1,689 $

0 $
1,663
1,663 $

0 $

874
184
6,758
184 $ 7,632

Loans:

Loans individually evaluated for impairment .... $
Loans collectively evaluated for impairment .....
Total ending loans balance ..................................... $

7,139 $

1,940 $

215,434
222,573 $

118,210
120,150 $

3,425 $

93 $
180,428
137,183
183,853 $ 137,276 $

0 $ 12,597
0
651,255
0 $663,852

December 31, 2013

Allowance for loan losses:
Ending allowance balance attributable to loans:

Commercial
Real Estate

Commercial

Residential
Real Estate

Consumer Unallocated

Total

Individually evaluated for impairment ........... $
Collectively evaluated for impairment ...........
Total ending allowance balance ............................. $

166 $

2,586
2,752 $

110 $

1,109
1,219 $

202 $

1,762
1,964 $

82 $
1,337
1,419 $

0 $

560
7,008
214
214 $ 7,568

Loans:

Loans individually evaluated for impairment .... $
Loans collectively evaluated for impairment .....
Total ending loans balance ..................................... $

6,623 $

2,430 $

210,739
217,362 $

102,593
105,023 $

2,554 $

363 $
167,597
137,785
170,151 $ 138,148 $

0 $ 11,970
0
618,714
0 $630,684

The following tables present information related to impaired loans by class of loans as of and for year ended December 31, 2014, 2013
and 2012. The recorded investment in loans excludes accrued interest receivable due to immateriality.

December 31, 2014
With no related allowance recorded:

Commercial real estate

Owner occupied ........................ $
Non-owner occupied .................
Commercial ....................................
Residential real estate

1-4 family residential ................
Home equity lines of credit .......
Consumer ........................................
Subtotal ...........................................

With an allowance recorded:
Commercial real estate

Owner occupied ........................
Non-owner occupied .................
Commercial ....................................
Residential real estate

1-4 family residential ................
Home equity lines of credit .......
Consumer ........................................
Subtotal ...........................................
Total ..................................................... $

Unpaid
Principal
Balance

Recorded
Investment

Allowance for
Loan

Average
Recorded
Losses Allocated Investment

Interest
Income
Recognized

2,448 $
391
531

2,318 $
391
511

2,421
476
185
6,452

2,882
1,548
1,444

2,156
251
93
5,720

2,882
1,548
1,429

944
90
0
6,908
13,360 $

928
90
0
6,877
12,597 $

0 $
0
0

0
0
0
0

446
68
272

85
3
0
874
874 $

1,860 $
653
1,273

1,804
263
166
6,019

2,104
1,570
818

1,207
113
2
5,814
11,833 $

46
20
22

79
13
4
184

94
81
2

41
5
0
223
407

December 31, 2013
With no related allowance recorded:

Commercial real estate

Owner occupied ....................... $
Non-owner occupied ................
Commercial ...................................
Residential real estate

1-4 family residential ...............
Home equity lines of credit ......
Consumer .......................................
Subtotal ..........................................

With an allowance recorded:
Commercial real estate

Owner occupied .......................
Non-owner occupied ................
Commercial ...................................
Residential real estate

1-4 family residential ...............
Home equity lines of credit ......
Consumer .......................................
Subtotal ..........................................
Total .................................................... $

Unpaid
Principal
Balance

Recorded
Investment

Allowance for
Loan

Average
Recorded
Losses Allocated Investment

Interest
Income
Recognized

4,302 $
491
1,007

3,762 $
389
971

1,026
107
111
7,044

886
1,593
1,462

961
99
112
6,294

884
1,588
1,459

1,458
148
247
5,794
12,838 $

1,347
147
251
5,676
11,970 $

0 $
0
0

0
0
0
0

91
75
110

190
12
82
560
560 $

2,643 $
438
1,363

1,462
194
9
6,109

2,536
1,975
594

112
12
21
5,250
11,359 $

137
0
25

51
0
0
213

39
87
5

48
0
0
179
392

During 2013 the Company, for the first time, began considering consumer loans individually for impairment. Cash basis interest
income recognized and interest income recognized was materially equal for 2014 and 2013.

December 31, 2012
With no related allowance recorded:

Commercial real estate

Unpaid Principal
Balance

Recorded
Investment

Allowance for Loan
Losses Allocated

Average
Recorded
Investment

Owner occupied ................................... $
Non-owner occupied ............................
Other.....................................................
Commercial ...............................................
Residential real estate

1-4 family residential ...........................
Home equity lines of credit ..................
Consumer ...................................................
Subtotal ......................................................

With an allowance recorded:
Commercial real estate

Owner occupied ...................................
Non-owner occupied ............................
Other.....................................................
Commercial ...............................................
Subtotal ......................................................
Total ................................................................ $

3,916 $
560
0
1,250

971
0
0
6,697

2,207
2,560
0
948
5,715
12,412 $

3,481 $
461
0
1,192

989
0
0
6,123

2,169
2,424
0
660
5,253
11,376 $

0 $
0
0
0

0
0
0
0

59
70
0
51
180
180 $

1,490
483
114
1,075

747
0
0
3,909

3,859
2,402
119
478
6,858
10,767

Cash basis interest income recognized and interest income recognized during impairment was immaterial for 2012.

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. 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, 2014 and 2013:

December 31, 2014

December 31, 2013

Loans Past Due
90 Days or More

Nonaccrual

Still Accruing

Nonaccrual

Loans Past Due
90 Days or More
Still Accruing

Commercial real estate

Owner occupied ........................................ $
Non-owner occupied .................................
Commercial ....................................................
Residential real estate

1-4 family residential ................................
Home equity lines of credit .......................

Consumer

Indirect ......................................................
Direct ........................................................
Other .........................................................
Total .................................................... $

3,315 $
41
1,645

2,742
139

90
36
0
8,008 $

44 $
0
0

195
40

193
0
1
473 $

2,806 $
405
1,993

2,584
280

308
55
0
8,431 $

0
0
13

526
0

94
3
10
646

The following tables present the aging of the recorded investment in past due loans as of December 31, 2014 and 2013 by class of
loans:

December 31, 2014
Commercial real estate

Owner occupied ............................... $
Non-owner occupied ........................
Other ................................................

Commercial
Residential real estate

1-4 family residential .......................
Home equity lines of credit ..............

Consumer

Indirect .............................................
Direct ...............................................
Other ................................................
Total ........................................... $

30-59
Days Past
Due

60-89

Greater Than 90

Days Past Days Past Due
and Nonaccrual

Due

Total Past
Due

Loans Not
Past Due

Total

0 $
0
0
0

1,892
205

2,136
108
17
4,358 $

0 $
0
0
0

546
92

406
18
6
1,068 $

3,359 $
41
0
1,645

2,937
179

283
36
1
8,481 $

3,359 $
41
0
1,645

71,272 $
121,872
26,029
118,505

74,631
121,913
26,029
120,150

5,375
476

147,223
30,779

152,598
31,255

2,825
162
24
13,907 $

121,754
8,909
3,602
649,945 $

124,579
9,071
3,626
663,852

December 31, 2013
Commercial real estate

Owner occupied ................................. $
Non-owner occupied ..........................
Other ..................................................
Commercial .............................................
Residential real estate

1-4 family residential .........................
Home equity lines of credit ................

Consumer

Indirect ...............................................
Direct .................................................
Other ..................................................
Total ............................................. $

Troubled Debt Restructurings:

30-59
Days Past
Due

60-89

Greater Than 90

Days Past Days Past Due
and Nonaccrual

Due

Total Past
Due

Loans Not
Past Due

Total

48 $
0
0
14

573
35

2,004
204
63
2,941 $

0 $
0
0
0

141
0

539
31
6
717 $

2,806 $
405
0
2,006

3,110
280

402
58
10
9,077 $

2,854 $
405
0
2,020

83,065 $
106,762
24,276
103,003

85,919
107,167
24,276
105,023

3,824
315

139,879
26,133

143,703
26,448

2,945
293
79
12,735 $

121,935
9,944
2,952
617,949 $

124,880
10,237
3,031
630,684

Total troubled debt restructurings were $8.1 million and $8.3 million at December 31, 2014 and 2013 respectively. The Company has
allocated $242 thousand and $397 thousand of specific reserves to customers whose loan terms have been modified in troubled debt
restructurings as of December 31, 2014 and 2013. There are $25 thousand and $16 thousand in commitments to lend additional
amounts to borrowers with loans that were classified as troubled debt restructurings at December 31, 2014 and 2013.

During the years ending December 31, 2014, 2013 and 2012, the terms of certain loans were modified as troubled debt restructurings.
The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of
the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk;
a permanent reduction of the recorded investment in the loan; a permanent increase of the recorded investment in the loan due to a
protective advance to pay delinquent real estate taxes or advance new monies; a deferral of principal payments; or a legal concession.

Troubled debt restructuring modifications involved a reduction of the notes stated interest rate in the range of 0.25% to 3.25%. There
were also extensions of the maturity dates on these and other troubled debt restructurings in the range of fifteen months to 126 months.

