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

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


 X      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---     ACT OF 1934 For the fiscal year ended December 31, 2003
                                       OR
___     TRANSITION  REPORT  PURSUANT TO  SECTION 13 or 15(d)  OF THE  SECURITIES
        EXCHANGE   ACT OF 1934
        For the transition period from ________ to ________

                           Commission File No: 0-25988

                          CNB Florida Bancshares, Inc.
                          ----------------------------
             (Exact Name of Registrant as Specified in Its Charter)

             FLORIDA                                             59-2958616
---------------------------------                            -----------------
(State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                            Identification No.)

9715 Gate Parkway North
Jacksonville, Florida                                               32246
------------------------------------                        --------------------
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code: (904) 997-8484

Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
Par value $ 0.01 per share.

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  X  No
                                       ---   ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-K is not  contained in this form,  and no  disclosure  will be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant is  $60,174,343.90  (based on the closing  price of the  Registrant's
common  stock as  quoted  on the  National  Association  of  Securities  Dealers
Automated Quotation ("NASDAQ") on June 30, 2003 of $15.65 per share).

The number of shares of the Registrant's common stock outstanding as of March 5,
2004 was 6,256,662 shares, $0.01 par value per share.


                       DOCUMENTS INCORPORATED BY REFERENCE
None.


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<PAGE>



                          CNB FLORIDA BANCSHARES, INC.
                          FINANCIAL REPORT ON FORM 10-K




                                TABLE OF CONTENTS


<TABLE>
PART I

        <S>         <C>                                                                                           <C>
        Item 1.     Business .....................................................................................3
                    Supervision and Regulation ...................................................................8
        Item 2.     Properties ..................................................................................11
        Item 3.     Legal Proceedings ...........................................................................12
        Item 4.     Submission of Matters to a Vote of Security Holders .........................................12

PART II


        Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters .......................12
        Item 6.     Selected Financial Data .....................................................................13
        Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations .......14
                    Overview ....................................................................................14
                    Results of Operations .......................................................................15
                    Income Taxes ................................................................................19
                    Liquidity....................................................................................19
                    Obligations and Commitments..................................................................20
                    Interest Rate Sensitivity....................................................................20
                    Earning Assets...............................................................................24
                    Loan Quality ................................................................................25
                    Investment Portfolio ........................................................................27
                    Capital Resources ...........................................................................29
                    Quarterly Financial Information .............................................................30
        Item 7a.    Quantitative and Qualitative Disclosure About Market Risk ...................................33
                    Critical Accounting Policies ................................................................33
        Item 8.     Consolidated Financial Statements ...........................................................35
        Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........69
        Item 9a     Controls and Procedures......................................................................69


PART III


        Item 10.    Directors and Executive Officers of the Registrant ..........................................70
        Item 11.    Executive Compensation ......................................................................75
        Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
                    Matters .....................................................................................79
        Item 13.    Certain Relationships and Related Transactions ..............................................80
        Item 14.    Principal Accountant Fees and Services ......................................................80


PART IV


        Item 15.    Exhibits and Reports on Form 8-K ............................................................81


SIGNATURES AND CERTIFICATIONS
</TABLE>

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<PAGE>


                                     PART I


                                ITEM 1. BUSINESS


     This Annual Report on Form 10-K contains forward-looking statements,  which
involve risks and uncertainties which are described in this Annual Report and in
other  filings with the  Securities  and Exchange  Commission  (the "SEC").  The
Company makes this Form 10-K and other SEC filings  available on its web site at
www.cnbnb.com. The actual results of CNB Florida Bancshares, Inc. (the "Company"
or  "CNB")  may  differ   significantly   from  the  results  discussed  in  the
forward-looking statements. Factors that may cause such differences include, but
are not limited to, increased  competitive  pressures among depository and other
financial institutions, changes in the interest rate environment that may reduce
margins,  general economic or business  conditions in the Company's markets that
lead to a deterioration in credit quality or reduced loan demand, legislative or
regulatory  changes  and  competitors  of the  Company  that  may  have  greater
financial   resources  and  develop   products  or  services  that  enable  such
competitors to compete more  successfully  than the Company.  Other factors that
may cause actual results to differ from the  forward-looking  statements include
customer  acceptance of new products and services,  changes in customer spending
and saving habits and the Company's  success in managing costs  associated  with
expansion.   Readers  are  cautioned  not  to  place  undue  reliance  on  these
forward-looking statements,  which speak only as of the date hereof. The Company
does not  undertake any  obligation  to publicly  release any revisions to these
forward-looking  statements to reflect  events or  circumstances  after the date
hereof or to reflect the occurrence of unanticipated events.

     The  following  discussion  should  be read in  conjunction  with  Selected
Historical  Financial  Information and the Consolidated  Financial Statements of
the Company, which are included in Part II of this Form 10-K.


     On January 21,  2004,  the  Company  announced  that it had entered  into a
definitive  agreement to be acquired by The South  Financial  Group,  Inc. in an
all-stock transaction.  Under terms of the agreement, the Company's shareholders
will receive 0.84 shares of The South  Financial  Group,  Inc.  common stock for
each CNB Florida  Bancshares,  Inc. share. In addition,  outstanding  options to
purchase the Company's stock will be converted into options to acquire The South
Financial Group, Inc.'s common stock at the 0.84 exchange ratio. The transaction
is  expected  to close in July 2004 and is subject  to  regulatory  and  Company
shareholder approval.  The Company's  subsidiary,  CNB National Bank, will merge
into The South Financial Group,  Inc.'s Florida banking  subsidiary,  Mercantile
Bank.


GENERAL

     The Company is a one-bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"),  which commenced  operations in
1987 by acquiring the capital stock of CNB National Bank (the "Bank"), which was
formed in 1986. The Company relocated its headquarters  from Lake City,  Florida
to  Jacksonville,  Florida  during 2000 in connection  with its expansion  plans
described  below.  The Bank is a  national  banking  association  subject to the
supervision of the Office of the Comptroller of the Currency ("Comptroller"). It
provides traditional deposit,  lending and mortgage products and services to its
commercial and retail  customers  through sixteen full service  branches located
within the following contiguous counties in Northeast Florida:  Alachua,  Baker,
Bradford, Columbia, Duval, St. Johns, Suwannee and Union County. At December 31,
2003,  the  Company  had total  assets of $819.9  million,  total gross loans of
$681.8 million, total deposits of $723.7 million, and total shareholders' equity
of $56.4  million.  Net income for the years ended  December 31, 2003,  2002 and
2001  was  $6.6  million,  $5.4  million  and $2.9  million,  respectively.  For
additional  financial  information  related to the  Company,  see  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
"Consolidated Financial Statements" in Part II of this Form 10-K.

EVOLUTION OF THE FLORIDA BANKING MARKET

     Significant  changes in  interstate  banking and  branching  laws,  enacted
during the early 1980s,  have allowed  bank  holding  companies to  aggressively
expand into new markets that have attractive growth rates and demographics. As a
result,  substantial  consolidation  of the Florida banking market has occurred.
Management  believes Florida has been  particularly  attractive to regional bank
holding companies because it is the fourth largest state in the country in terms
of total  population and is among the ten fastest growing states in the country.
As more  out-of-state  bank  holding  companies  enter the Florida  market,  the
Company believes that the number of depository  institutions  headquartered  and
operating in Florida will continue to decline.

                                       3
<PAGE>


     The Company has  observed a similar  consolidation  trend in the markets in
and around Gainesville and Jacksonville (the "Expansion Markets").  Historically
the Company  competed  successfully  against  larger bank holding  companies for
middle  market  customers  in  Columbia,  Suwannee,  Baker,  Bradford  and Union
Counties (the "Core Markets"). In the Company's Expansion Markets, many of these
customers  have  preferred  the banking  services and products of banks that are
locally  headquartered.  Increasingly,  however,  large  regional  bank  holding
companies  have  entered  the  Company's  Expansion  Markets by  acquiring  such
previously locally  headquartered  banks. For example,  in January 1998, Bank of
America  Corporation, formerly  known as NationsBank  Corporation, completed its
acquisition of Jacksonville-based  Barnett Banks, Inc. ("Barnett"),  which prior
to  its  acquisition  was  the  largest  bank  headquartered  in  Florida.   The
acquisition   of  Barnett   closely   followed  the   acquisition  of  three  of
Jacksonville's community banks by SouthTrust Bank Corporation ("SouthTrust") and
Compass Bancshares,  Inc. ("Compass") in 1996 and 1997.  Similarly,  Gainesville
State Bank, the largest  community  bank in Gainesville  and Alachua County (the
"Gainesville Market"), was acquired by Compass in 1997.  Consolidation continued
into 2002 and 2003 as both BB&T of  Winston-Salem,  North  Carolina  and Alabama
National  BanCorporation  of  Birmingham,  Alabama  entered  the First Coast and
Gainesville markets by acquiring Florida-based community banks. As a result, the
Company now competes in its Core and Expansion Markets,  primarily with SunTrust
Banks, Bank of America, Wachovia,  SouthTrust, AmSouth and Compass, all of which
are headquartered outside of Florida.

BUSINESS STRATEGY

     The  Company's  primary goal is to enhance  profitability  and  shareholder
returns through aggressive but sound growth. The Company's long-term strategy is
to (i) continue to grow its full service  banking  capabilities in the Expansion
Markets,  (ii) leverage  existing  branch  capacity,  (iii) expand its mortgage,
consumer and commercial lending  activities,  and (iv) continue to differentiate
itself   from   its   larger    competitors   by    emphasizing    personalized,
relationship-driven  service  provided  by  a  locally-headquartered   financial
institution. The Company believes that this strategy will continue to be pursued
subsequent to its expected  acquisition by The South  Financial  Group,  Inc. in
July 2004.  CNB  National  Bank will be merged into The South  Financial  Group,
Inc.'s  Florida  banking  subsidiary,  Mercantile  Bank.  The  combined  banking
subsidiary  will be  headquartered  in  Florida  and will  continue  to stress a
locally-driven, personalized approach to banking services.

EXPAND IN UNDER-SERVED MARKETS

     The  consolidation of the banking industry in Northeast Florida has created
a window  of  opportunity  for the  Company  to  expand  its  operations  in the
Expansion  Markets.  The Expansion Markets are contiguous and culturally similar
to the Core Markets.  Like the Core Markets,  the Expansion  Markets  consist in
large part of individuals  and small and  medium-sized  businesses.  The Company
believes that its familiarity with meeting the banking needs and expectations of
similar customers in the Core Markets makes the Company  particularly  qualified
to attract banking  customers  accustomed to banking with community banks in the
Expansion  Markets.  The  recent  consolidation  also has  dislocated  qualified
banking  professionals  who have  strong ties to and an  understanding  of their
local markets.  The Company  believes that it has attracted and will continue to
attract  qualified  banking   professionals,   thereby   benefiting  from  their
experience and their ability, in many instances,  to bring with them the banking
business of their loyal customers. These factors, together with the Bank's asset
size and its capital base,  position the Company to work more  effectively  with
middle-market  customers  than many  smaller  community  banks in the  Expansion
Markets.  The pending merger of CNB into Mercantile  Bank will further  increase
the institutional  capital platform and asset size needed to expand our customer
base and deepen existing banking relationships.

PROVIDE COMMUNITY BANKING SERVICE

     The Company believes that it can achieve the goals outlined above through a
continued  commitment  to the  "community  bank  philosophy,"  which  emphasizes
offering a broad range of  personalized  products and services  through  banking
professionals  who understand the banking  industry and the banking needs of the
local communities they serve. Each branch manager and individual loan officer is
given a certain degree of authority and discretion to approve loans and to price
loans and services in order to respond  quickly and  efficiently to the needs of
the Company's customers. In implementing this strategy, the Company combines the
experience  and  customer   networks  of  its  loan  officers  with  centralized
information  technology  to  effectively  price and provide  customized  banking
services to enhance overall profitability. The Company is pursuing this strategy


                                       4
<PAGE>

throughout its Core and Expansion Markets and operates a multi-office  community
bank that emphasizes decision-making at the local level.

     To ensure that the  Company's  expansion  does not erode its  standards for
service and quality, the Company created four operating divisions:  the Southern
Division (Alachua  County),  the TriCounty  Division (Baker,  Bradford and Union
Counties), the Suwannee Valley Division (Columbia and Suwannee Counties) and the
First  Coast  Division  (Duval  and St.  Johns  Counties).  This  organizational
structure helps to ensure that the Company's  banking  products and services are
tailored to the individual  markets it serves,  as opposed to the "one size fits
all" approach that generally is followed by larger financial  institutions.  The
divisions are headed by Division  Presidents who effectively  have the authority
to operate the  division as a community  bank,  so long as it is done within the
parameters of the Company's policies and long-term strategy.

DEPOSIT PRODUCTS AND SERVICES

     The  Company,  through  its  banking  subsidiary,  offers  various  deposit
products and services to its retail and  commercial  customers.  These  products
include commercial and retail checking accounts,  specialized  low-cost checking
for  customers  who write few  checks  per  month,  money  market  accounts  for
consumers and  commercial  customers,  bundled  account  products  including the
Generations  Gold(TM)  affinity  program,  NOW  accounts  and savings  accounts.
Additionally,  the Company offers an  interest-bearing  transaction  account for
seniors with no minimum balance requirements, no service charge and no per-check
charge.  For  customer  convenience  and ease of  storage,  the  Company  offers
image-based  monthly  account  statements,  as  well as an  automated  telephone
banking service for balance reporting.  The Company also offers internet banking
services, which allow customers to check balances,  transfer funds and pay bills
on-line.  The Company's  deposit services include cash management for commercial
customers for overnight investment, wire transfer services,  collections,  money
orders, safe deposit boxes and traveler's checks. The Bank is currently a member
of the STAR  (formerly  HONOR),  PLUS and CIRRUS  networks of  automated  teller
machines  that may be used by Bank  customers  in major  cities  throughout  the
United States.  The Federal Deposit Insurance  Corporation  ("FDIC") insures all
deposits up to the maximum  amount  permitted  by law  (generally  $100,000  per
depositor subject to aggregation rules).

LOAN PRODUCTS AND LENDING POLICY

GENERAL

     The  Company  provides to  customers a full range of short- to  medium-term
commercial,  agricultural,  Small Business  Administration  ("SBA")  guaranteed,
Farmers Home  Administration  guaranteed,  long term  residential  mortgages and
personal loans, both secured and unsecured. Credit is extended consistent with a
comprehensive loan policy that governs advance rates,  maturities and acceptable
collateral.  The Company's loan policy grants lending  authority  using a tiered
schedule  that grants  authority to officers  based on certain  risk  parameters
including the collateral  type. The Executive Loan Committee of the Bank's Board
of Directors  must approve loans  exceeding  officer  authority  and  exhibiting
certain risk  parameters.  Exceptions to the policy must be  recommended  by the
applicable  officer and  approved by either a Division  President  or the Credit
Administrator  within  their  authority  and  approved  by  the  Executive  Loan
Committee.

COMMERCIAL LOANS

     Commercial loan products  include  short-term loans and lines of credit for
working capital  purposes.  These loans are generally  secured by the borrower's
current assets,  typically accounts  receivable and inventory.  Other commercial
loan products include  intermediate term loans for farm and non-farm  equipment,
agricultural  loans and SBA  guaranteed  loans.  SBA  guaranteed  loans  include
secured  and  unsecured  loans  for  working  capital,  business  expansion  and
purchases of equipment and machinery.

     Lines of credit are subject to annual  review and  approval,  generally  no
later  than 120 days  after  the  closing  of the  customer's  fiscal  year-end.
Advances are typically limited to 75% of eligible accounts  receivable and up to
50% on inventory.  These credits are usually  monitored  through the review of a
receivables aging report and borrowing base report.

     Term loans having maturities greater than one year are generally secured by
equipment  with  advances  limited to no more than 75% of cost. In virtually all


                                       5
<PAGE>

cases,  the  Bank  requires  the  personal  guaranty  of  the  owners  or  major
shareholders of the borrower.

     Agricultural  loans are granted to  experienced  farmers with  demonstrated
capabilities, acceptable historical cash flows, reasonable cash flow projections
and adequate secondary sources of repayment.

COMMERCIAL REAL ESTATE LOANS

     The Company's commercial real estate lending products include: construction
loans,   mini-permanent  and  permanent  financing  for  commercial  properties,
acquisition  and  development  loans for  residential  and  commercial  property
developers and investment property financing.

     Construction loan borrowers are generally  required to provide equity equal
to at least 20% of the total cost of the construction project before the Company
will advance funds on the loan.  The Company  advances  funds pursuant to a draw
schedule  and  makes  inspections  prior to each  draw  request.  The  Company's
construction  lending  requirements  also may  include  a plan and cost  review,
depending on the  complexity  of the  project.  The plan and cost review and the
inspections are out-sourced by the Company to qualified professionals.

     Mini-permanent  and permanent  financing loans are owner occupied  projects
which demonstrate proven cash flows that result in a debt service coverage ratio
of at least 1.25 to 1, based on a twenty-year amortization.  Mini-permanent loan
amortization may be as long as twenty-five  years, but normally requires balloon
maturities within five to eight years.

     The Company extends acquisition and development loans to borrowers who have
historically fulfilled their financial obligations.  The relevant acquisition or
development  project must demonstrate  acceptable  absorption periods and should
have an equity  investment of at least 20% of the total project cost. Such loans
typically mature within thirty months.

     Loans on investment property are subject to the same underwriting  criteria
as  mini-permanent  loans and include a threshold debt service coverage ratio of
at least 1.25 to 1.

RESIDENTIAL AND CONSUMER LOANS

     Consumer lending  products  include open- and closed-ended  home equity and
home improvement  loans,  automobile,  boat, and recreational  vehicle loans and
loans for other asset purchases.  The Company offers Visa and MasterCard  credit
and debit card products to consumers and  commercial  customers  through a third
party  financial  institution.  Credit  decisions  and credit  risk are  handled
entirely by the third party  institution  except in situations where the Company
has overridden a decision to decline the extension of credit.  In such cases the
Company bears full recourse on the account.

     Loans to consumers are extended after a credit  evaluation  that includes a
review of the  creditworthiness  of the borrower,  the purpose of the credit and
the secondary  source of repayment.  Specifically,  the lender  reviews a credit
bureau report for the borrower's  credit history and calculates a debt-to-income
ratio based on the borrower's  gross monthly  income to fixed debt  payments.  A
ratio  higher than 40% is  generally  considered  unacceptable.  For  automobile
loans,  the policy requires a minimum down payment of 10% with maturities  based
on the age of the vehicle.

     The  Company  offers a variety of 1-4  family  residential  loan  products,
including residential construction loans and residential acquisition financing.

     Residential  construction  financing typically includes a construction loan
agreement  with a  construction  draw  schedule and third party  inspections.  A
commitment  for  permanent  financing  is  required  prior to  closing.  Typical
residential  construction  loans mature within six to twelve months. The Company
offers a  construction/permanent  package loan  product in  instances  where the
Company acts as the permanent lender.

     Residential  loans are originated for the Company's  portfolio,  as well as
for sale in the secondary market.  The maximum loan amount is based on a loan to
value  ratio of 80% or less,  where the value is equal to the lesser of the cost
or the appraised  value.  A higher loan to value ratio is available when private
mortgage insurance can be obtained.  Most of these loans are originated for sale
in the secondary market and are sold on a servicing  released basis. The Company


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<PAGE>

services loans originated for its portfolio.

LOAN REVIEW AND NONPERFORMING ASSETS

     The Company's loan review officer is independent of the loan production and
administration  process.  The loan  review  officer  has the  responsibility  to
perform timely reviews of portfolio  credits with scope and assessment  criteria
comparable  to that of the  Bank's  regulators.  Additionally,  a  comprehensive
annual  review  is  conducted  on  all  credits  over  $1  million,  past  dues,
non-performing  assets and other real estate owned.  Loan  operations  personnel
review  smaller  credits  utilizing  pre-determined  standards,   which  include
documentation  and  compliance,  with  exceptions  referred  to the loan  review
officer.  Problem credits, which include all non-performing assets, are reviewed
at least quarterly with written  documentation  that includes the reason for the
problem,  collateral  support,  a plan for  resolution of the problem and a time
frame for the resolution.  Delinquent loans are reviewed at least weekly by Risk
Management and monitored monthly by the Board of Directors of the Bank.

