10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2004

or

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

For the transition period from ________ to __________

Commission file number 0-12055

Farmers National Banc Corp.

(Exact name of registrant as specified in its charter)

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

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

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

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

Common Stock, no par value

(Title of Class)

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

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

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

The registrant estimates that the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $214.4 million based upon the last sales price as of June 30, 2004. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the Registrant that such person is an affiliate of the Registrant.)

As of February 28, 2005, the registrant had outstanding 12,949,453 shares of common stock having no par value.

DOCUMENTS INCORPORATED BY REFERENCE

	Parts of Form 10-K
	into which
Document	Document is Incorporated
Portions of 2004 Annual Report to Shareholders	II
Definitive proxy statement for the 2004 Annual Meeting of Shareholders to be held on March 31, 2005	III

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

	Pages
Part I
Item 1 - Business
Average Balance Sheets/Yields/Rates	8
Rate and Volume Analysis	9
Securities	14-15
Loans	12
Loan Loss Experience	13-14
Deposits	15
Financial Ratios	7
Short-Term Borrowings	15, 27-28
Part II
Item 5
Market For Registrant’s Common Stock and Related Stockholder Matters	17, 34
Item 6
Selected Financial Data	7
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-17
Item 7A
Quantitative and Qualitative Disclosures About Market Risk	11
Item 8
Financial Statements and Supplementary Data	19-33
Part IV
Item 15
Report of Crowe Chizek and Company LLC
Independent Auditors	18
Financial Statements:
Consolidated Balance Sheets - December 31, 2004 and 2003	19
Consolidated Statements of Income & Comprehensive Income — Calendar Years 2004, 2003 and 2002	20
Consolidated Statement of Stockholders’ Equity — Calendar Years 2004, 2003 and 2002	21
Consolidated Statements of Cash Flows — Calendar Years 2004, 2003 and 2002	22
Notes to Consolidated Financial Statements	23-33

FARMERS NATIONAL BANC CORP.
FORM 10-K
2004

INDEX

	Page
Part I.
Item 1. Business: General	1
Item 2. Properties	4
Item 3. Legal Proceedings	4
Item 4. Submission of Matters to a Vote of Security Holders	5
Part II.
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters	5
Item 8. Financial Statements and Supplementary Data	5
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	5
Item 9A. Controls and Procedures	6
Item 9B. Other Information	6
Part III.
Item 10. Directors and Executive Officers of the Registrant	6
Item 11. Executive Compensation	7
Item 12. Security Ownership of Certain Beneficial Owners and Management	7
Item 13. Certain Relationships and Related Transactions	7
Item 14. Principal Accountant Fees and Services	8
Part IV.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K	8
Signatures	9
Index to Exhibits
Certifications of Chief Executive Officer
Certifications of Chief Financial Officer
Section 1350 Certification (Chief Executive Officer)
Section 1350 Certification (Chief Financial Officer)
EX-13 Annual Report
EX-23.A Consent of Crowe Chizek and Company LLC
EX-23.B Consent of Hill, Barth & King LLC
EX-31.A Certification of CEO
EX-31.B Certification of CFO
EX-32.A 906 Certification of CEO
EX-32.B 906 Certification of CFO
EX-99 Report of Hill, Barth & King LLC

Part I

Item 1. Business General

The Corporation

     The registrant, Farmers National Banc Corp. (herein sometimes referred to as the Corporation), is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended. The only subsidiary is The Farmers National Bank of Canfield (the Bank) which was acquired March 31, 1983. The Corporation and its subsidiary operate in one industry, domestic banking.

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

The Bank

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

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

     The Corporation had 295 full-time equivalent employees at December 31, 2004.

     The Bank’s internet site, www.fnbcanfield.com contains an Investor Relations section which provides a hyperlink to the SEC where the Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, director and Officer Reports on Form(s) 3, 4, and 5 and amendments to those documents filed or furnished pursuant to the Securities Exchange Act of 1934 are available free of charge as soon as reasonably practicable after the Corporation has filed these documents with the Securities and Exchange Commission (SEC). In addition, the Corporation’s filings with the SEC may be read and copied at the SEC Public Reference Room at 450 Fifth Street, NW Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. These filings are also available on the SEC’s website at www.sec.gov free of charge as soon as reasonably practicable after the Corporation has filed the above referenced reports.

Supervision and Regulation

     The Corporation is regulated by the Federal Reserve Bank (the “FRB”). The Bank is regulated by the Office of the Comptroller of the Currency (the “OCC”), as well as the Federal Deposit

1

Item 1 (Continued)

Insurance Corporation (the “FDIC”). A listing of the minimum regulatory requirements for capital and the Corporation’s capital position as of December 31, 2004 are presented in Note J on page 29 of the annual report to shareholders for the year ended December 31, 2004 and is hereby incorporated by reference.

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

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

FDICIA

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

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

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

2

Item 1 (Continued)

INTERSTATE BANKING AND BRANCHING LEGISLATION

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

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

GRAHAM-LEACH-BLILEY ACT

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

SARBANES-OXLEY ACT OF 2002

     The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. Section 302(a) of Sarbanes-Oxley requires the Bank’s chief executive officer and chief financial officer to certify that the Bank’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 Bank’s internal controls; they have made certain disclosures to the Bank’s auditors and the audit committee of the Board of Directors about the Bank’s internal controls; and they have included information in the Bank’s Quarterly and Annual Reports about their evaluation and whether there have been significant changes in the Bank’s internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation.

3

Item 2. Properties

Farmers National Banc Corp.’s Properties

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

Bank Property

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

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

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

Item 3. Legal Proceedings

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

4

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

     There were no matters submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 2004.

Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Equity Compensation Plan Information

	Number of se-
	curities to be is-
	sued upon ex-		Weighted-average	Number of securities remain-
	ercise of out-		exercise price of	ing available for future issu-
	standing op-		outstanding op-	ance under equity compen-
	tions, warrants		tions, warrants	sation plans (excluding secu-
	and rights		and rights	rities reflected in column (a))
Plan category	(a)		(b)	(c)
Equity compensation plans approved by security holders		49,500	$11/share		325,400

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

Purchases of equity securities by the issuer.

On May 14, 2004, The Corporation announced the adoption of a stock repurchase program that authorizes the re-purchase of up to 4.9% or approximately 620,275 shares of its outstanding common stock in the open market or in privately negotiated transactions. This program expires in May 2005. The following table summarizes the treasury stock purchased by the issuer during the fourth quarter of 2004:

					Total Number of
					Shares Purchased		Maximum Number
			Average		as Part of Publicly		of Shares that May
	Total Number of		Price Paid		Announced		Yet Be Purchased
Period	Shares Purchased		Per Share		Program		Under the Program
Oct. 1-31		30,033	$	16.64		30,033		500,702
Nov. 1-30		0		0		0		500,702
Dec. 1-31		17,378		16.70		17,378		483,324
TOTAL		47,411	$	16.65		47,411

Item 8. Financial Statements and Supplementary Data

     The report of Hill Barth and King LLC Independent Auditors on the registrant’s 2002 financial statements is included in Exhibit 99 filed herewith.

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

     On March 27, 2003, the Corporation determined to engage Crowe Chizek and Company LLC (“Crowe Chizek”) as its independent public accountants for the 2003 fiscal year. Crowe Chizek replaces Hill, Barth & King LLC (“Hill, Barth & King”). The Corporation’s Board of Directors, upon recommendation by the Audit Committee of the Board of Directors, approved the change in independent public accountants. The change in independent accountants became effective with the filing of the 2002 Annual Report on Form 10-K.

5

Item 9 (Continued)

During the fiscal years ended December 31, 2002 and December 31, 2001, and during the subsequent interim period through March 27, 2003, there were no disagreements between the Corporation and Hill, Barth & King on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Hill, Barth & King’s satisfaction, would have caused Hill, Barth & King to make reference to the subject matter of the disagreement in connection with its reports on the Corporation’s consolidated financial statements for such periods.

Item 9A. Controls and Procedures

     Based on their evaluation, as of the ending period covered by this Form 10-K, the Company’s Chief Executive Officer and Chief Financial Officer have concluded the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

     The assessment of the effectiveness of internal controls over financial reporting is in process. The Company will file an amendment to form 10-K including management’s assessment and the report of our auditors by the extended deadline.

Item 9B. Other Information

     During 2004, the Corporation recorded a $2.1 million after-tax impairment of securities charge after concluding that certain Freddie Mac and Fannie Mae preferred equity securities were other-than-temporarily impaired. Management’s decision to recognize the other-than-temporary impairment charge was due to the following circumstances: (1) the recent accounting guidance issued on other-than-temporary impairment of securities and discussions of these particular government sponsored enterprise investments, (2) the modeling of interest rates for the future would result in recovery of impairment in a reasonable period of time that would not be interpreted as “temporary”, and (3) the fact that these government sponsored enterprises are under intense scrutiny for their lack of proper corporate governance practices.

     Based on these uncertainties, management determined it was appropriate to reclassify the unrealized mark-to-market loss on these securities and record the other-than-temporary impairment charge under generally accepted accounting principles. Prior to this charge, the decline in fair value was recognized and recorded as an unrealized mark-to-market loss on securities available-for-sale and reflected as a reduction to equity through comprehensive income. Accordingly, this reclassification will not affect total shareholders’ equity. Inasmuch that these securities are investment grade securities, this action does not reflect the expected long-term value of these securities.

PART III

Item 10. Directors and Executive Officers of the Registrant

     Information relating to Directors is set forth in the registrant’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders which will be held March 31, 2005. The proxy statement is incorporated by reference.

Executive Officers of the Registrant

     The names, ages and positions of the executive officers as of March 1, 2005

Name	Age	Position Held
Frank L. Paden	54	President and Secretary
Carl D. Culp	41	Executive Vice President and Treasurer
Donald F. Lukas	58	Senior Vice President

6

Item 10 (Continued)

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

Principal Occupation and Business Experience of Executive Officers

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

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

     Mr. Donald F. Lukas has served as Senior Vice President of the registrant since March 1996. Prior to that time, he was Vice President of the Bank since March 1987.

Audit Committee Financial Expert

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

Code of Ethics

     See Exhibit 14.

Identification of the Audit Committee

     Information regarding this item is set forth in the registrant’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held March 31, 2005. The proxy statement is incorporated by reference.

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

     Information regarding this item is set forth in the registrant’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held March 31, 2005. The proxy statement is incorporated by reference.

Item 11. Executive Compensation

     Information regarding this item is set forth in the registrant’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held March 31, 2005. The proxy statement is incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     Information relating to this item is set forth in the registrant’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held March 31, 2005. The proxy statement is incorporated by reference.

Item 13. Certain Relationships and Related Transactions

     Information regarding this item is set forth in the registrant’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held March 31, 2005. The proxy statement is incorporated by reference.

7

Item 14. Principal Accountant Fees and Services

     Information regarding this item is set forth in the registrant’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held March 31, 2005. The proxy statement is incorporated by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

     (a)1. Financial Statements

     Item 8., Financial Statements and Supplementary Data is set forth in the registrant’s 2004 Annual Report to Shareholders and is incorporated by reference in Part II of this report

     (a)2. Financial Statement Schedules

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

     (a)3. Exhibits

     The exhibits filed or incorporated by reference as a part of this report are listed in the Index of Exhibits, which appears
at page 12 hereof and is incorporated herein by reference.

     (b) Report on Form 8-K

     Three Form 8-K’s were filed during the fourth quarter of 2004. The first Form 8-K was dated October 15, 2004 and reported a stock dividend.

     The second Form 8-K was dated October 22, 2004 and discussed earnings for the third quarter of 2004.

     The third Form 8-K was dated November 12, 2004 and reported a quarterly cash dividend .

8

SIGNATURES

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

Farmers National Banc Corp. Farmers National Banc Corp.

/s/ Frank L. Paden /s/ Carl D. Culp

Frank L. Paden	Carl D. Culp
President and Secretary	Executive Vice President and Treasurer
March 16, 2005	March 16, 2005

/s/ Benjamin R. Brown	Director	March 16, 2005
Benjamin R. Brown
/s/ Anne Frederick Crawford	Director	March 16, 2005
Anne Frederick Crawford
/s/ James R. Fisher	Director	March 16, 2005
James R. Fisher
/s/ Joseph D. Lane	Director	March 16, 2005
Joseph D. Lane
/s/ Ralph D. Macali	Director	March 16, 2005
Ralph D. Macali
/s/ Earl R. Scott	Director	March 16, 2005
Earl R. Scott
/s/ Frank L. Paden	President	March 16, 2005
Frank L. Paden	And Director
/s/ Ronald V. Wertz	Director	March 16, 2005
Ronald V. Wertz

9

INDEX TO EXHIBITS

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

     2. Not applicable.

     3(i). The Articles of Incorporation, including amendments thereto for the Registrant. Incorporated by reference to Exhibit 4.1 to Farmers National Banc Corp’s Form S-3 Registration Statement dated October 3, 2001. (File No. 0-12055).

     3(ii). The Code of Regulations, including amendments thereto for the Registrant. Incorporated by reference to Exhibit 4.2 to Farmers National Banc Corp’s Form S-3 Registration Statement dated October 3, 2001. (File No. 0-12055).

     4. Incorporated by reference to initial filing.

     9. Not applicable.

     10. Information regarding this item is set forth in the registrant’s definitive proxy statement, which will be used in connection with its annual meeting of shareholders to be held March 31, 2005. The proxy statement is incorporated by reference.