The following tables present loans by class modified as troubled debt restructurings that occurred during the years ending
December 31, 2014, 2013 and 2012:

December 31, 2014
Troubled Debt Restructurings:
Commercial real estate

Number of

Loans

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Owner occupied .............................................................
Non-owner occupied ......................................................

Residential real estate

1-4 family residential .....................................................
Home equity lines of credit ............................................
Indirect .................................................................................
Consumer .............................................................................
Total ............................................................................

1
2

21
5
2
1
32

303 $
408

1,042
128
37
11
1,929 $

316
408

1,059
128
37
11
1,959

The troubled debt restructurings described above increased the allowance for loan losses by $11 thousand and resulted in charge offs
of $42 thousand during the year ended December 31, 2014.

December 31, 2013
Troubled Debt Restructurings:
Commercial real estate

Number of

Loans

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Owner occupied ...............................................................
Commercial ...........................................................................
Residential real estate ............................................................
1-4 family residential .......................................................
Home equity lines of credit ..............................................
Indirect ...................................................................................
Consumer ...............................................................................
Total ..............................................................................

2
5

4
5
24
1
41

226 $
649

131
214
188
1
1,409 $

239
682

98
214
188
1
1,422

The troubled debt restructurings described above increased the allowance for loan losses by $66 thousand and resulted in charge offs
of $50 thousand during the year ended December 31, 2013.

December 31, 2012
Troubled Debt Restructurings:
Commercial real estate

Number of

Loans

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Owner occupied ...............................................................
Non-owner occupied ........................................................
Commercial ...........................................................................
Residential real estate ............................................................
1-4 family residential .......................................................
Total ..............................................................................

3
3
3

7
16

$
$

1,143 $
2,376 $
1,072

508
5,099 $

1,166
2,419
1,098

540
5,223

The troubled debt restructurings described above increased the allowance for loan losses by $306 thousand and resulted in charge offs
of $418 thousand during the year ended December 31, 2012.

There were four residential real estate loans for which there were payment defaults within twelve months following the modification
of the troubled debt restructuring during the year ending December 31, 2014. Only one of the four loans was past due at December
31, 2014. There was no effect on the provision for loan losses as a result of this default during 2014.

There were two commercial loans for $204 thousand, one commercial real estate loan for $205 thousand and one residential real estate
loan for $35 thousand modified as troubled debt restructuring for which there were payment defaults within twelve months following
the modification during the year ending December 31, 2013. All four loans were past due at December 31, 2013. There was one
indirect loan modified as troubled debt restructuring for which there were payment defaults within twelve months following the
modification during the year ending December 31, 2013. The loan was not past due at December 31, 2013. There was no additional
provision or any impact to the allowance for losses associated with these loans.

There were no loans that were modified as troubled debt restructuring for which there was a payment default within twelve months
following the modification during the year ending December 31, 2012. A loan is considered to be in payment default once it is 30 days
contractually past due under the modified terms.

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 establishes a risk rating at origination for all commercial loan and commercial real estate
relationships. For relationships over $750 thousand management monitors the loans on an ongoing basis for any changes in the
borrower’s ability to service their debt. Management also affirms the risk ratings for the loans and leases in their respective portfolios
on an annual 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.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

December 31, 2014
Commercial real estate

Pass

Special
Mention

Substandard

Doubtful

Not Rated

Total

Owner occupied ....................... $
Non-owner occupied ................
Other ........................................
Commercial ...................................

Total ................................... $

66,036 $
115,159
25,710
114,409
321,314 $

2,534 $
3,760
0
1,566
7,860 $

6,061 $
2,994
319
4,175
13,549 $

0 $
0
0
0
0 $

74,631
121,913
26,029
120,150
342,723

December 31, 2013
Commercial real estate

Pass

Special
Mention

Substandard

Doubtful

Not Rated

Total

Owner occupied ....................... $
Non-owner occupied ................
Other ........................................
Commercial ...................................
Total ................................... $

72,398 $
96,065
23,935
99,022
291,420 $

7,312 $
7,877
0
2,313
17,502 $

6,209 $
3,225
341
3,688
13,463 $

0 $
0
0
0
0 $

85,919
107,167
24,276
105,023
322,385

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. Nonperforming loans are loans past due 90 days and still accruing interest and
nonaccrual loans.

Residential Real Estate

1-4 Family
Residential

Home Equity
Lines of Credit

Consumer

Indirect

Direct

Other

December 31, 2014

Performing .................................... $
Nonperforming .............................
Total ........................................ $

149,661 $
2,937
152,598 $

31,076 $
179
31,255 $

124,296
283
124,579

9,035 $
36
9,071 $

3,625
1
3,626

Residential Real Estate

1-4 Family
Residential

Home Equity
Lines of Credit

Consumer

Indirect

Direct

Other

December 31, 2013

Performing .................................... $
Nonperforming .............................
Total ........................................ $

140,593 $
3,110
143,703 $

26,168 $
280
26,448 $

124,478
402
124,880

10,179 $
58
10,237 $

3,021
10
3,031

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 Company used a third party service to estimate fair value on available for sale securities on a monthly basis. This service provider
is considered a leading evaluation pricing service for U.S. domestic fixed income securities. They subscribe to multiple third-party
pricing vendors, and supplement that information with matrix pricing methods. The fair values for investment securities are
determined by quoted market prices in active markets, if available (Level 1). For securities where quoted prices are not available, fair
values are calculated based on quoted prices for similar assets in active markets, quoted prices for similar assets in markets that are not
active or inputs other than quoted prices, which provide a reasonable basis for fair value determination. Such inputs may include
interest rates and yield curves, volatilities, prepayment speeds, credit risks and default rates. Inputs used are derived principally from
observable market data (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). The fair values of Level 3 investment securities are
determined by using unobservable inputs to measure fair value of assets for which there is little, if any market activity at the
measurement date, using reasonable inputs and assumptions based on the best information at the time, to the extent that inputs are
available without undue cost and effort. For the years ended December 31, 2014 and 2013 the fair value of Level 3 investment
securities was immaterial.

Derivative Instruments

The fair values of derivative instruments are based on valuation models using observable market data as of the measurement date
(Level 2).

Impaired Loans

At the time loans are considered impaired, collateral dependent impaired loans are valued at the lower of cost or fair value and non-
collateral dependent loans are valued based on discounted cash flows. Impaired loans carried at fair value generally receive specific
allocations of the allowance for loan losses. For collateral dependent loans fair value is commonly 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. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s
financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market
conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a
Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned

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. Fair values are
commonly based on recent real estate appraisals. These appraisals may use 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
independent 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.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for
commercial and commercial real estate properties) or certified residential appraisers (for residential properties) whose qualifications
and licenses have been reviewed and verified by the Company. Once received, a member of the Appraisal Department reviews the
assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with via independent data
sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of
collateral that has been sold to the most recent appraised value to determine what adjustments should be made to appraisals to arrive at
fair value.

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

Fair Value Measurements at December 31, 2014 Using:

Quoted Prices in
Active Markets
for Identical

Significant Other
Observable

Carrying Value

Assets (Level 1)

Inputs (Level 2)

Significant
Unobservable
Inputs (Level
3)

Financial Assets
Investment securities available-for sale
U.S Treasury and U.S. government

sponsored entities ................................................... $
State and political subdivisions ...................................
Corporate bonds ..........................................................
Mortgage-backed securities-residential ......................
Collateralized mortgage obligations ...........................
Small Business Administration ...................................
Equity securities..........................................................
Total investment securities .................................... $
Yield maintenance provisions ..................................... $

24,821 $
91,881
931
224,362
25,175
22,419
240
389,829 $
638 $

0 $
0
0
0
0
0
240
240 $
0 $

24,821 $
91,881
931
224,352
25,175
22,419
0

389,579 $
638 $

Financial Liabilities

Interest rate swaps ....................................................... $

638 $

0 $

638 $

0
0
0
10
0
0
0
10
0

Fair Value Measurements at December 31, 2013 Using:

Quoted Prices in
Active Markets
for Identical

Significant Other
Observable

Carrying Value

Assets (Level 1)

Inputs (Level 2)

Significant
Unobservable
Inputs
(Level 3)

Financial Assets
Investment securities available-for sale
U.S Treasury and U.S. government

51,310 $
94,734
1,525
222,980
28,676
23,573
187
422,985 $
275 $

0 $
0
0
0
0
0
187
187 $
0 $

51,310 $
94,734
1,525
222,970
28,676
23,573
0

422,788 $
275 $

Financial Liabilities

Interest rate swaps ....................................................... $

275 $

0 $

275 $

0
0
0
10
0
0
0
10
0

There were no significant transfers between Level 1 and Level 2 during 2014 or 2013.

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)
2013

2014

2012

Beginning Balance ........................................................................... $

Total unrealized gains or losses:

Included in other comprehensive income ..............................
Repayments ................................................................................
Transfers in and/or out of Level 3 ..............................................
Ending Balance ................................................................................ $

10 $

0
0
0
10 $

11 $

0
(1 )
0
10 $

0
(1)
0
11

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, 2014 Using:

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying Value

Financial Assets

Impaired loans

Commercial ........................................................... $
1–4 family residential ............................................

807 $
63

Other real estate owned

Commercial real estate ..........................................

