1. Renee D. Laychur, CFA Senior Vice President & Senior Portfolio Mgr First National Bank

2. Revisiting the Past Year Those who cannot remember the past are condemned to repeat it. George Santayana

3. Roots of the Financial Crisis – 2003 to 2007 Credit Growth Exceeded Economic Growth Historical Low Interest Rates Sub-Prime Loans “Creative” Mortgage Products – Packaged & Sold Housing Prices Rose Creating “Bubble”

5. Financial Crisis Timeline 3/16/08 – Bear Stearns Acquired 9/7/08 – Federal Takeover of Fannie Mae and Freddie Mac 9/10/08 – DJIA clings to 11,000 level 9/14/08– Merrill Lynch Sold to Bank of America 9/15/08 – Lehman Brothers Declares Bankruptcy 9/16/08 – Fed lends AIG $85 billion to Prevent Bankruptcy: Reserve Money Fund “Breaks Buck” 9/29/08 – House Rejects Financial Rescue Package

6. Financial Crisis Timeline 10/3/09 – House Passes Financial Rescue Plan 10/6/08 – DJIA Closes under 10,000 for first time 4 Years and Losses over 22% for the Week - Worst in 75 Years 10/11/08 – Most Volatile Day in DJIA’s 112 year History, up over 900 Points 12/11/08 – Bernie Madoff Arrested 12/19/08 – Treasury Grants Loans to GM & Chrysler 3/9/09 – DJIA Declines to 6,440

8. Dow Jones Industrial Average – Past Year

9. Dow Jones Industrial Average – Past 5 Years

10. Market Highs to Lows Dow Jones Industrial Average - Peaked at 14,164.53 on 10/9/07 - Bottomed at 6,547.05 on 3/7/09 - 54% Decline Since 3/9/09 DJIA has appreciated 3,080 points or 47% Year to Date DJIA is up over 9% Interesting Fact - On 9/10/01 DJIA closed at 9,605.51 - On 9/11/09 DJIA closed at 9,605.41

11. Economic Activity

12. The Great Recession Longest and Deepest Post WWII Recession Currently in 22 nd Month of Recession which began in December 2007 First Quarter GDP Decline of -6.4% is the Largest Drop in 27 Years Four Consecutive Quarters of Negative GDP – Longest Streak on Record

13. Gross Domestic Product

14. GDP – Quarterly Long Term Perspective

15. Business Inventories

16. Employment

17. U.S. Unemployment Rate

18. Unemployment by State

19. Unemployment – Lagging Indicator

20. Unemployment – Initial Claims

21. Unemployment Since Beginning of Recession 6.9 Million Non- farm Jobs Lost Year to Date in 2009 – 3.85 Million Non-farm Jobs Lost 9.7% Unemployment Rate – Highest in 26 Years Average Duration of Unemployment – 24.9 Weeks Teenage Unemployment Rate 25.5% - Highest Ever

22. Housing

23. Home Prices

24. Case-Shiller U.S. Home Price Index Rose in May & June 2009 First Increases in Almost 3 Years 2Q 2009 Prices Down 14.9% versus 2Q 2008 Las Vegas and Detroit Worst Markets –Las Vegas Prices Down 54.3% from Peak –Detroit Prices Down 45.3% from Peak

25. Home Price Recovery

26. New Home Sales

27. Housing Starts

28. Consumer

29. Consumer Spending Consumer Spending Represents 70% of Economic Activity 2009 Back to School Season Appears to have been Weak Christmas Season Important, but Current Surveys not Looking Promising 2008 Christmas Spending was Worst in 40 Years July Consumer Credit Down $21 Billion – Largest Decline in 43 Years

30. Retail Sales

31. Consumer Credit

32. Household Debt

33. Personal Savings Rate

34. Vehicle Sales - Cash for Clunkers

35. University of Michigan: Consumer Sentiment

36. Economic Themes Slow Growth – V or W Jobless Recovery Weak Consumer Spending Restrictive Credit Conditions Future Inflation Concerns Dollar Weakness

37. Inflation

38. Oil Prices

39. Natural Gas Prices

40. Federal Government Debt – Total Public Debt

41. Interest Rates – 10 Year Treasury Yields

42. Interest Rates – 3 Month Treasury Yields

43. Pennsylvania Economy

44. Pennsylvania – Unemployment Rate

45. PA Unemployment by County – December 2007

46. PA Unemployment by County – June 2009

47. PA Unemployment – Rural versus Urban

48. Pennsylvania Housing Market PA fared Better than U.S. in Price Depreciation Foreclosures –Nation - 1 in every 357 Homes –PA - 1 in every 950 Homes –Nevada - 1 in every 62 Homes

49. 2 nd Quarter 2009 -Metropolitan Area House Price Year to Year Change Metropolitan AreaChgMetropolitan AreaChg Allentown-Bethlehem- Easton -5.4%Philadelphia-3.1% Altoona2.6%Pittsburgh1.2% Erie0.7%Reading-3.7% Harrisburg-Carlisle-1.0%Scranton-Wilkes Barre0.3% Johnstown2.2%State College1.5% Lancaster-0.9%Williamsport2.3% Lebanon0.7%York-Hanover-3.5%

50. Regional Leading Indicators

51. Economic Outlook It’s hard to make predictions, especially about the future. Yogi Berra

52. Federal Reserve Bank of Philadelphia

53. Aruoba-Diebold-Scotti Business Conditions Index

54. The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP)

55. 2010 - Real GPD Projections

56. 2010 – Unemployment Projections

57. 2011 – Unemployment Projections

58. FRB Philadelphia – Survey of Professional Forecasters Average Annual Data Real GDP Unemployment Rate 2009-2.6%9.2% 20102.3%9.6% 20112.9%8.9% 20123.2%8.0%

59. Finally

60. First National Bank Presence Footprint