     11. Refer to Note N in the annual report incorporated by reference.

     12. Not applicable.

     13. Annual Report to security holders.

     14. The Company has adopted a Code of Ethics that applies to the Chief Executive Officer and Chief Financial Officer and complies with the criteria provided in SEC rules. The Code of Ethics is available by calling Corporate Services at 330-533-3341.

     16. Not applicable.

     18. Not applicable.

     21. Farmers National Bank, Canfield, Ohio.

     22. Not applicable.

     23a. Consent of Crowe Chizek and Company LLC

     23b. Consent of Hill, Barth & King LLC

     24. Not applicable.

     31.a Certification of Chief Executive Officer (Filed herewith)

     31.b Certification of Chief Financial Officer (Filed herewith)

     32.a 1350 Certification of Chief Executive Officer (Filed herewith)

     32.b 1350 Certification of Chief Financial Officer (Filed herewith)

     99. Report of Hill Barth and King LLC for the Year Ended December 31, 2002

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

12

EX-13

Exhibit 13

RELATIONSHIPS FORM THE FABRIC OF OUR SUCCESS

About the theme of this Annual Report...

If you wanted to understand the steady growth of Farmers National Bank, you might examine the more than a century’s worth of financial records that have accumulated since your company’s founding in 1887.

The numbers would tell a story — a positive story, well worth sharing.

But, if you want to understand the deeper reasons for Farmers’ enduring success, you’d need to look at a different set of numbers, more difficult to obtain. For it’s the untold number of positive and mutually beneficial relationships that have truly been responsible for our progress, strength and stability.

Specifically, we are referring to our relationships with our investors, our customers, and the communities we serve, as well as with other institutions and organizations instrumental to our growth.

Every one of these relationships winds like a thread through the fabric of our success, and woven together as a whole they connect our modern, present day institution to our beginnings in the 19^th Century.

A relationship can’t be quantified and recorded in a ledger. Yet, the bottom line of any viable business reflects in part how much it has invested in its relationships, recognized their worth and grown their value.

As we look back on 2004, we recognize the importance of our relationships with our valued stakeholders, and pledge to always appreciate their irreplaceable part in our success.

HIGHLIGHTS OF 2004

Table of Contents

Highlights of 2004	1
President’s Letter	2-6
Selected Financial Data	7-9
Management’s Discussion	9-17
Stock Prices and Dividends	17
Report of Independent Auditors	18
Consolidated Financial Statements	19-33
Investor Information	34
Officers	35
Location of Offices	36

Selected Financial Data

(Dollars In Thousands except Per Share Data)

For the Year	2004			2003			2002
Net Income	$	7,181		$	9,515		$	7,934
Return on Average Assets		0.88	%		1.20	%		1.12	%
Return on Average Equity		9.07	%		11.77	%		10.27	%
Per Share
Net Income (Basic)	$	0.56		$	0.74	*	$	0.62	*
Net Income (Diluted)		0.55			0.74	*		0.62	*
Book Value		6.06			6.19	*		6.26	*
Balances at Year-End
Total Assets	$	817,839		$	812,815		$	748,098
Earning Assets		771,513			767,137			705,319
Total Deposits		622,224			625,615			588,254
Net Loans		468,377			465,453			442,914
Total Stockholders’ Equity		78,654			80,214			80,952
Cash Dividends		8,138			7,601			6,924
Shares Outstanding		12,979			12,705			12,436

* Restated to reflect weighted average shares outstanding adjusted for stock dividends.

1

PRESIDENT’S 2004 LETTER

On behalf of the directors and employees of Farmers National Banc Corp., we are proud to present our 2004 Annual Report to Shareholders. The theme for this year’s report, “Relationships Form the Fabric of our Success”

appropriately reflects the commitment our staff has towards the success of Farmers National Banc Corp.

Planning for this year, we realized the challenges we faced following the substantial growth in assets and record earnings we experienced the past few years. Therefore, we a re pleased to report that Farmers National Banc Corp. had another successful year.

Net income for the Company was $7.2 million or $0.56 per basic and $0.55 per diluted share. This equates to a return on average assets of .88% and a return on average equity of 9.07% for the year. Core earnings for 2004 was $9.3 million, which translates into $0.72 basic and diluted earnings per share. Return on average assets was 1.15% and return on average equity was 11.75%. These results are absent the previously announced non-cash after-tax charge of $2.1 million, or $0.16 per basic and $0.17 per diluted share, related to an other-than-temporary impairment charge for certain Freddie Mac and Fannie Mae preferred stock held in the banks investment portfolio. Management’s decision to recognize the other-than-temporary impairment charge on these government sponsored enterprise investments was based on the interpretation of specific accounting guidance and does not reflect the expected long-term value of these investment grade securities.

Shareholder value was enhanced with a total return of 8% for the year... a total return of 70% over the past three years and a current dividend yield of approximately 4%.

We are very proud of our heritage and the fact that our philosophy of community-based banking has brought success to our bank, value to our shareholders and continued prosperity to the communities we serve. Our formula for community banking success begins the process by identifying strategic initiatives and creating a plan to reach our goals and objectives. Our management team focused on specific strategies to enhance our strong community bank model.

2

RELATIONSHIP BANKING & STRATEGIES
Our staff embraced a new sales culture program that centered on the theory of building a strong customer relationship philosophy. The mission statement for this new program, Find the Need ... Provide Common Sense Solutions was practiced through our entire company. Relationship banking consist of clients turning to banks for wealth management and advice on all their financial relationships. We took a proactive approach that basically let our people identify opportunities with clients — being flexible and innovative, then creating solutions to solve the problem and meet the needs ...thus developing a stronger long-term relationship.

This sales initiative was the driving force in our growth strategy during this past year. Consistency ... personal and caring ... genuine concern and respect motivate the success of our core values in customer service.

Another strategy that we focused on was to diversify our loan portfolio. Historically, our loan portfolio was heavily concentrated on the retail side — primarily in the new and used automobile financing. We felt it was prudent to position our balance sheet by expanding our business lines to allow the company more flexibility and consistency in creating additional ways to be more profitable and efficient.

During this past year, we focused our attention on the small business sector and local commercial real estate markets. We accomplished a 12% growth in commercial real estate loans and a 16% increase in commercial loans over the past twelve months. These loans created additional community and economic development and we established some very strong customer relationships for the future.

Please take notice of some of the photos within this report to identify a few of the commercial real

The New Hampton Inn & Suites

Located on Rt. 224 at Raccoon Rd. in Canfield

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

3

estate projects that we are very proud to have been a part of. As our company continues to grow, it is our vision now and into the future to be recognized as one of the leaders in this type of community development lending ... endorsing a new marketing tag line, “We’re going to do big things together.”

A series of strategies for increasing fee income can help banks make up the difference as margins compress. Non-interest income growth and diversification of non-interest revenues are the key elements to our strategy. I am very pleased to report that we were able to increase our non-interest income by 26% over the previous year excluding the impairment charge. Our total number of account relationships had a net increase during 2004, but the penetration in the fee-generating area came directly from one new product and one seasoned service.

In May, we introduced a new Overdraft Privilege product for all qualifying accounts. This product helps protect our customer against having any checks returned in the event of an inadvertent overdraft to their account by giving them a courtesy reserve for emergencies or unexpected situations.

The other source of new non-interest revenues during 2004 was generated through our PrimeVest Financial Services department. We accomplished a 60% increase in net revenues from our PrimeVest business line. Our three investment representatives offer access to “alternative investments” brokerage and financial planning services to our customer base. PrimeVest Financial Services is an independent registered broker/dealer. Securities and insurance products offered by PrimeVest are not FDIC insured; may go down in value; are not financial institution guaranteed; are not a deposit of the bank; and are not insured by any federal government agency.

The final strategic objective was to expand or diversify our loan and deposit product mix. We added another product to our residential mortgage loan menu to give those customers looking for a long-term fixed rate product. The bank’s Home Equity Lines of Credit products were expanded to include both a fixed and variable rate options with repayment terms streamlined to fit consumer’s affordability. On the deposit side, we retooled a couple of our transaction accounts, specifically our Super NOW account — Common Sense Checking. During the past twelve months, the balances in this account increased by $34 million.

4

4

COMMITMENTS            TO OUR COMMUNITY

The Children’s Rehabilitation Center

Located on Howland-Wilson Rd. N.E. in Warren

Our company was the proud recipient of the 2004 Canfield Business Pride Award presented by the Canfield Area Council of the Regional Chamber. We constantly emphasize our strong civic loyalty. Our futures are deeply invested in the markets we serve and we are committed to enhancing the overall quality of life in our communities.

This past fall, Farmers National Bank was one of ten banks that was awarded a $50,000 grant from the Federal Home Loan Bank of Cincinnati for the American Dream for Homeownership Challenge program. This program was designed to complement President Bush’s Blueprint for the American Dream         ... to further the creation and affordability of homeownership, especially for minorities and persons with special needs. These funds are available for our lenders in creating homeownership opportunities within our local community.

THE            YEAR IN REVIEW

The company’s growth trends were negatively impacted with the lack of any substantial loan growth during 2004. Net loans increased only 1 % during the last twelve months. The key sector for loan growth was commercial real estate and commercial loan categories while our totals in consumer (indirect automobile) loans decreased significantly. On the deposit side, we continued to be competitive and pursued a combination of time deposits and low-cost demand deposits through our sales and marketing efforts. Comparing year-over-year, our total deposits decreased a net $3 million or .5%. On an average balance basis for the year, total deposits were up 3% over the previous year.

The provision for loan losses for the year was $915,000, up slightly from the previous year. The net credit losses to average loans was .30% at year end 2004 compared to .22% in 2003. At December 31,2004, the Allowance for loan losses represents 1.29% of total loans and 461 % of non-performing loans. The non-performing loans to net loans ratio was a very respectable .28%, improving from .33% in 2003. These ratios are a testament to the soundness of our underwriting standards and the diligence of our credit administration staff.

The net interest margin for 2004 was 3.94% as compared to the 4.13% in 2003. The continued pressure on the compression of this margin compounded with the lack of loan growth resulted in the decline in net interest income for 2004. Our management has set some very aggressive goals for 2005 in order to combat this margin compression and has worked to position our balance sheet for the rate increases anticipated in 2005.

5

The Dutch Village Inn

Located on Rt. 14 next to Das Dutch Haus in Columbiana

Shareholders’ equity was $78.7 million at year-end equating to a book value of $6.06 per share. Cash dividends paid per share were $0.63 compared to $0.59 per share paid in 2003. In addition to the cash dividends, we paid a 2% stock dividend in November which was the 29th consecutive year to pay this type of dividend. We have continued our Stock Repurchase Program during 2004, which resulted in our involvement in the markets and re-purchasing 256,000 shares for an average cost of $16.69 per share.

IN            APPRECIATION

We would like to express our heartfelt appreciation to Mr. William D. Stewart and Mr. Edward A. Ort, who both retired from our Board of Directors in March at the annual shareholder meeting. Mr. Stewart served the company with distinction for over thirty-seven years. He was President of Farmers National Bank from 1972 to 1996 and remained on the board up to his retirement. Mr. Ort served as a Director for both the bank and the holding company since 1993. Both gentlemen were major contributors to the company’s growth and success, and we wish them the very best in their retirement.

In closing, I offer my sincere thanks to the employees of Farmers National Banc Corp. who have provided loyal, dedicated service to this company this past year. Now more than 300 strong, they have made our success in 2004 possible. I also want to take this opportunity to thank our Board members for their leadership and focus during these changes taking place in our industry. To our shareholders, we are committed to be capable and prudent stewards of Farmers National Banc Corp. We thank you for your support and welcome the opportunity to continue to serve you.

Sincerely,

Frank L. Paden, President & CEO 6

SELECTED FINANCIAL DATA

	(In Thousands except Per Share Data)
For the Years Ending December 31,	2004			2003			2002			2001			2000
Summary of Earnings
Total Interest Income (including fees on loans)	$	41,772		$	43,673		$	44,012		$	45,686		$	45,842
Total Interest Expense		12,772			13,934			17,290			21,003			21,550
Net Interest Income		29,000			29,739			26,722			24,683			24,292
Provision for Loan Losses		915			870			1,080			1,080			865
Total Other Income (1)		537			2,978			3,192			3,419			2,992
Total Other Expense		18,947			18,372			17,563			16,818			18,023
Income Before Income Taxes		9,675			13,475			11,271			10,204			8,396
Income Taxes		2,494			3,960			3,337			2,914			2,648
NET INCOME	$	7,181		$	9,515		$	7,934		$	7,290		$	5,748
Per Share Data (2)
Basic earnings per share	$	0.56		$	0.74		$	0.62		$	0.57		$	0.46
Diluted earnings per share		0.55			0.74			0.62			0.57			0.46
Cash Dividends Paid		0.63			0.59			0.54			0.49			0.46
Book Value at Year-End		6.06			6.19			6.26			5.89			5.64
Balances at Year-End
Total Assets	$	817,839		$	812,815		$	748,098		$	656,694		$	626,122
Earning Assets		771,513			767,137			705,319			620,588			589,829
Total Deposits		622,224			625,615			588,254			503,644			468,336
Total Borrowings		43,311			44,961			24,477			26,832			43,575
Net Loans		468,377			465,453			442,914			429,028			444,596
Total Stockholders’ Equity		78,654			80,214			80,952			75,718			70,833
Average Balances
Total Assets	$	811,951		$	790,725		$	707,341		$	637,877		$	616,059
Total Stockholders’ Equity		79,186			80,875			77,286			73,780			68,639
Significant Ratios
Return on Average Assets (ROA)		.88	%		1.20	%		1.12	%		1.14	%		0.93	%
Return on Average Equity (ROE)		9.07			11.77			10.27			9.88			8.37
Average Earning Assets/Average Assets		94.49			94.23			94.16			94.6			94.65
Average Equity/Average Assets		9.75			10.23			10.93			11.57			11.14
Net Loans/Deposits		75.27			74.40			75.29			85.18			94.93
Allowance for Loan Losses/Total Loans		1.29			1.41			1.51			1.48			1.36
Allowance for Loan Losses/Nonperforming Loans		461.29			435.34			392.76			226.51			458.74
Efficiency Ratio		57.84			56.15			59.17			60.08			66.14
Dividend Payout Rate		113.33			79.89			87.27			85.64			82.99

(1)	For the year ended December 31,2004, noninterest income includes a $3.225 million for a securities impairment charge.
(2)	Per share data has been restated for the effect of common stock dividends.