     A written  report is  developed  on the findings of the various loan review
functions and reported directly to the Audit Committee of the Company's Board of
Directors,  which  meets at least  quarterly.  The  allowance  for loan  loss is
reviewed  monthly in order to make the appropriate  loan loss provision based on
the loan review findings, delinquency trends, historical loan losses and current
economic trends.

INVESTMENT SERVICES

     During 2001, the Company launched its CNB Financial  Services brand,  which
is geared toward offering  customers an alternative  investment  vehicle to bank
products.  These  services  are  being  offered  through  a  strategic  alliance
relationship  with  Raymond  James and are being sold  through  brokers  who are
employed  by the Bank.  It is  expected  that  this  business  line  will  offer
complementary alternatives to customer funds and will allow the Bank to continue
earning  fee  income on  relationships  that may have  otherwise  left the Bank.
Customer  balances  related to CNB  Financial  Services  are not recorded in the
financial  statements  of the Company  since the  accounts are held with Raymond
James.  The Company  earns fees based upon the level of funds  invested with and
transacted  through  Raymond  James that were  originated  through CNB Financial
Services.  This  business  unit did not  materially  contribute to the Company's
results of operations during 2001, 2002 or 2003.

ASSET/LIABILITY MANAGEMENT

     The Bank's  asset/liability  policy is carried  out through the Bank's risk
management  function.  The Bank manages asset  growth,  liquidity and capital in
order to maximize  income and reduce  interest  rate risk.  The risk  management
group reviews and discusses the ratio of rate-sensitive assets to rate-sensitive
liabilities,   the  ratio  of  allowance  for  loan  loss  to  outstanding   and
nonperforming  loans,  and  other  variables,  such  as  expected  loan  demand,
investment  opportunities,  core deposit  growth  within  specified  categories,
regulatory changes,  capital levels, monetary policy adjustments and the overall
state of the economy.

INVESTMENT POLICY

     The Bank's  investment  portfolio  policy is to maximize income  consistent
with  liquidity,  asset  quality,  regulatory  constraints  and  asset/liability
objectives.  The Bank  invests  primarily  in direct  obligations  of the United
States, obligations guaranteed as to principal and interest by the United States
and obligations of agencies of the United States.  In addition,  the Bank enters
into federal funds and other  interest  bearing  deposit  transactions  with its
principal  correspondent  banks. Other investments  consist primarily of Federal
Reserve  Bank and Federal Home Loan Bank stock that are required for the Bank to
be a member of, and to conduct  business with, such  institutions.  Dividends on
such   investments   are  determined  by  the   institutions   and  are  payable
semi-annually or quarterly.

COMPETITION

     Within each market the Company operates (collectively,  the "CNB Markets"),
there  are  competing  financial  institutions  consisting  primarily  of  other
commercial banks,  savings and loan offices and credit unions.  Certain non-bank
financial  institutions  affiliated  with Florida  banks or thrift  institutions
offer  limited  financial  services,  including  lending and  deposit  gathering


                                       7
<PAGE>

activities.  The Bank also competes for deposits and loans with brokerage firms,
mobile home lenders, consumer finance companies,  insurance companies,  mortgage
banking companies, money market mutual funds and other financial services firms.

     In addition,  the Riegle-Neal  Interstate Banking and Branching  Efficiency
Act  of  1994  (the   "Interstate   Banking  and  Branching  Act")  has  removed
substantially  all state barriers to the  acquisition  of banks by  out-of-state
bank holding companies. In addition, certain out-of-state bank holding companies
have entered the Florida banking market by acquiring failing thrift institutions
and commercial  banks.  Florida banks and bank holding  companies also may enter
the CNB Markets by acquiring a financial  institution,  by  establishing de novo
branches or by forming de novo banks.

     Competition  for deposit and loan business in the CNB Markets will continue
to be intense because of existing competitors,  the accelerating pace of product
deregulation  and the  likelihood  of  expansion  into the CNB  Markets by other
institutions.  Many of these institutions have  significantly  greater financial
resources than the Company. To compete, the Bank relies on specialized services,
responsive  handling  of  customer  needs,  customer  contact by Bank  officers,
directors  and  staff,  and the appeal of a  locally-owned,  relationship-driven
institution.

HISTORICAL GROWTH

     The Bank has  operated in Lake City,  Columbia  County,  Florida  since its
organization  in 1986.  In January 1987 the Company was formed as a bank holding
company to facilitate  expansion  opportunities.  In 1988, the Company organized
Citizens  Bank of Live Oak  ("Citizens")  and in 1990  opened  its first de novo
branch in Fort White.  In 1992 and 1993,  the Bank acquired  additional  banking
offices in  Macclenny,  Lake City and Live Oak from  Anchor  Savings  Bank.  The
Company  consummated its first merger with another bank holding company on April
1,  1994,  when  Bradford  Bankshares  ("Bradford")  combined  with the  Company
resulting  in a branch in Starke,  Florida.  On August  31,  1996,  Riherd  Bank
Holding Company  ("Riherd") merged with the Company.  The Riherd merger resulted
in three  additional  offices  for the  Bank,  one of which is  located  in Lake
Butler,  Florida  and two in  Gainesville.  Both  the  Bradford  and the  Riherd
transactions  were accounted for as purchase  transactions.  In August 1997, the
Bank opened its eleventh office, located in Lake City, and in June 1999 expanded
into  Jacksonville  with  its  twelfth  office.   The  Bank  opened  its  second
Jacksonville  branch in February 2001, and opened a St. Augustine branch in June
2001.  In May 2001,  the Bank  purchased  the Lake City and Live Oak branches of
Republic Bank. In connection  with the  transaction,  the Bank closed one of its
existing  Live Oak  locations  and in early  2003  closed  one of its Lake  City
locations. The Bank opened two branches during 2003, one each in Gainesville and
Glen St. Mary.

     As previously noted, on January 21, 2004, the Company announced that it had
entered into a definitive agreement to be acquired by The South Financial Group,
Inc.  The  transaction  is  expected  to close in July  2004 and is  subject  to
regulatory  and Company  shareholder  approval.  The Company's  subsidiary,  CNB
National Bank, will merge into The South Financial Group, Inc.'s Florida banking
subsidiary, Mercantile Bank.

EMPLOYEES

     As of December 31, 2003, the Bank had 265 full-time  equivalent  employees.
The Company's operations are conducted through the Bank and,  consequently,  the
Company does not have any separate employees.

                           SUPERVISION AND REGULATION

GENERAL

     As a  registered  bank  holding  company,  the  Company  is  subject to the
supervision  of,  and  regular  inspection  by,  the  Federal  Reserve  Board of
Governors (the "Federal  Reserve") under the BHC Act. The Bank is organized as a
national banking  association,  which is subject to regulation,  supervision and
examination  by the  Comptroller.  The Bank is also subject to regulation by the
FDIC and other federal  regulatory  agencies.  In addition,  the Company and the
Bank are  subject to various  other laws and  regulations  and  supervision  and
examination by other  regulatory  agencies,  all of which directly or indirectly
affect the  operations  and  management  of the  Company  and the Bank and their
ability to make  distributions.  The  following  discussion  summarizes  certain
aspects of those laws and regulations that affect the Company and the Bank.



                                       8
<PAGE>

     The Company is  regulated  by the Federal  Reserve  under the BHC Act which
requires every bank holding  company to obtain the prior approval of the Federal
Reserve before acquiring more than 5% of the voting shares of any bank or all or
substantially  all of the assets of a bank, and before merging or  consolidating
with another bank holding company.  The Federal Reserve  (pursuant to regulation
and published policy  statement) has maintained that a bank holding company must
serve as a source of financial  strength to its subsidiary banks. In adhering to
the Federal  Reserve  policy,  the Company may be required to provide  financial
support  for a  subsidiary  bank at a time where  absent  such  Federal  Reserve
policy, the Company may not deem it advisable to provide such assistance.

     Until March 2000,  a bank holding  company was  generally  prohibited  from
acquiring  control of any company  which was not a bank and from engaging in any
business other than the business of banking or managing and  controlling  banks.
In April 1997, the Federal  Reserve revised and expanded the list of permissible
non-banking  activities in which a bank holding  company could engage.  However,
limitations   continue  to  exist  under  certain  laws  and  regulations.   The
Gramm-Leach-Bliley  Act repeals certain  regulations  pertaining to bank holding
companies and eliminates many of the previous prohibitions.  Specifically, Title
I of the Gramm-Leach-Bliley Act repeals Sections 20 and 32 of Glass-Steagall Act
(12 U.S.C. 377 and 78, respectively) and is intended to facilitate  affiliations
among banks, securities firms, insurance firms and other financial companies. To
further this goal, the  Gramm-Leach-Bliley Act authorizes bank holding companies
and foreign  banks that qualify as  "financial  holding  companies" to engage in
securities,  insurance  and other  activities  that are  financial  in nature or
incidental to a financial  activity.  The  activities of bank holding  companies
that  are not  financial  holding  companies  will  continue  to be  limited  to
activities  authorized  currently under the BHC Act, such as activities that the
Federal  Reserve  previously  has  determined  in  regulations  and orders to be
closely related to banking and permissible for bank holding companies.

     Pursuant  to  the  Interstate  Banking  and  Branching  Act,  bank  holding
companies are able to acquire banks in states other than their  respective  home
states,  without regard to the  permissibility of such acquisitions  under state
laws. The transaction  would still be subject to any state  requirement that the
Bank has been  organized  and  operating  for a minimum  period of time,  not to
exceed five years, and the requirement that the respective bank holding company,
prior to or following the proposed acquisition, controls no more than 10% of the
total amount of deposits of insured depository institutions in the United States
and less than 30% of such  deposits  in that  state (or such  lesser or  greater
amount set by state law).

     The  Interstate  Banking and Branching Act also  authorizes  banks to merge
across state  lines,  thereby  creating  interstate  branches.  Florida does not
prohibit  interstate  branching within the state.  Furthermore,  pursuant to the
Interstate Banking and Branching Act, a bank is now able to open new branches in
a state in which it does not  already  have  banking  operations  if such  state
enacts a law permitting de novo branching.

     Proposals to change the laws and regulations governing the banking industry
are frequently  introduced in Congress, in the state legislatures and before the
various  bank  regulatory  agencies.  The  likelihood  and  timing  of any  such
proposals  or bills being  enacted and the impact they might have on the Company
and the Bank cannot be determined at this time.

CAPITAL AND OPERATIONAL REQUIREMENTS

     The Federal Reserve, the Comptroller and the FDIC have issued substantially
similar risk-based and leverage capital  guidelines  applicable to United States
banking organizations.  In addition,  those regulatory agencies may from time to
time  require that a banking  organization  maintain  capital  above the minimum
levels,  whether  because of its  financial  condition or actual or  anticipated
growth.  The Federal Reserve  risk-based  guidelines  define a two-tier  capital
framework.   Tier  1  capital  consists  of  common  and  qualifying   preferred
shareholders'  equity,  less certain  intangibles and other adjustments.  Tier 2
capital  consists of subordinated  and other  qualifying debt, and the allowance
for credit  losses up to 1.25% of  risk-weighted  assets.  The sum of Tier 1 and
Tier 2  capital  less  investments  in  unconsolidated  subsidiaries  represents
qualifying total capital,  at least 50% of which must consist of Tier 1 capital.
Risk-based capital ratios are calculated by dividing Tier 1 and total capital by
risk-weighted assets. Assets and off-balance sheet exposures are assigned to one
of four categories of risk weights, based primarily on relative credit risk. The
minimum Tier 1 capital  ratio is 4% and the minimum  total  capital ratio is 8%.
The Company's Tier 1 and total risk-based  capital ratios under these guidelines
at December 31, 2003, were 7.8% and 8.9%, respectively.


                                       9
<PAGE>

     The leverage  ratio is  determined  by dividing  Tier 1 capital by adjusted
average  total  assets.  Although the stated  minimum  ratio is 3%, most banking
organizations  are  required  to  maintain  ratios  of at least 100 to 200 basis
points above this level.  The Company's  leverage ratio at December 31, 2003 was
6.4%.  The  Federal  Deposit  Insurance  Corporation  Improvement  Act  of  1991
("FDICIA"),  among other things,  identifies five capital categories for insured
depository    institutions    (well   capitalized,    adequately    capitalized,
undercapitalized,      significantly     undercapitalized     and     critically
undercapitalized),  and requires the respective federal  regulatory  agencies to
implement  systems  for  "prompt   corrective  action"  for  insured  depository
institutions  that  do  not  meet  minimum  capital   requirements  within  such
categories.   FDICIA  imposes  progressively  more  restrictive  constraints  on
operations,  management and capital distributions,  depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also  subject  a  banking  institution  to  capital  raising  requirements.   An
"undercapitalized"  bank must develop a capital  restoration plan and its parent
holding  company  must  guarantee  that  bank's  compliance  with the plan.  The
liability of the parent  holding  company under any such guarantee is limited to
the lesser of 5% of the bank's  assets at the time it became  "undercapitalized"
or the  amount  needed to comply  with the  plan.  Furthermore,  in the event of
bankruptcy of the parent holding  company,  such  guarantee  would take priority
over the parent's general unsecured creditors. In addition,  FDICIA requires the
various  regulatory  agencies to prescribe  certain  non-capital  standards  for
safety and soundness  related  generally to  operations  and  management,  asset
quality and  executive  compensation  and permits  regulatory  action  against a
financial institution that does not meet such standards.

     The  various  regulatory  agencies  have  adopted   substantially   similar
regulations that define the five capital categories  identified by FDICIA, using
the total  risk-based  capital,  Tier 1 risk-based  capital and leverage capital
ratios as the relevant  capital  measures.  Such regulations  establish  various
degrees of  corrective  action to be taken  when an  institution  is  considered
undercapitalized.  Under the regulations,  a "well capitalized" institution must
have a Tier 1 capital  ratio of at least 6%, a total  capital  ratio of at least
10% and a  leverage  ratio  of at  least  5% and  not be  subject  to a  capital
directive  order.  An "adequately  capitalized"  institution  must have a Tier 1
capital  ratio  of at  least  4%,  a total  capital  ratio  of at least 8% and a
leverage ratio of at least 4%, or 3% in some cases.


     Banking  agencies  have  also  adopted   regulations   which  mandate  that
regulators take into consideration  concentrations of credit risk and risks from
non-traditional  activities, as well as an institution's ability to manage those
risks,  when  determining  the  adequacy  of  an  institution's   capital.  That
evaluation  will  be  made as a part of the  institution's  regular  safety  and
soundness  examination.  Banking  agencies also have adopted  final  regulations
requiring  regulators  to consider  interest  rate risk (when the interest  rate
sensitivity  of an  institution's  assets does not match the  sensitivity of its
liabilities or its off-balance sheet positions) in the determination of a bank's
capital adequacy. Concurrently, banking agencies have proposed a methodology for
evaluating  interest  rate risk.  After  gaining  experience  with the  proposed
measurement   process,   those  banking   agencies  intend  to  propose  further
regulations to establish an explicit risk-based capital charge for interest rate
risk.

DISTRIBUTIONS

     The  Company's  primary  source  of  funds  for cash  distributions  to its
shareholders  and for payments on its borrowings is dividends  received from the
Bank.  The  Bank  is  subject  to  various  general   regulatory   policies  and
requirements  relating to the payment of dividends,  including  requirements  to
maintain capital above regulatory  minimums.  The appropriate federal regulatory
authority is authorized to determine under certain circumstances relating to the
financial  condition  of the bank or bank  holding  company  that the payment of
dividends  would be an unsafe or unsound  practice  and to  prohibit  payment of
dividends.

     In  addition to the  foregoing,  the ability of the Company and the Bank to
pay dividends may be affected by the various  minimum capital  requirements  and
the capital and non-capital  standards  established  under FDICIA,  as described
above.  The  right  of the  Company,  its  shareholders  and  its  creditors  to
participate in any distribution of the assets or earnings of the Bank is further
subject to the prior claims of creditors of the Bank.

"SOURCE OF STRENGTH" POLICY

     According to Federal  Reserve  policy,  the Company is expected to act as a
source of financial  strength to the Bank and to commit resources to support the
Bank.



                                       10
<PAGE>



                               ITEM 2. PROPERTIES


     The  Bank   currently   operates  out  of  sixteen  branch   offices,   one
administrative  office and a non-customer  operations  center. All branches have
automated teller machines ("ATMs"). The Company owns the following properties:

<TABLE>
                                                                                    APPROXIMATE SQUARE           YEAR ESTABLISHED/
OFFICE LOCATION                                                                          FOOTAGE                      ACQUIRED
--------------------------------------------------------------------------------    ------------------           ----------------
<S> <C>                                                                                   <C>                          <C>
LAKE CITY (COLUMBIA COUNTY)

    205 North Marion Avenue (1) ................................................          22,000                       1986
    187 SW Baya Avenue .........................................................          10,100                       1993
    2844 U.S. 90 West ..........................................................           2,900                       1997
    160 NW Main Blvd ...........................................................           7,600                       2001
    4917 E. U.S. Hwy 90 (2) ....................................................          20,800                       1996

LIVE OAK (SUWANNEE COUNTY)

    205 White Avenue, S.E ......................................................           6,000                       1988
    535 South Ohio Avenue ......................................................           8,000                       2001

FORT WHITE (COLUMBIA COUNTY)

    7075 SW U.S. Hwy 27 ........................................................           2,200                       1990

MACLENNEY (BAKER COUNTY)

    595 South Sixth Street .....................................................           4,800                       1992
    6953 E. Mount Vernon Street ................................................           4,500                       2003

STARKE (BRADFORD COUNTY)

    606 West Madison Street ....................................................           8,000                       1994

GAINESVILLE (ALACHUA COUNTY)

    5027 Northwest 34th Street .................................................           2,000                       1996
    7515 West University Avenue ................................................          12,000                       2000
    11411 N. State Rd. 121 .....................................................           4,500                       1996

LAKE BUTLER (UNION COUNTY)

    300 West Main Street .......................................................           6,800                       1996

JACKSONVILLE (DUVAL COUNTY)

    9715 Gate Parkway North ....................................................          26,000                       2000

ST. AUGUSTINE (ST. JOHNS COUNTY)
    1980 U.S. 1 South ..........................................................           5,000                       2000

<FN>
--------------------
(1) Main office and administrative office.
(2) Location of the operations center.
</FN>
</TABLE>


                                       11
<PAGE>


     The  Company  also  leases a branch in the  Mandarin  area of  Jacksonville
(Duval County), which opened in February 2001 and a branch in Gainesville, which
opened in July 2003.

                            ITEM 3. LEGAL PROCEEDINGS

     There are no material  pending legal  proceedings to which the Company is a
party or to which any of their  properties  are subject;  nor are there material
proceedings  known to be contemplated  by any  governmental  authority;  nor are
there material  proceedings  known to the Company,  pending or contemplated,  in
which any director,  officer,  affiliate or any principal security holder of the
Bank or the Company,  or any associate of any of the foregoing is a party or has
an interest adverse to the Company.

           ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was  submitted  to a vote of security  holders  during the fourth
quarter of the fiscal year covered by this report.

                                     PART II

            ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                               STOCKHOLDER MATTERS


     The  Company's  articles  of  incorporation  authorize  it to  issue  up to
10,000,000  shares of Common Stock.  As of March 5, 2004,  there were  6,256,662
shares of Common Stock issued and outstanding and 482 shareholders of record. In
addition, there were 482,550 shares subject to currently exercisable options. On
January  29,  1999,  the  Company's  common  stock  began  trading on the NASDAQ
National  Market  under  the  symbol  "CNBB",  resulting  from the  issuance  of
1,250,000  shares of common stock in the Company's  initial  public  offering at
$10.25 per common share. Proceeds from the offering net of underwriting discount
and expenses totaled $11.4 million. The Company contributed $10.0 million of the
$11.4  million net proceeds  from the offering to CNB National  Bank in February
1999. There is no trading  information for any prior years,  since there was not
an established  market for the Company's  common stock.  See Table 12: "Selected
Quarterly Data" in Management's  Discussion and Analysis of Financial  Condition
and Results of Operations for the quarterly market price for the last two fiscal
years.


     Shareholders' equity at December 31, 2003 was $56.4 million, as compared to
$50.9 million at December 31, 2002.

     Company  dividends  for 2003  consisted  of the payment of  quarterly  cash
dividends in the amount of $0.06 per common share.  Cash  dividends for 2002 and
2001 consisted of quarterly cash dividend payments of $0.05 per common share.