0 $
0

807
63

Fair Value Measurements
at December 31, 2013 Using:

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Carrying Value

Financial Assets

Impaired loans

Commercial real estate

Owner occupied ............................................... $
Non-owner occupied ........................................
Commercial ...........................................................
1–4 family residential ............................................
Home equity lines of credit ...................................
Consumer Indirect .................................................
Consumer direct ....................................................

962 $
391
1,575
577
174
142
22

Other real estate owned

1–4 family residential ............................................

0 $
0
0
0
0
0
0

962
391
1,575
577
174
142
22

Impaired loans carried at fair value that are measured for impairment using the fair value of the collateral had a principal balance of
$988 thousand, with a valuation allowance of $117 thousand at December 31, 2014, resulting in an additional provision for loan losses
of $992 thousand for the year ending December 31, 2014. At December 31, 2013, impaired loans had a carrying amount of $4.2
million, with a valuation allowance of $363 thousand. Loans measured at fair value throughout the year resulted in an additional
provision for loan losses of $916 thousand for the year ending December 31, 2013. Excluded from the fair value of impaired loans, at
December 31, 2014 and 2013, discussed above are $4.2 million and $3.0 million of loans with specific allowance amounts allocated
and classified as troubled debt restructurings and measured using the present value of discounted cash flows, which are not carried at
fair value.

Impaired commercial real estate loans, both owner occupied and non-owner occupied are valued by independent external appraisals.
These external appraisals are prepared using the sales comparison approach and income approach valuation techniques. Management
makes subsequent unobservable adjustments to the impaired loan appraisals. Impaired loans other than commercial real estate and
other real estate owned are not considered material.

The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair
value on a non-recurring basis at year ended 2014 and 2013:

December 31, 2014
Impaired loans

Fair value

Valuation
Technique(s)

Unobservable
Input(s)

Range
(Weighted Average)

Commercial ....................................... $

807 Sales comparison

Residential .........................................

63 Sales comparison

Other real estate owned .....................

45 Sales comparison

Adjustment for
differences between
comparable sales
Adjustment for
differences between
comparable sales
Adjustment for
differences between
comparable sales

-27.43% - 32.86%
(9.96)%

-18.32% - 24.16%
(-14.02)%

-12.86% - 11.97%
(-5.79)%

December 31, 2013
Impaired loans

Fair value

Valuation
Technique(s)

Unobservable
Input(s)

Range
(Weighted Average)

Commercial real estate ...................... $

1,237 Sales comparison

116 Income approach

Commercial .......................................

1,575 Sales comparison

Residential .........................................

751 Sales comparison

Consumer ...........................................

164 Sales comparison

Adjustment for
differences between
comparable sales
Adjustment for
differences in net
operating income
Adjustment for
differences between
comparable sales
Adjustment for
differences between
comparable sales
Adjustment for
differences between
comparable sales

-41.59% - 77.25%
(-7.82%)

-13.64% - 12.93%
(-5.96%)

-25.56% - 33.03%
(17.42%)

-46.81% - 23.45%
(-7.00%)

-29.00% - 29.00%
(0.00%)

Other real estate owned measured at fair value less costs to sell, had a net carrying amount of $45 thousand at December 31, 2014.
The Company sold ten other real estate owned properties during the year ended December 31, 2014. The Company recorded $5
thousand in write downs on one other real estate owned properties during the year ended December 31, 2014. At December 31, 2013,
other real estate owned had a net carrying amount of $33 thousand. During the year ended December 31, 2013 three properties were
charged down reflecting updated appraisals which resulted in a write-down of $21 thousand.

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments measured on a recurring basis and not previously presented, at
December 31, 2014 and December 31, 2013 are as follows:

Carrying
Amount

Fair Value Measurements at December 31, 2014 Using:

Level 1

Level 2

Level 3

Total

Financial assets

Cash and cash equivalents .............................. $
Restricted stock ...............................................
Loans held for sale ..........................................
Loans, net ........................................................
Accrued interest receivable .............................

27,428 $
4,224
511
656,220
3,237

11,410 $
n/a
0
0
0

16,018 $
n/a
523
0
1,645

0 $

n/a
0
658,993
1,592

Financial liabilities

Deposits ..........................................................
Short-term borrowings ....................................
Long-term borrowings ....................................
Accrued interest payable .................................

915,703
59,136
28,381
402

708,752
0
0
2

206,708
59,136
28,837
400

0
0
0
0

27,428
n/a
523
658,993
3,237

915,460
59,136
28,837
402

Carrying
Amount

Fair Value Measurements at December 31, 2013 Using:

Level 1

Level 2

Level 3

Total

Financial assets

27,513 $
4,224
158
623,116
3,399

12,957 $
n/a
0
0
0

14,556 $
n/a
161
0
1,844

0 $

n/a
0
623,875
1,555

Financial liabilities

915,216
81,617
19,822
447

688,470
0
0
2

228,116
81,617
20,526
445

0
0
0
0

27,513
n/a
161
623,875
3,399

916,586
81,617
20,526
447

The methods and assumptions used to estimate fair value, not previously described, are described as follows:

Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified as
either Level 1 or Level 2. The Company has determined that cash on hand and non-interest bearing due from bank accounts are Level
1 whereas interest bearing federal funds sold and other are Level 2.

Restricted Stock: It is not practical to determine the fair value of restricted stock due to restrictions placed on its transferability.

Loans: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for
other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value
as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Loans held for sale: The fair value of loans held for sale is estimated based upon the average of binding contracts and quotes from
third party investors resulting in a Level 2 classification.

Accrued Interest Receivable/Payable: The carrying amounts of accrued interest receivable and payable approximate fair value
resulting in a Level l, Level 2, or Level 3 classification. The classification is the result of the association with securities, loans and
deposits.

Deposits: The fair values disclosed for demand deposits – interest and non-interest checking, passbook savings, and money market
accounts—are, by definition, equal to the amount payable on demand at the reporting date resulting in a Level 1 classification. The
carrying amounts of variable rate certificates of deposit approximate their fair values at the reporting date resulting Level 2
classification. Fair value for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies
interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting
in a Level 2 classification.

Short-term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-
term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

Long-term Borrowings: The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses
based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Off-balance Sheet Instruments: The fair value of commitments is not considered material.

Year-end premises and equipment were as follows:

NOTE 5—PREMISES AND EQUIPMENT

Land .......................................................................................................................... $
Buildings ...................................................................................................................
Furniture, fixtures and equipment .............................................................................
Leasehold Improvements ..........................................................................................

Less accumulated depreciation .................................................................................
NET BOOK VALUE $

2014
3,143 $
20,842
11,651
247
35,883
(18,834 )
17,049 $

2013
3,086
20,293
11,294
254
34,927
(17,740)
17,187

Depreciation expense was $1.1 million for year ended December 31, 2014 and $1.2 million for years ended December 31, 2013 and
2012.

During 2014, the Company purchased property located adjacent to its Canfield branch on South Broad Street in Canfield, for $395
thousand to house some investment, insurance and mortgage lending activities. The building was put into service in June 2014.

With declining branch transaction counts and banking trends driving customers towards online banking the decision was made to close
two retail branch locations in Leetonia and Warren, Ohio. The two branches were closed on October 1, 2013. One property, recently
valued at $45 thousand, has been moved to Other Real Estate Owned while the other is still providing ATM service and remains in
service as part of premises and equipment. The Company is currently marketing the properties for sale.

The Company leases certain branch properties under operating leases. Rent expense was $323, $302, and $265 thousand for 2014,
2013 and 2012. 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:

2015 ............................................................................................................................... $
2016 ...............................................................................................................................
2017 ...............................................................................................................................
2018 ...............................................................................................................................
2019 ...............................................................................................................................
Thereafter ......................................................................................................................
TOTAL $

274
210
219
202
194
515
1,614

NOTE 6—GOODWILL AND INTANGIBLE ASSETS

Goodwill associated with the Company’s purchase of National Associates, Inc. in July of 2013 and Farmers Trust Company in 2009
totaled $5.6 million at December 31, 2014 and $6.4 million at December 31, 2013. The NAI acquisition is more fully described in
Note 16. 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 the reporting units, including the existing
goodwill and intangible assets, and estimating the fair value of the reporting units. After our annual impairment analysis as of
September 30, 2014, the Company determined the fair value of Farmers Trust Company exceeded its carrying amount; however, the
fair value of NAI was less than its carrying value. When the carrying amount of a reporting unit exceeds its fair value, a second step to
the impairment test is required. The analysis indicated that the Step 2 analysis was necessary for the National Associates, Inc. entity.
Step 2 of the goodwill impairment test is performed to measure the impairment loss. Step 2 requires that the implied fair value of the
reporting unit’s goodwill be compared to the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill
exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. After
performing Step 2 it was determined that the implied value of goodwill was less than the carrying costs, resulting in an impairment
charge of $763 thousand for the year ended December 31, 2014. During the initial valuation of the newly acquired entity the future
income projections were not fully attained. The fair value of the reporting unit was determined based on a discounted cash flow
model. Additionally, the $763 thousand impairment was offset with an equal reduction of the future payment liability associated with
the purchase. The two adjustments offset resulting in a zero impact to the Company’s consolidated statements of income for year
ended December 31, 2014.