7

AVERAGE BALANCE SHEETS
AND RELATED YIELDS AND RATES

	(In Thousands of Dollars)
Years ended December 31,	2004								2003								2002
	AVERAGE								AVERAGE								AVERAGE
	BALANCE			INTEREST		RATE			BALANCE			INTEREST		RATE			BALANCE			INTEREST		RATE
EARNING ASSETS
Loans	$	473,446		$	30,658		6.48	%	$	460,692		$	32,578		7.07	%	$	443,838		$	34,424		7.76	%
Taxable securities (1)		234,495			9,003		3.84			229,819			9,355		4.07			152,983			7,637		4.99
Tax-exempt securities (1) (2)		49,861			3,220		6.46			39,935			2,633		6.59			32,596			2,285		7.01
Federal funds sold		9,381			117		1.25			14,640			160		1.09			36,582			617		1.69
Total earning assets		767,183			42,998		5.60			745,086			44,726		6.00			665,999			44,963		6.75
NONEARNING ASSETS
Cash and due from banks		26,072								25,623								23,133
Premises and equipment		15,895								14,158								12,964
Allowance for Loan Losses		(6,363	)							(6,829	)							(6,629	)
Other assets		9,164								12,687								11,874
Total Assets	$	811,951							$	790,725							$	707,341
INTEREST-BEARING LIABILITIES
Time deposits	$	227,060		$	7,258		3.20	%	$	210,904		$	7,147		3.39	%	$	188,179		$	8,105		4.31	%
Savings deposits		229,605			2,453		1.07			245,546			3,255		1.33			212,332			5,063		2.38
Demand deposits		115,920			609		0.53			105,018			676		0.64			94,997			979		1.03
Repurchase agreements		68,113			1,073		1.58			67,418			1,595		2.37			53,579			1,661		3.10
Borrowings		34,189			1,379		4.03			26,352			1,261		4.79			27,184			1,482		5.45
Total Interest-Bearing Liabilities		674,887			12,772		1.89			655,238			13,934		2.13			576,271			17,290		3.00
NONINTEREST-BEARING LIABILITIES
Demand deposits		52,824								47,401								46,564
Other Liabilities		5,054								7,211								7,220
Stockholders’equity		79,186								80,875								77,286
Total Liabilities and Stockholders’Equity	$	811,951							$	790,725							$	707,341
Net interest income				$	30,226							$	30,792							$	27,673
Net interest margin							3.94	%							4.13	%							4.16	%

(1)	Includes unamortized discounts and premiums. Average balance and yield are computed using the historical amortized cost.
(2)	Fully taxable equivalent basis computed at 35% in 2004,2003 and 2002.

8

RATE AND VOLUME ANALYSIS

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

	(In Thousand of Dollars)
	2004 change from 2003									2003 change from 2002
	Net			Change Due			Change Due			Net			Change Due			Change Due
	Change			To Volume			To Rate			Change			To Volume			To Rate
Tax Equivalent Interest Income
Loans	$	(1,920	)	$	902		$	(2,822	)	$	(1,846	)	$	1,316		$	(3,162	)
Taxable securities		(352	)		191			(543	)		1,718			3,833			(2,115	)
Tax-exempt securities		587			654			(67	)		348			515			(167	)
Federal funds sold		(43	)		(57	)		14			(457	)		(370	)		(87	)
Total interest income	$	(1,728	)	$	1,690		$	(3,418	)	$	(237	)	$	5,294		$	(5,531	)
Interest Expense
Time deposits	$	111		$	548		$	(437	)	$	(958	)	$	980		$	(1,938	)
Savings deposits		(802	)		(211	)		(591	)		(1,808	)		785			(2,593	)
Demand deposits		(67	)		70			(137	)		(303	)		104			(407	)
Repurchase agreements		(522	)		16			(538	)		(66	)		428			(494	)
Borrowings		118			375			(257	)		(221	)		(46	)		(175	)
Total interest expense	$	(1,162	)	$	798		$	(1,960	)	$	(3,356	)	$	2,251		$	(5,607	)
Increase (decrease) in tax equivalent net interest income	$	(566	)	$	892		$	(1,458	)	$	3,119		$	3,043		$	76

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

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

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

Forward Looking Statements

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

Results of Operations

Comparison of Operating Results for the Years Ended December 31, 2004 and 2003.

     The Corporation’s net income totaled $7.181 million during 2004, compared to $9.515 million for 2003. On a per share basis, diluted earnings per share was $.55 as compared to $.74 diluted earnings per share for 2003. Common comparative ratios for results of operations include the return on average assets and return on average stockholders’ equity. For 2004 the return on average equity was 9.07% compared to 11.77% for 2003. The return on average assets was .88% for 2004 and 1.20% for 2003.

     The Corporation’s core earnings, which excludes the non-cash charge of $2.1 million after tax to record an other-than-temporary impairment of securities, decreased from $9.515 million in 2003 to $9.302 million in 2004. Stated on a per share basis, the Corporation’s core earnings were $.72 diluted earnings per share in 2004 compared to $.74 diluted earnings per share in 2003. These results translate to a 1.15% return on average assets and a 11.75% return on average equity for 2004, compared to 1.20% and 11.77% in 2003, respectively.

     The modest decline in core earnings for 2004 is largely the result of a decrease in the Corporation’s net interest margin. The general decline in interest rates over the past few years has caused downward pressure on the Corporation’s earning asset yields. The drop in asset yields has been partially offset by a decrease in the Corporation’s cost of interest-bearing liabilities.

Reconciliation of Earnings to	(In thousands of dollars)
Core Earnings	2004		2003
GAAP Earnings	$	7,181	$	9,515
Other-than-temporary impairment of securities,net of tax		2,121		0
Core Earnings	$	9,302	$	9,515

9

MANAGEMENT’S DISCUSSION

     Net interest income, the principal source of the Corporation’s earnings, represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. For 2004, taxable equivalent net interest income decreased $566 thousand or 1.84% from 2003. Interest-earning assets averaged $767.183 million during 2004 representing a 2.97% increase over 2003. The Corporation’s interest-bearing liabilities increased 3% from $655.238 million in 2003 to $674.887 million in 2004.

     The Corporation 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 Corporation 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 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 2004 the net interest margin, measured on a fully taxable equivalent basis decreased to 3.94%, compared to 4.13% in 2003.

     Total taxable equivalent interest income was $42.998 million for 2004, which is $1.728 million less than the $44.726 million reported in 2003. This decrease is primarily the result of the continuing effect of lower asset yields. Average loans were higher in 2004, but the yields decreased from 7.07% in 2003 to 6.48% in 2004. Income from securities and federal funds sold increased $192 thousand or 1.58%, however the Corporation saw its yields on these assets decline from 4.27% in 2003 to 4.20% in 2004. The average balances of investment securities and federal funds sold increased 3.29% in 2004, mainly due to increases in customer deposits.

     Total interest expense amounted to $12.772 million for 2004, an 8.34% decrease from $13.934 million reported in 2003. The decrease in 2004 is primarily the result of lower rates of interest paid on savings deposits and repurchase agreements. The cost of interest-bearing liabilities dropped from 2.13% in 2003 to 1.89% in 2004.

     Management will continue to evaluate future interest rate hikes so that assets and liabilities may be priced accordingly to minimize the impact on the net interest margin.

Other Income

     Total other income, excluding the $3.225 million pre-tax impairment of securities charge, discussed on page 14, increased in 2004 by $784 thousand or 26.33% to $3.762 million. This increase is largely due to a $634 thousand increase in overdrafts and return check charges. During the second quarter of 2004, the Bank began to offer its customers a courtesy overdraft program. Additionally, the Corporation experienced a $155 thousand increase in commissions on non-deposit investment products. As the equity markets continue to improve, the Bank has experienced increased levels of customer activity in this area. Management anticipates this trend will continue in the future.

Other Expenses

     Total other expenses for 2004 increased 3.13% or $575 thousand from 2003. Net occupancy expense and furniture & equipment expense (including depreciation) increased 14% from $2.284 million in 2003 to $2.609 million in 2004. This increase is primarily depreciation expense on building and fixtures resulting from the completion of construction of a new administration building. Other operating expenses also increased $259 thousand or 6.25%. Included in other operating expenses is advertising expense, which increased $85 thousand or 23.4%. The Corporation’s efficiency ratio increased slightly from 56.15% in 2003 to 57.84% in 2004. The efficiency ratio is calculated as follows: non-interest expense divided by the sum of net interest income plus non-interest income, excluding security gains and losses. 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 $2.494 million for 2004 and $3.96 million for 2003. Income taxes are computed using the appropriate effective tax rates for each period. The effective tax rates are less than the statutory tax rate primarily due to nontaxable interest and dividend income. The effective income tax rate was 26% and 29% for the periods ending 2004 and 2003, respectively. Refer to Note L to the consolidated financial statements for additional information regarding the effective tax rate.

Comparison of Operating Results for the Years Ended December 31, 2003 and 2002.

     The Corporation’s net income totaled $9.52 million during 2003, an increase of 19.93% from $7.93 million for 2002. On a per share basis, diluted earnings per share was $.74 for 2003 as compared to $.62 for 2002. For 2003, the return on average equity was 11.77% as compared to 10.27% for 2002. The return on average assets was 1.20% for 2003 and 1.12% for 2002. For 2003, taxable equivalent net interest income increased $3.119 million or 11.27% over 2002. Interest-earning assets averaged $745.086 million during 2003 representing a 11.87% increase over 2002. For 2003 the net interest margin, measured on a fully taxable equivalent basis was 4.13% in comparison to 4.16% for 2002.

     Total taxable equivalent interest income was $44.726 million for 2003 which was $237 thousand less than the $44.963 million reported in 2002. This decrease was primarily the result of the continued effect of the lowering of interest rates beginning in 2001 and into 2003. Average loans were higher in 2003, but the yields decreased from 7.76% in 2002 to 7.07% in 2003. Income from securities and federal funds sold increased $1.609 million or 15.3%, however the Corporation saw its yields on these assets decline from 4.74% in 2002 to 4.27% in 2003. This drop in yield was offset by a 28.01% increase in average balances of investment securities and federal funds sold, as the Corporation experienced an increase in customer deposit balances.

     Total interest expense amounted to $13.934 million for 2003, a 19.41% decrease from $17.29 million reported in 2002. The decrease in 2003 is primarily the result of lower rates of interest paid on deposits, repurchase agreements and borrowings. The cost of interest-bearing liabilities dropped from 3.00% in 2002 to 2.13% in 2003.

Other Income

     Total other income decreased in 2003 by $214 thousand or 6.70% to $2.978 million. Most of this decrease is the result of $232 thousand in investment security gains in 2002 compared to none in 2003.

Other Expenses

     Total other expenses for 2003 increased 4.61% or $809 thousand from 2002. Most of this increase is due to higher levels of employee benefits and

10

MANAGEMENT’S DISCUSSION

salaries. Included in these expenses, the Corporation experienced a $506 thousand or 35% increase in employee health insurance costs. Salaries and temporary wages increased $309 thousand or 4.32%, primarily due to a higher number of full-time equivalent employees and salary merit increases. The Corporation’s efficiency ratio improved from 59.17% in 2002 to 56.15% in 2003.

Income Taxes

     Income tax expense totaled $3.96 million for 2003 and $3.337 million for 2002. The effective income tax rate was 29% and 30% for the periods ending 2003 and 2002, respectively.

Market Risk

     Important considerations in asset/liability management are liquidity, the balance between interest rate sensitive assets and liabilities and the adequacy of capital. Interest rate sensitive assets and liabilities are those which have yields on rates subject to change within a future time period due to maturity of the instrument or changes in market rates. While liquidity management involves meeting the funds flow requirements of the Corporation, 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 Corporation monitors interest rate sensitive assets and liabilities to determine the overall interest rate position over various time frames.

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

Changes In Interest Rate	2004			2003			ALCO
(basis points)	Result			Result			Guidelines
Net Interest
Income Change
+200		3.58	%		3.65	%		7.50	%
-200		-4.67	%		-2.49	%		7.50	%
Net Present Value Of Equity Change
+200		-10.97	%		-7.42	%		20.00	%
-200		15.24	%		18.82	%		20.00	%

     The results of this analysis comply with internal limits established by the Corporation. A report on interest rate risk is presented to the Board of Directors and the Asset/Liability Committee on a quarterly basis. The Corporation has no market risk sensitive instruments held for trading purposes, nor does it hold derivative financial instruments, and does not plan to purchase these instruments in the near future.

