Forward Looking Statements

Discussions in this report that are not statements of historical fact (including statements that include terms such as "will," "may," "should," "believe," "expect," "anticipate," "estimate," "project," intend," and "plan") are forward-looking statements that involve risks and uncertainties. Any forward-looking statement is not a guarantee of future performance and actual future results could differ materially from those contained in forward-looking information. Factors that could cause or contribute to such differences include, without limitation, risks and uncertainties detailed from time to time in the Company's filings with the Securities and Exchange Commission, including without limitation, the risk factors disclosed in Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

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

• business conditions in the banking industry;

• the regulatory environment;

• fluctuations in interest rates;

• demand for loans in the market areas where we conduct business;

• rapidly changing technology and evolving banking industry standards;

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

• new service and product offerings by competitors and price pressures; and other like items.

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

Overview

Net income for the three months ended June 30, 2012 was $2.3 million, compared to $2.1 million for the same three month period in 2011. On a per share basis, net income for the second quarter ended June 30, 2012 was $0.12 per diluted share, compared to $0.11 for the second quarter ended June 30, 2011. Net income for the six months ended June 30, 2012 was $4.8 million, compared to $3.8 million for the same six month period in 2011. On a per share basis, net income for the six months ended June 30, 2012 was $0.26, an increase of 23.8% compared to the same six month period in 2011. The tangible common equity ratio increased to 10.15% at June 30, 2012, compared to 10.11% at June 30, 2011, mainly as a result of net income. Farmers' total assets reported at June 30, 2012 were $1.12 billion, representing a 4.6% increase compared to $1.07 billion in total assets recorded at December 31, 2011.

Net income increased to $2.3 million for the three months ended June 30, 2012, which represents an 8% increase over the $2.1 million reported for the same period in 2011. Noninterest income increased 8.6% during the same three month period, which is consistent with the strategy to diversify revenue. Asset quality continues to improve, evidenced by the reduction in the provision for loan losses from $1.1 million for the three month period ended June 30, 2011 to $400 thousand for the three months ended June 30, 2012. There has also been a decline in the 30-89 day delinquencies, from $3.8 million at June 30, 2011 to $2.8 million at June 30, 2012.

Net loans increased $1.4 million in comparing the June 30, 2012 balance to the December 31, 2011. Most of the loan growth in the current year has occurred in the commercial and commercial real estate portfolios. Net loans were reported at $563.4 million at June 30, 2012, which compares to $562.0 million at December 31, 2011. Deposits increased $46.5 million, or 5.5%, from $840.1 million at December 31, 2011 to $886.6 million at June 30, 2012, as customers continue to seek the safety and security of FDIC insured deposit accounts.

Stockholders' equity totaled $118.9 million, or 10.6% of total assets, at June 30, 2012, an increase of $4.5 million, or 3.9%, compared to $114.4 million at December 31, 2011. The increase is mainly the result of net income and fair value adjustments in investment securities, offset by cash dividends paid to shareholders during the past six months. Shareholders received a total of $0.15 per share in cash dividends paid in the past four quarters, including a special one-time $0.03 cash dividend on February 28, 2012. Book value per share increased 3.8% from $6.10 per share at December 31, 2011 to $6.33 per share at June 30, 2012. Farmers' tangible book value per share also increased 4.0% from $5.76 per share at December 31, 2012 to $5.99 per share at June 30, 2012.

Results of Operations

The following is a comparison of selected financial ratios and other results at
or for the three and six months ended June 30, 2012 and 2011:



                                               At or for the Three Months               At or for the Six Months
                                                     Ended June 30,                          Ended June 30,
(In Thousands, except Per Share Data)            2012                2011                2012               2011
Total Assets                                $    1,116,833        $ 1,014,221        $  1,116,833        $ 1,014,221
Net Income                                  $        2,286        $     2,117        $      4,806        $     3,807
Basic and Diluted Earnings Per Share        $          .12        $       .11        $        .26        $       .21
Return on Average Assets (Annualized)                  .82 %              .83 %               .88 %              .76 %
Return on Average Equity (Annualized)                 7.81 %             8.05 %              8.32 %             7.69 %
Efficiency Ratio (tax equivalent basis)              68.54 %            64.42 %             68.48 %            63.50 %
Equity to Asset Ratio                                10.65 %            10.71 %             10.65 %            10.71 %
Tangible Common Equity Ratio *                       10.15 %            10.11 %             10.15 %            10.11 %
Dividends to Net Income                              24.67 %            26.45 %             35.16 %            29.39 %
Net Loans to Assets                                  50.45 %            55.00 %             50.45 %            55.00 %
Loans to Deposits                                    64.57 %            73.85 %             64.57 %            73.85 %