Acquired Intangible Assets
Acquired intangible assets were as follows at year end:

2014

2013

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

Amortized intangible assets:
Customer relationship intangibles .............. $
Non-compete contracts ..............................
Trade Name ................................................
Total ........................................................... $

5,970
370
190
6,530

(2,972) $
(295)
(41)
(3,308) $

5,970 $
370
190
6,530 $

(2,262)
(265)
(14)
(2,541)

Aggregate amortization expense was $767 thousand, $624 thousand, and $409 thousand for 2014, 2013, and 2012.

Estimated amortization expense for each of the next five years:

2015 ....................................................................................................................... $
2016 .......................................................................................................................
2017 .......................................................................................................................
2018 .......................................................................................................................
2019 .......................................................................................................................
Thereafter ..............................................................................................................
TOTAL ............................................................................................................ $

667
580
494
410
334
737
3,222

NOTE 7 - INTEREST BEARING DEPOSITS

Time deposits of $250 thousand or more were $26.3 million and $22.0 million at year-end 2014 and 2013.

Following is a summary of scheduled maturities of certificates of deposit during the years following December 31, 2013:

2015 .......................................................................................................................
2016 .......................................................................................................................
2017 .......................................................................................................................
2018 .......................................................................................................................
2019 .......................................................................................................................
Thereafter ...............................................................................................................
TOTAL $

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

Demand ................................................................................................ $
Money Market ......................................................................................
Savings .................................................................................................
Certificates of Deposit ..........................................................................
TOTAL $

2014
126,456 $
266,040
131,559
206,951
731,006 $

103,868
44,741
16,913
11,443
19,933
10,053
206,951

2013
124,660
285,464
122,453
226,746
759,323

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 $147.8 million and $152.4 million at year ended 2014 and 2013.

Repurchase agreements are financing arrangements that mature within 89 days and usually overnight. 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:

2014

2013

2012

Average balance during the year ................................................................. $
Average interest rate during the year ..........................................................
Maximum month-end balance during the year ............................................ $
Weighted average year-end interest rate .....................................................
Balance at year-end ..................................................................................... $

71,573 $
0.04%
78,972 $
0.06%
58,786 $

90,951 $
0.04 %
100,462 $
0.06 %
75,267 $

93,149
0.08%
98,531
0.07%
79,536

The Bank has access to lines of credit amounting to $24.5 million at two major domestic banks that are below prime rate. The lines
and terms are periodically reviewed by the banks and are generally subject to withdrawal at their discretion. There were no
borrowings under these lines at December 31, 2014. At December 31, 2013 the Bank had drawn $6 million against the lines and
repaid the full amount during January of 2014.

Farmers National Banc Corp has an unsecured $1.5 million revolving line of credit. The line can be renewed annually. The
outstanding balance was $350 thousand at December 31, 2014 and 2013. The interest rate is prime with a floor of 4.5%. The interest
rate at December 31, 2014 and 2013 was 4.5%. During 2014, Farmers National Banc Corp added an unsecured $5 million line of
credit with another banking institution. The line can be renewed annually and has not been drawn upon. The interest rate is prime
with a floor of 3.5%.

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:

2014

Weighted
Average

2013

Weighted
Average

Amount

Rate

Amount

Rate

Fixed-rate constant payment advances, at rates from 1.70% to

4.88% at December 31, 2014 and 2013 ......................................... $

8,381

Convertible and putable fixed-rate advances, at rates from 2.82% to
4.45% at December 31, 2014 and 2013 .........................................

Cash management advance with a variable rate of .26% at

December 31, 2014 .......................................................................
Total advances ................................................................................... $

10,000

10,000
28,381

1.72 % $

3.64 %

0.26 %
1.87 % $

9,822

1.74%

10,000

3.64%

0
19,822

0.0%
2.70%

During December of 2014, the Bank received a variable rate cash management advance from FHLB in the amount of $10 million that
can be renewed quarterly. The Bank also has a total of $10 million in putable FHLB fixed-rate advances. 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 $110.3 million and $104.4
million at year end 2014 and 2013. Based on this collateral the Bank is eligible to borrow an additional $81.9 million at year end 2014.
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:
2015 .............................................................................................................................. $
2016 ..............................................................................................................................
2017 ..............................................................................................................................
2018 ..............................................................................................................................
2019 ..............................................................................................................................
Thereafter .....................................................................................................................
TOTAL $

16,398
1,176
6,089
1,008
931
2,779
28,381

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

2014

2013

Fixed
Rate

Variable
Rate

Fixed
Rate

Variable
Rate

Commitments to make loans .......................................................... $
Unused lines of credit .................................................................... $

471 $
108,382 $

1,881 $
39,205 $

4,373 $
87,562 $

8,722
33,351

Commitments to make loans are generally made for periods of 30 days or less. The fixed rate loan commitments for 2014 have interest
rates that range from 4.00% to 4.63% and mature within thirty years. The fixed rate loan commitments for 2013 have interest rates of
4.50% and mature between ten and twelve years. Fixed rate unused lines of credit have interest rates ranging from 2.11% to 13.50%
at December 31, 2014 and 2.16% to 13.50% at December 31, 2013.

Standby letters of credit are considered financial guarantees. The standby letters of credit have a contractual value of $5.2 million at
December 31, 2014 and $4.9 million at December 31, 2013. The carrying amount of these items on the balance sheet is not material.

NOTE 11 - STOCK BASED COMPENSATION

During 2012, the Company, with the approval of shareholders, created the 2012 Equity Incentive Plan (the “Plan”). The Plan permits
the award of up to 500 thousand shares to the Company’s directors and employees to promote the Company’s long-term financial
success by motivating performance through long-term incentive compensation and to better align the interests of its employees with
those of its shareholders. 46,957 share awards were granted under the Plan during February 2014. The restricted stock awards were
granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; these awards have a
three year performance period that will end December 31, 2016. Participants will receive the awards based on performance of the
Company’s return on equity metrics. Expense recognized for the Plan was $116 thousand during the year ended 2014. As of
December 31, 2014, there was $231 thousand of total unrecognized compensation expense related to the nonvested shares granted
under the Plan. The remaining cost is expected to be recognized over the next two years. There were no shares awarded or expense
recognized during the years ended December 31, 2013 and 2012 under the Plan.

The following is the activity under the Plan during the year ended December 31, 2014:

Restricted Stock Units

Beginning balance .............................................................................. $
Granted ...............................................................................................
Vested .................................................................................................
Forfeited .............................................................................................
Ending balance ................................................................................... $

Units

Weighted
Average Grant
Date Fair Value
0
7.39
0
0
7.39

0 $
46,957
0
0
46,957 $

The Company’s Stock Option Plan, which was shareholder-approved and has since expired, permitted the grant of share options to its
directors, officers and employees for up to 375 thousand shares of common stock. 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. During the first quarter of 2014 the last remaining 5,000 outstanding options were exercised and
the Company satisfied these options with the reissuance of treasury shares.

There were no options granted under the Stock Option Plan during 2014, 2013 or 2012.

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, 2014, 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 only 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 2014 and 2013, 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 and
Trust. The Bank and Trust are subject to the dividend restrictions set forth by the Comptroller of the Currency and Ohio Department
of Commerce – Division of Financial Institutions, respectively. The respective regulatory agency 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 2015, the
Bank could, without prior approval, declare dividends of approximately $9.1 million plus any 2015 net profits retained to the date of
the dividend declaration. In order to practice trust powers, Trust must maintain a minimum capital of $3 million. The Trust would
need regulatory approval to declare dividends in 2015.

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

Actual

Requirement For Capital
Adequacy Purposes:

To be Well Capitalized
Under Prompt
Corrective Action
Provisions:

Amount

Ratio

Amount

Ratio

Amount

Ratio

2014
Total Capital to risk weighted assets
Consolidated ....................................$
Bank .................................................
Tier I Capital to risk weighted assets
Consolidated ....................................
Bank .................................................
Tier I Capital to average assets
Consolidated ....................................
Bank .................................................

2013
Total Capital to risk weighted assets
Consolidated ....................................$
Bank .................................................
Tier I Capital to risk weighted assets
Consolidated ....................................
Bank .................................................
Tier I Capital to average assets
Consolidated ....................................
Bank .................................................

121,340
114,321

16.48% $
15.56%

58,523
58,773

8.00 %
8.00 % $

N/A

73,466

10.00%

113,654
106,689

15.43%
14.52%

10.03%
9.37%

29,262
29,386

45,313
45,565

4.00 %
4.00 %

N/A

44,079

6.00%

N/A

56,956

5.00%

115,730
109,154

16.26% $
15.42%

56,950
56,638

8.00 %
8.00 % $

N/A

70,798

10.00%

108,130
101,586

15.19%
14.35%

9.36%
8.93%

28,475
28,319

46,185
45,478

4.00 %
4.00 %

N/A

42,479

6.00%

N/A

56,848

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 $336 thousand, $336 thousand and $334 thousand for the years ended December 31, 2014, 2013 and 2012, respectively.