     With the largest amount of interest sensitive assets and liabilities maturing within twelve months, the Corporation monitors this area most closely. The Corporation does not emphasize interest sensitivity analysis beyond this time frame because it believes various unpredictable factors could result in erroneous interpretations. Early withdrawal of deposits, prepayments of loans and loan delinquencies are some of the factors that could have such an effect. In addition, changes in rates on interest sensitive assets and liabilities may not be equal, which could result in a change in net margin.

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

Liquidity

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

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

     Along with its liquid assets, the Corporation has additional sources of liquidity available which help to insure that adequate funds are available as needed. These other sources include, but are not limited to, loan repayments, the ability to obtain deposits through the adjustment of interest rates and the purchasing of federal funds and borrowings on approved lines of credit at three major domestic banks. At December 31,2004, the Corporation 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 Corporation also has additional borrowing capacity with the Federal Home Loan Bank of Cincinnati, as well as access to the Federal Reserve Discount Window, which provides an additional source of funds. Advances outstanding from the Federal Home Loan Bank at December 31, 2004 amounted to $42.016 million.

     Cash flows generated from operating activities decreased 11.76% to $12.565 million in 2004 compared to $14.239 million in 2003. This decrease is a result of $1.466 million less interest received and $1.462 million more in cash paid to suppliers and employees in 2004. Cash flows used in investing activities decreased to $12.13 million in 2004 compared to $75.958 million in 2003. Most of this decrease is attributable to a decline in security purchases from $121.816 million in 2003 to $74.405 million in 2004. The net increase in loans made to customers also declined from $24.563 million in 2003 to $3.931 million in 2004. Cash flows from financing activities changed from $59.792 million provided in 2003 to $679 thousand used in 2004. Most of this change is the result of a net decrease in deposits of $3.391 million in 2004 compared to a $39.524 million net increase in 2003. Repayment of Federal Home Loan Bank borrowings also increased to $24.619 million in 2004 compared to $4.217 million in 2003.

Financial Condition

     Total Assets grew $5.02 million or 1% since December 31,2003. Average earning assets increased 2.97% or $22.097 million since 2003. This growth in assets is the direct result of increases in deposit balances and customer repurchase agreements. Total Liabilities increased $6.584 million or 1% since December 31,2003. Average interest-bearing liabilities increased $19.649 million or 3% from 2003 to 2004. Capital ratios remain strong, as shown by the ratio of equity to total assets at December 31,2004 of 9.62%.

11

MANAGEMENT’S DISCUSSION

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:

	(In Thousands of Dollars)
Years Ended December 31,	2004				2003				2002				2001				2000
Commercial, Financial and Agricultural	$	21,680	4.6	%	$	18,698	4.0	%	$	17,185	3.8	%	$	18,856	4.3	%	$	17,916	4.0	%
Real Estate-Mortgage		307,967	64.9			295,514	62.6			288,907	64.3			261,268	60.0			267,529	59.3
Installment Loans to Individuals		144,874	30.5			157,880	33.4			143,601	31.9			155,346	35.7			165,266	36.7
Total Loans	$	474,521	100.0	%	$	472,092	100.0	%	$	449,693	100.0	%	$	435,470	100.0	%	$	450,711	100.0	%

     The following schedule sets forth maturities based on remaining scheduled repayments of principal for various categories of loans listed above as of December 31,2004:

	(In Thousands of Dollars)
Types of Loans	1 Year or less		1 to 5 Years		Over 5 Years
Commercial, Financial and Agricultural	$	8,286	$	7,228	$	6,166

     The amounts of commercial, financial and agricultural loans as of December 31,2004, based on remaining scheduled repayments of principal are shown in the following table:

	(In Thousands of Dollars)
Loan Sensitivities	1 Year or less		Over 1 Year		Total
Floating or Adjustable Rates of Interest	$	7,293	$	6,139	$	13,432
Fixed Rates of Interest		993		7,255		8,248
Total Loans	$	8,286	$	13,394	$	21,680

Loan Portfolio

     Total loans were $474.521 million at year-end 2004 compared to $472.092 million at year-end 2003. This represents an increase of $2.429 million or 1%. Loans comprised 61.7% of the Bank’s average earning assets in 2004, compared to 61.8% in 2003. The product mix in the Loan Portfolio includes Commercial Loans comprising 4.6%, Real Estate Mortgage Loans (Residential and Commercial) 64.9% and Consumer Loans 30.5% at December 31,2004 compared with 4%, 62.6% and 33.4%, respectively, at December 31,2003.

     Loans contributed 71.3% of total interest income in 2004 and 72.8% in 2003. Loan yield was 6.48% in 2004, 88 basis points greater than the average rate for total earning assets. Management recognizes that while the Loan Portfolio holds some of the Bank’s highest yielding assets, it is inherently the most risky portfolio. Accordingly, management attempts to balance credit risk versus return with conservative credit standards. Management has developed and maintains comprehensive underwriting guidelines and a loan review function that monitors credits during and after the approval process. To minimize risks associated with changes in the borrower’s future repayment capacity, the Bank generally requires scheduled periodic principal and interest payments on all types of loans and normally requires collateral.

     Consumer Loans decreased from $157.880 million on December 31, 2003 to $144.874 million on December 31, 2004 representing a 8.24% decrease. Management continues to target the automobile dealer network to purchase indirect Installment Loans. Dealer paper was purchased using strict underwriting guidelines with an emphasis on quality. Indirect Loans comprise 88.2% of the Installment Loan Portfolio. Net loan losses on the Installment Loan portfolio were $1.23 million in 2004 as compared to $893 thousand in 2003. When these net loan losses are stated as a percentage of average installment loans outstanding, the Bank reported an increase from .58% in 2003 to .80% in 2004.

     Real Estate Mortgage Loans increased to $307.967 million at December 31, 2004, an increase of 4.21% from 2003. This increase resulted from a $15.315 million increase in commercial real estate loans offset by a $2.862 million decrease in residential real estate loans. This portfolio consists of $165.819 million of 1-4 family and multi-family residential real estate secured loans and $142.148 million in non-residential real estate secured loans, generally made within the Bank’s primary market area. The Corporation originated both fixed rate and adjustable rate mortgages during 2004. Fixed rate terms are generally limited to fifteen year terms while adjustable rate products are offered with maturities up to thirty years.

     Commercial Loans at December 31, 2004 increased 15.95% from year-end 2003 with outstanding balances of $21.68 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 and business types. 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 purposes and small business lines of credit.

12

MANAGEMENT’S DISCUSSION

Summary of Loan Loss Experience

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

	(In Thousands of Dollars)
Years Ended December 31,	2004			2003			2002			2001			2000
Balance at Beginning of Year	$	6,639		$	6,779		$	6,442		$	6,115		$	5,778
Loan Losses:
Commercial, Financial and Agricultural		(41	)		(12	)		(5	)		(61	)		(50	)
Real Estate-Mortgage		(158	)		(106	)		(42	)		(51	)		(343	)
Installment Loans to Individuals		(1,655	)		(1,257	)		(1,133	)		(1,151	)		(1,250	)
Total Loan Losses		(1,854	)		(1,375	)		(1,180	)		(1,263	)		(1,643	)
Recoveries on Previous Loan Losses:
Commercial, Financial and Agricultural		4			1			1			0			23
Real Estate-Mortgage		15			0			2			34			8
Installment Loans to Individuals		425			364			434			476			1,084
Total Recoveries		444			365			437			510			1,115
Net Loan Losses		(1,410	)		(1,010	)		(743	)		(753	)		(528	)
Provision Charged to Operations (1)		915			870			1,080			1,080			865
Balance at End of Year	$	6,144		$	6,639		$	6,779		$	6,442		$	6,115
Ratio of Net Loan Losses to Average
Net Loans Outstanding		0.30	%		0.22	%		0.17	%		0.17	%		0.12	%

     (1) The provisions for loan losses charged to operating expense is based on management’s judgment after taking into consideration all factors connected with the collectibility of the existing loan portfolio. Management evaluates the loan portfolio in light of economic conditions, changes in the nature and volume of the loan portfolio, industry standards and other relevant factors. Specific factors considered by management in determining the amounts charged to operating expenses include previous loan loss experience, the status of past due interest and principal payments, the quality of financial information supplied by loan customers and the general condition of the industries in the community to which loans have been made.

     Provisions charged to operations amounted to $915 thousand in 2004 compared to $870 thousand in 2003. The balance in the allowance for loan losses is $6.144 million or 1.29% of loans at December 31,2004. This ratio has decreased from the 1.41% reported at December 31,2003. The allowance for loan losses as a percentage of nonperforming loans has increased from 435.34% at December 31,2003 to 461.29% in 2004.

     Nonaccrual loans are loans which are 90 days past due and with respect to which, in management’s opinion, collection of interest is doubtful. These loans no longer accrue interest and are accounted for on a cash basis. Loans which are 90 days or more past due but continue to accrue interest are loans which, in management’s opinion, are well secured and are in the process of collection.

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

	(In Thousands of Dollars)
December 31,	2004					2003					2002					2001					2000
			Loans					Loans					Loans					Loans					Loans
			to Total					to Total					to Total					to Total					to Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
Commercial, Financial and Agricultural	$	297		4.6	%	$	225		4.0	%	$	1,950		3.8	%	$	1,841		4.3	%	$	549		4.0	%
One-to-Four Family Real Estate		1,639		34.9	%		1,925		35.7	%
Commercial Real Estate		1,783		30.0	%		1,521		26.9	%
Real Estate-Mortgage												2,088		64.3	%		1,881		60.0	%		2,878		59.3	%
Installment Loans to Individuals		2,425		30.5	%		2,968		33.4	%		2,741		31.9	%		2,720		35.7	%		2,688		36.7	%
	$	6,144		100.0	%	$	6,639		100.0	%	$	6,779		100.0	%	$	6,442		100.0	%	$	6,115		100.0	%

13

MANAGEMENT’S DISCUSSION

     The allowance allocated to each of the four loan categories should not be interpreted as an indication that charge-offs in 2005 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 Corporation’s allowance methodology for homogeneous loans, and increases and decreases in the balances of those portfolios. More specifically, the consumer loan balance includes an indirect auto loan portfolio that represents approximately 88% of consumer loans. Due to the nature of this type of lending, the amount allocated to this category represents the largest percentage of the total loan loss provision. In the current and previous years, the indirect loan category has historically represented the largest percentage of loan losses. The one-to-four family real estate loan category represents approximately 34.9% of total loans, but historically has a small loss history. For the commercial loan category, which represents only 4.6% of the total loan portfolio, management relies on the Bank’s internal loan review procedures and allocates accordingly based on loan classifications. The commercial real estate loan category represents 30% of the total loan portfolio and management feels it to be prudent to list this category’s allocation separately. The allocation amounts in this category are determined through management’s quarterly assessment of classified loans. Each of these allocation categories includes an amount to include current environmental factors that may have an impact on future loan losses.

Loan Commitments and Lines of Credit

     In the normal course of business, the banking subsidiary 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 31,2004, there were no concentrations of loans exceeding 25% of total loans that are not disclosed as a category of loans. As of that date also, there were no other interest-earning assets that are either nonaccrual, past due, restructured or non-performing.

Investment Securities

     The investment securities portfolio increased $860 thousand in 2004. As Government Agency debt securities matured, management used these funds to purchase mortgage-backed securities and tax-exempt municipal securities. The Corporation uses tax-exempt municipal securities to increase investment yields and as a vehicle to lower our overall income tax rate.

     Our objective in managing the investment portfolio is to preserve and enhance corporate liquidity through investment in 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.

     During 2004, the Corporation recorded a $2.1 million after-tax impairment of securities charge after concluding that certain Freddie Mac and Fannie Mae preferred equity securities were other-than-temporarily impaired. Management’s decision to recognize the other-than-temporary impairment charge was due to the following circumstances: (1) the recent accounting guidance issued on other-than-temporary impairment of securities and discussions of these particular government sponsored enterprise investments, (2) the modeling of interest rates for the future would result in recovery of impairment in a reasonable period of time that would not be interpreted as “temporary” and (3) the fact that these government sponsored enterprises are under intense scrutiny for their lack of proper corporate governance practices.

     Based on these uncertainties, management determined that it was appropriate to reclassify the unrealized loss on these securities and record the other-than-temporary impairment charge under generally accepted accounting principles. Prior to this charge, the decline in fair value was recognized and recorded as an unrealized loss on securities available-for-sale and reflected as a reduction to equity through comprehensive income. Accordingly, this rectification will not affect total shareholders’ equity. Inasmuch that these securities are investment grade securities, this action does not reflect the expected long-term value of these securities.