* The tangible common equity ratio is calculated by dividing total common stockholders' equity by total assets, after reducing both amounts by intangible assets. The tangible common equity ratio is not required by U.S.GAAP or by applicable bank regulatory requirements, but is a metric used by management to evaluate the adequacy of the Company's capital levels. Since there is no authoritative requirement to calculate the tangible common equity ratio, the Company's tangible common equity ratio is not necessarily comparable to similar capital measures disclosed or used by other companies in the financial services industry. Tangible common equity and tangible assets are non-U.S.GAAP financial measures and should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with U.S.GAAP. With respect to the calculation of the actual unaudited tangible common equity ratio as of June 30, 2012 and 2011, reconciliations of tangible common equity to U.S.GAAP total common stockholders' equity and tangible assets to U.S.GAAP total assets are set forth below:

(In Thousands of Dollars)                               June 30, 2012         June 30, 2011
Reconciliation of Common Stockholders' Equity to
Tangible Common Equity
Stockholders' Equity                                   $       118,938       $       108,576
Less Goodwill and other intangibles                              6,237                 6,665

Tangible Common Equity                                 $       112,701       $       101,911

(In Thousands of Dollars)                                 June 30, 2012          June 30, 2011
Reconciliation of Total Assets to Tangible Assets
Total Assets                                             $     1,116,833        $     1,014,221
Less Goodwill and other intangibles                                6,237                  6,665

Tangible Assets                                          $     1,110,596        $     1,007,556

Net Interest Income. The following schedules detail the various components of net interest income for the periods indicated. All asset yields are calculated on a tax-equivalent basis where applicable. Security yields are based on amortized cost.

              Average Balance Sheets and Related Yields and Rates

                         (Dollar Amounts in Thousands)



                                              Three Months Ended                         Three Months Ended
                                                 June 30, 2012                              June 30, 2011
                                       AVERAGE                       RATE         AVERAGE                       RATE
                                       BALANCE        INTEREST       (1)          BALANCE        INTEREST       (1)
EARNING ASSETS
Loans (3) (5) (6)                    $   562,329      $   8,056       5.75 %    $   562,446      $   8,444       6.02 %
Taxable securities (4)                   330,970          2,128       2.58          269,339          2,048       3.05
Tax-exempt securities (4) (6)             73,324          1,074       5.88           76,049          1,111       5.86
Equity securities (2) (6)                  4,363             52       4.78            4,343             53       4.89
Federal funds sold and other              57,643             30       0.21           40,287             10       0.10

Total earning assets                   1,028,629         11,340       4.42          952,464         11,666       4.91

NONEARNING ASSETS
Cash and due from banks                   19,912                                     18,820
Premises and equipment                    17,411                                     13,794
Allowance for loan losses                 (9,242 )                                  (10,563 )
Unrealized gains (losses) on
securities                                13,247                                      6,073
Other assets (3)                          46,098                                     43,244

Total assets                         $ 1,116,055                                $ 1,023,832

INTEREST-BEARING LIABILITIES

Time deposits                        $   250,141      $   1,196       1.92 %    $   248,816      $   1,280       2.06 %
Savings deposits                         411,859            252       0.25          332,426            385       0.46
Demand deposits                          115,475             12       0.04          109,679             19       0.07
Short term borrowings                     98,187             25       0.10          117,610            104       0.35
Long term borrowings                      10,606             98       3.71           23,643            249       4.22

Total interest-bearing liabilities       886,268          1,583       0.72          832,174          2,037       0.98