     The  Company's  ability  to pay  dividends  on  the  Common  Stock  depends
significantly  on the  ability of the Bank to pay  dividends  to the  Company in
amounts  sufficient  to  service  its  obligations.   Such  obligations  include
principal and interest  payments on  outstanding  borrowings  and may include an
obligation to make any payments with respect to securities  issued in the future
which have an equal or greater dividend preference to the Common Stock. The Bank
may also  issue  additional  capital  stock or incur  indebtedness,  subject  to
certain borrowing  covenants outlined in the Company's line of credit agreement,
as  amended,  entered  into with  another  bank  during  2001 (see  Management's
Discussion and Analysis - Item 7 of Part II).  Furthermore,  the  regulations of
the  Comptroller,  regulatory  capital  levels  and the net  income  of the Bank
determine its ability to pay dividends or make other capital distributions.



                                       12
<PAGE>


<TABLE>
                         ITEM 6. SELECTED FINANCIAL DATA
                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY

Dollars in thousands except per share               2003          2002           2001         2000          1999
information
--------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
<S>                                              <C>           <C>            <C>          <C>           <C>
Interest Income                                  $   43,530    $   41,398     $   40,417   $   32,061    $   23,758
Interest Expense                                    (15,532)      (15,646)       (19,629)     (14,736)       (9,052)
                                                 ----------    ----------     ----------   ----------    ----------
Net Interest Income                                  27,998        25,752         20,788       17,325        14,706
Provision for Loan Loss                              (2,100)       (2,375)        (2,050)      (1,350)       (1,160)
                                                 ----------    ----------     ----------   ----------    ----------
Net Interest Income After
     Provision for Loan Loss                         25,898        23,377         18,738       15,975        13,546
Non-Interest Income                                   6,219         6,304          5,633        3,338         2,952
Non-Interest Expense                                (21,707)      (21,156)       (19,836)     (15,481)      (11,994)
                                                 ----------    ----------     ----------   ----------    ----------
Income Before Income Taxes                           10,410         8,525          4,535        3,832         4,504
Income Taxes                                         (3,833)       (3,141)        (1,594)      (1,325)       (1,563)
                                                 ----------    ----------     ----------   ----------    ----------
Net Income                                       $    6,577    $    5,384     $    2,941   $    2,507    $    2,941
                                                 ==========    ==========     ==========   ==========    ==========

--------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Basic Earnings                                   $     1.06    $     0.88     $     0.48   $     0.41    $     0.49
Diluted Earnings                                       1.03          0.87           0.48         0.41          0.48
Book Value                                             9.01          8.31           7.64         7.32          7.04
Dividends                                              0.24          0.20           0.20         0.20          0.20
Actual Shares Outstanding                         6,256,662     6,125,500      6,106,453    6,099,376     6,116,070
Basic Weighted Average Shares
     Outstanding                                  6,199,416     6,104,050      6,094,670    6,095,471     5,995,474
Diluted Weighted Average Shares
     Outstanding                                  6,398,930     6,215,775      6,188,477    6,134,270     6,069,737

--------------------------------------------------------------------------------------------------------------------
KEY RATIOS:

Return on Average Assets                               0.83%         0.81%          0.53%        0.62%         0.91%
Return on Average Shareholders' Equity                12.27         11.03           6.43         5.74          7.03
Dividend Payout                                       22.43         22.73          41.67        48.78         40.82
Efficiency Ratio                                      63.44         66.00          75.08        74.92         67.92
Total Risk-Based Capital Ratio                         8.92          8.52           9.00        12.00         17.25
Average Shareholders' Equity to Average
     Assets                                            6.80          7.37           8.23        10.82         13.01
Tier 1 Capital to Average Assets/Leverage
     Ratio                                             6.37          6.31           6.50         9.80         12.70

--------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION AT YEAR END:
Assets                                           $  819,935    $  730,674     $  612,021   $  467,593    $  346,076
Gross Loans                                         681,750       605,785        511,647      379,859       266,084
Deposits                                            723,686       648,636        532,891      367,686       288,203
Borrowings                                           34,050        25,446         28,148       51,142        12,063
Shareholders' Equity                                 56,387        50,921         46,669       44,636        43,075

--------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Banking Locations                                        16            14             15           12            12
Full-Time Equivalent Employees                          265           253            246          212           183

--------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       13
<PAGE>

      ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


Forward-Looking Statements

     This Annual Report on Form 10-K contains forward-looking statements,  which
involve risks and uncertainties which are described in this Annual Report and in
other  filings with the  Securities  and Exchange  Commission  (the "SEC").  The
actual  results of CNB Florida  Bancshares,  Inc.  (the  "Company" or "CNB") may
differ   significantly  from  the  results  discussed  in  the   forward-looking
statements. Factors that may cause such differences include, but are not limited
to,  increased  competitive  pressures  among  depository  and  other  financial
institutions,  changes in the interest rate environment that may reduce margins,
general economic or business  conditions in the Company's markets that lead to a
deterioration  in  credit  quality  or  reduced  loan  demand,   legislative  or
regulatory  changes  and  competitors  of the  Company  that  may  have  greater
financial   resources  and  develop   products  or  services  that  enable  such
competitors to compete more  successfully  than the Company.  Other factors that
may cause actual results to differ from the  forward-looking  statements include
customer  acceptance of new products and services,  changes in customer spending
and saving habits and the Company's  success in managing costs  associated  with
expansion.   Readers  are  cautioned  not  to  place  undue  reliance  on  these
forward-looking statements,  which speak only as of the date hereof. The Company
does not  undertake any  obligation  to publicly  release any revisions to these
forward-looking  statements to reflect  events or  circumstances  after the date
hereof or to reflect the occurrence of unanticipated events.

     The  following  discussion  should  be read in  conjunction  with  Selected
Historical  Financial  Information and the Consolidated  Financial Statements of
the Company, which are included in this Form 10-K.

Pending Acquisition

     On January 21,  2004,  the  Company  announced  that it had entered  into a
definitive  agreement to be acquired by The South  Financial  Group,  Inc. in an
all-stock transaction.  Under terms of the agreement, the Company's shareholders
will receive 0.84 shares of The South  Financial  Group,  Inc.  common stock for
each CNB Florida  Bancshares,  Inc. share. In addition,  outstanding  options to
purchase the Company's stock will be converted into options to acquire The South
Financial Group, Inc.'s common stock at the 0.84 exchange ratio. The transaction
is  expected  to close in July 2004 and is subject  to  regulatory  and  Company
shareholder approval.  The Company's  subsidiary,  CNB National Bank, will merge
into The South Financial Group,  Inc.'s Florida banking  subsidiary,  Mercantile
Bank.

Overview

     The following  analysis reviews  important  factors affecting the financial
condition and results of operations of the Company for the periods  shown.  This
section should be read in conjunction with the Consolidated Financial Statements
and related  notes.  The purpose of this  discussion  is to  facilitate a better
understanding  of the  major  factors  and  trends  that  affect  the  Company's
financial condition and earnings performance,  and how the Company's performance
during 2003 compares  with prior years.  Throughout  this  section,  CNB Florida
Bancshares, Inc. and its subsidiary, CNB National Bank, are referred to as "CNB"
or "the Company".

     On January 29, 1999, CNB completed an initial public  offering of 1,250,000
shares of common  stock,  which  began  trading on the NASDAQ  National  Market,
giving CNB shareholders greater access to purchasing or selling shares of common
stock.  In addition,  CNB obtained  additional  capital to support its expansion
plans,  as well as for  general  corporate  purposes.  Of the $11.4  million net
proceeds from the offering,  the Company contributed $10.0 million as capital to
CNB National Bank.

     The Company  officially  relocated its corporate  offices from Lake City to
Jacksonville effective January 2001.  Operational  headquarters for CNB National
Bank continue to be located in Lake City.

     The Company continues to execute its strategic growth initiatives that were
put in place in connection  with its initial  public  offering.  During 2003 the
Company  opened a new branch in Glen St. Mary and a branch in the Magnolia Parke
section of  Gainesville.  In 2001 the  Company  added two  branches to its First
Coast market  (Jacksonville  and St.  Augustine)  and acquired two branches from

                                       14
<PAGE>

Republic Bank (Lake City and Live Oak). The branch acquisitions  occurred in May
2001 and resulted in the addition of loans,  deposits and premises and equipment
of  approximately  $12  million,  $62 million and $2 million,  respectively.  In
connection with the acquisition,  the Bank recorded a core deposit intangible of
$6 million, which is being amortized over its estimated useful life of 10 years.
The Company's  conversion to an improved data processing  platform in the fourth
quarter of 2000 and the move into the  expanded  Operations  Center in the first
half of 2001 has improved  operational support to our growth initiatives and has
allowed us to become more customer focused and cost-efficient.

     As a continued result of these growth  initiatives,  the Company  increased
net  income,  net loans  and  deposits  from  2002 to 2003 by 22%,  13% and 12%,
respectively.  In  addition,  the  Company  was able to  effectively  manage its
overall  credit  quality and reduce  nonperforming  assets from $8.1  million at
December  31,  2002 to $3.8  million  at  December  31,  2003.  Net  charge-offs
increased slightly from 0.18% of average loans in 2002 to 0.21% of average loans
in 2003. A more detailed  discussion of the Company's  financial  performance in
2003 follows.

Results of Operations

     The  Company's  earnings for 2003 were $6.6  million,  or $1.03 per diluted
share,  compared to $5.4 million,  or $0.87 per diluted share, and $2.9 million,
or $0.48 per  diluted  share,  in 2002 and  2001,  respectively.  These  results
reflect an increase in net interest  income due to loan and deposit  growth,  as
well as increases in deposit fees and other  charges.  In addition,  the Company
was able to effectively  manage its non-interest  expense,  which decreased from
3.57% of average  assets in 2001 to 3.19% of average assets in 2002 and 2.76% of
average assets in 2003. Total assets increased to $819.9 million at December 31,
2003  compared to $730.7  million at December 31, 2002,  an increase of 12%. The
increase in assets is attributable to a $75.2 million  increase in net loans and
a  $38.7  million  increase  in  investment  securities.  These  increases  were
partially  offset by a $15.5 million decrease in cash and cash equivalents and a
$9.8 million  decline in loans held for sale. The increase in assets was largely
funded through a $75 million  increase in deposits and an $8.1 million  increase
in repurchase agreements.

Net Interest Income/Margins

     Net interest  income is the single  largest  source of revenue for the Bank
and  consists of  interest  and fee income  generated  by earning  assets,  less
interest  expense  paid on interest  bearing  liabilities.  The  Company's  main
objective  is to manage its  assets  and  liabilities  to  provide  the  largest
possible amount of income while balancing interest rate,  credit,  liquidity and
capital risks. Net interest income was $28.0 million for 2003, compared to $25.8
million and $20.8  million  for the  comparable  prior year  periods of 2002 and
2001,  respectively.  The  increase  over  2002  was  due to  growth  in  loans,
securities and demand  deposits.  These increases were partially offset by lower
rates and spreads and an increase in time deposits. Net interest yield was 3.91%
in the fourth  quarter 2003 compared to 4.06% in the fourth  quarter  2002,  and
3.80% for the year ended  December  31, 2003  compared  to 4.24 % for 2002.  The
Company  believes  that its  efforts to reduce the impact of margin  compression
from the current  interest  rate  environment  have been  successful.  While the
Company continues to maintain an asset sensitive  position with respect to asset
and liability  management,  it is  anticipated  that market  interest rates will
remain at current low levels well into 2004.

     Average earning assets  increased  $128.6  million,  or 21%, during 2003 as
compared  to 2002.  The  increase  was due to growth in  loans,  securities  and
interest  bearing  deposits of $78.8  million,  $23.4 million and $22.5 million,
respectively.  Increases in time,  money  market and NOW accounts  were the main
contributors to the $107.3 million,  or 20%, growth in average  interest bearing
liabilities.

     Table 1  presents  average  balances,  yields  and rates for the  Company's
earning assets and interest  bearing  liabilities for 2003, 2002 and 2001. Table
1a shows the changes in net interest  income by category due to shifts in volume
and rates for the years presented.



                                       15
<PAGE>




                   Table 1: Average Balances, Yields and Rates

<TABLE>
                                    December 31, 2003                December 31, 2002                    December 31, 2001
                              -----------------------------    ------------------------------     --------------------------------
                                         Interest                         Interest                            Interest
                              Average    Income or  Average    Average    Income or   Average     Average     Income or   Average
                              Balance    Expense      Rate     Balance    Expense      Rate       Balance     Expense       Rate
                              --------   ---------  -------    -------    ----------  -------     --------    ---------   --------
                                                                    (dollars in thousands)
ASSETS:
<S>                           <C>        <C>         <C>       <C>        <C>          <C>          <C>         <C>           <C>
 Federal Funds Sold           $  8,522   $    92     1.08%     $  4,697   $     73     1.55%        $  2,773    $     102     3.68%
 Investment Securities
    Available for Sale          59,185     2,044     3.45        43,984      1,891     4.30           33,167        1,864     5.62
 Investment Securities
    Held to Maturity             9,906       572     5.77         1,667         99     5.94            6,278          384     6.12
 Loans (1)                     632,254    40,504     6.41       553,476     39,275     7.10          458,023       38,055     8.31
 Interest Bearing Deposits      26,106       318     1.22         3,559         60     1.69              401           12     2.99
                              --------   -------     ----      --------   --------     ----         --------    ---------     ----


TOTAL EARNING ASSETS           735,973    43,530     5.91       607,383     41,398     6.82          500,642       40,417     8.07
   All Other Assets             51,904                           55,173                               55,233
                              --------                         --------                             --------

TOTAL ASSETS                  $787,877                         $662,556                             $555,875
                              ========                         ========                             ========

LIABILITIES AND
 SHAREHOLDERS' EQUITY:
 NOW & Money Markets          $241,658     3,613     1.50%     $192,108      3,432     1.79%        $148,026        3,899     2.63%
 Savings                        24,371       102     0.42        21,907        155     0.71           18,707          196     1.05
 Time Deposits                 345,425    11,016     3.19       291,205     11,213     3.85          235,010       13,656     5.81
 Federal Funds Purchased and
    Repurchase Agreements       13,100       114     0.87        13,174        191     1.45           14,609          552     3.78
 Short Term Borrowings           1,212        33     2.72            33          1     3.04           20,932        1,061     5.07
 Other Borrowings (2)           10,000       654     6.54        10,000        654     6.54            4,667          265     5.68
                              --------   -------     ----      --------   --------     ----         --------    ---------     ----
TOTAL INTEREST BEARING
 LIABILITIES                   635,766    15,532     2.44       528,427     15,646     2.96          441,951       19,629     4.44
 Demand Deposits                92,737                           80,302                               64,337
 Other Liabilities               5,776                            4,999                                3,838
 Shareholders' Equity           53,598                           48,828                               45,749
                              --------                         --------                             --------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY         $787,877                         $662,556                             $555,875
                              ========                         ========                             ========

                                                     ----                              ----                                   ----
INTEREST SPREAD (3)                                  3.47%                             3.86%                                  3.63%
                                                     ====                              ====                                   ====

                                         -------                          --------                              ---------
NET INTEREST INCOME                      $27,998                          $ 25,752                              $  20,788
                                         =======                          ========                              =========


NET INTEREST MARGIN (4)                              3.80%                             4.24%                                  4.15%
                                                     ====                              ====                                   ====


<FN>
--------------------
(1)  Interest  income on average  loans  includes  net loan fee  recognition  of
     $512,000,  $494,000  and  $979,000  in 2003,  2002  and 2001  respectively.
     Nonperforming  loans are  included in the average loan  balance.  Income on
     such nonperforming loans is recognized on a cash basis.
(2)  The  interest  expense and average  rate on other  borrowings  includes the
     impact  of an  interest  rate  swap  that  was  entered  into as a hedge of
     interest  rate risk  associated  with the  underlying  term debt in October
     2001.  Under the terms of the interest rate swap,  the Company pays a fixed
     rate of 6.45% and  receives a floating  rate of interest  of 3-month  Libor
     plus 170 basis  points.  Interest  on the swap and term debt is  calculated
     using a 360-day year.
(3)  Represents  the average rate earned minus average rate paid.
(4)  Represents net interest income divided by total earning assets.
</FN>
</TABLE>


                                       16
<PAGE>


          Table 1a: Analysis of Changes in Interest Income and Expense

<TABLE>
                                                             NET CHANGE DECEMBER 31,                NET CHANGE DECEMBER 31,
                                                             2002-2003 ATTRIBUTABLE TO:             2001-2002 ATTRIBUTABLE TO:
                                                             --------------------------             --------------------------
                                                                                     Net                                      Net
                                                         Volume (1)    Rate (2)     Change       Volume (1)    Rate (2)     Change
                                                         ----------    --------     ------       ----------    --------     ------
                                                                               (thousands)
INTEREST INCOME:
<S>                                                      <C>           <C>          <C>          <C>           <C>          <C>
   Federal Funds Sold                                    $    59       $   (40)     $    19      $    71       $  (100)     $   (29)
   Investment Securities Available for Sale                  654          (501)         153          608          (581)          27
   Investment Securities Held to Maturity                    489           (16)         473         (282)           (3)        (285)
   Loans                                                   5,590        (4,361)       1,229        7,930        (6,710)       1,220
   Interest Bearing Deposits                                 380          (122)         258           94           (46)          48
                                                         -------       -------      -------      -------       -------      -------
      Total                                                7,172        (5,040)       2,132        8,421        (7,440)         981


INTEREST EXPENSE:
   NOW & Money Markets                                       885          (704)         181        1,162        (1,629)        (467)
   Savings                                                    17           (70)         (53)          34           (75)         (41)
   Time Deposits                                           2,088        (2,285)        (197)       3,266        (5,709)      (2,443)
   Federal Funds Purchased and Repurchase Agreements          (1)          (76)         (77)         (54)         (307)        (361)
   Short Term Borrowings                                      36            (4)          32       (1,059)           (1)      (1,060)
   Other Borrowings                                            -             -            -          304            85          389
                                                         -------       -------      -------      -------       -------      -------
      Total                                                3,025        (3,139)        (114)       3,653        (7,636)      (3,983)
                                                         -------       -------      -------      -------       -------      -------
           Net Interest Income                           $ 4,147       $(1,901)     $ 2,246      $ 4,768       $   196      $ 4,964
                                                         =======       =======      =======      =======       =======      =======

<FN>
---------------
(1)  The volume variance reflects the change in the average balance  outstanding
     multiplied by the actual average rate during the prior period.
(2)  The rate variance reflects the change in the actual average rate multiplied
     by the average balance  outstanding during the prior period.  Changes which
     are not solely due to volume  changes  or solely due to rate  changes  have
     been attributed to rate changes.
</FN>
</TABLE>


Non-Interest Income


     Non-interest  income  totaled  $6.2  million in 2003,  a decline of 1% from
2002, and a 12% increase from 2001.  The decrease was primarily  attributed to a
$775,000 decrease in secondary  marketing  mortgage sale income. The lower level
of  secondary  market  mortgage  income is  attributable  to  reduction  in loan
production  staff  resulting  from  organizational  changes  within the mortgage
function and a lower loan  origination  volume  stemming from an increase in the
level of mortgage  interest rates during the second half of 2003.  This decrease
was partially  offset by an increase in service  charges on deposit  accounts of
$321,000 or 10% in 2003,  compared  with  $299,000 or 10% in 2002 and a $211,000
increase  in  gains  on the  sale of  investment  securities  during  2003.  The
securities sold were short dated, callable agency debt instruments with premiums
resulting from continued interest rate declines and were sold as a partial hedge
of the continued margin compression.  Other non-interest  income, which includes
credit card fees, credit life insurance income,  safe deposit box fees, discount
brokerage  fees,  and  other  miscellaneous  fees,  increased  $158,000  in 2003
compared to $100,000 in 2002. A portion of the increase from 2002 was due to the
recognition of a $55,000 gain on the sale of the Company's credit card portfolio
during the third quarter of 2003.

     Non-interest  income as a  percentage  of average  assets was 0.79% in 2003
compared to 0.95% and 1.01% in 2002 and 2001, respectively.

Non-Interest Expense

     Non-interest  expense increased  $551,000,  or 3%, for 2003, compared to an
increase of $1.3 million, or 7%, for 2002. During 2003,  non-interest expense as
a percentage of average assets  decreased to 2.76%,  compared to 3.19% and 3.57%
in 2002 and 2001, respectively.