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

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

Type	(In Thousands of Dollars)
December 31,	2004		2003		2002
U.S. Treasury Securities	$	2,715	$	2,772	$	3,833
U.S. Government sponsored enterprise debt securities		83,443		96,845		105,458
Mortgage-backed securities		133,027		127,637		80,814
Obligations of states and Political Subdivisons		56,098		44,880		37,277
Other Securities		17,758		20,047		23,707
	$	293,041	$	292,181	$	251,089

14

MANAGEMENT’S DISCUSSION

     A summary of debt securities held at December 31, 2004, classified according to maturity and including weighed average yield for each range of maturities is set forth below:

	(In Thousands of Dollars)
Type and Maturity Grouping	December 31, 2004
			Weighted
	Fair		Average
	Value		Yield (1)
U.S. Treasury Securities
Maturing Within One Year	$	2,715		2.48	%
U.S. Government Sponsored
Enterprise Debt Securities
Maturing Within One Year	$	21,925		4.55	%
Maturing After One Year But Within Five Years		59,209		3.95	%
Maturing After Five Years But Within Ten Years		1,037		4.11	%
Maturing After Ten Years		1,272		5.80	%
Total U.S. Government Sponsored
Enterprise Debt Securities:	$	83,443		4.08	%
Mortgage-Backed Securities
Maturing Within One Year	$	21		3.24	%
Maturing After One Year But Within Five Years		20,025		3.95	%
Maturing After Five Years But Within Ten Years		78,393		4.16	%
Maturing After Ten Years		34,588		4.44	%
Total Mortgage-Backed Securities:	$	133,027		4.20	%
Obligations of States and Political Subdivisions
Maturing Within One Year	$	716		5.56	%
Maturing After One Year But Within Five Years		9,363		5.59	%
Maturing After Five Years But Within Ten Years		24,568		6.20	%
Maturing After Ten Years		21,451		6.81	%
Total Obligations of States and Political Subdivisions:	$	56,098		6.32	%
Corporate Debt Securities
Maturing Within One Year	$	1,214		7.39	%
Maturing After One Year But Within Five Years		2,079		5.95	%
Maturing After Ten Years		248		7.70	%
Total Corporate Debt Securities:	$	3,541		6.38	%

     (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 $13.708 thousand, $176.824 thousand, $490.823 thousand and $522.764 thousand for the four ranges of maturities.

Deposits

     Deposits represent the Corporation’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 Corporation’s average total deposits increased 2.72% from $608.869 million in 2003 to $625.409 million in 2004. This increase occurred primarily in time and interest bearing demand deposits. The Bank has continued to offer competitive rates of interest on time deposits to attract new customers and enhance existing account relationships.

     The steady increase in average total deposits over the years reflects management’s efforts to continue to ensure the growth of the Bank and to maintain a viable banking institution. During 2004, the Bank has attracted deposits due to its efforts to remain competitive in the local community as to rates paid for all types of deposits, particularly in the time deposit area. The Bank has been at or near the top in interest rates paid to depositors throughout 2004.

Borrowings

     Total borrowings increased $11.30 million or 10.98% since December 31, 2003. Securities sold under repurchase agreements increased $12.95 million. This growth was a result of the Bank offering competitive rates on repurchase agreements. Federal Home Loan Bank advances decreased $1.76 million during 2004.

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

     The following table presents, as of December 31, 2004, the Corporation’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts or other similar carrying value adjustments. Further discussion of the nature of each obligation is included in referenced note to the consolidated financial statements.

	(Dollars in thousands)
	Note												There-
	Ref.		2005		2006		2007		2008		2009		after
Deposits without maturity		—	$	385,215	$	—	$	—	$	—	$	—	$	—
Certificates of deposit		E		97,931		79,291		29,399		14,738		13,581		2,069
Other borrowed funds		G		864		41		45		48		52		245
Securities sold under repurchase agreements		F		70,912		—		—		—		—		—
Federal Home Loan Bank advances		G		9,805		5,893		8,080		3,795		4,148		10,295
Operating leases		D		54		54		54		54		55		304

15

MANAGEMENT’S DISCUSSION

     Note H 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, 2004, the Corporation had no unconsolidated, related special purpose entities, nor did the Corporation engage in derivatives and hedging contracts, such as interest rate swaps, that may expose the Corporation to liabilities greater than the amounts recorded on the consolidated balance sheet. Management’s policy is to not engage in derivatives contracts for speculative trading purposes.

Capital Resources

     Total Stockholders’ Equity decreased slightly from $80.214 million at December 31, 2003 to $78.654 million in 2004. The Corporation continues to utilize the stock repurchase program, repurchasing approximately 256,000 shares during 2004 at an average price of $16.69 per share. Shares repurchased by the Corporation are for general corporate purposes. During the year, the Corporation issued 277,000 shares through the dividend reinvestment program, and 253,000 shares were issued as a 2% stock dividend.

     The bank subsidiary, as a national bank, is subject to the dividend restrictions set forth by the Comptroller of the Currency. The Comptroller of the Currency must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined). The bank subsidiary and holding company are required to maintain minimum amounts of capital to total “risk weighted” assets, as defined by the banking regulators. At December 31,2004, the bank subsidiary and holding company are required to have a minimum Tier 1 and Total Capital ratios of 4.00% and 8.00%, respectively. The Bank and the holding company had capital ratios above the well-capitalized levels at December 31, 2004 and 2003.

Critical Accounting Policies

     The Corporation 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 managements 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 Corporation has identified two accounting policies that are critical accounting policies and an understanding of these policies are necessary to understand our financial statements. These policies relate to determining the adequacy of the allowance for loan losses and other-than-temporary impairment of securities. Additional information regarding these policies are included in the notes to the consolidated financial statements, Note A (Summary of Significant Accounting Policies), Note B (Securities), Note C (Loans), and the sections above captioned “loan Portfolio” and “Investment Securities” Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.

     The Corporation 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 loan 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 allowance requires considerable management judgment. To the extent actual outcomes differ from management estimates, additional provision for loan 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 and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

16

MANAGEMENT’S DISCUSSION

Recent Accounting Pronouncements and Developments

     Note A to the consolidated financial statements discusses new accounting policies adopted by the Corporation during 2004 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 section(s) of this financial review and notes to the consolidated financial statements.

Explanation of Certain Non-GAAP Measures

     This report contains certain financial information determined by methods other than with Generally Accepted Accounting Principles (GAAP). Specifically, we have provided financial measures which are based on core earnings rather than net income. Ratios and other financial measures with the word Core in their title were computed using core earnings rather than net income. Core earnings excludes merger, integration and restructuring expense, extraordinary income or expense, income or expense from discontinued operations, and income, expense, gains and losses that are not reflective of ongoing operations or that we do not expect to reoccur. We believe that this information is useful to both investors and to management and can aid them in understanding the Company’s current performance, performance trends and financial condition. A reconciliation from GAAP net income to the non-GAAP measure of core income is shown on page 9 of this report.

Information as to Stock Prices and Dividends

     The common stock of the Corporation trades on the OTC Bulletin Board under the symbol FMNB. There are approximately ten local and/or regional brokerage firms that are known to be relatively active in trading the Corporation’s common stock. Set forth in the accompanying table are per share prices at which common stock of the Corporation has actually been purchased and sold in transactions during the periods indicated, to the knowledge of the Corporation. Also included in the table are dividends per share paid on the outstanding common stock and any stock dividends paid. As of December 31,2004, there were 4,038 shareholders of record of common stock.

Market and Dividend Summary

Dividend Date	High		Low		Dividend
March 2003	$	17.00	$	14.15	$	0.14
June 2003		16.80		15.80		0.15
September 2003		16.90		16.12		0.15
November 2003					2% Stock Dividend
December 2003		16.65		15.75		0.15
March 2004	$	17.40	$	15.25	$	0.15
June 2004		17.25		16.55		0.16
September 2004		17.20		16.30		0.16
November 2004					2% Stock Dividend
December 2004		17.50		15.90		0.16

17

REPORT OF INDEPENDENT AUDITORS

Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying consolidated balance sheets of Farmers National Banc Corp. as of December 31, 2004 and 2003, and the related statements of income, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Farmers National Banc Corp. for the year ended December 31, 2002 were audited by other auditors whose report dated January 17, 2003 expressed an unqualified opinion on those statements.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Farmers National Banc Corp. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Crowe Chizek and Company LLC

Columbus, Ohio
February 23, 2005

18

CONSOLIDATED BALANCE SHEETS

(Dollar Amounts In Thousands except Per Share Data)

December 31,	2004			2003
ASSETS
Cash and due from banks	$	29,619		$	30,950
Federal funds sold		3,951			2,864
TOTAL CASH AND CASH EQUIVALENTS		33,570			33,814
Securities available for sale		293,041			292,181
Loans		474,521			472,092
Less allowance for loan losses		6,144			6,639
NET LOANS		468,377			465,453
Premises and equipment,net		15,655			15,871
Other assets		7,196			5,496
TOTAL ASSETS	$	817,839		$	812,815
LIABILITIES AND STOCKHOLDERS’EQUITY
Deposits:
Noninterest-bearing	$	57,026		$	52,713
Interest-bearing		565,198			572,902
TOTAL DEPOSITS		622,224			625,615
Securities sold under repurchase agreements		70,912			57,962
Federal Home Loan Bank advances		42,016			43,774
Other borrowings		1,295			1,187
Other liabilities		2,738			4,063
TOTAL LIABILITIES		739,185			732,601
Commitments and contingent liabilities
Stockholders’Equity
Common Stock - - Authorized 25,000,000 shares; issued 13,912,515 in 2004 and 13,382,120 in 2003		80,200			71,177
Retained earnings		10,958			16,287
Accumulated other comprehensive income		893			1,870
Treasury stock,at cost;933,041 shares in 2004 and 676,771 shares in 2003		(13,397	)		(9,120	)
TOTAL STOCKHOLDERS’ EQUITY		78,654			80,214
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	817,839		$	812,815

See accompanying notes.

19

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

(Dollar Amounts In Thousands except Per Share Data)

Years ended December 31,	2004			2003			2002
INTEREST INCOME
Interest and fees on loans	$	30,658		$	32,578		$	34,424
Interest and dividends on securities:
Taxable interest		8,405			8,552			6,752
Nontaxable interest		2,093			1,738			1,508
Dividends		499			645			711
Interest on federal funds sold		117			160			617
TOTAL INTEREST INCOME		41,772			43,673			44,012
INTEREST EXPENSE
Deposits		10,320			11,079			14,147
Short-term borrowings		1,081			1,601			1,669
Long-term borrowings		1,371			1,254			1,474
TOTAL INTEREST EXPENSE		12,772			13,934			17,290
NET INTEREST INCOME		29,000			29,739			26,722
Provision for loan losses		915			870			1,080
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		28,085			28,869			25,642
OTHER INCOME
Service charges on deposit accounts		2,488			1,920			1,868
Security gains		2			0			232
Impairment of securities		(3,225	)		0			0
Other operating income		1,272			1,058			1,092
TOTAL OTHER INCOME		537			2,978			3,192
OTHER EXPENSES
Salaries and employee benefits		10,646			10,595			9,661
Net occupancy expense of premises		1,250			1,099			1,062
Furniture and equipment expense,including depreciation		1,359			1,185			1,223
State and local taxes		923			875			850
Loan expenses		365			473			548
Other operating expenses		4,404			4,145			4,219
TOTAL OTHER EXPENSES		18,947			18,372			17,563
INCOME BEFORE INCOME TAXES		9,675			13,475			11,271
INCOME TAXES		2,494			3,960			3,337
NET INCOME		7,181			9,515			7,934
OTHER COMPREHENSIVE INCOME (LOSS),NET OF TAX:
Change in net unrealized gains (losses) on securities, net of reclassifications		(977	)		(3,017	)		3,146
COMPREHENSIVE INCOME	$	6,204		$	6,498		$	11,080
EARNINGS PER SHARE:
Basic	$	0.56		$	0.74		$	0.62
Diluted	$	0.55		$	0.74		$	0.62

See accompanying notes.

20

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY

(Dollar Amounts In Thousands except Per Share Data)

Years ended December 31,	2004			2003			2002
COMMON STOCK
Balance at beginning of year	$	71,177		$	62,631		$	55,419
100 shares issued from stock options exercised		0			1			0
253,474 shares issued as a 2% stock dividend in 2004, 248,023 in 2003 and 242,842 in 2002		4,372			4,031			3,278
276,921 shares issued from dividend reinvestment in 2004, 279,645 in 2003 and 323,828 in 2002		4,651			4,514			3,934
Balance at end of year		80,200			71,177			62,631
RETAINED EARNINGS
Balance at beginning of year		16,287			18,404			20,672
Net income		7,181			9,515			7,934
Dividends declared:
$.64 cash dividends per share in 2004, $.61 in 2003 and $.57 in 2002		(8,138	)		(7,601	)		(6,924	)
Stock dividends		(4,372	)		(4,031	)		(3,278	)
Balance at end of year		10,958			16,287			18,404
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of year		1,870			4,887			1,741
Change in net unrealized gains (losses) on securities, net of reclassifications		(977	)		(3,017	)		3,146
Balance at end of year		893			1,870			4,887
TREASURY STOCK, AT COST
Balance at beginning of year		(9,120	)		(4,970	)		(2,114	)
Purchase of 256,270 shares in 2004, 257,997 in 2003 and 242,423 in 2002		(4,277	)		(4,150	)		(2,856	)
Balance at end of year		(13,397	)		(9,120	)		(4,970	)
TOTAL STOCKHOLDERS’ EQUITY AT END OF YEAR	$	78,654		$	80,214		$	80,952

See accompanying notes.