During 2014 the Company adopted a profit sharing plan to provide associates not participating in a current incentive plan a vehicle for
sharing in the success of the Company outside of existing wages and non-monetary benefits. The board of directors has approved a
profit sharing amount equal to 1% of annual compensation for associates. The expense was $73 thousand for the year ended
December 31, 2014.

The Company maintains a deferred compensation plan for certain retirees. Expense under the Plan was $10 thousand, $10 thousand
and $13 thousand for the years ended December 31, 2014, 2013 and 2012. The liability under the Plan at December 31, 2014 was
$156 thousand and $163 thousand at December 31, 2013.

The Company also has a postretirement health care 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 2014, 2013 and
2012 was $4 thousand, $13 thousand and $34 thousand. The accrued postretirement benefit liability under this Plan was $314
thousand and $370 thousand at December 31, 2014 and 2013. Due to the immateriality of the Plan, the disclosures required under U.S.
generally accepted accounting principles have been omitted.

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

NOTE 14 - INCOME TAXES

Current expense ............................................................................................................ $
Deferred expense ...........................................................................................................
TOTALS $

2014
2,369 $
263
2,632 $

2013
874 $
809
1,683 $

2012
2,042
1,013
3,055

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

2014

2013

2012

Statutory tax ................................................................................................................. $
Effect of nontaxable interest ......................................................................................
Bank owned life insurance, net .................................................................................
Effect of nontaxable life insurance death proceeds ...................................................
Other ..........................................................................................................................
ACTUAL TAX $

4,059 $
(1,179 )
(159 )
0
(89 )
2,632 $

3,312 $
(1,325)
(123)
(115)
(66)
1,683 $

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

Deferred tax assets:
Allowance for credit losses ............................................................................................................. $
Net unrealized loss on securities available for sale .........................................................................
Deferred and accrued compensation................................................................................................
Deferred loan fees and costs ............................................................................................................
Post-retirement benefits ...................................................................................................................
AMT credit carryforward ................................................................................................................
Other ................................................................................................................................................
Gross deferred tax assets .............................................................................................................. $

Deferred tax liabilities:
Depreciation and amortization ........................................................................................................ $
Net unrealized gain on securities available for sale ........................................................................
Federal Home Loan Bank dividends ...............................................................................................
Purchase accounting adjustments ....................................................................................................
Other ...............................................................................................................................................
Gross deferred tax liabilities ........................................................................................................
NET DEFERRED TAX ASSET $

No valuation allowance for deferred tax assets was recorded at December 31, 2014 and 2013.

2014

2,671 $
0
848
515
110
0
214
4,358 $

(1,081) $
(523)
(482)
(550)
(38)
(2,674)
1,684 $

4,545
(1,203)
(179)
0
(108)
3,055

2013

2,649
3,005
874
511
174
367
258
7,838

(1,082)
0
(482)
(684)
(49)
(2,297)
5,541

At December 31, 2014 and December 31, 2013, the Company had no unrecognized tax benefits recorded. The Company does not
expect the amount of unrecognized tax benefits to significantly change within the next twelve months.

The Company paid no penalties for the year ended December 31, 2014 or 2012. The Company paid a $12 thousand penalty for the
year ended December 31, 2013. There were no amounts accrued for penalties or interest as of December 31, 2014 or 2013.

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 2011. The tax years 2011—2013 remain open to examination by the U.S. taxing authority.

NOTE 15 – OTHER COMPREHENSIVE INCOME (LOSS)

The following table represents the detail of other comprehensive income (loss) for the years ended December 31, 2014, 2013 and
2012.

Unrealized holding gains on available-for-sale securities during the year ..... $
Reclassification adjustment for (gains) losses included in net income (1) .....
Net unrealized gains on available-for-sale securities .....................................
Change in funded status of post-retirement health plan .................................
Net other comprehensive income (loss) ......................................................... $

10,486 $
(457)

10,029
60
10,089 $

(3,670) $
160
(3,510)
(21)
(3,531) $

6,816
(297)
6,519
39
6,558

Pre-tax

2014
Tax

After-Tax

Unrealized holding losses on available-for-sale securities during the year .... $
Reclassification adjustment for (gains) losses included in net income (1) .....
Net unrealized losses on available-for-sale securities ....................................
Change in funded status of post-retirement health plan .................................
Net other comprehensive income (loss) ......................................................... $

Pre-tax

(19,310) $
(860)
(20,170)
(3)
(20,173) $

2013
Tax

After-Tax

6,759 $
301
7,060
1
7,061 $

(12,551)
(559)
(13,110)
(2)
(13,112)

Pre-tax

2012
Tax

After-Tax

Unrealized holding gains on available-for-sale securities during the year ..... $
Reclassification adjustment for (gains) losses included in net income (1) .....
Net unrealized losses on available-for-sale securities ....................................
Change in funded status of post-retirement health plan .................................
Net other comprehensive income (loss) ......................................................... $

307 $
(1,059)
(752)
131
(621) $

(107) $
370
263
(46)
217 $

200
(689)
(489)
85
(404)

(1) Pre-tax reclassification adjustments relating to available-for-sale securities are reported in security gains and the tax impact is
included in income tax expense on the consolidated statements of income.

NOTE 16 - BUSINESS COMBINATION

On July 1, 2013, the Company completed the acquisition of all outstanding stock of the retirement planning consultancy National
Associates, Inc. of Cleveland, Ohio. The transaction involved both cash and stock totaling $4.4 million, including up to $1.5 million
of future payments, contingent upon NAI meeting income performance targets, with an estimated fair value at the acquisition date of
$920 thousand. The contingent consideration of the future payment payable has been adjusted down to $156 thousand based on the
September 30, 2014 fair market value estimation. The fair market value of the contingent consideration was determined using the
Monte Carlo Simulation. The simulation’s key assumptions included a two year period with an estimated volatility of 20%. Expected
EBITDA had a base of 6% with a maximum 12% and a discount rate of 11.9%. The acquisition is part of the Company’s plan to
increase the levels of noninterest income and to complement the existing retirement services currently being offered. Acquisition-
related costs of $270 thousand were included in the Company’s consolidated statements of income for the year ended December 31,
2013.

Goodwill of $2.6 million, which is recorded on the balance sheet of NAI, arising from the acquisition consisted largely of synergies
and the cost savings resulting from the combining of the operations of the companies. The goodwill is not expected to be deductible
for income tax purposes. The goodwill was partially impaired as described in Note 6, by an amount equal to the reduction in the
contingent consideration payable. The two adjustments offset resulting in a zero impact to the Company’s consolidated statements of
income for year ended December 31, 2014. After the impairment the NAI goodwill is $1.9 million at December 31, 2014. The fair
value of other intangible assets of $2.3 million is related to client relationships, company name and noncompetition agreements. The
following table summarizes the consideration paid for NAI and the amounts of the assets acquired and liabilities assumed.

Consideration

Cash ........................................................................................................................ $
Stock ......................................................................................................................
Contingent consideration .......................................................................................
Fair value of total consideration transferred ..................................................... $

Assets acquired and liabilities assumed

Cash ........................................................................................................................ $
Accounts receivable ...............................................................................................
Premises and equipment .........................................................................................
Other assets ............................................................................................................
Total assets acquired .........................................................................................
Liabilities assumed .................................................................................................
Net assets acquired ........................................................................................... $

Assets and liabilities arising from acquisition

Identified intangible assets................................................................................
Deferred tax liability .........................................................................................
Goodwill ...........................................................................................................
Net assets acquired from acquisition ........................................................... $

2,111
1,400
920
4,431

28
300
50
1
379
81
298

2,290
(802)
2,645
4,431

The following table presents pro forma information as if the acquisition had occurred at the beginning of 2012. The pro forma
information includes adjustments for amortization of intangibles arising from the transaction and the related income tax effects. The
pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions
been effected on the assumed dates.

2013

2012

Noninterest income ......................................................................... $

15,080 $

14,577

Net income ...................................................................................... $

7,665 $

9,883

Basic and diluted earnings per share ............................................... $

0.41 $

0.53

Loans to principal officers, directors, and their affiliates during 2014 were as follows:

NOTE 17 - RELATED PARTY TRANSACTIONS

Total loans at December 31, 2013 .............................................................................. $
New loans ...................................................................................................................
Effect of changes in composition of related parties ....................................................
Repayments ................................................................................................................
Total loans at December 31, 2014 .............................................................................. $

573
0
290
(103)
760

Deposits from principal officers, directors, and their affiliates at year-end 2014 and 2013 were $1.7 million and $1.6 million.

The factors used in the earnings per share computation follow:

NOTE 18 – EARNINGS PER SHARE

2014

2013

2012

Basic EPS

Net income .......................................................................................... $
Weighted average shares outstanding .................................................
Basic earnings per share ............................................................. $

8,965 $
18,674,526
0.48 $

7,780 $
18,773,491
0.41 $

Diluted EPS

Net income .......................................................................................... $
Weighted average shares out-standing for basic earnings per share ...
Restricted stock awards ......................................................................
Weighted average shares for diluted earnings per share .....................
Diluted earnings per share .......................................................... $

8,965 $
18,674,526

890

7,780 $
18,773,491

18,675,416
0.48 $

18,773,491
0.41 $

9,932
18,791,843
0.53

9,932
18,791,843
0
18,791,843
0.53

Stock options for 5,000 shares of common stock for 2013 and 2012 were not considered in computing diluted earnings per share
because they were antidilutive.