     Salaries  and  employee  benefits  for 2003  decreased  $16,000  from  2002
compared  to an increase of $843,000  from 2001.  The  decrease in salaries  and
benefits  expense from 2002 to 2003 was due to  management  of  headcount  and a
reduction in  commission  expense  reflecting  the decline in  secondary  market
mortgage  loan sales.  As a percentage  of average  total  assets,  salaries and
employee benefits have decreased to 1.41% in 2003 compared to 1.67% and 1.84% in

                                       17
<PAGE>

2002 and 2001, respectively.

     Occupancy expenses (including furniture, fixtures & equipment) increased to
$3.6 million in 2003  compared to $3.4 million in 2002 and $3.1 million in 2001.
The increase is  attributable  to the opening of two branches in 2003 - Glen St.
Mary  (Baker  County)  and  Magnolia  Parke  (Alachua  County)  - and  increased
depreciation  expense  on  computer  hardware  and  software  enhancements.  The
increase in 2002 compared to 2001 was due to a full year of depreciation for the
Operations Center and the two purchased Republic branches.


     Other  operating  expenses at CNB increased 6% in 2003 compared to 2002 and
3% in 2002 compared to 2001.  The increase in 2003 was  attributable  to: (1) an
increase  of  $186,000  in data  processing  fees  resulting  from  higher  core
processing   expenses  associated  with  higher  transaction  volume  and  costs
associated with information technology enhancements;  (2) an increase of $74,000
in  legal  and  professional  fees due to  expenses  associated  with  resolving
nonperforming  loans and  outsourcing  of certain  information  technology  risk
management and internal audit functions; and (3) an increase of $98,000 in other
expenses primarily due to a $63,000 loss on the sale of certain bank real estate
in the second  quarter of 2003.  The  increases  in these  areas were  offset by
decreases in  communications,  amortization of intangible  assets,  supplies and
education expenses.  The increase in other operating expenses in 2002 was due to
a $224,000  increase in data processing  fees resulting from higher  transaction
volumes handled by our core processor; an increase of $169,000 in communications
expenses,  primarily due to an enhancement of bandwidth capacity between each of
the Company's  branches;  an increase of $203,000 in  amortization of intangible
assets due to the core deposit  amortization on the Republic branches for a full
year and a $71,000 increase in legal and professional  costs. The 2002 increases
were offset by  decreases  in  advertising,  administrative,  supplies and other
operating expenses.


     The following  table details the areas of  significance  in other operating
expenses.

                        Table 2: Other Operating Expenses
                          (Dollar amounts in thousands)

                                                      Year Ended December 31,
                                                   2003        2002        2001
                                                  ------      ------      ------
Data processing                                   $1,514      $1,328      $1,104
Legal and professional                               763         689         618
Communications                                       747         764         595
Postage and delivery                                 739         700         671
Amortization of intangible assets                    712         746         543
Advertising and promotion                            553         532         687
Supplies                                             387         410         578
Regulatory fees                                      274         239         255
Loan expenses                                        260         242         248
Administrative                                       164         163         211
Director fees                                        105          88          70
Education expense                                    100         131         101
Insurance and bonding                                 98          76         105
Dues and subscriptions                                83          97         100
Other general operating                               78          79          67
Other                                                448         350         518
                                                  ------      ------      ------
      Total other operating expenses              $7,025      $6,634      $6,471
                                                  ======      ======      ======




                                       18
<PAGE>


Income Taxes

     The  effective  tax rate for the year ended  December  31,  2003 was 36.8%,
compared to 36.8% for 2002 and 35.2% for 2001.  The  consolidated  provision for
income taxes increased to $3.8 million in 2003, compared to $3.1 million in 2002
and $1.6 million in 2001. The primary difference between the Company's effective
tax rate and the statutory  federal income tax rate is due to tax-exempt  income
on certain loans and securities and state income taxes. A reconciliation  of the
effective  income tax rate to the statutory rate is included in Note 10 of Notes
to Consolidated  Financial Statements included in Item 8 of Part II of this Form
10-K.

Liquidity

     Liquidity  is defined as the  ability  of the  Company to meet  anticipated
demands  for  funds  under  credit  commitments  and  deposit  withdrawals  at a
reasonable cost on a timely basis.  Management  measures the Company's liquidity
position by giving  consideration  to both on-and off- balance  sheet sources of
and  demands  for funds on a regular  basis.  These  funds  can be  obtained  by
converting  assets  to cash,  attracting  new  deposits  or  utilizing  existing
borrowing  capacity.  Average  liquid  assets  (cash and amounts due from banks,
interest-bearing  deposits in other  banks,  federal  funds sold and  investment
securities  available for sale) totaled $113.6 million and represented  16.1% of
average  total  deposits  during 2003,  compared to $69.8  million and 11.9% for
2002. The Company's loan to deposit ratio at December 31, 2003 was 94%, compared
to 93% at the end of 2002.

     In addition to core deposit growth (defined as all deposits other than time
deposits in excess of $100,000),  sources of funds  available to meet  liquidity
demands include cash received through ordinary  business  activities such as the
collection  of  interest  and fees,  federal  funds  sold,  loan and  investment
maturities  and lines for the purchase of federal  funds by the Company from its
principal  correspondent  banks.  The Bank is also a member of the Federal  Home
Loan Bank of Atlanta  and has  access to  short-term  and  long-term  funds.  In
addition,   the  Company  entered  into  a  line  of  credit  with  one  of  its
correspondent  banks in April 2001. The agreement was amended in October 2001 to
reflect the  following  structures:  (1) a $3 million  revolving  line of credit
subject  to annual  renewal  (currently  extended  through  June 30,  2004) with
interest  floating  quarterly at 3-month Libor plus 145 basis points;  and (2) a
$10 million term loan maturing October 3, 2006 with interest floating  quarterly
at 3-month  Libor  plus 170 basis  points.  Semi-annual  principal  payments  of
approximately  $714,000 begin in April 2004. The Company also entered into a $10
million  pay-fixed  interest rate swap with the same bank.  The fixed rate under
the interest  rate swap is 6.45% and the variable rate is based on 3-month Libor
plus 170 basis points.  The swap matures October 3, 2006 and has been designated
as a cash flow hedge of the variable  interest  payments on the $10 million term
loan noted in (2) above.  The fair value of the  interest  rate swap at December
31, 2003 was approximately ($508,000). There was $1.5 million outstanding on the
$3 million line of credit on December 31,  2003.  The term loan,  line of credit
and interest rate swap are all collateralized by 100% of the common stock of the
Bank.

     In connection with the term loan and line of credit agreement,  the Company
is required to maintain compliance with certain covenants and restrictions.  The
following  financial covenants are to be maintained on a quarterly basis and are
calculated at the Bank-level:

     o    Interest  coverage  ratio of  greater  than or equal to 2.00x  through
          September 30, 2003.
     o    Debt service  coverage ratio of greater than or equal to 0.85x through
          September 30, 2002;  1.00x from October 1, 2002 through  September 30,
          2003; 1.25x from October 1, 2003 through September 30, 2004; and 1.50x
          from October 1, 2004 through maturity.
     o    Ratio of  non-performing  assets to total loans plus other real estate
          owned and repossessed assets of less than or equal to 1.25%.
     o    Maintenance  of tier 1 and total risk based  capital  ratios that meet
          the benchmarks for consideration as a  "well-capitalized"  institution
          (currently 6% and 10%, respectively).  Also, maintenance of a leverage
          capital ratio of at least 6%.

     In addition, the Company is subject to the following restrictions:

                                       19
<PAGE>

     o    No additional debt is permitted without consent of the lender.
     o    No  increases  in  dividends   paid  by  the  Company  to  its  common
          shareholders are permitted without consent of the lender.

     Failure to  maintain  any of these  covenants  would  place the  Company in
default of the borrowing agreement.  In such a case, absent any waivers obtained
from the  lender,  all  amounts  payable  could be  accelerated  and  become due
immediately.  As of December 31, 2003,  the Company was in  compliance  with all
covenants.

     The level of commitments to fund additional  borrowings and standby letters
of credit also impacts the Company's liquidity position. These commitments, when
drawn,  are  generally  funded  through  deposit  inflows,  loan and  investment
maturities, interest receipts and, to the extent necessary, short term purchases
of  federal  funds.  The  Company's  borrowing  capacity  with  the FHLB is also
available to fulfill commitments to lend. Since many commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.  The amount of collateral obtained,  if any,
is based on  management's  credit  evaluation  in the same  manner  as though an
immediate credit extension were to be granted.  Commitments to extend credit and
standby letters of credit amount to  approximately  $193,860,000 and $8,303,000,
respectively, at December 31, 2003 and expire as outlined in the table below (in
thousands):

                                Unfunded             Standby
                              Commitments        Letters of Credit
                              -----------        -----------------
              2004             $ 38,909             $  7,327
              2005               50,449                  711
              2006               30,056                  265
              2007               15,785                    -
              2008               20,111                    -
              Thereafter         38,550                    -
                               --------             --------

                               $193,860             $  8,303
                               ========             ========


Obligations and Commitments

     The following  table  presents the  Company's  contractual  obligations  at
December 31, 2003:

<TABLE>
                                                         Payments due by period
                                                             (in thousands)
                               ---------------------------------------------------------------------------
                               Less than           1-3              3-5          More than
                                 1 year           years            years          5 years            Total
                                -------          -------         --------        ---------          -------
<S>                             <C>              <C>             <C>             <C>                <C>
Long-Term Debt Obligation       $ 1,428          $ 8,572         $      -        $       -          $10,000
Line of Credit Obligation         1,500                -                -                             1,500

Operating Lease Obligations         376              638              484              614            2,112
Purchase Obligations              1,129            1,761                -                -            2,890
                                -------          -------          -------          -------          -------
Total:                          $ 4,433          $10,971          $   484          $   614          $16,502
                                =======          =======          =======          =======          =======

</TABLE>

     Long-term  debt and line of  credit  obligations  relate  to the  Company's
borrowing arrangement with another financial institution as more fully described
in Liquidity  above and in Note 8 - Other  Borrowings  of Notes to  Consolidated
Financial  Statements  in Item 8 of Part II of this Form 10-K.  Operating  lease
obligations represent contractual  commitments to make payments under leases for
certain branch equipment and related  properties.  The Company does not have any
capital  leases  obligations.  Purchase  obligations  are defined as contractual
obligations to purchase  products or services from  unaffiliated  parties with a
specific  minimum  quantity  defined at a fixed,  minimum or variable price over
time.  The  Company's  primary  purchase  obligation  relates  to  certain  core
processing services provided by an unaffiliated vendor. The services provided to
the  Company  relate  to  critical   front  and  back  office  data   processing
applications.  The term of the  contract  runs  through  June  30,  2006 and has
pricing  provisions  that  provide  for  certain  minimum  levels of account and
transaction volumes. To date, the level of services obtained under this contract
has exceeded such minimums.  During 2003, the average monthly fee paid for these
services  was  approximately  $91,000.  For purposes of  presenting  contractual
commitments in the table above,  the average  monthly amount was projected to be
paid  over the  remaining  term of the  contract,  subject  to  minimum  pricing
increases as outlined in the agreement.

Interest Rate Sensitivity

     Interest rate sensitivity refers to the responsiveness of  interest-earning
assets and interest-bearing liabilities to changes in market interest rates. The
rate  sensitive  position,  or gap,  is the  difference  between  the  volume of
rate-sensitive assets and liabilities, at a given time interval,  including both
floating  rate  instruments  and  instruments  that  are  approaching  maturity.
Management  generally  attempts  to  maintain a balance  between  rate-sensitive
assets and  liabilities  as the exposure  period is  lengthened  to minimize the
overall interest rate risk to the Company.

     The Company's  gap and liquidity  positions are reviewed on a regular basis
by management to determine whether or not changes in policies and procedures are
necessary  to achieve  financial  goals.  Included  in the review is an internal
analysis of the possible  impact on net interest income due to market changes in
interest rates. Based on this internal analysis, at December 31, 2003, a gradual
increase in interest rates of 200 basis points would have increased net interest
income  over the ensuing  twelve-month  period by 3.77%.  A gradual  decrease in
interest  rates of 200 basis points over this same period  would have  decreased
net  interest  income by 5.19% as  compared  to a stable  rate  environment.  At


                                       20
<PAGE>

December 31, 2002, the internal  analysis  estimated an increase in net interest
income of 3.76% and a decrease in net interest income of 3.83% for a similar 200
basis point increase and decrease in interest rates,  respectively.  The Company
maintained  its overall asset  sensitivity  position as it continued to focus on
variable-rate  lending and experience  growth in demand and time  deposits.  The
Company considers this  asset-sensitive  position  desirable given the perceived
likelihood of increasing interest rates over the foreseeable horizon.

     The Company  also  monitors  the Bank's  market value of equity and its net
economic  value ratio on a monthly  basis.  Market value of equity is defined as
the  difference  between the estimated  fair value of the Bank's assets less the
estimated fair value of liabilities.  The net economic value ratio is the market
value of equity  divided by the market  value of assets and  measures the Bank's
capitalization,  taking into account balance sheet gains and losses. At December
31, 2003,  the Bank's net economic  value ratio was 8.73% and 9.23%,  assuming a
gradual  increase or  decrease,  respectively,  in  interest  rates of 200 basis
points over a 12-month  period.  At December 31,  2002,  the Bank's net economic
value ratio was 10.04% and 10.13% for similar changes in interest rates.


     Table 3, "Rate  Sensitivity  Analysis"  presents,  for the years indicated,
rate sensitive  assets and liabilities,  separating fixed and variable  interest
rate  categories.  The estimated fair value of each instrument  category is also
shown in the table.  While these fair values are based on management's  judgment
of the most appropriate factors, there is no assurance that, were the Company to
have  disposed of such  instruments  on December 31, 2003,  the  estimated  fair
values would  necessarily  have been achieved at that date,  since market values
may differ depending on various circumstances.











                                       21
<PAGE>

<TABLE>
Table 3: Rate Sensitivity Analysis
 December 31, 2003

(Dollars in thousands)                                                                                                 Fair
                                      1 Year     2 Years    3 Years    4 Years    5 Years      Beyond      TOTAL       Value
                                      ------     -------    -------    -------    -------      ------      -----       -----
INTEREST-EARNING ASSETS:
------------------------
Gross Loans
<S>                                  <C>         <C>        <C>        <C>        <C>         <C>         <C>         <C>
  Fixed Rate Loans                   $131,547    $52,997    $46,702    $49,094    $55,172     $136,070    $471,582    $475,508
    Average Interest Rate                6.07%      6.73%      6.71%      6.84%      6.29%        5.90%       6.26%

  Variable Rate Loans                  53,172     27,819     31,048      9,781     12,030       76,318     210,168     216,045
    Average Interest Rate                4.39%      4.59%      4.57%      5.82%      5.88%        6.25%       5.27%

Investment Securities (1)

  Fixed Rate Investments                4,006          -      1,506      4,000      1,113       74,815      85,440      84,778
    Average Interest Rate                1.22%                 1.50%      2.40%      4.11%        4.41%       4.11%

  Variable Rate Investments                 -          -          -          -          -          340         340         350
    Average Interest Rate                                                                         3.95%       3.95%

Federal Funds Sold                          -          -          -          -          -            -           -           -
    Average Interest Rate

Other Earning Assets (2)                4,028          -          -          -          -            -       4,028       4,028
    Average Interest Rate                3.72%                                                                3.72%
                                     --------    -------    -------    -------    -------     --------    --------    --------

Total Interest-Earning Assets        $192,753    $80,816    $79,256    $62,875    $68,315     $287,543    $771,558    $780,709
    Average Interest Rate                5.46%      5.76%      5.77%      6.40%      6.18%        5.60%       5.72%
                                     ========    =======    =======    =======    =======     ========    ========    ========

INTEREST-BEARING LIABILITIES:
-----------------------------

NOW                                  $ 68,274    $     -    $     -    $     -    $     -     $ 65,485    $133,759    $133,759
    Average Interest Rate                1.51%                                                    0.20%       0.87%

Money Market                          131,925          -          -          -          -        3,873     135,798     135,798
    Average Interest Rate                1.99%                                                    0.95%       1.96%

Savings                                     -          -          -          -          -       24,983      24,983      24,983
    Average Interest Rate                                                                         0.35%       0.35%

CD's Under $100,000                   117,486     34,339     15,446      5,816        365            -     173,452     175,109
    Average Interest Rate                2.32%      3.69%      3.83%      3.60%      3.67%                    2.77%

CD's $100,000 and Over                118,435     23,218     10,539      7,657        850            -     160,699     161,319
    Average Interest Rate                2.70%      3.82%      3.69%      4.17%      4.34%                    3.01%

Securities Sold Under
 Repurchase Agreements and
 Federal Funds Purchased               22,550          -          -          -          -            -      22,550      22,550
    Average Interest Rate                0.69%                                                                0.69%

Short Term Borrowings
    Average Interest Rate               1,500          -          -          -          -            -       1,500       1,500
                                         2.63%                                                                2.63%

Other Borrowings (3)                    1,428      1,428      7,144          -          -            -      10,000      10,000
    Average Interest Rate                3.60%      3.60%      3.60%                                          3.60%
                                     --------    -------    -------    -------    -------     --------    --------    --------

Total Interest-Bearing Liabilities   $461,598    $58,985    $33,129    $13,473    $ 1,215     $ 94,341    $662,741    $665,018
    Average Interest Rate                2.13%      3.74%      3.74%      3.92%      4.14%        0.27%       2.13%
                                     ========    =======    =======    =======    =======     ========    ========    ========

<FN>
----------------
(1)  Securities  available for sale are shown at their amortized cost, excluding
     market value adjustment for net unrealized losses of ($532,000).
(2)  Represents  interest  bearing  deposits  with Banks,  Federal  Reserve Bank
     Stock, Federal Home Loan Bank Stock and other marketable equity securities.
(3)  Other borrowings consist of a term loan maturing October 3, 2006 that bears
     interest at 3-month Libor plus 170 basis points. The variable rate is reset
     quarterly. The variable interest payments on the term loan are being hedged
     through an interest rate swap.  Under the interest  rate swap,  the Company
     pays a  fixed rate of interest  of 6.45% (calculated on a 360 day year) and
     receives  a  floating  rate of  interest  of  3-month  Libor plus 170 basis
     points. Other terms of the swap mirror those of the term debt.
</FN>
</TABLE>

                                       22
<PAGE>

<TABLE>
Table 3: Rate Sensitivity Analysis
 December 31, 2002

(Dollars in thousands)                                                                                                  Fair
                                      1 Year     2 Years     3 Years     4 Years    5 Years     Beyond      TOTAL       Value
                                      ------     -------     -------     -------    -------     ------      -----       -----
INTEREST-EARNING ASSETS:
------------------------

Gross Loans
<S>                                  <C>         <C>         <C>         <C>        <C>        <C>         <C>         <C>
     Fixed Rate Loans                $112,930    $51,890     $38,900     $34,665    $53,539    $ 95,892    $387,816    $407,523
       Average Interest Rate             7.04%      7.33%       7.75%       7.50%      7.30%       7.00%       7.22%

     Variable Rate Loans               62,814     27,520      21,583      13,545      9,841      82,666     217,969     218,028
       Average Interest Rate             4.81%      5.07%       5.24%       5.70%      6.72%       7.49%       6.04%

Investment Securities(1)
     Fixed Rate Investments             8,064     14,497       5,474           -          -      17,317      45,352      46,201
       Average Interest Rate             2.41%      5.05%       4.37%                              4.45%       4.27%

     Variable Rate Investments              -          -           -           -          -         471         471         484
       Average Interest Rate                                                                       5.34%       5.34%

Federal Funds Sold                      5,400          -           -           -          -           -       5,400       5,400
       Average Interest Rate             1.17%                                                                 1.17%

Other Earning Assets(2)                15,212          -           -           -          -           -      15,212      15,212
       Average Interest Rate             2.19%                                                                 2.19%
                                     --------    -------     -------     -------    -------    --------    --------    --------

Total Interest-Earning Assets        $204,420    $93,907     $65,957     $48,210    $63,380    $196,346    $672,220    $692,848
       Average Interest Rate             5.66%      6.32%       6.65%       6.99%      7.21%      6.98%        6.48%
                                     ========    =======     =======     =======    =======    ========    ========    ========

INTEREST-BEARING LIABILITIES:
-----------------------------

NOW                                  $ 65,437    $     -     $     -     $     -    $     -    $ 53,182    $118,619    $118,619
       Average Interest Rate             1.96%                                                     0.51%       1.31%

Money Market                           90,798          -           -           -          -       4,556      95,354     95,354
       Average Interest Rate             2.36%                                                     1.24%       2.31%

Savings                                     -          -           -           -          -      22,311      22,311      22,311
       Average Interest Rate                                                                       0.50%       0.50%

CD's Under $100,000                   109,390     28,964      25,033       8,537        747           -     172,671     174,134
       Average Interest Rate             2.95%      3.89%       4.15%       4.43%      5.11%                   3.36%

CD's $100,000 and Over                117,910     21,677      12,916       4,968      2,145           -     159,616     160,705
       Average Interest Rate             3.49%      4.15%       4.39%       4.54%      5.27%                   3.71%

Securities Sold Under
   Repurchase Agreements and
   Federal Funds Purchased             14,446          -           -           -          -           -      14,446      14,446
       Average Interest Rate             0.85%                                                                 0.85%

Short Term Borrowings
       Average Interest Rate            1,000          -           -           -          -           -       1,000       1,000
                                         2.85%                                                                 2.85%

Other Borrowings(3)                         -      1,428       1,428       7,144          -           -      10,000      10,000
       Average Interest Rate                        3.46%       3.46%       3.46%                              3.46%
                                     --------    -------     -------     -------    -------    --------    --------    --------

Total Interest-Bearing Liabilities   $398,981    $52,069     $39,377     $20,649    $ 2,892    $ 80,049    $594,017    $596,569
       Average Interest Rate             2.74%      3.99%       4.20%       4.12%      5.23%       0.55%       2.71%
                                     ========    =======     =======     =======    =======    ========    ========    ========

<FN>
--------------
(1)  Securities  available for sale are shown at their amortized cost, excluding
     market value adjustment for net unrealized gains of $862,000.
(2)  Represents  interest  bearing  deposits  with Banks,  Federal  Reserve Bank
     Stock, Federal Home Loan Bank Stock and other marketable equity securities.
(3)  Other borrowings consist of a term loan maturing October 3, 2006 that bears
     interest at 3-month Libor plus 170 basis points. The variable rate is reset
     quarterly. The variable interest payments on the term loan are being hedged
     through an interest rate swap.  Under the interest  rate swap,  the Company
     pays a fixed rate of  interest of 6.45% (calculated  on a 360 day year) and
     receives  a  floating  rate of  interest  of  3-month  Libor plus 170 basis
     points. Other terms of the swap mirror those of the term debt.
</FN>
</TABLE>

                                       23
<PAGE>


     Core  deposits,  which  represent all deposits  other than time deposits in
excess of $100,000,  averaged 76% of total  average  deposits in 2003 and 77% in
2002.  The Company  closely  monitors its reliance on time deposits in excess of
$100,000. The Bank does not nor has it ever solicited brokered deposits. Table 4
sets forth the amounts of time  deposits  with balances of $100,000 or more that
mature within indicated periods.