21

CONSOLIDATED STATEMENTS
OF CASH FLOWS

(Dollar Amounts In Thousands except Per Share Data)

Years ended December 31,	2004			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	7,181		$	9,515		$	7,934
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		915			870			1,080
Depreciation and amortization		1,105			945			936
Net amortization of securities		1,865			1,905			725
Security gains		(2	)		0			(232	)
Impairment of securities		3,225			0			0
Net change in other assets and liabilities		(1,724	)		1,004			878
NET CASH FROM OPERATING ACTIVITIES		12,565			14,239			11,321
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and repayments of securities available for sale		66,989			74,247			33,419
Proceeds from sales of securities available for sale		9			0			1,518
Purchases of securities available for sale		(74,405	)		(121,816	)		(138,188	)
Loan originations and payments,net		(3,931	)		(24,563	)		(16,178	)
Additions to premises and equipment		(792	)		(3,826	)		(800	)
NET CASH FROM INVESTING ACTIVITIES		(12,130	)		(75,958	)		(120,229	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		(3,391	)		39,524			84,619
Net change in short-term borrowings		13,129			6,672			4,342
Proceeds from Federal Home Loan Bank borrowings and other debt		22,790			24,902			9,460
Repayment of Federal Home Loan Bank borrowings and other debt		(24,619	)		(4,217	)		(13,330	)
Repurchase of Common Stock		(4,277	)		(4,150	)		(2,855	)
Cash dividends paid		(8,962	)		(7,454	)		(6,934	)
Proceeds from dividend reinvestment and exercise of stock options		4,651			4,515			3,934
NET CASH FROM FINANCING ACTIVITIES		(679	)		59,792			79,236
NET CHANGE IN CASH AND CASH EQUIVALENTS		(244	)		(1,927	)		(29,672	)
Beginning cash and cash equivalents		33,814			35,741			65,413
Ending cash and cash equivalents	$	33,570		$	33,814		$	35,741
Supplemental cash flow information:
Interest paid	$	12,699		$	13,859		$	17,863
Income taxes paid		3,582			4,122			2,719
Supplemental noncash disclosures:
Transfer of loans to other real estate	$	92		$	0		$	0

See accompanying notes.

22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar Amounts In Thousands except Per Share Data)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

     The consolidated financial statements include the accounts of Farmers National Banc Corp. (the Corporation) and its wholly-owned subsidiary, The Farmers National Bank of Canfield (the Bank). All significant intercompany balances and transactions have been eliminated.

Nature of Operations:

     The Corporation’s wholly owned subsidiary, The Farmers National Bank of Canfield, operates under a national bank charter and provides full banking services. As a national bank, the Bank is subject to regulation of the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The area served by the Bank is the northeastern region of Ohio and service is provided at seventeen (17) locations.

Operating Segments:

     While the chief decision-makers monitor the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Estimates:

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. The allowance for loan losses and fair values of financial instruments are particularly subject to change. Actual results could differ from those estimates.

Cash Flows:

     Cash and cash equivalents include cash on hand, due from banks 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.

Securities Available for Sale:

     Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Other securities such as Federal Home Loan Bank stock are carried at cost. Deferred income taxes are provided on any unrealized appreciation or decline in value. Such appreciation or decline in value, net of deferred taxes, is reflected as a separate component of stockholders’ equity. Gains and losses are determined using the specific identification method. The Corporation does not utilize a trading account. Interest income includes amortization of purchase premium or discount. Gains and losses on sales are based on the amortized cost of the specific security sold.

     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 and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

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. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. The accrual of interest income is ordinarily discontinued when a loan becomes 90 days past due as to principal or interest; however, management may elect to continue the accrual when the estimated value of collateral is sufficient to cover the principal balance and the accrued interest and the loan is in process of collection. Consumer and credit card loans are typically charged off no later than 180 days past due. When interest accruals are discontinued, interest credited to income in the current year is reversed. When the loan is determined to be uncollectible, interest accrued in prior years and the principal are charged to the allowance for loan losses. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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 allowances. If additions to the original estimate of the allowance for loan losses are deemed necessary, they will be reported in earnings in the period in which they become reasonably estimable. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

     The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.

     A loan is impaired when full payment under the loan terms is not expected. The allowance for loan losses related to loans that are considered impaired is based on discounted cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. 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.

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar Amounts In Thousands except Per Share Data)

Foreclosed Assets:

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

Premises and Equipment:

     Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line method. The estimated useful lives are based on the asset type and range from 3 to 40 years.

Intangibles:

     Identified purchased intangibles, primarily core deposits, are recorded at cost and are amortized over terms ranging from 8 to 15 years. Intangible amortization of $97 thousand was recorded in 2004, 2003 and 2002. Intangible assets are included in other assets.

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.

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.

Income Taxes:

     Income taxes are provided for amounts currently due and deferred amounts computed based on the expected future tax consequences of temporary differences between the financial accounting and income tax basis of assets and liabilities, and is computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amounts expected to be realized.

Fair Value of Financial Instruments:

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

Stock-Based Compensation:

     Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant.

     The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.

December 31,	2004			2003			2002
Net income, as reported	$	7,181		$	9,515		$	7,934
Less: Total stock-based employee compensation expense determined under fair-value-based method		( 27	)		(30	)		(31	)
Pro forma net income	$	7,154		$	9,485		$	7,903
Basic earnings per share as reported	$	.56		$	.74		$	.62
Diluted earnings per share as reported	$	.55		$	.74		$	.62
Pro forma earnings per share (basic and diluted)	$	.55		$	.73		$	.62

     The pro forma effects are computed using option pricing models, using the following weighted-average assumptions as of grant date. There were no stock option grants in 2004, 2003 or 2002.

Advertising:

     The Bank expenses the costs of advertising as incurred. Advertising expense for the years ended December 31, 2004, 2003 and 2002 was $448 thousand, $363 thousand and $468 thousand, respectively.

Earnings Per Share:

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

Comprehensive Income:

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

Recently Issued Accounting Standards:

     The Financial Accounting Standards Board (FASB) recently issued new accounting standards on inventory costs (Statement 151), real estate timesharing transactions (Statement 152), exchanges of non-monetary assets (Statement 153), and share-based payments (Statement 123R). The Accounting Standards Executive Committee (Ac-SEC) issued a new accounting standard on purchased loans (Statement of Position or SOP 03-3).

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar Amounts In Thousands except Per Share Data)

     FAS 123R requires all public companies to record compensation cost for stock options provided to employees in return for employee service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. We will adopt statement 123R in the third quarter of 2005 as required by the Standard. Compensation cost will also be recorded for prior option grants that vest after the date of adoption. The effect on results of operations will depend on the level of future option grants and the calculation of the fair value of the options granted at such future date, as well as the vesting periods provided, and so cannot currently be predicted. Existing options that will vest after adoption date are expected to result in additional compensation expense of approximately $13 thousand during the balance of 2005 and $25 thousand in 2006. There will be no significant effect on financial position as total equity will not change.

     Management does not believe that any of the recently issued but not yet effective accounting standards will have a material effect on our financial statements when adopted in 2005.

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 now are such matters that will have a material effect on the financial statements.

Restrictions on Cash:

     Cash on hand or on deposit with the Federal Reserve Bank of $7.509 million and $6.628 million was required to meet regulatory reserve and clearing requirements at year end 2004 and 2003. These balances do not earn interest.

Reclassifications:

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

NOTE B - SECURITIES AVAILABLE FOR SALE

     Securities available for sale at December 31, 2004 and 2003 are summarized as follows:

			GROSS		GROSS
			UNREALIZED		UNREALIZED
2004	FAIR VALUE		GAINS		LOSSES
U.S.Treasury and U.S. Government agencies	$	86,158	$	801	$	(148	)
Corporate debt securities		3,562		98		0
Mortgage-backed securities		133,027		449		(1,548	)
Obligations of states and political subdivisions		56,098		1,437		( 63	)
Total debt securities		278,845		2,785		(1,759	)
Equity securities		14,196		348		0
TOTALS	$	293,041	$	3,133	$	(1,759	)

			GROSS		GROSS
			UNREALIZED		UNREALIZED
2003	FAIR VALUE		GAINS		LOSSES
U.S.Treasury and U.S. Government agencies	$	99,617	$	2,987	$	( 14	)
Corporate debt securities		4,741		246		0
Mortgage-backed securities		127,637		682		(969	)
Obligations of states and political subdivisions		44,880		1,540		( 45	)
Total debt securities		276,875		5,455		(1,028	)
Equity securities		15,306		339		(1,933	)
TOTALS	$	292,181	$	5,794	$	(2,961	)

	2004		2003		2002
Sales of available for sale securities were as follows:
Proceeds	$	9	$	0	$	1,518
Gross gains		2		0		232

     During 2004, the Company concluded that two U.S. Government sponsored enterprises’ preferred equity securities were other-than-temporarily impaired. The impairment charge against income was $3.225 million and the related tax benefit was $1.105 million.

     The fair value of debt securities available for sale by contractual maturities at December 31, 2004 are summarized below. Mortgage-backed securities are not due at a single maturity date and are shown separately.

Available for sale - Debt securities	FAIR VALUE
Due in 1 year or less	$	26,570
Due after one year through five years		70,652
Due after five years through ten years		24,530
Due after ten years		24,066
Mortgage-backed securities		133,027
TOTALS	$	278,845

     Securities with a carrying amount of $125 million at December 31, 2004 and $122 million at December 31, 2003 were pledged to secure public deposits in accordance with federal and state requirements and to secure repurchase agreements sold.

     At year-end 2004 and 2003, there were no holdings of securities of any one issuer, other than the U.S. Government, its agencies and U.S. Government sponsored enterprises, in an amount greater than 10% of shareholders’ equity.

25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar Amounts In Thousands except Per Share Data)

     Securities with unrealized losses at year-end 2004 and 2003, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 Months					12 Months or More					Total
2004
Description	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. Government agencies	$	27,273	$	(143	)	$	876	$	(5	)	$	28,149	$	( 148	)
Mortgage-backed securities		65,924		( 589	)		38,277		(959	)		104,201		(1,548	)
Obligations of states and political subdivisions		4,077		( 31	)		1,175		(32	)		5,252		(63	)
Total temporarily impaired	$	97,274	$	( 763	)	$	40,328	$	(996	)	$	137,602	$	(1,759	)

	Less than 12 Months					12 Months or More					Total
2003
Description	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. Government agencies	$	2,029	$	(6	)	$	1,065	$	(8	)	$	3,094	$	(14	)
Mortgage-backed securities		74,562		(957	)		387		(12	)		74,949		(969	)
Obligations of states and political subdivisions		3,285		(45	)							3,285		(45	)
Equity securities		1,912		(124	)		8,192		(1,809	)		10,104		(1,933	)
Total temporarily impaired	$	81,788	$	(1,132	)	$	9,644	$	(1,829	)	$	91,432	$	(2,961	)

     The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or it agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

     Unrealized losses on securities have not been recognized into income because management has the intent and ability to hold for the foreseeable future and the decline in fair value is largely due to increases in market interest rates. The fair value is expected to recover as the securities approach their maturity date and/or market rates change.

NOTE C - LOANS

     Following is a summary of loans:

December 31,	2004			2003
Residential Real Estate	$	166,591		$	169,542
Commercial Real Estate		142,582			127,226
Consumer		142,602			155,461
Commercial		21,680			18,698
Subtotal		473,455			470,927
Net deferred loan fees and costs		1,066			1,165
Allowance for loan losses		(6,144	)		(6,639	)
NET LOANS	$	468,377		$	465,453

     Following is an analysis of changes in the allowance for loan losses for the years ended December 31:

	2004			2003			2002
Balance at beginning of year	$	6,639		$	6,779		$	6,442
Provision for loan losses		915			870			1,080
Recoveries		444			365			437
Loans charged off		(1,854	)		(1,375	)		(1,180	)
Balance at end of year	$	6,144		$	6,639		$	6,779

	2004		2003
Loans individually considered impaired were as follows:
Year-end loans with no allocated allowance for loan losses	$	0	$	0
Year-end loans with allocated allowance for loan losses		86		806
Total	$	86	$	806
Amount of the allowance for loan losses allocated	$	86	$	278

	2004		2003		2002
Average of loans individually considered impaired during the year	$	89	$	693	$	0
Interest income recognized during impairment		6		52		0
Cash-basis interest income recognized		8		54		0

	2004		2003
Nonperforming loans were as follows:
Loans past due over 90 days still on accrual	$	372	$	411
Nonaccrual loans		960		1,114

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar Amounts In Thousands except Per Share Data)

     Nonperforming loans includes both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

     Certain directors, executive officers and associates of such persons were loan customers during 2004. A summary of related party loan activity is as follows:

Total loans at December 31, 2003	$	5,287
New loans		430
Repayments		(627	)
Total loans at December 31, 2004	$	5,090

NOTE D - PREMISES AND EQUIPMENT

     Following is a summary of premises and equipment:

December 31,	2004			2003
Land	$	2,747		$	2,713
Premises		15,249			14,790
Equipment		8,229			7,930
Leasehold Improvements		198			198
		26,423			25,631
Less accumulated depreciation		(10,768	)		(9,760	)
NET BOOK VALUE	$	15,655		$	15,871

     Depreciation expense was $1.01 million for the year ended December 31, 2004, $848 thousand for 2003 and $839 thousand for 2002.