NOTE 19 – INTEREST RATE SWAPS

The Company uses a program that utilizes interest-rate swaps as part of its asset/liability management strategy. The interest-rate swaps
are used to help manage the Company’s interest rate risk position and not as derivatives for trading purposes. The notional amount of
the interest-rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the
notional amount and the other terms of the individual interest-rate swap agreements.

The objective of the interest-rate swaps is to protect the related fixed rate commercial real estate loans from changes in fair value due
to changes in interest rates. The Company has a program whereby it lends to its borrowers at a fixed rate with the loan agreement
containing a two-way yield maintenance provision, which will be invoked in the event of prepayment of the loan, and is expected to
exactly offset the fair value of unwinding the swap. The yield maintenance provision represents an embedded derivative which is
bifurcated from the host loan contract and, as such, the swaps and embedded derivatives are not designated as hedges. Accordingly,
both instruments are carried at fair value and changes in fair value are reported in current period earnings.

Summary information about these interest-rate swaps as of year ended December 31, 2014, 2013 and 2012 is as follows:

2014

2013

2012

Notional amounts ............................................................................. $
Weighted average pay rate on interest-rate swaps ...........................
Weighted average receive rate on interest-rate swaps .....................
Weighted average matuirity (years) .................................................
Fair value of combined interest-rate swaps ..................................... $

31,459

$
4.26%
2.67%
5.9
638

25,195

$
4.28 %
2.82 %
6.3
275

7,060
4.07%
2.99%
5.8
120

The fair value of the yield maintenance provisions and interest-rate swaps is recorded in other assets and other liabilities, respectively,
in the consolidated balance sheet. Changes in the fair value of the yield maintenance provisions and interest-rate swaps are reported in
earnings, as other noninterest income in the consolidated income statements. There were no net gains or losses recognized in earnings
related to yield maintenance provisions for years ended December 31, 2014, 2013 and 2012.

NOTE 20 – SEGMENT INFORMATION

The reportable segments are determined by the products and services offered, primarily distinguished between banking, trust and
retirement consulting 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, trust service fees provide the revenue in
trust operations and consulting fees provide the revenues in the retirement consulting 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:

December 31, 2014
Goodwill and other intangibles ................................ $
Total assets ............................................................... $

December 31, 2013
Goodwill and other intangibles ................................ $
Total assets ............................................................... $

For year ended 2014
Net interest income .................................................. $
Provision for loan losses ..........................................
Service fees, security gains and other noninterest

income .................................................................
Noninterest expense .................................................
Income before taxes ..............................................
Income tax ................................................................
Net Income ......................................................... $

Trust
Segment

Bank
Segment

Retirement
Consulting
Segment

Eliminations
and Others

Consolidated
Totals

5,285 $
10,643 $

0 $
1,121,505 $

3,528 $
4,356 $

0 $
463 $

8,813
1,136,967

Trust
Segment

Bank
Segment

Retirement
Consulting
Segment

Eliminations
and Others

Consolidated
Totals

5,639 $
11,572 $

0 $
1,120,091 $

4,704 $
5,090 $

0 $
573 $

10,343
1,137,326

Trust
Segment

Bank
Segment

Retirement
Consulting
Segment

Eliminations
and Others

Consolidated
Totals

53 $
0

6,170
4,906
1,317
451
866 $

36,297 $
1,880

7,577
30,349
11,645
2,645
9,000 $

0 $
0

1,810
2,433
(623 )
48
(671 ) $

(14) $
0 $

(254) $
474 $
(742) $
(512) $
(230) $

36,336
1,880

15,303
38,162
11,597
2,632
8,965

For year ended 2013
Net interest income .................................................. $
Provision for loan losses ..........................................
Service fees, security gains and other noninterest

Trust
Segment

Bank
Segment

Retirement
Consulting
Segment

Eliminations
and Others

Consolidated
Totals

45 $
0

5,667
4,899
813
282
531 $

35,865 $
1,290

7,838
31,875
10,538
2,043
8,495 $

0 $
0

627
863
(236 )
(80 )
(156 ) $

(14) $
0 $

(218) $
1,420 $
(1,652) $
(562) $
(1,090) $

35,896
1,290

13,914
39,057
9,463
1,683
7,780

For year ended 2012
Net interest income .................................................. $
Provision for loan losses ..........................................
Service fees, security gains and other noninterest

Trust
Segment

Bank
Segment

Retirement
Consulting
Segment

Eliminations
and Others

Consolidated
Totals

47 $
0

5,571
4,918
700
244
456 $

36,871 $
725

7,192
30,024
13,314
3,160
10,154 $

0 $
0

0
0
0
0
0 $

(20) $
0 $

(185) $
822 $
(1,027) $
(349) $
(678) $

36,898
725

12,578
35,764
12,987
3,055
9,932

Bank segment includes Farmers National Insurance and Farmers of Canfield Investment Co.

NOTE 21 – SUBSEQUENT EVENT

During January of 2015, the Company announced a definitive agreement had been reached to acquire all the shares of National
Bancshares Corporation, the holding company for First National Bank of Orville and will be merged with and into Farmers National
Bank of Canfield. At the completion of the transaction First National Bank of Orrville branches will become branches of Farmers
National Bank of Canfield. Pursuant to the Agreement, each shareholder of National Bancshares will be entitled to elect to receive
either $32.15 per share in cash or 4.034 shares of Farmers’ common stock, subject to an overall limitation of 80% of the shares being
exchanged for stock and 20% for cash. Based on Farmers’ volume weighted average stock price over the last 20 trading days of $7.97,
as of January 26, 2015, the transaction is valued at approximately $74.0 million. The merger is expected to qualify as a tax-free
reorganization for those shareholders electing to receive Farmers’ stock. The transaction is subject to receipt of National Bancshares’
shareholder approval, Farmers’ shareholder approval and customary regulatory approvals. The Company expects the transaction to
close in the first half of 2015.

NOTE 22 - QUARTERLY FINANCIAL DATA (UNAUDITED)

March 31

June 30

September 30

December 31

Quarter Ended 2014
Total interest income ............................................ $
Total interest expense ...........................................
Net interest income ..............................................
Provision for loan losses ......................................
Noninterest income ..............................................
Noninterest expense .............................................
Income before income taxes .................................
Income taxes ........................................................
Net income ........................................................... $

10,063 $
1,207
8,856
330
3,433
9,141
2,818
627
2,191 $

10,118 $
1,166
8,952
300
3,797
9,378
3,071
720
2,351 $

10,413 $
1,128
9,285
425
3,880
9,776
2,964
688
2,276 $

Earnings per share - basic and diluted .................. $

0.12 $

0.13 $

0.12 $

March 31

June 30

September 30

December 31

Quarter Ended 2013
Total interest income ............................................ $
Total interest expense ...........................................
Net interest income ..............................................
Provision for loan losses ......................................
Noninterest income ..............................................
Noninterest expense .............................................
Income before income taxes .................................
Income taxes ........................................................
Net income ........................................................... $

10,266 $
1,298
8,968
255
2,875
9,088
2,500
495
2,005 $

10,273 $
1,234
9,039
170
3,225
9,822
2,272
404
1,868 $

10,122 $
1,274
8,848
340
4,173
10,926
1,755
143
1,612 $

10,321
1,078
9,243
825
4,193
9,867
2,744
597
2,147

0.12

10,298
1,257
9,041
525
3,641
9,221
2,936
641
2,295

0.12

Earnings per share - basic and diluted .................. $

0.11 $

0.10 $

0.09 $

The Company sold certain investment securities and recognized security gains of $372 thousand during the fourth quarter of 2014 and
gains of $597 thousand during the third quarter of 2013. A $1.3 million charge was recorded during the third quarter of 2013 for
severance costs.

NOTE 23—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.

December 31,
BALANCE SHEETS

Assets:

Cash ............................................................................................................................ $
Investment in subsidiaries

Bank .........................................................................................................................
Trust .........................................................................................................................
NAI ..........................................................................................................................
Securities available for sale ........................................................................................
Other ...........................................................................................................................
TOTAL ASSETS $

Liabilities:

Other liabilities ............................................................................................................ $
Note payable ................................................................................................................
Other accounts payable ................................................................................................
TOTAL LIABILITIES
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $

2014

2013

1,564 $

107,704
10,115
3,604
172
916
124,075 $

163 $
350
2
515
123,560
124,075 $

1,849

96,087
11,233
4,275
126
725
114,295

932
350
6
1,288
113,007
114,295

STATEMENTS OF INCOME
Years ended December 31,

Income:

Dividends from subsidiaries

2014

2013

2012

Bank ......................................................................................................... $
Trust .........................................................................................................
NAI ..........................................................................................................
Interest and dividends on securities ............................................................
Security gains/(losses) ................................................................................
Other income ..............................................................................................
TOTAL INCOME
Interest on borrowings ................................................................................
Other expenses ............................................................................................
Income before income tax benefit and undistributed subsidiary income ......
Income tax benefit ......................................................................................