             Table 4: Maturity of Time Deposits of $100,000 or More
                                December 31, 2003
                                                   Amount
                                                 -----------
                                                 (thousands)

                      Three Months or Less        $ 37,015
                      Three Through Six Months      28,520
                      Six Through Twelve Months     52,900
                      Over Twelve Months            42,264
                                                  --------
                      Total                       $160,699
                                                  ========

Earning Assets

Loans

     Lending  activities  are the Company's  single  largest  source of revenue.
Although  management is continually  evaluating  alternative sources of revenue,
lending  is  the  major  segment  of  the  Company's  business  and  is  key  to
profitability.  Average  loans for the year ended  December 31, 2003 were $632.3
million,  or 86% of average earning assets as compared to $553.5 million, or 91%
of average  earning  assets for 2002.  The decline in loans as a  percentage  of
average  earning  assets is due to growth in deposit  balances  during 2003 that
outpaced net loan fundings.  As a result,  the Company deployed the excess funds
in  investment  securities,  fed funds sold and interest  bearing  deposits with
banks,  which  increased  from 9% of  average  earning  assets in 2002 to 14% of
average earning assets in 2003.

     As of  December  31,  2003 the  Company  had  total  gross  loans of $681.8
million,  compared to $605.8  million at December 31, 2002, an increase of $76.0
million or 13%. The  composition  of the Company's  loan  portfolio for the past
five years is presented in Table 5.

                       Table 5: Loan Portfolio Composition


<TABLE>
                                                                                   December 31,
                                                     --------------------------------------------------------------------
                                                         2003          2002            2001           2000          1999
                                                     ---------     ---------        --------       --------      --------
<S>                                                  <C>           <C>              <C>            <C>           <C>
Commercial                                           $ 120,033     $ 111,033        $ 95,112       $ 67,962      $ 41,745
Commercial real estate                                 365,911       324,525         252,295        181,831       115,633
Mortgages (including home equity)                      157,325       132,513         123,503         97,220        68,343
Consumer                                                32,510        32,199          34,835         26,418        33,856
Credit card                                                  -         1,164           1,313          1,593         1,538
Tax free                                                 5,971         4,351           4,589          4,835         4,969
                                                     ---------     ---------       ---------      ---------     ---------
     Total loans, net of unearned discount             681,750       605,785         511,647        379,859       266,084
Less:  Allowance for loan loss                          (7,329)       (6,574)         (5,205)        (3,670)       (2,671)
                                                     ---------     ---------       ---------      ---------     ---------
     Net loans                                       $ 674,421     $ 599,211       $ 506,442      $ 376,189     $ 263,413
                                                     =========     =========       =========      =========     =========
</TABLE>

     Table 6 sets forth the maturity distribution for selected components of the
Company's  loan  portfolio as of December 31, 2003.  Demand loans and overdrafts
are  reported  as due in one  year or  less,  and loan  maturity  is based  upon
scheduled principal payments.



                                       24
<PAGE>


                  Table 6: Maturity Schedule of Selected Loans
                                December 31, 2003
                                 (in thousands)


                                       0-12        1-5      Over 5
                                      Months      Years      Years      Total
                                     --------   --------   --------   --------
 Commercial                          $ 56,458   $ 49,945   $ 13,630   $120,033
 Commercial real estate                91,488    167,881    106,542    365,911
 Mortgages (including home equity)     23,084     45,729     88,512    157,325
 Consumer                              12,229     18,821      1,460     32,510
 Tax free                               1,460      2,267      2,244      5,971
                                     --------   --------   --------   --------
 Total                               $184,719   $284,643   $212,388   $681,750
                                     ========   ========   ========   ========


 Fixed interest rate                 $131,547   $203,965   $136,070   $471,582
 Variable interest rate              $ 53,172   $ 80,678   $ 76,318   $210,168


     Loan  concentrations are considered to exist where there are amounts loaned
to multiple  borrowers engaged in similar activities which collectively would be
similarly  impacted by economic or other  conditions  and when the total of such
amounts exceed 25% of total capital. Due to the lack of diversified industry and
the relative  proximity of markets  served,  the Company has  concentrations  in
geographic as well as in types of loans funded. At December 31, 2003, the Bank's
four largest  concentration  categories are: Land  Development  ($37.4 million),
Professional  ($32.4  million),  Commercial  Real  Estate  ($29.8  million)  and
Commercial Construction ($24.2 million).

Loan Quality


     Non-performing  assets consist of non-accrual loans, loans past due 90 days
or more and still accruing interest,  other real estate owned and repossessions.
Non-performing  assets  decreased from $8.1 million at December 31, 2002 to $3.8
million at December 31,  2003.  Non-performing  assets as a percentage  of total
assets  decreased  to  0.46%  in 2003  from  1.11%  in  2002.  The  decrease  in
non-performing assets was primarily attributed to the resolution of a commercial
credit and two  commercial  real estate loans during 2003.  The decrease in past
due loans 90 days or more and still  accruing  interest  was  largely due to the
payoff of a large commercial real estate loan during the fourth quarter of 2003.


     Management  is  continually  analyzing  its loan  portfolio in an effort to
recognize and resolve its problem assets as quickly and efficiently as possible.
Table 7 sets forth certain categories of risk elements on non-performing  assets
for the past five years.

                         Table 7: Non-Performing Assets

                                                          December 31,
<TABLE>
                                     2003        2002        2001        2000        1999
                                    ------      ------      ------      ------      ------
                                                     (dollars in thousands)
<S>                                 <C>         <C>         <C>         <C>         <C>
Non-Accrual Loans                   $3,292      $5,611      $1,377      $  579      $  549
Past Due Loans 90 Days or
More and Still Accruing                387       2,439       1,271         840         180
Other Real Estate Owned &
    Repossessions                      133          24         229          56         102
                                    ------      ------      ------      ------      ------
      Total Non-Performing Assets   $3,812      $8,074      $2,877      $1,475      $  831
                                    ======      ======      ======      ======      ======

Percent of Total Assets               0.46%       1.11%       0.47%       0.32%       0.24%
                                    ======      ======      ======      ======      ======
</TABLE>



                                       25
<PAGE>


     The  allowance  for loan  loss is an amount  that  management  believes  is
adequate  to  absorb   inherent   losses  on  existing  loans  that  may  become
uncollectible  based on  evaluations  of the  collectibility  of the loans.  The
allowance for loan loss is established through a provision for loan loss charged
to  expense.  Loans  are  charged  against  the  allowance  for loan  loss  when
management  believes  that  collectibility  of the  principal is  unlikely.  The
evaluation of collectibility  takes into consideration such objective factors as
changes  in the  nature and volume of the loan  portfolio  and  historical  loss
experience.  The evaluation also considers  certain  subjective  factors such as
overall portfolio quality, review of specific problem loans and current economic
conditions that may affect the borrowers'  ability to pay. The  determination of
the allowance for loan loss  considers  both  specifically  identified  impaired
loans, as well as expected losses on large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment. The level of the allowance
for loan loss is also impacted by increases and decreases in loans  outstanding,
since either more or less  allowance is required as the amount of the  Company's
credit exposure changes. To the extent actual loan losses differ materially from
management's   estimate  of  these  subjective   factors,   loan  growth/run-off
accelerates  or the mix of loan types  changes,  the level of the  provision for
loan loss, and related allowance, can and will fluctuate.


     The  allowance  for loan loss on December 31, 2003,  was $7.3  million,  or
1.08% of total  loans  outstanding,  net of  unearned  income  compared  to $6.6
million,  or 1.09% on December 31, 2002.  Table 8:  "Allocation of Allowance for
Loan Loss," set forth below,  indicates the specific reserves  allocated by loan
type.


                 Table 8: Allocation of Allowance for Loan Loss


<TABLE>
                                                                          December 31,
                                    2003                2002                 2001               2000                1999
                              ----------------    ----------------    ----------------    ----------------    ----------------
                                       Percent             Percent             Percent             Percent             Percent
                                      of Loans            of Loans            of Loans            of Loans            of Loans
                                       in Each             in Each             in Each             in Each             in Each
                                      Category            Category            Category            Category            Category
                                      to Total            to Total            to Total            to Total            to Total
                              Amount     Loans    Amount     Loans    Amount     Loans    Amount     Loans    Amount     Loans
                              ------     -----    ------     -----    ------     -----    ------     -----    ------     -----
                                                                   (dollars in thousands)
<S>                           <C>         <C>     <C>         <C>     <C>     <C>         <C>        <C>      <C>        <C>
Commercial, Financial
   and Agricultural           $6,033      44.6%   $4,929      60.6%   $3,669  54.8%       $2,607     50.7%    $1,670     51.5%
Real Estate - Construction        33      18.8%       27       8.7%       25   8.0%           15      8.9%        12      7.1%
Real Estate - Mortgage           613      30.3%      538      24.1%      484  29.0%          293     31.5%       220     32.4%
Consumer                         650       6.3%    1,080       6.6%      932   8.2%          734      8.9%       769      9.0%
Unallocated                        -         -         -         -        95     -            21        -          -        -
                              ------      ----    ------      ----    ------  ----        ------     ----     ------     ----
      Total                   $7,329       100%   $6,574       100%   $5,205   100%       $3,670      100%    $2,671      100%
                              ======       ===    ======       ===    ======   ===        ======      ===     ======      ===
</TABLE>























                                       26
<PAGE>



     Table 9:  "Activity in Allowance for Loan Loss"  indicates  activity in the
allowance for loan loss for the last five years.

                  Table 9: Activity in Allowance for Loan Loss

<TABLE>
                                                            2003           2002            2001             2000            1999
                                                         ---------       ---------       ---------       ---------       ---------
                                                                                   (dollars in thousands)

<S>                                                      <C>             <C>             <C>             <C>             <C>
Balance at Beginning of Year                             $   6,574       $   5,205       $   3,670       $   2,671       $   1,875
Allowance Acquired by Acquisition                                -               -             110               -               -
Loans Charged-Off:
   Commercial, Financial and Agricultural                      778             756             410              75             312
   Real Estate - Mortgage                                      125              71              59              40              13
   Consumer                                                    546             405             406             409             309
                                                         ---------       ---------       ---------       ---------       ---------
      Total Loans Charged-Off                               (1,449)         (1,232)           (875)           (524)           (634)

Recoveries on Loans Previously Charged-Off:
   Commercial, Financial and Agricultural                       36              96             116              32             188
   Real Estate - Mortgage                                        3              33              17               -               -
   Consumer                                                     65              97             117             141              82
                                                         ---------       ---------       ---------       ---------       ---------
      Total Loan Recoveries                                    104             226             250             173             270
                                                         ---------       ---------       ---------       ---------       ---------
               Net Loans Charged-Off                        (1,345)         (1,006)           (625)           (351)           (364)
                                                         ---------       ---------       ---------       ---------       ---------
Provision for Loan Loss
  Charged to Expense                                         2,100           2,375           2,050           1,350           1,160
                                                         ---------       ---------       ---------       ---------       ---------
Ending Balance                                           $   7,329       $   6,574       $   5,205       $   3,670       $   2,671
                                                         =========       =========       =========       =========       =========

Total Loans Outstanding                                  $ 681,750       $ 605,785       $ 511,647       $ 379,859       $ 266,084
Average Loans Outstanding                                $ 632,254       $ 553,476       $ 458,023       $ 317,345       $ 215,861
Allowance for Loan Loss
   to Loans Outstanding                                       1.08%           1.09%           1.02%           0.97%           1.00%
Net Charge-Offs to
   Average Loans Outstanding                                  0.21%           0.18%           0.14%           0.11%           0.17%
</TABLE>

Investment Portfolio


     The Company uses its securities  portfolio to assist in maintaining  proper
interest rate sensitivity in the balance sheet, to provide  securities to pledge
as  collateral  for public  funds and  repurchase  agreement,  and to provide an
alternative  investment  for  available  funds.  The  total  recorded  value  of
securities was $88.4 million at December 31, 2003, an increase of 78% from $49.7
million  at  December  31,  2002.  As a percent  of total  earning  assets,  the
investment  portfolio  was 12% at December 31, 2003 compared to 8% at the end of
2002.  The increase was primarily the result of deposit growth that outpaced the
growth in loans.  A portion of these  excess funds were  deployed in  investment
securities  in order to take  advantage of higher  yields on funds that were not
expected to be  immediately  deployed into loans and to  accommodate  increasing
pledging needs.

     Securities are classified as either  held-to-maturity or available-for-sale
and are  recorded at  amortized  cost and fair market  value,  respectively.  At
December 31, 2003 investment  securities  available-for-sale  made up 67% of the
total   investment    portfolio   of   $88.4   million.    Securities   in   the
available-for-sale portfolio are recorded at fair value on the balance sheet and
unrealized gains and losses  associated with these securities are recorded,  net
of tax,  as  accumulated  other  comprehensive  income.  At December  31,  2003,
accumulated  other  comprehensive  income  included an unrealized  loss,  net of
taxes,  of $333,000,  compared to a $541,000 net unrealized gain at December 31,
2002 on  securities  available for sale.  Also  included in other  comprehensive
income is the accumulated net loss on the Company's  interest rate swap which is
accounted for as a cash flow hedge.


     The Company invests  primarily in direct  obligations of the United States,
obligations  guaranteed  as to principal  and interest by the United  States and
obligations  of agencies of the United States.  In addition,  the Company enters
into federal funds  transactions  with its principal  correspondent  banks.  The
Federal Reserve Bank and Federal Home Loan Bank also require equity  investments
to be maintained by the Company.



                                       27
<PAGE>

     The following  tables set forth the maturity  distribution and the weighted
average yields of the Company's investment portfolio.

          Table 10: Maturity Distribution of Investment Securities (1)
                                December 31, 2003

<TABLE>
Dollars in Thousands                              Held to Maturity                 Available for Sale
-------------------------------------------------------------------------------------------------------------
                                           Amortized         Estimated         Amortized         Estimated
                                                Cost        Market Value            Cost        Market Value
                                           ---------        ------------       ---------        ------------

<S>                                                         <C>                  <C>               <C>
U.S. Treasuries:
  One Year or Less                           $     -        $        -           $ 4,006           $ 4,008
                                             -------           -------           -------           -------
Total U.S. Treasuries                              -                 -             4,006             4,008

U.S. Government Agencies
  and Corporations (2):
   Over One Through Five Years                     -                 -             5,506             5,437
   Over Five Through Ten Years                 7,500             7,496            10,000            10,034
   Over Ten Years                             17,500            17,374            10,000             9,494
                                             -------           -------           -------           -------
Total U.S. Government Agencies
  and Corporations                            25,000            24,870            25,506            24,965

Obligations of State and Political
 Subdivisions:
   Over Five Through Ten Years                     -                 -               608               636
   Over Ten Years                                  -                 -             1,560             1,596
                                             -------           -------           -------           -------
Total Obligations of State and
  Political Subdivisions                           -                 -             2,168             2,232

Mortgage-Backed Securities (3):
   Over One Through Five Years                     -                 -             1,113             1,131
   Over Five Through Ten Years                 4,536             4,546            15,868            15,816
   Over Ten Years                                  -                 -             7,583             7,560
                                             -------           -------           -------           -------
Total Mortgage-Backed Securities               4,536             4,546            24,564            24,507

Other Securities (4):
   Over Ten Years                                  -                 -             3,119             3,119
                                             -------           -------           -------           -------
Total Other Securities                             -                 -             3,119             3,119

 Total Securities                            $29,536           $29,416           $59,363           $58,831
                                             =======           =======           =======           =======

<FN>
----------------
(1)  All securities,  excluding Obligations of State and Political Subdivisions,
     are taxable.
(2)  Includes  securities  that may be callable  prior to their stated  maturity
     date.
(3)  Represents  investments in mortgage-backed  securities which are subject to
     early repayment.
(4)  Represents  investment  in Federal  Reserve Bank and Federal Home Loan Bank
     stock and other marketable equity securities.
</FN>
</TABLE>

            Table 10a: Weighted Average Yield by Range of Maturities

                                                          December 31,
                                                     2003            2002
                                                     ----            ----
One Year or Less                                     1.22%           2.41%
Over One through Five Years                          2.48            4.87
Over Five through Ten Years                          3.98            4.48
Over Ten Years (1)                                   4.87            4.46


----------------
(1)  Represents   adjustable   rate,   mortgage-backed   securities   which  are
     repriceable within one year.



                                       28
<PAGE>

Capital Resources

     Shareholders' equity at December 31, 2003 was $56.4 million, as compared to
$50.9  million at December 31, 2002.  In 2003,  the Board of Directors  declared
dividends  totaling  $0.24 per  share,  compared  to $0.20 per share in 2002 and
2001. At December 31, 2003, the Company's common stock had a book value of $9.01
per share compared to $8.31 per share at the end of 2002.

     On January 29, 1999 the Company began trading on the NASDAQ National Market
under the symbol  "CNBB" after  issuing  1,250,000  shares of common stock in an
initial public offering at $10.25 per common share.  Proceeds from the offering,
net of  underwriting  discount and expenses,  totaled $11.4 million,  which were
used to support expansion plans and for general corporate purposes.

     The  Company  is  subject  to  various  regulatory   capital   requirements
administered by the federal banking agencies.  Under capital adequacy guidelines
the Company 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.   Capital  amounts  and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.

     Quantitative  measures as defined by regulation  and  established to ensure
capital  adequacy  require  the Bank to maintain  minimum  amounts and ratios of
Total and Tier 1  capital  to  risk-weighted  assets  and of Tier 1  capital  to
average  assets.  If such  minimum  amounts  and  ratios  are  met,  the Bank is
considered  "adequately  capitalized."  If a bank  exceeds the  requirements  of
"adequately  capitalized" and meets even more stringent minimum standards, it is
considered to be "well capitalized." As of December 31, 2003, the Bank meets all
capital adequacy requirements to which it is subject.