     The Bank leases a branch location under a noncancelable operating lease extending to 2014. Rental expense charged to operations totaled $44 thousand for 2004, $78 thousand for 2003 and $75 thousand for 2002. Following is a summary of future minimum rental payments under operating leases that have initial or remaining noncancelable terms in excess of one year as of December 31, 2004:

2005	$	54
2006		54
2007		54
2008		54
2009		55
Thereafter		304
TOTAL	$	575

NOTE E - INTEREST-BEARING DEPOSITS

     Following is a summary of scheduled maturities of certificates of deposit during the years following December 31, 2004:

2005	$	97,931
2006		79,291
2007		29,399
2008		14,738
2009		13,581
Thereafter		2,069
TOTAL	$	237,009

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

	2004		2003
Three months or less	$	11,861	$	14,736
Three to six months		7,239		12,161
Six to twelve months		14,518		19,177
Over twelve months		35,612		24,607
TOTAL	$	69,230	$	70,681

     Following is a summary of interest-bearing deposits:

December 31	2004		2003
Demand	$	119,349	$	95,387
Money Market		109,238		148,779
Savings		99,602		102,462
Certificates of Deposit		237,009		226,274
TOTAL	$	565,198	$	572,902

NOTE F - SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS

     Securities sold under repurchase agreements are financing arrangements that mature within 89 days. All such arrangements are with retail and commercial customers of the Bank. Securities sold under agreements to repurchase are held by an independent third party. The outstanding balances and related information are summarized as follows:

	2004			2003
Carrying value of securities	$	86,440		$	65,647
Maximum month end balance during the year		76,295			82,701
Average balance during the year		68,113			67,418
Average year end interest rate		1.58	%		1.58	%
Average interest rate during the year		1.58	%		2.37	%

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar Amounts In Thousands except Per Share Data)

NOTE G - FEDERAL HOME LOAN BANK ADVANCES
AND OTHER BORROWINGS

     Federal Home Loan Bank advances at December 31, 2004 are secured by a blanket pledge of residential mortgage loans totaling $52.520 million and the Bank’s investment in FHLB stock. Each advance is subject to a prepayment penalty if paid prior to its maturity date. Advances from the Federal Home Loan Bank were as follows:

	December 31,
	2004					2003
			Weighted					Weighted
			Average					Average
	Amount		Rate			Amount		Rate
Fixed-rate advances, at rates from 1.09% to 7.05%	$	37,016		4.35	%	$	43,774		3.32	%
Variable-rate advances		5,000		2.42	%		0		0.00	%
Total advances	$	42,016		4.12	%	$	43,774		3.32	%

     Scheduled repayments of FHLB advances are as follows:

Maturing in:
2005	$	9,805
2006		5,893
2007		8,080
2008		3,795
2009		4,148
Later years		10,295
TOTAL	$	42,016

     The Bank has access to lines of credit amounting to $18 million at three major domestic banks that are below prime rate. These lines and terms are periodically reviewed by the banks and are generally subject to withdrawal at their discretion. At December 31, 2004, the Bank had not borrowed against these lines of credit.

     The Bank has notes payable secured by real estate totaling $479 thousand in 2004 and $550 thousand in 2003. Scheduled repayments of notes payable are as follows:

Maturing in:
2005	$	48
2006		41
2007		45
2008		48
2009		52
Later years		245
TOTAL	$	479

     The Bank has a short-term U.S. Treasury interest-bearing demand note with a balance of $816 thousand in 2004 and $637 thousand in 2003.

NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES

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

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

	2004				2003
	Fixed		Variable		Fixed		Variable
	Rate		Rate		Rate		Rate
Commitments to make loans	$	2,880	$	9,807	$	7,968	$	8,068
Unused lines of credit	$	20,040	$	20,190	$	20,352	$	17,761

     Commitments to make loans are generally made for periods of 30 days or less. The fixed rate loan commitments have interest rates ranging from 5% to 9.75% and maturities ranging from 5 years to 15 years.

     Standby letters of credit are considered financial guarantees under FASB Interpretation 45. The standby letters of credit have a contractual value of $1.728 million in 2004 and $954 thousand in 2003. The carrying amount of these items on the balance sheet is not material.

NOTE I - STOCK OPTIONS

     Options to buy stock are granted to directors, officers and employees under the Company’s Stock Option Plan, which provides for issue of up to 375,000 options. Exercise price is the market price at date of grant, so there is no compensation expense recognized in the income statement. The maximum option term is ten years, and options vest over a five year period.

     A summary of the activity in the plan is as follows:

	2004				2003				2002
			Weighted				Weighted				Weighted
			Average				Average				Average
			Exercise				Exercise				Exercise
	Shares		Price		Shares		Price		Shares		Price
Outstanding at beginning of year		52,000	$	11		55,500	$	11		56,000	$	11
Granted		0				0				0
Exercised		0				100		11		0
Forfeited or expired		2,500		11		3,400		11		500		11
Outstanding at end of year		49,500	$	11		52,000	$	11		55,500	$	11
Options exercisable at year-end		29,700				20,800				11,100

28

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

Options outstanding at year-end 2004 were as follows.

	Outstanding					Exercisable
			Weighted
			Average	Weighted				Weighted
			Remaining	Average				Average
			Contractual	Exercise				Exercise
Exercise Price	Number		Life	Price		Number		Price
$11		49,500	6.9 years	$	11		29,700	$	11

NOTE J - REGULATORY MATTERS

     The Bank, as a national bank, is subject to the dividend restrictions set forth by the Comptroller of the Currency. The Comptroller of the Currency must approve declaration of any dividends in excess of the sum of profits for the current year and retained net profits for the preceding two years (as defined). As of December 31, 2004, the Bank had $2.64 million of retained earnings available for distribution without requiring prior approval of the Comptroller of the Currency. In 2005, the Bank must obtain prior approval to distribute more than current year earnings plus $722 thousand.

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

     Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2004, that the Corporation and the Bank meet all capital adequacy requirements to which it is subject.

     As of December 31, 2004, the most recent notification from the Office of the Comptroller of the Currency 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 capital category.

     The following table reflects various measures of capital at year-end:

							Requirement					To be “Well Capitalized”
							For Capital					Under Prompt Corrective
		Actual					Adequacy Purposes:					Action Provisions:
		Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31,2004
Total Capital to risk weighted assets:	Consolidated	$	83,772		16.39	%	$	40,890		8.00	%	$	51,113		10.00	%
	Bank	$	79,908		15.65	%	$	40,850		8.00	%	$	51,063		10.00	%
Tier I Capital to risk weighted assets:	Consolidated	$	77,471		15.16	%	$	20,445		4.00	%	$	30,668		6.00	%
	Bank	$	73,764		14.45	%	$	20,425		4.00	%	$	30,638		6.00	%
Tier I Capital to average assets:	Consolidated	$	77,471		9.44	%	$	32,819		4.00	%	$	41,024		5.00	%
	Bank	$	73,764		9.02	%	$	32,717		4.00	%	$	40,896		5.00	%
As of December 31,2003
Total Capital to risk weighted assets:	Consolidated	$	83,108		16.77	%	$	39,654		8.00	%	$	49,567		10.00	%
	Bank	$	73,467		14.84	%	$	39,600		8.00	%	$	49,500		10.00	%
Tier I Capital to risk weighted assets:	Consolidated	$	76,907		15.52	%	$	19,827		4.00	%	$	29,740		6.00	%
	Bank	$	67,274		13.59	%	$	19,800		4.00	%	$	29,700		6.00	%
Tier I Capital to average assets:	Consolidated	$	76,907		9.57	%	$	32,142		4.00	%	$	40,177		5.00	%
	Bank	$	67,274		8.40	%	$	32,047		4.00	%	$	40,059		5.00	%

29

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

NOTE K - EMPLOYEE BENEFIT PLANS

     The Bank has a qualified 401(k) deferred compensation Retirement Savings Plan. All employees of the Bank who have completed at least one year of service and meet certain other eligibility requirements are eligible to participate in the plan. Under the terms of the Plan, employees may voluntarily defer a portion of their annual compensation pursuant to section 401(k) of the Internal Revenue Code. The Bank 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 Bank may make an additional profit sharing contribution to the plan. Total expense was $376 thousand, $447 thousand and $381 thousand for the years ended December 31, 2004, 2003 and 2002, respectively.

     The Corporation maintains a deferred compensation plan for certain existing employees and retirees. Expense under the plan was $57 thousand, $59 thousand and $63 thousand for the years ended December 31, 2004, 2003 and 2002, respectively.

NOTE L - INCOME TAXES

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

Years ended December 31,	2004			2003			2002
Current	$	3,428		$	4,533		$	3,398
Deferred		(934	)		( 573	)		( 61	)
TOTALS	$	2,494		$	3,960		$	3,337

     Following is a reconciliation between income taxes at statutory rates and actual taxes based on income before income taxes:

Years ended
December 31,	2004						2003						2002
				Percent						Percent						Percent
				of Pretax						of Pretax						of Pretax
	Amount			Income			Amount			Income			Amount			Income
Statutory tax	$	3,386			35	%	$	4,716			35	%	$	3,945			35	%
Effect of nontaxable interest		(675	)		(7	)		(557	)		(4	)		(584	)		(5	)
Dividend exclusion		( 73	)		(1	)		(110	)		(1	)		(123	)		(3	)
Other		(144	)		(1	)		(89	)		(1	)		99			3
ACTUAL TAX	$	2,494			26	%	$	3,960			29	%	$	3,337			30	%

Deferred tax assets (liabilities) are comprised of the following at December 31:

	2004			2003
Deferred tax assets:
Allowance for credit losses	$	2,150		$	2,324
Security valuation		1,129			0
Deferred compensation		262			260
Deferred loan fees and costs		74			5
Other		64			56
Gross deferred tax assets	$	3,679		$	2,645
Deferred tax liabilities:
Depreciation	$	(778	)	$	(803	)
Net unrealized gain on securities available for sale		(481	)		(991	)
Federal Home Loan Bank dividends		(520	)		(466	)
Prepaid expenditures		(117	)		0
Other		(35	)		(81	)
Gross deferred tax liabilities		(1,931	)		(2,341	)
NET DEFERRED TAX ASSET	$	1,748		$	304

     No valuation allowance for deferred tax assets was recorded at December 31, 2004 and 2003. Income taxes applicable to realized investment securities gains in 2004, 2003 and 2002 were $1 thousand, $0 and $79 thousand, respectively.

NOTE M - DISCLOSURE ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used to estimate the fair value of each class of financial instruments at December 31, 2004:

Cash and cash equivalents:

     The carrying amounts in the consolidated balance sheets of cash and cash equivalents approximates their fair value.

Investment securities:

     The fair value of securities available for sale equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans:

     The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

30

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

Deposits:

     The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Securities sold under repurchase agreements:

     The carrying amount for securities sold under repurchase agreements approximates their fair value.

Federal Home Loan Bank advances:

     The fair values of the advances are estimated using discounted cash flow analyses based on the current incremental borrowing rates for similar types of borrowing arrangements.

Accrued interest:

     The carrying amounts of accrued interest approximate fair value.

Off-balance sheet commitments:

     The fair value of commitments is nominal.

     The estimated fair values of the company’s financial instruments as of December 31, 2004 and 2003 are as follows:

	2004				2003
	CARRYING		FAIR		CARRYING		FAIR
	AMOUNT		VALUE		AMOUNT		VALUE
Financial assets:
Cash and cash equivalents	$	33,570	$	33,570	$	33,814	$	33,814
Investment securities:
Available for sale		293,041		293,041		292,181		292,181
Loans - Net		468,377		465,040		465,453		476,672
Accrued interest receivable		3,914		3,914		4,188		4,188
Financial liabilities:
Deposits	$	622,224	$	622,601	$	627,926	$	629,359
Securities sold under repurchase agreements		70,912		70,912		57,962		57,962
Federal Home Loan Bank advances		42,016		41,952		43,774		44,435
Other borrowings		1,295		1,295		1,187		1,187
Accrued interest payable		861		861		789		789

NOTE N - EARNINGS PER SHARE

     The computation of basic and diluted earnings per share is shown in the following table:

December 31,	2004		2003		2002
Basic EPS computation
Numerator - Net income	$	7,181	$	9,515	$	7,934
Denominator - Weighted average shares outstanding		12,926,309		12,912,482		12,843,589
Basic earnings per share	$	.56	$	.74	$	.62
Diluted EPS computation
Numerator - Net income	$	7,181	$	9,515	$	7,934
Denominator - Weighted average shares outstanding for basic earnings per share		12,926,309		12,912,482		12,843,589
Effect of Stock Options		16,876		16,472		4,412
Weighted averages shares for diluted earnings per share		12,943,185		12,928,954		12,848,001
Diluted earnings per share	$	.55	$	.74	$	.62

NOTE O - OTHER COMPREHENSIVE INCOME (LOSS)

     The following table discloses the reclassification of available for sale security gains and losses, net of tax:

December 31,	2004			2003			2002
Net unrealized holding gains (losses) on available for sale securities arising during the period	$	(3,072	)	$	(3,017	)	$	3,299
Less: Reclassification adjustment for net gains realized in net income		2,095			0			(153	)
Net unrealized gains (losses)	$	(977	)	$	(3,017	)	$	3,146

31

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

NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarter Ended 2004	March 31		June 30		September 30		December 31
Total interest income	$	10,642	$	10,284	$	10,445	$	10,401
Total interest expense		3,161		3,166		3,183		3,262
Net interest income		7,481		7,118		7,262		7,139
Provision for loan losses		180		120		240		375
Other income		780		933		1,063		(2,239	)
Other expense		4,827		4,736		4,747		4,637
Income before income taxes		3,254		3,195		3,338		(112	)
Income taxes		917		900		923		(246	)
Net income	$	2,337	$	2,295	$	2,415	$	134
Earnings per share:
Basic	$	0.18	$	0.18	$	0.19	$	0.01
Diluted	$	0.18	$	0.18	$	0.19	$	0.01

Quarter Ended 2003	March 31		June 30		September 30		December 31
Total interest income	$	10,923	$	11,088	$	10,825	$	10,837
Total interest expense		3,714		3,653		3,356		3,211
Net interest income		7,209		7,435		7,469		7,626
Provision for loan losses		270		200		190		210
Other income		708		749		781		740
Other expense		4,527		4,540		4,604		4,701
Income before income taxes		3,120		3,444		3,456		3,455
Income taxes		914		1,021		1,014		1,011
Net income	$	2,206	$	2,423	$	2,442	$	2,444
Earnings per share - basic and diluted	$	0.17	$	0.19	$	0.19	$	0.19

NOTE Q - CONDENSED FINANCIAL INFORMATION

     Below is condensed financial information of Farmers National Banc Corp. (parent company only). In this information, the parent’s investment in the Bank is stated at cost plus equity in undistributed earnings of the subsidiary since acquisition. This information should be read in conjunction with the consolidated financial statements and related notes.