Equity in undistributed net income of subsidiaries (dividends in excess of

net income)

Bank ............................................................................................................
Trust ............................................................................................................
NAI .............................................................................................................
NET INCOME $

4,013 $
2,000

0
1
0
764

6,778
(15)
(1,492)
5,271
512

4,987
(1,134)
(671)
8,965 $

4,333 $
980
0
2
21
0
5,336
(16)
(1,659)
3,661
562

4,162
(449)
(156)
7,780 $

2,712
0
0
4
0
0
2,716
(24)
(1,007)
1,685
349

7,442
456
0
9,932

STATEMENTS OF CASH FLOWS
Years ended December 31,
Cash flows from operating activities:
Net income ...................................................................................................... $

Adjustments to reconcile net income to net cash
from operating activities:

Security (gains)/losses ...............................................................................
Impairment of securities ............................................................................
Dividends in excess of net income (Equity in undistributed net income of
subsidiary) .................................................................................................
Other ..........................................................................................................
NET CASH FROM OPERATING ACTIVITIES

Cash flows from investing activities:

Proceeds from maturities of available for sale securities ...........................
Purchase of National Associates, Inc. ........................................................
NET CASH FROM INVESTING ACTIVITIES

Cash flows from financing activities:

Proceeds from reissuance of treasury shares .............................................
Purchase of treasury shares ........................................................................
Cash dividends paid ...................................................................................
Net changes in borrowings ........................................................................
Proceeds from dividend reinvestment ........................................................
NET CASH FROM FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS

Beginning cash and cash equivalents ..............................................................
Ending cash and cash equivalents ................................................................... $

2014

2013

8,965 $

7,780 $

0
0

(3,182)
(982)
4,801

0
0
0

32
(2,882)
(2,236)
0
0
(5,086)
(285)

1,849
1,564 $

(24)
3

(3,557)
(270)
3,932

56
(2,111)
(2,055)

0
(1,606)
(2,248)
0
0
(3,854)
(1,977)

3,826
1,849 $

2012

9,932

0
0

(7,898)
(20)
2,014

0
0
0

0
(42)
(3,382)
(750)
243
(3,931)
(1,917)

5,743
3,826

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.

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, 2014, 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
2013 Annual Report to Shareholders, management assessed the Company’s system of internal control over financial reporting as of
December 31, 2014, in relation to criteria for effective internal control over financial reporting as described in the 2013 “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, 2014. The audit report by Crowe Horwath is located in Item 8 of this 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, 2014, that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting. There have been no significant changes in the Company’s internal
controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation or material
weaknesses in such internal controls requiring corrective actions.

Item 9B. Other Information.
None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

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 16, 2015 (the “2015 Annual Meeting”) is
incorporated herein by reference from the information to be included under the caption “Proposal 1 – Election of Directors” in
Farmers’ definitive proxy statement relating to the 2015 Annual Meeting to be filed with the Commission (“2015 Proxy Statement”).

Executive Officers of the Registrant
The names, ages and positions of Farmers’ executive officers as of February 27, 2015:

Name
Carl D. Culp ..............................

Age
51

Joseph Gerzina ..........................
Mark L. Graham ........................
Kevin J. Helmick ......................
Brian E. Jackson ........................
Mark A. Nicastro ......................
Joseph W. Sabat ........................
Timothy Shaffer ........................

Amber Wallace Soukenik .........
Dale Sturdevant .........................

59
60
43
45
44
54
53

49
61

Title

Executive Vice President and Treasurer of Farmers and Executive Vice-President and
Chief Financial Officer of Farmers Bank.

Senior Vice President and Chief Lending Officer of Farmers Bank
Executive Vice President and Chief Credit Officer of Farmers Bank
President and Chief Executive Officer of Farmers and Farmers Bank
Senior Vice President and Chief Information Officer of Farmers Bank
Senior Vice President and Director of Human Resources of Farmers Bank
Vice President and Controller of Farmers Bank

Senior Vice President and Director of Commercial Banking/Private Client Services of
Farmers Bank

Senior Vice President and Chief Retail/Marketing Officer of Farmers Bank
Vice President and Chief Risk Officer of Farmers Bank

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

Principal Occupation and Business Experience of Executive Officers

Mr. Culp has served as Executive Vice President and Treasurer of Farmers and Executive Vice President and Chief Financial Officer
of Farmers Bank since March 1996. Prior to that time, Mr. Culp was Controller of Farmers and Farmers Bank from November 1995.
Mr. Culp has 29 years of experience in finance and accounting in the banking industry, and is a certified public accountant.

Mr. Gerzina is Senior Vice President and Chief Lending Officer since February 2012, and brings 33 years of experience in
commercial and private banking. Prior to joining Farmers Bank, Mr. Gerzina was a Managing Partner at Weather Vane Capital, and
previously held the role of Senior Vice President and Regional Commercial Manager (2002-2009) with Huntington Bank. He was
appointed as an executive officer of Farmers in 2012.

Mr. Graham has over 37 years of experience with Farmers Bank. During his tenure, Mr. Graham has held a variety of positions in
Farmers Bank’s commercial loan department. Mr. Graham has served as Executive Vice President and Chief Credit Officer of
Farmers Bank since January 2012; for the four years prior to that appointment, Mr. Graham served as Senior Vice President and
Senior Lending Officer of Farmers Bank.

Mr. Helmick is the President and Chief Executive Officer of Farmers and Farmers Bank, a position he has held since November 2013.
Prior to becoming President Mr. Helmick was Secretary of Farmers and Executive Vice President – Wealth Management and Retail
Services of Farmers Bank since January 2012. Mr. Helmick has been with the Company for 19 years and has a retail and investment
background, including an MBA and CFP designation. From 1997 through 2008, Mr. Helmick served as the Vice President and
Program Manager for Farmers National Investments. In 2008 Mr. Helmick was promoted to Senior Vice President of Wealth
Management and Retail Services where he was responsible for the management and oversight of Farmers National Investments, the
retail investment area of Farmers Bank, Farmers Insurance, and all branch sales and operational functions.

Mr. Jackson is the Senior Vice President and Chief Information Officer of Farmers Bank, a position he has held since May 2009. Prior
to coming to the Company, Mr. Jackson was Assistant Vice President and Information Technology Manager with Home Savings Bank
since 1993. He has over 22 years of experience in the IT field. Mr. Jackson was appointed as an executive officer in 2012.

Mr. Nicastro is the Senior Vice President and Director of Human Resources of Farmers Bank, a position he has held since joining
Farmers in July 2009. Prior to that appointment, Mr. Nicastro served as Staffing and Compliance Manager for Huntington National
Bank (2007-2008) and Regional Human Resources Manager for Sky Bank from 2004 until 2007. Mr. Nicastro has an MBA, and has
more than 17 years of experience in Human Resource Management from both large multi-national banks and regional community
banks. He was appointed as an executive officer in 2012.

Mr. Sabat has served as Vice President and Controller of Farmers Bank since April 2006. Prior to coming to the Company, Mr. Sabat
was with a regional public accounting firm. Mr. Sabat has 19 years of experience in the accounting, finance and auditing fields. He is
a certified public accountant and was appointed as an executive officer in 2012.

Mr. Shaffer has served as the Senior Vice President and Director of Commercial Banking & Private Client Services since January of
2014. In October of 2011 Mr. Shaffer joined Farmers Bank as the Commercial Lending Manager, overseeing commercial lending,
small business lending and treasury management. Mr. Shaffer has over 25 years of Banking and Lending experience in the Mahoning
Valley market. Mr. Shaffer was appointed as an executive officer in 2014.

Ms. Wallace Soukenik has served as Senior Vice President and Chief Retail/Marketing Officer for Farmers Bank since November
2013. In August 2008 Ms. Wallace Soukenik joined Farmers Bank as Senior Vice President and Director of Marketing. She has 25
years of experience in the Marketing field. Prior to joining the Company, Ms. Wallace Soukenik served as the Assistant Vice
President of Marketing and Physician Relations at Trumbull Memorial Hospital, where she managed a $14 million endowment, a $1.5
million marketing budget and all physician contracts. She was appointed as an executive officer in 2012.

Mr. Sturdevant has served as the Vice President and Chief Risk Officer of Farmers Bank since May 2012. Previously, Mr. Sturdevant
served as the Corporate Security and Information Security Officer of Farmers Bank. Mr. Sturdevant has over 24 years of banking
experience including project management, security and systems management. Prior to joining Farmers, Mr. Sturdevant worked for
Park View Federal Savings Bank and Home Savings Bank. Mr. Sturdevant was appointed as an executive officer in 2014.

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 2015 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 may recommend nominees to Farmers’ Board of Directors is
incorporated herein by reference from the information to be included under the caption “Director Nominations” in 2015 Proxy
Statement. These procedures have not materially changed from those described in Farmers’ definitive proxy materials for the 2014
Annual Meeting of Shareholders.

Audit Committee.

The information required by Items 407(d)(4) and (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 2015 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 2015 Proxy
Statement.

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 Committee Interlocks and Insider Participation” in the 2015 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 Committee Report” in the 2015 Proxy Statement.