     At December  31,  2003,  the  Company's  Tier 1 capital,  total  risk-based
capital  and Tier 1  leverage  ratios  were 7.8%,  8.9% and 6.4%,  respectively.
Selected  capital ratios at year end 2003 as compared to 2002 are shown in Table
11.

                                    Table 11: Capital Ratios

<TABLE>
                                                                            Adequately
                                   December 31,          Well Capitalized  Capitalized
                                2003         2002          Requirements      Minimums
                             ----------   ----------       ------------      --------

Risk Based Capital Ratios:
<S>     <C>                     <C>           <C>              <C>             <C>
   Tier 1 Capital Ratio         7.8%          7.4%             6.0%            4.0%

   Total Capital to
     Risk-Weighted Assets       8.9%          8.5%            10.0%            8.0%

Tier 1 Leverage Ratio           6.4%          6.3%             5.0%            4.0%
</TABLE>














                                       29
<PAGE>



Quarterly Financial Information

     Table 12 sets forth, for the periods indicated,  certain  consolidated 2003
and 2002  quarterly  financial  information  of the  Company.  Table 13 includes
average  balances,  yields  and rates for each of the last five  quarters.  This
information is derived from the Company's unaudited  financial  statements which
include,  in the opinion of management,  all normal recurring  adjustments which
management  considers  necessary for a fair presentation of the results for such
periods.  The results for any quarter are not necessarily  indicative of results
for any future period.

                        Table 12: Selected Quarterly Data

<TABLE>
                                                            2003                                       2002
                                       --------------------------------------------    --------------------------------------------
(dollars in thousands,
 except per share data)                   4Q          3Q           2Q          1Q          4Q          3Q          2Q         1Q
-------------------------------------     --          --           --          --          --          --          --         --

Summary of Operations:
<S>                                    <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
  Net interest income                  $  7,548    $  7,128    $  6,762    $  6,560    $  6,727    $  6,768    $  6,400    $  5,857
  Provision for loan loss                  (450)       (325)       (650)       (675)       (750)       (600)       (525)       (500)
                                       --------    --------    --------    --------    --------    --------    --------    --------
  Net interest income after
    provision for loan loss               7,098       6,803       6,112       5,885       5,977       6,168       5,875       5,357

  Other income  (excluding securities
    transactions)                         1,282       1,435       1,487       1,609       1,657       1,552       1,496       1,404
  Securities gains, net                       -          11         382          13         191           -           4           -
  Other expenses                         (5,393)     (5,480)     (5,365)     (5,469)     (5,338)     (5,355)     (5,304)     (5,159)
                                       --------    --------    --------    --------    --------    --------    --------    --------
  Income before income tax expense        2,987       2,769       2,616       2,038       2,487       2,365       2,071       1,602
  Income tax expense                     (1,116)     (1,032)       (947)       (737)       (908)       (888)       (738)       (607)
                                       --------    --------    --------    --------    --------    --------    --------    --------
  Net income                           $  1,871    $  1,737    $  1,669    $  1,301    $  1,579    $  1,477    $  1,333    $    995
                                       ========    ========    ========    ========    ========    ========    ========    ========
Per Common Share:
  Basic earnings                       $   0.30    $   0.28    $   0.27    $   0.21    $   0.26    $   0.24    $   0.22    $   0.16
  Diluted earnings                         0.29        0.27        0.26        0.21        0.25        0.24        0.21        0.16
  Dividends declared                       0.06        0.06        0.06        0.06        0.05        0.05        0.05        0.05
  Book value                               9.01        8.72        8.61        8.40        8.31        8.12        7.93        7.75
  Market price
         High                             24.40       18.33       18.25       18.25       16.34       12.24       12.25       10.12
         Low                              18.00       15.00       14.70       15.00       11.60       10.70        9.66        9.35
         Close                            23.00       18.00       15.65       18.00       15.89       11.84       11.35        9.80

Balance Sheet Data (end of quarter):
  Assets                               $819,935    $810,299    $792,338    $774,205    $730,674    $686,860    $660,943    $624,340
  Loans, net                            674,421     647,592     623,214     599,414     599,211     567,722     549,242     514,530
  Deposits                              723,686     727,803     711,988     694,816     648,636     613,030     587,533     549,648
  Shareholders' Equity                   56,387      54,219      53,569      51,576      50,921      49,587      48,352      47,262
</TABLE>







                                       30
<PAGE>



                      Table 13: Quarterly Average Balances,
                                Yields and Rates
                             (dollars in thousands)


<TABLE>
                                     Fourth Quarter 2003              Third Quarter 2003                  Second Quarter 2003
                                 ---------------------------     -------------------------------      -----------------------------
                                           Interest                           Interest                           Interest
                                 Average   Income or Average      Average     Income or  Average      Average    Income or   Average
                                 Balance    Expense  Rate         Balance      Expense   Rate         Balance     Expense    Rate
                                 -------    -------   ----        -------     -------    ----         -------     -------    ----
ASSETS:
<S>                              <C>       <C>        <C>        <C>          <C>        <C>          <C>         <C>        <C>
 Federal Funds Sold              $  2,254  $     5    0.88%      $   7,745    $    18    0.92%        $ 11,191    $    31    1.11  %
 Investment Securities
   Available for Sale              59,785      558    3.70          63,960        509    3.16           58,740        515    3.52
 Investment Securities
   Held to Maturity                29,617      370    4.96          15,878        202    5.05                -          -       -
 Loans (1)                        669,474   10,253    6.08         635,170     10,101    6.31          619,581     10,075    6.52
 Interest Bearing Deposits          4,965       13    1.04          23,443         59    1.00           32,588        123    1.51
                                 --------  -------    ----       ---------    -------    ----         --------    -------    ----
TOTAL EARNING ASSETS              766,095   11,199    5.80         746,196     10,889    5.79          722,100     10,744    5.97
     All Other Assets              50,766                           50,356                              56,128
                                 --------                        ---------                            --------

TOTAL ASSETS                     $816,861                        $ 796,552                            $778,228
                                 ========                        =========                            ========

LIABILITIES AND
  SHAREHOLDERS' EQUITY:
 NOW & Money Markets             $264,735      922    1.38       $ 247,017        849    1.36         $231,501        899    1.56
 Savings                           25,282       22    0.35          24,926         22    0.35           24,005         29    0.48
 Time Deposits                    340,734    2,497    2.91         346,420      2,693    3.08          347,706      2,856    3.29
 Federal Funds Purchased and
   Repurchase Agreements           15,962       35    0.87          12,428         23    0.73           12,331         29    0.94
 Short Term Borrowings              1,500       10    2.64           1,342          9    2.66            1,000          7    2.81
 Other Borrowings (2)              10,000      165    6.55          10,000        165    6.55           10,000        163    6.54
                                 --------  -------    ----       ---------    -------    ----         --------    -------    ----
TOTAL INTEREST BEARING
 LIABILITIES                      658,213    3,651    2.20         642,133      3,761    2.32          626,543      3,983    2.55
 Demand Deposits                   97,982                           94,566                              92,525
 Other Liabilities                  5,015                            5,991                               5,979
 Shareholders' Equity              55,651                           53,862                              53,181
                                 --------                        ---------                            --------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY            $816,861                        $ 796,552                            $778,228
                                 ========                        =========                            ========

                                                      ----                               ----                                ----
INTEREST SPREAD (3)                                   3.60%                              3.47%                               3.42%
                                                      ====                               ====                                ====

                                           -------                            -------                             -------
NET INTEREST INCOME                        $ 7,548                            $ 7,128                             $ 6,761
                                           =======                            =======                             =======

NET INTEREST MARGIN (4)                               3.91%                              3.79%                               3.76%
                                                      ====                               ====                                ====

<FN>
--------------
(1)  Interest  income on average  loans  includes  net loan fee  recognition  of
     $116,000,  $114,000 and $128,000 in the fourth, third and second quarter of
     2003  respectively.  Nonperforming  loans are  included in the average loan
     balance. Income on such nonperforming loans is recognized on a cash basis.
(2)  The  interest  expense and average  rate on other  borrowings  includes the
     impact  of an  interest  rate  swap  that  was  entered  into as a hedge of
     interest  rate risk  associated  with the  underlying  term debt in October
     2001.  Under the terms of the interest rate swap,  the Company pays a fixed
     rate of 6.45% and  receives a floating  rate of interest  of 3-month  Libor
     plus 170 basis  points.  Interest  on the swap and term debt is  calculated
     using a 360-day year.
(3)  Represents the average rate earned minus average rate paid.
(4)  Represents net interest income divided by total earning assets.
</FN>
</TABLE>



                                       31
<PAGE>


<TABLE>
             Table 13: Quarterly Average Balances, Yields and Rates
                             (dollars in thousands)

                                                             First Quarter 2003                    Fourth Quarter 2002
                                                     ----------------------------------     ----------------------------------
                                                                  Interest                              Interest
                                                     Average      Income or     Average     Average     Income or     Average
                                                     Balance      Expense       Rate        Balance     Expense       Rate
                                                     --------     -------       -------     -------     ---------     -------

ASSETS:
<S>                                                  <C>          <C>           <C>         <C>         <C>           <C>
   Federal Funds Sold                                $ 13,024     $    38       1.18%       $  5,768    $    19       1.31%
   Investment Securities Available for Sale            47,805         461       3.91          48,389        492       4.03
   Investment Securities Held to Maturity                   -           -          -             344          4       4.61
   Loans (1)                                          604,042      10,075       6.76         591,981     10,256       6.87
   Interest Bearing Deposits                           37,820         123       1.32          11,088         45       1.61
                                                     --------     -------       ----        --------    -------       ----

TOTAL EARNING ASSETS                                  702,691      10,697       6.17         657,570     10,816       6.53
   All Other Assets                                    56,445                                 57,547
                                                     --------                               --------

TOTAL ASSETS                                         $759,136                               $715,117
                                                     ========                               ========

LIABILITIES AND
 SHAREHOLDERS' EQUITY:

   NOW & Money Markets                               $222,862         943       1.72        $207,773        927       1.77
   Savings                                             23,244          29       0.51          22,241         33       0.59
   Time Deposits                                      346,895       2,970       3.47         322,461      2,930       3.60
   Federal Funds Purchased and
    Repurchase Agreements                              11,638          27       0.94          10,831         33       1.21
   Short Term Borrowings                                1,000           7       2.84             139          1       2.85
   Other Borrowings (2)                                10,000         161       6.53          10,000        165       6.55
                                                     --------     -------       ----        --------    -------       ----
TOTAL INTEREST BEARING
   LIABILITIES                                        615,639       4,137       2.73         573,445      4,089       2.83
   Demand Deposits                                     85,721                                 85,651
   Other Liabilities                                    6,126                                  5,587
   Shareholders' Equity                                51,650                                 50,434
                                                     --------                               --------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY                                $759,136                               $715,117
                                                     ========                               ========

                                                                                ----                                  ----
INTEREST SPREAD (3)                                                             3.44%                                 3.70%
                                                                                ====                                  ====

                                                                  -------                               --------
NET INTEREST INCOME                                               $ 6,560                               $  6,727
                                                                  =======                               ========

NET INTEREST MARGIN (4)                                                         3.79%                                 4.06%
                                                                                ====                                  ====

<FN>
-------------
(1)  Interest  income on average  loans  includes  net loan fee  recognition  of
     $154,000 and $114,000 in the first  quarter of 2003 and the fourth  quarter
     of 2002 respectively.  Nonperforming loans are included in the average loan
     balance. Income on such nonperforming loans is recognized on a cash basis.
(2)  The  interest  expense and average  rate on other  borrowings  includes the
     impact  of an  interest  rate  swap  that  was  entered  into as a hedge of
     interest  rate risk  associated  with the  underlying  term debt in October
     2001.  Under the terms of the interest rate swap,  the Company pays a fixed
     rate of 6.45% and  receives a floating  rate of interest  of 3-month  Libor
     plus 170 basis  points.  Interest  on the swap and term debt is  calculated
     using a 360-day year.
(3)  Represents  the average rate earned minus average rate paid.
(4)  Represents net interest income divided by total earning assets.
</FN>
</TABLE>



                                       32
<PAGE>





       ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     In 1997, the SEC adopted amendments to Regulation S-K,  Regulation S-X, and
various forms to clarify and expand existing  requirements for disclosures about
derivatives  and  market  risks  inherent  in  derivatives  and other  financial
instruments.  The Company's  primary  market risk exposure  category is interest
rate risk. The Company is exposed to interest rate risk to the extent there is a
mismatch  between the interest  rate  repricing  on its assets and  liabilities.
Changes  in  market  interest  rates  will also  affect  the  market  value of a
significant portion of the Company's assets and liabilities. The Company manages
this risk through regular analysis of its gap and liquidity positions.  Included
in the review is an internal  analysis of the  possible  impact on net  interest
income and market  value of equity due to  assumed  changes in  interest  rates.
Management  generally  attempts  to  maintain a balance  between  rate-sensitive
assets and  liabilities  as the exposure  period is  lengthened  to minimize the
overall interest rate risk to the Company.  This balance is generally maintained
through a  monitoring  of balance  sheet  maturity and  repricing  mix. As noted
below,  at December 31, 2003, the Company was a party to a single  interest rate
derivative contract. The Company also holds other financial  instruments,  which
include  investments,  loans  and  deposit  liabilities.  The  release  requires
quantitative  and  qualitative  disclosures  about market risk. See the sections
titled "Liquidity" and "Interest Rate Sensitivity" for further discussion on the
Company's management of interest rate risk.


     The Company's sole derivative  contract is a $10 million notional  interest
rate swap that was entered into as a hedge of interest rate risk inherent in the
Company's $10 million term loan.  Under the terms of the swap,  the Company will
receive a variable rate of interest equal to 90-day Libor plus 170 basis points,
reset  quarterly.  The Company will pay a fixed rate of interest  equal to 6.45%
for the life of the  contract.  All cash  flows  are  computed  based on the $10
million  notional amount and are settled  quarterly on a net basis. The contract
matures October 3, 2006 and the notional amount will be reduced by $714,286 on a
semi-annual  basis  beginning April 2004. The fair value of the swap at December
31, 2003 and 2002 was approximately ($508,000) and ($691,000), respectively. The
swap is  being  accounted  for as a cash  flow  hedge of the  variable  interest
payments under the $10 million term debt. For additional information,  see Notes
2 and 8 of Notes to  Consolidated  Financial  Statements  in Item 8 of this Form
10-K.

     Non-derivative  financial instruments that have market risk are included in
Table 3: "Rate  Sensitivity  Analysis." These instruments are shown by maturity,
separated by fixed and variable interest rates. The estimated fair value of each
instrument  category is also shown in the table.  While these  estimates of fair
value are based on management's judgment of the most appropriate factors,  there
is no assurance that,  were the Company to have disposed of such  instruments at
December 31, 2003 or 2002 the estimated fair values would  necessarily have been
achieved  at that date,  since  market  values may differ  depending  on various
circumstances. The estimated fair values at December 31, 2003 and 2002 would not
necessarily be considered to apply at subsequent dates.

                          CRITICAL ACCOUNTING POLICIES

     A  critical  accounting  policy is one that is both very  important  to the
portrayal of the Company's  financial  condition and requires  management's most
difficult,  subjective or complex  judgments.  The circumstances that make these
judgments  difficult,  subjective  or  complex  have to do with the need to make
estimates  about the effect of matters that are inherently  uncertain.  Based on
this  definition,  the Company's  primary critical  accounting  policies are the
establishment  and  maintenance of an allowance for loan loss and the accounting
for core deposit intangible assets.

     The  allowance  for loan loss is  established  through a provision for loan
loss charged to expense.  Loans are charged  against the allowance for loan loss
when management  believes that the  collectibility of the principal is unlikely.
The allowance is an amount that  management  believes will be adequate to absorb
inherent  losses  on  existing  loans  that may  become  uncollectible  based on
evaluations  of the  collectibility  of the  loans.  The  evaluations  take into
consideration  such objective factors as changes in the nature and volume of the
loan portfolio and historical  loss  experience.  The evaluation  also considers
certain subjective factors such as overall portfolio quality, review of specific
problem loans and current  economic  conditions  that may affect the  borrowers'
ability to pay.  The level of the  allowance  for loan loss is also  impacted by
increases  and  decreases  in loans  outstanding,  because  either  more or less
allowance is required as the amount of the Company's credit exposure changes. To
the extent actual loan losses differ  materially from  management's  estimate of
these subjective  factors,  loan  growth/run-off  accelerates or the mix of loan
types changes,  the level of the provision for loan loss, and related allowance,
can and will fluctuate.


                                       33
<PAGE>

     The  accounting  for the Company's  core deposit  intangible  asset is also
subject to significant  estimates about future  results.  In connection with the
acquisition of the Lake City and Live Oak branches of Republic Bank in 2001, the
Company  recorded a core deposit  intangible of approximately  $6,000,000.  This
intangible asset is being amortized on a straight-line  basis over its estimated
useful  life of 10 years.  The life of this  asset  was  based on the  estimated
future period of benefit to the Company of the depositor relationships acquired.
To the extent that the deposit  accounts  acquired leave the Company faster than
anticipated,  the amount of the core deposit  intangible  that is amortized each
period could increase  significantly,  thus shortening its useful life.  Through
December  31,  2003,  the  performance  of  acquired  accounts  did  not  differ
materially from expectations.  At December 31, 2003, the unamortized  balance of
the core deposit intangible was $4.7 million.















                                       34
<PAGE>











                          CNB Florida Bancshares, Inc.

                                 and Subsidiary


                        Consolidated Financial Statements














                                       35
<PAGE>



REPORT OF MANAGEMENT

The  management  of  CNB  Florida  Bancshares,  Inc.  and  its  subsidiary  (the
"Company") is responsible for the preparation,  integrity and objectivity of the
consolidated  financial  statements of the Company.  The consolidated  financial
statements  and notes  have been  prepared  by the  Company in  accordance  with
accounting principles generally accepted in the United States of America and, in
the judgment of management,  present fairly the Company's financial position and
results of operations.  The financial  information  contained  elsewhere in this
report is consistent with that in the  consolidated  financial  statements.  The
financial  statements  and other  financial  information  in this report include
amounts that are based on management's  best estimates and judgments  giving due
consideration to materiality.

The  Company  maintains  a system of  internal  accounting  controls  to provide
reasonable  assurance  that assets are  safeguarded  and that  transactions  are
executed in accordance with management's  authorization and recorded properly to
permit the preparation of consolidated  financial  statements in accordance with
accounting  principles  generally  accepted  in the  United  States of  America.
Management  recognizes that even a highly effective  internal control system has
inherent risks,  including the possibility of human error and the  circumvention
or overriding of controls,  and that the  effectiveness  of an internal  control
system can change with  circumstances.  However,  management  believes  that the
internal   control  system   provides   reasonable   assurance  that  errors  or
irregularities that could be material to the consolidated  financial  statements
are prevented or would be detected on a timely basis and  corrected  through the
normal course of business.  The Company  assessed its internal control system as
of December 31, 2003 in relation to criteria for effective internal control over
financial reporting described in "Internal Control-Integrated  Framework" issued
by the Committee of Sponsoring  Organizations of the Treadway Commission.  As of
December 31, 2003,  management  believes that the internal controls are in place
and operating effectively.

The Internal  Audit  function of the Company  reviews,  evaluates,  monitors and
makes  recommendations on both administrative and accounting control and acts as
an integral, but independent, part of the system of internal controls.

The  independent  certified  public  accountants  were  engaged  to  perform  an
independent audit of the consolidated  financial statements.  In determining the
nature  and  extent  of their  auditing  procedures,  they  have  evaluated  the
Company's  accounting  policies  and  procedures  and the  effectiveness  of the
related  internal  control  system.  An independent  audit provides an objective
review of management's  responsibility to report operating results and financial
condition. Their report appears on the following page.

The  Board  of  Directors   discharges  its  responsibility  for  the  Company's
consolidated  financial  statements  through  its  Audit  Committee.  The  Audit
Committee meets periodically with the independent  certified public accountants,
internal  auditors  and  management.   Both  the  independent  certified  public
accountants  and internal  auditors have direct access to the Audit Committee to
discuss the scope and results of their work, the adequacy of internal accounting
controls and the quality of financial reporting.