	December 31, 2004			December 31, 2003
BALANCE SHEETS
Assets:
Cash	$	2,016		$	9,650
Investment in bank subsidiary		74,721			70,581
Securities available for sale		2,417			2,352
Other		58			3
TOTAL ASSETS	$	79,212		$	82,586
Liabilities:
Dividends payable	$	398		$	1,220
Other accounts payable		160			1,152
TOTAL LIABILITIES		558			2,372
Stockholders’ equity:
Common stock		80,200			71,177
Retained earnings		10,958			16,287
Accumulated other comprehensive income		893			1,870
Treasury stock, at cost; 933,041 shares in 2004 and 676,771 shares in 2003		(13,397	)		(9,120	)
TOTAL STOCKHOLDERS’ EQUITY		78,654			80,214
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	79,212		$	82,586

32

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

STATEMENTS OF INCOME
Years ended December 31,	2004			2003			2002
Income:
Dividends from subsidiary bank	$	2,169		$	14,050		$	5,966
Interest and dividends on securities		42			32			52
Investment security gains		2			0			153
TOTAL INCOME		2,213			14,082			6,171
Other expenses		(207	)		(170	)		(154	)
Income before income tax benefit and undistributed subsidiary income		2,006			13,912			6,017
Income tax benefit		56			0			0
Equity in undistributed net income of subsidiary (dividends in excess of net income)		5,119			(4,397	)		1,917
NET INCOME	$	7,181		$	9,515		$	7,934

STATEMENTS OF CASH FLOWS
Years ended December 31,	2004			2003			2002
Cash flows from operating activities:
Net income	$	7,181		$	9,515		$	7,934
Adjustments to reconcile net income to net cash provided by operating activities:
Security gains		(2	)		0			0
Dividends in excess of net income (Equity in undistributed net income of subsidiary)		(5,119	)		4,397			(1,917	)
Other		(1,078	)		(375	)		1,023
NET CASH FROM OPERATING ACTIVITIES		982			13,537			7,040
Cash flows from investing activities:
Proceeds from maturities of investment securities available for sale		3,400			1,700			1,702
Proceeds from sales of other securities and securities available for sale		9			0			241
Purchases of other securities and securities available for sale		(3,445	)		(1,742	)		(1,741	)
Proceeds from return of capital on other securities		8			0			0
NET CASH FROM INVESTING ACTIVITIES		(28	)		(42	)		202
Cash flows from financing activities:
Purchase of treasury stock		(4,277	)		(4,150	)		(2,856	)
Dividends paid		(8,962	)		(7,454	)		(6,934	)
Proceeds from dividend reinvestment and exercise of stock options		4,651			4,515			3,934
NET CASH FROM FINANCING ACTIVITIES		(8,588	)		(7,089	)		(5,856	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(7,634	)		6,406			1,386
Beginning cash and cash equivalents		9,650			3,244			1,858
Ending cash and cash equivalents	$	2,016		$	9,650		$	3,244

33

FARMERS NATIONAL BANC CORP. AND SUBSIDIARY

INVESTOR INFORMATION

A N N U A L M E E T I N G N O T I C E The annual meeting of Shareholders will be held at Kenneth F. McMahon Hall at the Mill Creek MetroParks Experimental & Educational Building at 7574 Columbiana-Canfield Rd., Canfield, OH 44406, at 3:30 p.m. local time, on Thursday, March 31, 2005. C O M M O N S T O C K L I S T I N G Farmers National Banc Corp. common stock trades on the OTC Bulletin Board under the symbol FMNB.OB. At December 31, 2004, there were 12,979,474 shares outstanding and approximately 4,038 shareholders. D I V I D E N D P A Y M E N T S 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. D I V I D E N D R E I N V E S T M E N T P L A N ( D R I P ) Registered shareholders can purchase additional shares of Farmers’ common stock through Farmers Dividend Reinvestment Plan. Participation is voluntary and allows for automatic reinvestment of cash dividends, supplemental cash contributions not to exceed $1,000 per quarter and the safekeeping of stock certificates. To obtain our Plan prospectus, contact Susan Better at Toll Free 1-888-988-3276 or email: exec@fnbcanfield.com. D I R E C T D E P O S I T O F C A S H D I V I D E N D S Shareholders have the option of having their cash dividends sent directly to their financial institution for deposit into their savings or checking account. S T O C K T R A N S F E R A G E N T Farmers National Bank Attention: Susan Better, AVP, Corporate Services Administration P.O. Box 555 Canfield, OH 44406 Toll Free 1-888-988-3276 F O R M 1 0 — K A copy of the Annual Report filed with the Securities and Exchange Commission will be provided to any shareholder on request to the Corporation, to the attention: Mr. Carl D. Culp, Treasurer Farmers National Banc Corp. 20 South Broad Street, P.O. Box 555 Canfield, OH 44406 Toll Free 1-888-988-3276

Website www.fnbcanfield.com

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OFFICERS

Farmers National Banc Corp. Officers
Frank L. Paden	Daniel G. Cerroni	Richard R. Lytle	Lynnita J. Himes
President & Secretary	Vice President	Assistant Vice President	Assistant Cashier
	Niles Loans	Youngstown Rd.	Western Reserve
Carl D. Culp
Executive Vice President &	Joseph E. Chapman	Mary Jane Naples	Diane C. King
Treasurer	Vice President	Assistant Vice President	Assistant Cashier
	Niles Collections	Niles Operations Center	Girard
Donald F. Lukas
Senior Vice President	Richard G. Ferraro	Phyllis A. Welton	Rob L. Mort
	Vice President	Assistant Vice President	Corporate Acct. Officer
	Niles	Niles Operations Center	Canfield
Farmers National	Thomas G. Hathhorn	Andrew A. Baird	Joanie F. Orr
Bank Officers	Vice President	Assistant Cashier	Assistant Cashier
	Loans	Canfield Data Center	Accounting
Frank L. Paden
President & CEO	Frederick M. Kotheimer	Pamela J. Cleghorn	Patricia C. Rosko
	Vice President	Assistant Cashier	Assistant Cashier
Carl D. Culp	Loan Review	Branch Adm.	Austintown
Executive Vice President
Cashier & CFO	Kevin T. Lamar	Matthew W. Close	Barbara L. Sitler
	Vice President	Assistant Cashier	Assistant Cashier
Donald F. Lukas	Niles	Indirect Loans	Cornersburg
Senior Vice President
Bank Systems	Alfred F. Ridel	Janine E. Cox	Deborah N. Testa
	Vice President	Assistant Cashier	Assistant Cashier
Mark L. Graham	Consumer Loans	Credit Administration	Eastwood
Vice President
Loan Administrator	James G. Swift	Charlene K. Daugherty	Dennis S. Vitt
	Vice President	Assistant Cashier	Assistant Cashier
Bradley S. Henderson	Niles Operations Center	Human Resources	Poland
Vice President
Branch Adm. & Security	Robert E. True	David E. Enterline	Dorothy J. Weeden
	Vice President	Assistant Cashier	Assistant Cashier
Anthony F. Peluso	Niles	Network Administrator	Canfield
Vice President
Human Resources	Susan E. Better	Merle C. Garritano
	Assistant Vice President	Assistant Cashier
Barbara C. Fisher	Corporate Services Admin.	Canfield Loans
Vice President
Deposit Operations &	Keith A. Leonard	Geraldine J. Gbur Polas
Marketing	Assistant Vice President	Assistant Cashier
	Canfield Loans	Columbiana

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FARMERS NATIONAL BANC CORP. AND SUBSIDIARY

CORPORATE HEADQUARTERS

Website- www.fnbcanfield.com

BRANCH LOCATIONS

Austintown 22 North Niles-Canfield Road • Youngstown, OH 44515 792-1411 Boardman 102 West Western Reserve Road • Boardman, OH 44512 726-8896 Canfield            Main Office 20 South Broad Street • Canfield, OH 44406 533-3341 Colonial Plaza 401 East Main Street • Canfield, OH 44406 533-2686 Columbiana 340 State Rt. 14 • Columbiana, OH 44408 482-1974 Cornersburg 3619 S. Meridian Road • Youngstown, OH 44511 793-3971 Damascus 29053 State Rt. 62 • Damascus, OH 44619 537-4004 Girard 121 North State Street • Girard, OH 44420 545-9791 Lake Milton 17817 Mahoning Avenue • Lake Milton, OH 44429 654-3351 Leetonia 16 Walnut Street • Leetonia, OH 44431 427-2436 Mineral Ridge 3826 South Main Street • Mineral Ridge, OH 44440 544-7340 Niles 1 South Main Street • Niles, OH 44446 544-7400 Niles Drive Up 170 East State Street • Niles, OH 44446 544-7420 Niles Ops. Center 51 South Main Street • Niles, OH 44446 544-7400 Niles 5845 Youngstown-Warren Road • Niles, OH 44446 544-7410 Poland 106 McKinley Way West • Poland, OH 44514 757-7508 Salem 1858 East State Street • Salem, OH 44460 332-1558 Warren 2910 Youngstown-Warren Road • Warren, OH 44484 369-5400

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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 D S U B S I D I A R Y

P R O F E S S I O N A L S E RV I C E S
Professional services offered by PrimeVest Financial Services located at Farmers National Bank

• Portfolio Strategy • Insurance Needs • Asset Allocation • Mutual Funds • Retirement Planning • College Funding • Tax-Favored Investing • Health Care Concerns • Business Owner Needs • Estate Issues*

Our Investment and Insurance Professionals will be glad to take the time to discuss your needs and aspirations. Whether you are seeking to create or revise a comprehensive financial plan, or are interested in a specific product, we have the experience to assist you. We can help you determine which products and services make the most sense for you. Our Investment and Insurance Professionals bring a wealth of common sense, experience and objectivity to your financial planning. PrimeVest Financial Services, Inc., is an independent registered broker/dealer. Securities and insurance            products offered by PrimeVest Financial Services s located at Farmers National Bank:

• Not FDIC Insured • May go down in value • Not Financial Institution guaranteed • Not a deposit • Not insured by any federal government agency

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

Top to bottom:
Kevin Helmick Daniel Cvercko Lynn Bowers Robert Hoffman

37

PrimeVest Investment and Insurance Professionals

38

EX-23.A

Exhibit 23.a

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the registration statement on Form S-3D (No. 333-111905) of Farmers National Banc Corp. of our report dated February 23, 2005, relating to the consolidated balance sheet of Farmers National Banc Corp. as of December 31, 2004 and 2003, and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, which report is incorporated by reference in the December 31, 2004 Annual Report on Form 10-K of Farmers National Banc Corp.

Crowe Chizek and Company LLC

Cleveland, Ohio
March 14, 2005

EX-23.B

                                                                   Exhibit 23B



                          INDEPENDENT AUDITOR'S CONSENT







FARMERS NATIONAL BANC CORP.:

         We consent to the incorporation by reference in the registration
statement on Form S-3D of Farmers National Banc Corp. of our report dated
January 17, 2003, relating to the consolidated financial statements of Farmers
National Banc Corp. and subsidiary as of and for the year December 31, 2002,
which report is incorporated by reference in the December 31, 2004 Annual Report
on Form 10-K of Farmers National Banc Corp.





/s/ Hill, Barth & King LLC

HILL, BARTH & KING LLC
Warren, Ohio
March 16, 2005

EX-31.A

Exhibit 31.a

CERTIFICATIONS

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

I, Frank L. Paden, Chief Executive Officer of the Corporation, certify that:

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

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

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

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

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

     b) Omitted under SEC Release No. 33-8507

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

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

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

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

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

/s/ Frank L. Paden

Frank L. Paden
Chief Executive Officer
March 16, 2005

EX-31.B

Exhibit 31.b

CERTIFICATIONS

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

I, Carl D. Culp, Chief Financial Officer of the Corporation, certify that:

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

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

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

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

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

     b) Omitted under SEC Release No. 33-8507

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

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

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

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

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

/s/ Carl D. Culp

Carl D. Culp
Chief Financial Officer
March 16, 2005

EX-32.A

Exhibit 32.a

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

In connection with the Annual Report of Farmers National Banc Corp. (the “Corporation”) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Frank L. Paden, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Frank L. Paden

Frank L. Paden
Chief Executive Officer
March 16, 2005

EX-32.B

Exhibit 32.b

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

In connection with the Annual Report of Farmers National Banc Corp. (the “Corporation”) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Carl D. Culp, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Carl D. Culp

Carl D. Culp
Chief Financial Officer
March 16, 2005

EX-99

                                                                  Exhibit 99



                         REPORT OF INDEPENDENT AUDITORS'



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


We have audited the accompanying consolidated statements of income, changes in
shareholders' equity and cash flows of Farmers National Banc Corp. for the year
ended December 31, 2002. These financial statements are the responsibility of
Farmers National Banc Corp.'s management. Our responsibility is to express an
opinion on these financial statements based on our audits.


We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of Farmers National
Banc Corp.'s operations and its cash flows for the year ended December 31, 2002,
in conformity with U.S. generally accepted accounting principles.




                                                    /s/ Hill, Barth & King LLC

                                                    Hill, Barth & King LLC
                                                    Warren, Ohio
                                                    January 17, 2003