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

The information required by Item 201(d) of Regulation S-K is incorporated herein by reference from the disclosure included under the
caption “Proposal Four — Adoption And Approval Of The Farmers National Banc Corp. 2012 Equity Incentive Plan” in the 2012
Proxy Statement of the Company.

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 the 2015 Proxy Statement.

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 2015 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 2015 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 2015 Proxy Statement.

Item 15. Exhibits, Financial Statement Schedules.

(a) (1) Financial Statements

PART IV

Item 8 Reference is made to the Consolidated Financial Statements included in Item 8 of Part II herein.

(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.

See subparagraph (a)(2) above.

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.

SIGNATURES

FARMERS NATIONAL BANC CORP.

By /s/ Kevin J. Helmick

Kevin J. Helmick, President and Chief Executive
Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Kevin J. Helmick
Kevin J. Helmick

/s/ Carl D. Culp
Carl D. Culp

/s/ Joseph W. Sabat
Joseph W. Sabat

/s/ Gregory C. Bestic
Gregory C. Bestic

/s/ Anne Frederick Crawford
Anne Frederick Crawford

/s/ Lance J. Ciroli
Lance J. Ciroli

/s/ Ralph D. Macali
Ralph D. Macali

/s/ Terry A. Moore
Terry A. Moore

/s/ David Z. Paull
David Z. Paull

/s/ Earl R. Scott
Earl R. Scott

/s/ Gregg Strollo
Gregg Strollo

President, Chief Executive Officer and Director

February 27, 2015

(Principal Executive Officer)

Executive Vice President, Secretary and Treasurer February 27, 2015

(Principal Financial Officer)

Controller

(Principal Accounting Officer)

Director

February 27, 2015

Chairman of the Board

February 27, 2015

Director

February 27, 2015

The above-named directors and officers of the Registrant sign this Annual Report on Form 10-K by Kevin J. Helmick and Carl D.
Culp, their attorney-in-fact, pursuant to Powers of Attorney signed by the above-named directors and officers, which Powers of
Attorney are filed with this Annual Report on Form 10-K as exhibits, in the capacities indicated.

/s/ Kevin J. Helmick
Kevin J. Helmick
President, Chief Executive Officer and Director
(Principal Executive Officer)

/s/ Carl D. Culp
Carl D. Culp
Executive Vice President, Secretary and

Treasurer

(Principal Financial Officer)

The following exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K:

INDEX TO EXHIBITS

Exhibit
Number

3.1

3.2

10.1

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

10.9*

Description

Articles of Incorporation of Farmers National Banc Corp., as amended (incorporated by reference from Exhibit 4.1 to
Farmers’ Registration Statement on Form S-3 filed with the Commission on October 3, 2001 (File No. 333-70806), and
by reference from Exhibit 3.1 to Farmers’ Current Report on Form 8-K filed with the commission on May 1, 2013.

Amended Code of Regulations of Farmers National Banc Corp. (incorporated by reference from Exhibit 3.2 to Farmers’
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011 filed with the Commission on August 9,
2011).

Agreement and Plan of Merger by and between National Bancshares Corporation and Farmers National Banc Corp.,
dated as of January 27, 2015 (incorporated by reference from Exhibit 2.1 to Farmers’ Current Report on Form 8-K filed
with the Commission on January 27, 2015).

Farmers National Banc Corp. 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to Farmers’
Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 filed with the Commission on August 8, 2012).

Farmers National Banc Corp. Cash Incentive Plan (incorporated by reference from Exhibit 10.1 to Farmers’ Current
Report on Form 8-K filed with the Commission on June 24, 2011).

Farmers National Banc Corp. Long-Term Incentive Plan (incorporated by reference from Exhibit 10.1 to Farmers’
Current Report on Form 8-K filed with the Commission on June 29, 2011).

Farmers National Banc Corp. Nonqualified Deferred Compensation Plan (incorporated by reference from Exhibit 10.1 to
Farmers’ Current Report on Form 8-K filed with the Commission on February 3, 2015).

Farmers National Banc Corp. Form of 2012 Award Agreement under Long-Term Incentive Plan (incorporated by
reference from Exhibit 10.6 to Farmers’ Annual Report on Form 10-K for the year ended December 31, 2012 filed with
the Commission on March 13, 2013).

Farmers National Banc Corp. Form of 2013 Award Agreement under Long-Term Incentive Plan (incorporated by
reference from Exhibit 10.5 to Farmers’ Annual Report on Form 10-K for the year ended December 31, 2013 filed with
the Commission on March 13, 2014)

Farmers National Banc Corp. Form of Cash Long-Term Incentive Award Agreement under Long-Term Incentive Plan
(filed herewith)

Farmers National Banc Corp. Form of Equity Long-Term Incentive Award Agreement under 2012 Equity Incentive Plan
(filed herewith)

10.10*

Nonemployee Director Compensation (filed herewith).

10.11*

10.12*

10.13*

10.14*

10.15*

Farmers National Banc Corp. Form of Indemnification Agreement (incorporated by reference from Exhibit 10.1 to
Farmers’ Current Report on Form 8-K filed with the Commission on April 29, 2011).

Farmers National Banc Corp. Executive Separation Policy (incorporated by reference from Exhibit 10.1 to Farmers’
Current Report on Form 8-K filed with the Commission on November 14, 2013)

Change in Control Agreement with Kevin J. Helmick (incorporated by reference from Exhibit 10.2 to Farmers’ Current
Report on Form 8-K filed with the Commission on November 14, 2013)

Form of Change in Control Agreements for Executive Officers (incorporated by reference from Exhibit 10.3 to Farmers’
Current Report on Form 8-K filed with the Commission on November 14, 2013)

Separation Agreement by and between Farmers National Banc Corp. and John S. Gulas (incorporated by reference from
Exhibit 10.1 to Famers’ Current Report on Form 8-K filed with the Commission on March 23, 2014).

Subsidiaries of Farmers (filed herewith).

Consent of Independent Registered Public Accounting Firm (filed herewith).

Powers of Attorney of Directors and Executive Officers (filed herewith).

Exhibit
Number

31.1

31.2

32.1

32.2

Description

Rule 13a-14(a)/15d-14(a) Certification of Kevin J. Helmick, President and Chief Executive Officer of Farmers (principal
executive officer)(filed herewith).

Rule 13a-14(a)/15d-14(a) Certification of Carl D. Culp, Executive Vice President and Treasurer of Farmers (principal
financial officer) (filed herewith).

Certification pursuant to 18 U.S.C. Section 1350 of Kevin J. Helmick, President and Chief Executive Officer of Farmers
(principal executive officer) (filed herewith).

Certification pursuant to 18 U.S.C. Section 1350 of Carl D. Culp, Executive Vice President and Treasurer of Farmers
(principal financial officer) (filed herewith).

101.INS

XBRL Instance Document (filed herewith).

101.SCH

XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.LAB

XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

* Constitutes a management contract or compensatory plan or arrangement.

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

Investor Information

Corporate Headquarters:
Farmers National Banc Corp.
20 South Broad Street, P.O. Box 555
Canfield, OH 44406.
Phone 330-533-3341 or
Toll Free 1-888-988-3276
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: Computershare Investor Services
P.O. Box 30170 College Station, TX 77842

Dividend Reinvestment Plan (DRIP): Registered
shareholders can purchase additional common
shares through Farmers’ Dividend Reinvestment Plan.
Participation is voluntary and allows for automatic
reinvestment of cash dividends and the safekeeping
of share certificates. To obtain a prospectus, contact
the Computershare Investor Services at 877-581-5548

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 Computershare Investor Services at 877-581-5548

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 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
NASDAQ Capital Market under the symbol FMNB.
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,
2014, there were 18,408,612 shares outstanding and
3,153 shareholders of record of common shares.

MARKET AND DIVIDEND SUMMARY

Quarter Ending

High

Low

Dividend

March 2014

June 2014

September 2014

December 2014

March 2013

June 2013

September 2013

December 2013

$7.75

$7.89

$8.71

$8.68

$6.90

$6.70

$6.58

$6.59

$6.53

$7.35

$7.10

$7.40

$6.13

$5.81

$6.10

$6.11

$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, the NASDAQ Bank index and the SNL Micro Cap Bank
index. The graph assumes that the value of the investment in the
Company’ common shares and in each of the indexes (including
reinvestment of dividends) was $100 on 12/31/2009 and tracks it
through 12/31/2014.

TOTAL RETURN PERFORMANCE

250

225

200

175

150

125

100

e
u
a
V
x
e
d
n

12/31/09

12/31/10

12/31/11

12/31/12

12/31/13

12/31/14

Farmers National Banc Corp

NASDAQ Bank

NASDAQ Composite

SNL Micro Cap Bank Index

Index

Period Ending
12/31/09 12/31/10 2/31/11 12/31/12 12/31/13 12/31/14

Farmers National Banc Corp.
NASDAQ Composite
NASDAQ Bank
SNL Microcap Bank Index

100.00
100.00
100.00
100.00

81.58
118.15
114.16
102.92

114.50 147.70 159.04 205.92
117.22 138.02 193.47 222.16
102.17 121.26 171.86 180.31
97.89 123.70 159.60 180.99

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

Farmers National Banc Corp.
20 South Broad Street
P.O. Box 555
Canfield, Ohio 44406