/s/ K.C. Trowell
---------------------------
 Chairman of the Board and
    Chief Executive Officer


/s/ Roy D. Jones
---------------------------
 Senior Vice President and
    Chief Financial Officer




                                       36
<PAGE>


Report of Independent Certified Public Accountants

To the Board of Directors and
Shareholders of CNB Florida Bancshares, Inc.:

In our opinion, the accompanying  consolidated statements of financial condition
and the related consolidated statements of income, shareholders' equity and cash
flows present fairly, in all material  respects,  the financial  position of CNB
Florida Bancshares,  Inc., and its subsidiary at December 31, 2003 and 2002, and
the results of their  operations  and their cash flows for each of the two years
in the period ended December 31, 2003 in conformity with  accounting  principles
generally accepted in the United States of America.  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.  We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which 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,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe  that our audits  provide a  reasonable  basis for our  opinion.  The
consolidated financial statements of the Company for the year ended December 31,
2001 were audited by other  independent  certified  public  accountants who have
ceased operations.  Those independent  certified public accountants expressed an
unqualified opinion on those financial  statements in their report dated January
23, 2002.




PricewaterhouseCoopers LLP


Jacksonville, Florida
January 28, 2004


                                       37
<PAGE>



THE FOLLOWING REPORT IS A COPY OF A REPORT  PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP  (ANDERSEN).  THIS REPORT HAS NOT BEEN REISSUED BY ANDERSEN AND ANDERSEN DID
NOT CONSENT TO THE  INCORPORATION  BY  REFERENCE  OF THIS REPORT (AS INCLUDED IN
THIS FORM 10-K) INTO ANY OF THE COMPANY'S REGISTRATION STATEMENTS.



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To CNB Florida Bancshares, Inc.:

We have audited the accompanying  consolidated statements of financial condition
of CNB FLORIDA  BANCSHARES,  INC. (a Florida  corporation)  AND SUBSIDIARY as of
December 31, 2001 and 2000 and the related  consolidated  statements  of income,
shareholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 2001. 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.


We conducted our audits in accordance with auditing standards generally accepted
in the 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 financial  statements  referred to above present fairly, in
all material respects,  the financial position of CNB Florida  Bancshares,  Inc.
and  Subsidiary  as of  December  31,  2001 and 2000  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.


ARTHUR ANDERSEN LLP


Jacksonville, Florida
January 23, 2002




                                       38
<PAGE>



                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
                                                                                                 December 31,
                                                                                           2003               2002
                                                                                         --------           --------
                                                                                             (dollars in thousands)

                                     ASSETS

<S>                                                                                      <C>                <C>
Cash and due from banks                                                                  $ 17,158           $ 15,986
Federal funds sold                                                                              -              5,400
Interest-bearing deposits in other banks                                                      909             12,215
                                                                                         --------           --------
       Total cash and cash equivalents                                                     18,067             33,601

Investment securities available for sale                                                   58,831             49,682
Investment securities held to maturity (market value of $29,416 and $0)                    29,536                  -
Loans, net of allowance for loan loss of $7,329 and $6,574                                674,421            599,211
Loans held for sale                                                                         1,063             10,893
Premises and equipment, net                                                                25,150             25,086
Intangible assets, net                                                                      5,345              6,056
Other assets                                                                                7,522              6,145
                                                                                         --------           --------

       Total assets                                                                      $819,935           $730,674
                                                                                         ========           ========


                      LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Deposits:
    Non-interest bearing demand                                                          $ 94,995           $ 80,065
    Savings, NOW and money market                                                         294,540            236,284
    Time under $100,000                                                                   173,452            172,671
    Time $100,000 and over                                                                160,699            159,616
                                                                                         --------           --------
        Total deposits                                                                    723,686            648,636
Securities sold under repurchase agreements and federal funds purchased                    22,550             14,446
Other borrowings                                                                           11,500             11,000
Other liabilities                                                                           5,812              5,671
                                                                                         --------           --------
        Total liabilities                                                                 763,548            679,753
                                                                                         --------           --------

COMMITMENTS AND CONTINGENCIES (Notes 11 and 20)

SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; 500,000 shares authorized,
  no shares issued or outstanding                                                               -                  -

Common stock, $.01 par value; 10,000,000 shares authorized,
  6,256,662 and 6,125,500 shares issued and outstanding at
  December 31, 2003 and 2002, respectively                                                     63                 61
Additional paid-in capital                                                                 32,288             30,840
Retained earnings                                                                          24,688             19,912
Accumulated other comprehensive (loss) income, net of taxes                                  (652)               108
                                                                                         --------           --------
        Total shareholders' equity                                                         56,387             50,921
                                                                                         --------           --------
        Total liabilities and shareholders' equity                                       $819,935           $730,674
                                                                                         ========           ========
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.




                                       39
<PAGE>



                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
                                                                                                      Year Ended December 31,
                                                                                               2003            2002            2001
                                                                                             -------         -------         -------
                                                                                                (dollars and shares in thousands)

INTEREST INCOME
<S>                                                                                          <C>             <C>             <C>
    Interest and fees on loans                                                               $40,504         $39,275         $38,055
    Interest on investment securities available for sale                                       2,044           1,891           1,864
    Interest on investment securities held to maturity                                           572              99             384
    Interest on federal funds sold                                                                92              73             102
    Interest on interest-bearing deposits                                                        318              60              12
                                                                                             -------         -------         -------
        Total interest income                                                                 43,530          41,398          40,417
                                                                                             -------         -------         -------

INTEREST EXPENSE
    Interest on deposits                                                                      14,731          14,800          17,751
    Interest on repurchase agreements and federal funds purchased                                114             191             552
    Interest on other borrowings                                                                 687             655           1,326
                                                                                             -------         -------         -------
        Total interest expense                                                                15,532          15,646          19,629
                                                                                             -------         -------         -------
NET INTEREST INCOME                                                                           27,998          25,752          20,788

PROVISION FOR LOAN LOSS                                                                        2,100           2,375           2,050
                                                                                             -------         -------         -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS                                             25,898          23,377          18,738
                                                                                             -------         -------         -------
NON-INTEREST INCOME
    Service charges                                                                            3,594           3,273           2,974
    Secondary market mortgage sales                                                            1,348           2,123           1,917
    Other fees and charges                                                                       871             713             613
    Gain on sale of securities available for sale                                                406             195             129
                                                                                             -------         -------         -------
        Total non-interest income                                                              6,219           6,304           5,633
                                                                                             -------         -------         -------
NON-INTEREST EXPENSE
    Salaries and employee benefits                                                            11,079          11,095          10,252
    Occupancy and equipment expenses                                                           3,603           3,427           3,113
    Other operating expenses                                                                   7,025           6,634           6,471
                                                                                             -------         -------         -------
        Total non-interest expense                                                            21,707          21,156          19,836
                                                                                             -------         -------         -------
INCOME BEFORE INCOME TAXES                                                                    10,410           8,525           4,535

INCOME TAXES                                                                                   3,833           3,141           1,594
                                                                                             -------         -------         -------
NET INCOME                                                                                   $ 6,577         $ 5,384         $ 2,941
                                                                                             =======         =======         =======

EARNINGS PER COMMON SHARE
    Basic earnings per common share                                                          $  1.06         $  0.88         $  0.48
                                                                                             =======         =======         =======

    Basic weighted average common shares outstanding                                           6,199           6,104           6,095
                                                                                             =======         =======         =======

    Diluted earnings per common share                                                        $  1.03         $  0.87         $  0.48
                                                                                             =======         =======         =======

    Diluted weighted average common shares outstanding                                         6,399           6,216           6,188
                                                                                             =======         =======         =======
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.




                                       40
<PAGE>



                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001




<TABLE>
                                                                                                    Accumulated
                                                                                                       Other             Total
(dollars and shares in thousands)                        Common Stock      Additional               Comprehensive    Shareholders'
                                                       ---------------      Paid-In     Retained    Income (Loss),      Equity
                                                       Shares    Value      Capital     Earnings    Net of Taxes
                                                       ------    -----     ----------   --------    ------------       ---------

<S>                                                     <C>      <C>        <C>         <C>            <C>             <C>
BALANCE, December 31, 2000                              6,099    $  61      $30,581     $ 14,027       $  (33)         $  44,636

Comprehensive income:
      Net income                                                                           2,941
      Change in unrealized gain on investment
      securities available for sale, net of $210 taxes                                                    353
      Change in fair value of cash flow hedges, net
            of $3 taxes                                                                                     6
               Total comprehensive income                                                                                  3,300
Cash dividends declared ($0.20 per share)                                                 (1,219)                         (1,219)
Exercise of stock options                                  31                   166                                          166
Repurchase of common stock                                (24)                 (234)                                        (234)
Issuance of restricted stock                                                     20                                           20
                                                        -----    -----      -------     --------        -----          ---------
BALANCE, December 31, 2001                              6,106       61       30,533       15,749          326             46,669

Comprehensive income:
      Net income                                                                           5,384
      Change in unrealized gain on investment
      securities available for sale, net of $131 taxes                                                    221
      Change in fair value of cash flow hedges, net
            of ($261) taxes                                                                              (439)
               Total comprehensive income                                                                                  5,166
Cash dividends declared ($0.20 per share)                                                 (1,221)                         (1,221)
Tax benefit from exercise of stock options                                      161                                          161
Exercise of stock options                                  30                   246                                          246
Repurchase of common stock                                (10)                 (100)                                        (100)
                                                        -----    -----      -------     --------        -----          ---------
BALANCE, December 31, 2002                              6,126       61       30,840       19,912          108             50,921


Comprehensive income:
      Net income                                                                           6,577
      Change in unrealized loss on investment
      securities available for sale, net of ($519) taxes                                                 (874)
      Change in fair value of cash flow hedges, net
          of $68 taxes                                                                                    114
               Total comprehensive income                                                                                  5,817
Cash dividends declared ($0.24 per share)                                                 (1,801)                         (1,801)
Tax benefit from exercise of stock options                                      247                                          247
Exercise of stock options                                 131        2        1,201                                        1,203
                                                        -----    -----      -------     --------        -----          ---------
BALANCE, December 31, 2003                              6,257    $  63      $32,288     $ 24,688        $(652)         $  56,387
                                                        =====    =====      =======     ========        =====          =========
</TABLE>

     The accompanying notes are an integral part of these consolidated financial
statements.



                                       41
<PAGE>


                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
                                                                                                     Year Ended December 31,
                                                                                                2003           2002          2001
                                                                                              ---------     ---------     ---------
                                                                                                      (dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                           <C>           <C>           <C>
  Net income                                                                                  $   6,577     $   5,384     $   2,941
  Adjustments to reconcile net income to net cash provided by operating activities:
     Gain on sale of securities available for sale                                                 (406)         (195)         (129)
     Depreciation and amortization                                                                2,575         2,507         2,046
     Provision for loan loss                                                                      2,100         2,375         2,050
     Investment securities amortization (accretion), net                                            567           267            (6)
     Non-cash compensation                                                                            -             -            20
     Net proceeds from (origination of) loans held for sale                                       9,830          (985)        8,947
     Loss on sale of bank property                                                                   63             -             -
     Gain on sale of credit card portfolio                                                          (55)            -             -
     Deferred income tax benefit                                                                   (186)         (361)         (715)
     Changes in operating assets and liabilities:
           Other assets                                                                            (559)       (1,229)          928
           Other liabilities                                                                         13         1,357           194
                                                                                              ---------     ---------     ---------
              Net cash provided by operating activities                                          20,519         9,120        16,276
                                                                                              ---------     ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES
    Net increase in loans                                                                       (78,285)      (95,145)     (137,959)
    Purchases of investment securities available for sale                                       (59,177)      (47,069)      (42,840)
    Purchases of investment securities held to maturity                                         (29,850)            -             -
    Proceeds from sales of investment securities available for sale                              10,382        15,191         1,726
    Proceeds from called investment securities available for sale                                14,000         8,140        14,100
    Proceeds from called investment securities held to maturity                                       -         4,060         3,395
    Proceeds from maturities of investment securities available for sale                         12,500         3,959        26,690
    Proceeds from principal repayments on investment securities available for sale               11,602         3,380         1,256
    Proceeds from principal repayments on investment securities held to maturity                    303             -             3
    Purchases of premises and equipment                                                          (2,235)         (680)       (3,356)
    Proceeds from sale of premises and equipment                                                    245             -             -
    Proceeds from sale of credit card portfolio                                                   1,031             -             -
    Branches acquired from Republic Bank                                                              -             -        41,921
                                                                                              ---------     ---------     ---------
              Net cash used in investing activities                                            (119,484)     (108,164)      (95,064)
                                                                                              ---------     ---------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase in deposits                                                                     75,050       115,745       102,848
    Net increase (decrease) in securities sold under repurchase agreements
      and federal funds purchased                                                                 8,104        (3,702)       (2,994)
    Net decrease in FHLB advances                                                                     -             -       (30,000)
    Proceeds from other borrowings                                                                  500         1,000        10,000
    Cash dividends                                                                               (1,426)       (1,221)       (1,219)
    Repurchase of common stock                                                                        -          (100)         (234)
    Proceeds from exercise of stock options                                                       1,203           246           166
                                                                                              ---------     ---------     ---------
              Net cash provided by financing activities                                          83,431       111,968        78,567
                                                                                              ---------     ---------     ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                            (15,534)       12,924          (221)

CASH AND CASH EQUIVALENTS, beginning of year                                                     33,601        20,677        20,898
                                                                                              ---------     ---------     ---------
CASH AND CASH EQUIVALENTS, end of year                                                        $  18,067     $  33,601     $  20,677
                                                                                              =========     =========     =========
</TABLE>


     The accompanying notes are an integral part of these consolidated financial
statements.




                                       42
<PAGE>


                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    ORGANIZATION AND BASIS OF PRESENTATION
      Organization and Nature of Operations
      CNB Florida Bancshares,  Inc. (the "Company") is a registered bank holding
      company  incorporated  in  Florida.  The Company  operates a wholly  owned
      banking subsidiary,  CNB National Bank (the "Bank"), which is chartered as
      a national bank.

      Principles of Consolidation
      The consolidated  financial statements include the accounts of the Company
      and the Bank. All significant  intercompany accounts and transactions have
      been eliminated in consolidation.  The Company follows generally  accepted
      accounting  principles and reporting  practices  applicable to the banking
      industry in the United States.  Certain amounts  relating to 2002 and 2001
      have been reclassified to conform with current year presentation.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      Use of Estimates in Preparation of Consolidated Financial Statements
      The  preparation  of financial  statements in conformity  with  accounting
      principles  generally accepted in the United States requires management to
      make estimates and assumptions  that affect the reported amounts of assets
      and liabilities and disclosure of contingent assets and liabilities at the
      date of the financial  statements and the reported amounts of revenues and
      expenses  during the reporting  period.  Actual  results could differ from
      those estimates.

      Cash and Cash Equivalents
      For purposes of reporting cash flows, the Company  considers cash and cash
      equivalents  to include  cash on hand,  amounts due from  banks,  interest
      bearing  deposits  in other  banks and  federal  funds  sold.  The Company
      maintains its due from banks with correspondent banking relationships.

      Investment Securities
         Available for Sale
         Securities available for sale represent investment  securities that are
         used  for  asset/liability   management,   liquidity  and  other  funds
         management  purposes.  These  securities  may be  sold in  response  to
         changes  in  interest  rate  risk,  prepayment  risk or  other  similar
         economic  factors.  These  securities are recorded at fair value,  with
         unrealized gains and losses, net of deferred income taxes,  recorded in
         the accumulated other  comprehensive  income component of shareholders'
         equity. Fair value is estimated based on dealer quotes.

         Held to Maturity
         Securities held to maturity represent  investment  securities where the
         Company  has both the intent  and  ability  to hold the  securities  to
         maturity.   These   securities   are  stated  at  cost,   adjusted  for
         amortization of premiums and accretion of discounts.

      Amortization  of premiums and  accretion of discounts  are  recognized  as
      adjustments to interest  income.  Realized gains and losses are recognized
      using the specific identification method.  Investment securities available
      for sale are  periodically  reviewed for other than temporary  declines in
      value. If such a decline is determined to have occurred, the amount of the
      decline is transferred  from other  comprehensive  income and  immediately


                                       43
<PAGE>

      recorded   in   current    period    earnings.    There   have   been   no
      other-than-temporary  impairment  losses  recorded  during the years ended
      December 31, 2003, 2002 and 2001.

      Loans, Loan Fees and Interest Income
      Loans  are  stated  at the  amount  of  unpaid  principal,  reduced  by an
      allowance for loan loss.  Interest on  substantially  all loans other than
      certain  installment  loans is  calculated  by using the  simple  interest
      method  on  daily   balances  of  the   principal   amounts   outstanding.

      Accrual of interest is discontinued on loans that are 90 days or more past
      due, unless substantially collateralized and in the process of collection,
      or sooner  if, in the  opinion of  management,  the  borrower's  financial
      condition is such that collection of principal or interest is doubtful.

      Loan fees, net of loan  origination  costs,  are deferred and amortized as
      yield  adjustments over the respective loan terms using a method that does
      not differ  significantly  from the interest  method.  For 2003,  2002 and
      2001, net loan fees included in interest income amounted to  approximately
      $512,000, $494,000 and $979,000, respectively.

      Allowance for Loan Loss
      The  allowance  for loan loss is an amount  that  management  believes  is
      adequate  to absorb  inherent  losses on  existing  loans  that may become
      uncollectible based on evaluations of the collectibility of the loans. The
      allowance for loan loss is  established  through a provision for loan loss
      charged to expense.  Loans are charged against the allowance for loan loss
      when management believes that collectibility of the principal is unlikely.
      The evaluation of collectibility  takes into  consideration such objective
      factors as changes  in the  nature  and volume of the loan  portfolio  and
      historical  loss  experience.   The  evaluation  also  considers   certain
      subjective factors such as overall portfolio  quality,  review of specific
      problem  loans  and  current  economic  conditions  that  may  affect  the
      borrowers'  ability to pay. The  determination  of the  allowance for loan
      loss considers both  specifically  identified  impaired  loans, as well as
      expected losses on large groups of smaller-balance  homogeneous loans that
      are collectively evaluated for impairment.  The level of the allowance for
      loan  loss  is  also   impacted  by  increases   and  decreases  in  loans
      outstanding, since either more or less allowance is required as the amount
      of the Company's credit exposure changes. To the extent actual loan losses
      differ materially from management's  estimate of these subjective factors,
      loan  growth/run-off  accelerates  or the mix of loan types  changes,  the
      level of the provision for loan loss, and related allowance,  can and will
      fluctuate.

      Loans Held for Sale
      Loans held for sale include residential mortgage loans originated with the
      intent to sell in the secondary market. Loans held for sale are carried at
      the lower of cost or market value. Any amount by which cost exceeds market
      value is  accounted  for as a  valuation  allowance,  with  changes in the
      valuation  allowance  reflected  in  earnings.  There  were  no  valuation
      allowances at December 31, 2003 and 2002.

      Premises and Equipment
      Premises and equipment are stated at cost, less accumulated  depreciation.
      Depreciation is computed using the straight-line method over the estimated
      useful  lives of the  related  assets,  which  ranged  from three to forty
      years.  Maintenance and repairs are charged to expense as incurred.  Gains
      and losses on dispositions are reflected in income.

      Long-lived  assets  are  evaluated   regularly  for   other-than-temporary
      impairment.  If circumstances suggest that their carrying value may not be
      recoverable,  an impairment test is performed comparing the carrying value
      of  the  asset  to  estimated  undiscounted  cash  flows.  If  assets  are
      considered  to be  impaired,  a charge is recorded to the extent that fair
      value is less than carrying value.



                                       44
<PAGE>

      Other Real Estate Owned
      Real estate properties  acquired through,  or in lieu of, loan foreclosure
      are  initially  recorded  at  fair  value  at  the  date  of  foreclosure,
      establishing a new cost basis. After foreclosure,  management periodically
      performs  valuations  and the  real  estate  is  carried  at the  lower of
      carrying   amount   or  fair   value,   less   estimated   cost  to  sell.

      Intangible Assets
      The Company  adopted the  provisions of Statement of Financial  Accounting
      Standards No. 142, Goodwill and Other Intangibles  ("SFAS 142") on January
      1, 2002.  SFAS 142 requires,  among other things,  the  discontinuance  of
      goodwill  amortization  and includes  provisions for  reassessment  of the
      useful lives of existing  intangibles and the  identification of reporting
      units for purposes of assessing  potential future impairments of goodwill.
      SFAS 142 also  required  the Company to  complete a two-step  transitional
      goodwill impairment test. The Company completed the transitional  goodwill
      impairment  test  during  the first  quarter of 2002 and  determined  that
      goodwill at transition was not impaired.

      At both  December  31,  2003 and 2002,  the Company  had  goodwill  with a
      carrying value of $646,000.  Beginning January 1, 2002, in accordance with
      SFAS 142, goodwill is no longer being amortized,  but is instead evaluated
      for   impairment  at  least   annually.   Amortization   of  goodwill  was
      approximately $70,000 for 2001. Absent the impact of goodwill amortization
      in 2001, net income,  basic earnings per common share and diluted earnings
      per common share would have been $3,011,000, $0.49 and $0.49, for the year
      ended December 31, 2001, respectively.

      The Company's other intangible asset consists of core deposit  intangibles
      that are being  amortized  over their  estimated  useful life of 10 years.
      Amortization  expense  related to core deposit  intangibles  was $712,000,
      $746,000  and  $473,000 for 2003,  2002 and 2001  respectively.  Estimated
      amortization  expense  on core  deposit  intangibles  for the years  ended
      December 31, 2004 through December 31, 2008 are as follows:




                       2004                 $638,000
                       2005                  638,000
                       2006                  636,000
                       2007                  631,000
                       2008                  631,000



      The gross  carrying  value and  accumulated  amortization  related to core
      deposit  intangibles  at  December  31,  2003  was $7.3  million  and $2.6
      million,   respectively.   The  gross  carrying   value  and   accumulated
      amortization  of core  deposits  was  $7.3  million  and $1.9  million  at
      December 31, 2002,  respectively.  Periodically,  the Company  reviews its
      core deposit  intangibles for events or changes in circumstances  that may
      indicate  that the  carrying  amounts of the  assets are not  recoverable.
      There were no impairment  losses on core  deposits  during the years ended
      December 31, 2003, 2002 and 2001.

      Interest Rate Contract
      As more fully  described  in Note 8, "Other  Borrowings,"  during 2001 the
      Company  entered  into a pay-fixed  interest  rate  contract as a hedge of
      interest  rate risk related to a term loan  entered into with a bank.  The
      interest rate contract is accounted for under the  provisions of Statement
      of Financial  Accounting Standards No. 133, Accounting for Derivatives and
      Hedging  Activities,  which requires all  derivatives to be stated at fair
      value and was  adopted by the  Company on  January  1, 2001.  Because  the
      Company  was not a party  to  derivative  contracts  at  adoption  of this
      standard,  the  adoption did not have a material  impact of the  financial
      position or results of operations of the Company. Upon entering into the


                                       45
<PAGE>


      interest  rate swap,  the contract was  designated as a cash flow hedge of
      the forecasted  variable interest payments to be made under the term loan.
      The interest  rate swap is recorded in the  financial  statements  at fair
      value,  with  changes in value  reflected in other  comprehensive  income.
      Unrealized gains and losses on the interest rate contract are reclassified
      from  other  comprehensive  income to  interest  expense  when the  hedged
      transaction   impacts   earnings.   The   effectiveness   of  the  hedging
      relationship is evaluated at least every three months.  There was no hedge
      ineffectiveness  for the years  ended  December  31,  2003 and  2002.  The
      interest rate contract had an unrealized  loss, net of taxes,  at December
      31,  2003 and 2002 of  ($318,000)  and  ($433,000),  respectively.  Of the
      unrealized  loss at December 31, 2003,  the Company  expects to reclassify
      approximately  $232,000 of pre-tax expense from other comprehensive income
      to interest expense over the next twelve months. This estimate is based on
      market  interest  rates on December 31, 2003 and is subject to variability
      to the extent interest rates fluctuate over this time period.

      Stock-Based Compensation
      The Company has long-term incentive plans that provide stock-based awards,
      including stock options to certain key employees.  The Company applies the
      provisions of Accounting  Principles Board Opinion No. 25,  Accounting for
      Stock Issued to Employees,  in  accounting  for its stock option and award
      plans and has  adopted  the  disclosure-only  option  under  Statement  of
      Financial   Accounting   Standards,   ("SFAS")  No.  123,  Accounting  for
      Stock-Based  Compensation.  If the  Company  had  adopted  the  accounting
      provisions  of SFAS  123 and  recognized  expense  for the  fair  value of
      employee stock options  granted in 2003,  2002 and 2001,  over the vesting
      life of the options,  pro forma stock-based  compensation  expense (net of
      tax) for the years ended December 31, 2003, 2002 and 2001, would have been
      $203,000,  $233,000  and  $123,000,   respectively.  The  following  table
      outlines pro forma net income and earnings per common share that have been
      reported if the Company had adopted the fair value  provisions of SFAS 123
      (dollars in thousands, except per share data):


<TABLE>
                                                         As Reported                             Pro Forma
                                           ------------------------------------     -----------------------------------
                                               2003         2002         2001           2003        2002        2001
                                           ---------     ---------    ---------     ----------    --------    ---------
<S>                                        <C>           <C>          <C>           <C>           <C>         <C>
Net income ...........................     $   6,577     $   5,384    $   2,941     $    6,374    $  5,151    $   2,818
Basic earnings per common share ......     $    1.06     $    0.88    $    0.48     $     1.03    $   0.84    $    0.46
Diluted earnings per common share ....     $    1.03     $    0.87    $    0.48     $     1.00    $   0.83    $    0.46
</TABLE>

      The Company  entered  into a  definitive  agreement  to be acquired by The
      South  Financial  Group,  Inc. on January 21,  2004.  The  transaction  is
      expected  to close in July 2004 and is subject to  regulatory  and Company
      shareholder  approval.   Upon  approval  of  the  transaction  by  Company
      shareholders,   all   currently   unvested   stock   options  will  become
      exercisable.  As of December 31, 2003, unrecognized pro forma compensation
      expense on outstanding,  unvested stock options totaled $675,000. Assuming
      Company  shareholders  approve  the  transaction;  unrecognized  pro forma
      compensation  expense  would be  included  in pro  forma  net  income  and
      earnings  per  common  share as  noted  above  in the  period  shareholder
      approval for the transaction is obtained.  The shareholder meeting to vote
      on the transaction is expected to be held in the second quarter of 2004.

      In determining the pro forma disclosures  above, the fair value of options
      granted  was   estimated  on  the  grant  date  using  the   Black-Scholes
      option-pricing  model. The  Black-Scholes  model was developed to estimate
      the fair value of traded  options,  which have  different  characteristics
      than employee  stock options,  and changes to the  subjective  assumptions
      used in the model can result in materially different fair value estimates.



                                       46
<PAGE>

      The weighted-average  grant date fair values of the options granted during
      2003,   2002  and  2001   were   based  on  the   following   assumptions:


<TABLE>
                                                               Risk-Free                        Dividend
                                                             Interest Rates                       Yield
                                                       --------------------------       --------------------------
                                                        2003       2002      2001       2003       2002       2001
                                                       -----       ----      ----       ----       ----       ----
<S>                                                     <C>        <C>       <C>        <C>        <C>        <C>
     Performance-based incentive and other stock
     option plans  ...........................          2.49%      5.13%     3.75%      1.54%      1.88%      2.08%


                                                              Expected Lives                   Volatility
                                                      ---------------------------       --------------------------
                                                        2003       2002      2001       2003       2002       2001
                                                       -----       ----      ----       ----       ----       ----

     Performance-based incentive and other stock
     option plans  ...........................        6 years     6 years   6 years      37%        38%        36%
</TABLE>

      Compensation  expense under the fair value-based method is recognized over
      the vesting  period of the related  stock  options.  Accordingly,  the pro
      forma  results  of  applying  SFAS 123 in  2003,  2002 and 2001 may not be
      indicative of future amounts.

      Income Taxes
      The Company uses the asset and liability  method of accounting  for income
      taxes.  This method  requires the  recognition  of deferred tax assets and
      liabilities  for the future tax  consequences  attributable to differences
      between the financial  statement  carrying  amounts of existing assets and
      liabilities and their respective tax bases.

      The Company and the Bank file  consolidated  federal and state  income tax
      returns.  Under a tax-sharing  arrangement,  income tax charges or credits
      are generally  allocated to the Company and the Bank on the basis of their
      respective  taxable  income or loss that is included  in the  consolidated
      income  tax  return,   as  determined  by  the  separate   return  method.

      Earnings Per Common Share
      Basic  earnings  per  common  share is  calculated  based on the  weighted
      average number of shares of common stock outstanding. Diluted earnings per
      common share is calculated  based on the weighted average number of shares
      of common stock and common  stock  equivalents  outstanding.  Common stock
      equivalents  are determined  using the treasury  method for diluted shares
      outstanding.  The difference  between diluted and basic shares outstanding
      is common stock  equivalents  from stock  options  outstanding  during the
      years ended December 31, 2003, 2002 and 2001.

      Supplemental Cash Flow Information
      For purposes of reporting cash flows, the Company  considers cash and cash
      equivalents   to  include   cash  on  hand,   amounts   due  from   banks,
      interest-bearing   deposits  in  other  banks  and  federal   funds  sold.
      Generally,  federal funds are  purchased and sold for one-day  periods and
      all cash  equivalents  have an original  maturity of 90 days or less. Cash
      paid  for  interest  was   approximately   $15,630,000,   $16,125,000  and
      $19,029,000  during 2003, 2002 and 2001,  respectively,  and cash paid for
      income  taxes was  approximately  $3,737,000,  $3,388,000  and  $2,025,000
      during 2003, 2002 and 2001, respectively.


                                       47
<PAGE>

      Recently Issued Accounting Pronouncements
      In June 2001, the Financial  Accounting  Standards  Board ("FASB")  issued
      SFAS 143,  Accounting for Asset Retirement  Obligations ("SFAS 143"). SFAS
      143  addresses   financial   accounting  and  reporting  for   obligations
      associated  with the  retirement  of  tangible  long-lived  assets and the
      associated asset  retirement  costs. The Company adopted the provisions of
      this Statement on January 1, 2003, which did not have a significant impact
      on the Company's consolidated financial statements.

      In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No.
      4, 44 and 64,  Amendments of SFAS 13, and Technical  Corrections as of May
      2002 ("SFAS 145"). SFAS 145 rescinds SFAS 4,  Extinguishments of Debt Made
      to Satisfy  Sinking-Funds  Requirements.  SFAS 145 also  rescinds  FAS 44,
      Accounting  for  Intangible  Assets of Motor  Carriers  and amends FAS 13,
      Accounting for Leases, to eliminate an inconsistency  between the required
      accounting for sale-leaseback transactions and the required accounting for
      certain lease modifications that have economic effects that are similar to
      sale-leaseback transactions. The provisions of this Statement were adopted
      by the Company on January 1, 2003, which did not have a significant impact
      on the Company's consolidated financial statements.

      In June 2002,  the FASB issued  SFAS 146,  Accounting  for  Certain  Costs
      Associated  with  Exit or  Disposal  Activities  ("SFAS  146").  SFAS  146
      addresses  financial  accounting and reporting for costs  associated  with
      exit or disposal  activities and nullifies  Emerging Issues Task Force No.
      94-3, Liability  Recognition for Certain Employee Termination Benefits and
      Other Costs to Exit and Activity  (including  Certain Costs  Incurred in a
      Restructuring). The provisions of this Statement are effective for exit or
      disposal  activities  that are  initiated  after  December 31,  2002.  The
      adoption of SFAS 146 did not have a  significant  impact on the  Company's
      consolidated financial statements.

      In November 2002, the FASB issued FASB  Interpretation  No. 45 Guarantor's
      Accounting and Disclosure Requirements for Guarantees,  Including Indirect
      Guarantees of Indebtedness of Others, an Interpretation of FASB Statements
      No. 5, 57,  and 107 and  Rescission  of FASB  Interpretation  No. 34 ("FIN
      45").  FIN 45 elaborates on the  disclosures  to be made by a guarantor in
      its interim and annual financial  statements  about its obligations  under
      certain  guarantees that it has issued. It also clarifies that a guarantor
      is required to recognize, at the inception of a guarantee, a liability for
      the fair value of the obligation undertaken in issuing the guarantee.  The
      initial  recognition  and  initial  measurement  provisions  of FIN 45 are
      applicable on a prospective  basis to guarantees  issued or modified after
      December 31, 2002,  irrespective of the guarantor's  fiscal year-end.  The
      provisions  of this  Statement  were  adopted by the Company on January 1,
      2003,   which  did  not  have  a  significant   impact  on  the  Company's
      consolidated financial statements.

      In December  2002, the FASB issued SFAS 148,  Accounting  for  Stock-Based
      Compensation  - Transition and Disclosure - an amendment of FASB Statement
      No. 123 ("SFAS 148").  SFAS 148 amends FASB Statement No. 123,  Accounting
      for Stock-Based  Compensation ("SFAS 123"), to provide alternative methods
      of  transition  for a voluntary  change to the fair value based  method of
      accounting for stock-based employee  compensation.  In addition,  SFAS 148
      amends  the  disclosure  requirements  of SFAS  123 to  require  prominent
      disclosures  in both annual and  interim  financial  statements  about the
      method of accounting for stock-based employee  compensation and the effect
      of the method used on reported results. The transition  provisions of SFAS
      148 are effective for financial  statements  for fiscal years ending after
      December 15, 2002. The disclosure provisions of SFAS 148 are effective for
      financial reports containing  condensed  financial  statements for interim
      periods beginning after December 15, 2002. For information  related to the
      Company's  accounting for its stock option award plans and for the related
      disclosures  required by SFAS 123, see Stock Based Compensation above. The
      Company began reporting  quarterly  information with respect to the impact
      of  stock-based  compensation  on reported  and pro forma  earnings in the


                                       48
<PAGE>

      first quarter of 2003.

      In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
      of  Variable-Interest  Entities  - an  Interpretation  of ARB No. 51 ("FIN
      46"). FIN 46 addresses  consolidation by business  enterprises of variable
      interest   entities,   which   have   one  or   both   of  the   following
      characteristics:  (1) the equity  investment at risk is not  sufficient to
      permit  the  entity  to  finance   its   activities   without   additional
      subordinated  financial  support  from other  parties,  which is  provided
      through  other  interests  that will  absorb  some or all of the  expected
      losses of the entity and (2) the equity  investors lack one or more of the
      following essential characteristics of a controlling financial interest:

     o    The direct or indirect  ability to make  decisions  about the entity's
          activities through voting rights or similar rights.
     o    The  obligations  to absorb the expected  losses of the entity if they
          occur,  which  makes  it  possible  for  the  entity  to  finance  its
          activities
     o    The right to receive the  expected  residual  returns of the entity if
          they occur,  which is the  compensation  for the risk of absorbing the
          expected losses.

      This  interpretation  applies  immediately to variable  interest  entities
      created after January 31, 2003, and to variable interest entities in which
      an enterprise obtains an interest after that date. It applies in the first
      fiscal year or interim period  beginning  after June 15, 2003, to variable
      interest entities in which an enterprise holds a variable interest that it
      acquired  before  February 1, 2003.  The adoption of FIN 46 did not have a
      significant impact on the Company's consolidated financial statements.

      In  October  2003,  the FASB  issued  FASB  Staff  Position  No. FIN 46-6,
      Effective Date of FASB  Interpretation  No. 46,  Consolidation of Variable
      Interest  Entities.  This Staff  Position  defers the  effective  date for
      applying the provisions of FIN 46 for interests held by public entities in
      variable interest entities or potential variable interest entities created
      before  February 1, 2003 and  non-registered  investment  companies.  This
      adoption of this Staff Position is not expected to have a material  impact
      on the Company's consolidated financial statements.


      In April 2003,  the FASB issued SFAS 149,  Amendment of  Statement  133 on
      Derivative  Instruments  and Hedging  Activities  ("SFAS  149").  SFAS 149
      amends and clarifies  financial  accounting  and reporting for  derivative
      instruments,  including certain derivative  instruments  embedded in other
      contracts  and for  hedging  activities  under  FASB  Statement  No.  133,
      Accounting for Derivative Instruments and Hedging Activities.  SFAS 149 is
      effective  for  contracts  entered  into or modified  after June 30, 2003,
      except as stated below and for hedging relationships designated after June
      30, 2003.  The  provisions of this  Statement that relate to Statement 133
      Implementation  Issues that have been  effective for fiscal  quarters that
      began prior to June 15, 2003,  should continue to be applied in accordance
      with their respective effective dates. In addition, the provisions of SFAS
      149 which relate to forward  purchases or sales of when-issued  securities
      or other  securities  that do not yet  exist,  should be  applied  to both
      existing contracts and new contracts entered into after June 30, 2003. The
      adoption  of SFAS  149 did not have a  material  impact  on the  Company's
      consolidated financial statements.

      In May 2003, the FASB issued SFAS 150,  Accounting  for Certain  Financial
      Instruments  with  Characteristics  of Both  Liabilities and Equity ("SFAS
      150").  This  Statement   establishes  standards  for  classification  and
      measurement of certain financial  instruments with characteristics of both
      liabilities  and equity.  SFAS 150  requires  that  financial  instruments
      within  its  scope  be  classified  as a  liability  (or an  asset in some
      circumstances).  SFAS 150 is effective for financial  instruments  entered
      into or modified  after May 31,  2003,  and  otherwise is effective at the

                                       49
<PAGE>

      beginning of the first interim period  beginning  after June 15, 2003. The
      adoption  of SFAS  150 did not have a  material  impact  on the  Company's
      consolidated financial statements.

      In  December   2003,   the  FASB  issued  FASB   Interpretation   No.  46,
      Consolidation of Variable  Interest Entities (revised December 2003) ("FIN
      46(R)").  FIN  46(R)  is an  update  of  FIN  46  and  contains  different
      implementation  dates  based  on the  types  of  entities  subject  to the
      pronouncement  and based on  whether a company  has  adopted  FIN 46.  The
      Company  anticipates  adopting FIN 46(R) as of March 31, 2004 and does not
      expect  that it will have a material  impact on the  Company's  results of
      operations or financial condition. The Company does not have any interests
      in variable interest entities that are subject to the provisions of FIN 46
      or FIN 46(R).

3.    INVESTMENT SECURITIES

      Amortized cost and estimated fair value of investment securities available
      for  sale  at  December  31,  2003,  2002  and  2001  are as  follows  (in
      thousands):



<TABLE>
2003                                       U.S.            U.S.             State,        Mortgage-
                                         Treasury       Government       County, and       Backed
                                        Securities       Agencies         Municipal      Securities         Other            Total
                                        ----------       --------         ---------      ----------         -----            -----

<S>                                      <C>             <C>              <C>             <C>              <C>             <C>
Amortized cost ..................        $  4,006        $ 25,506         $  2,168        $ 24,564         $  3,119        $ 59,363
Gross unrealized:
Gains ...........................               2               -               64               -                -              66
Losses ..........................               -            (541)               -             (57)               -            (598)
                                         --------        --------         --------        --------         --------        --------
Estimated fair value ............        $  4,008        $ 24,965         $  2,232        $ 24,507         $  3,119        $ 58,831
                                         ========        ========         ========        ========         ========        ========



2002                                       U.S.            U.S.             State,        Mortgage-
                                         Treasury       Government       County, and       Backed
                                        Securities       Agencies         Municipal      Securities         Other            Total
                                        ----------       --------         ---------      ----------         -----            -----


Amortized cost ..................         $ 4,008         $24,027         $ 1,743         $16,045         $ 2,997         $48,820
Gross unrealized:
Gains ...........................               8             653              42             159               -             862
Losses ..........................               -               -               -               -               -               -
                                          -------         -------         -------         -------         -------         -------
Estimated fair value ............         $ 4,016         $24,680         $ 1,785         $16,204         $ 2,997         $49,682
                                          =======         =======         =======         =======         =======         =======



2001                                                       U.S.             State,        Mortgage-
                                                        Government       County, and       Backed
                                                         Agencies         Municipal      Securities         Other            Total
                                                         --------         ---------      ----------         -----            -----

Amortized cost ..................                        $ 20,870        $    935        $  6,841        $  3,847        $ 32,493
Gross unrealized:
Gains ...........................                             580              37              13               -             630
Losses ..........................                               -               -            (120)              -            (120)
                                                         --------        --------        --------        --------        --------
Estimated fair value ............                        $ 21,450        $    972        $  6,734        $  3,847        $ 33,003
                                                         ========        ========        ========        ========        ========
</TABLE>


                                       50
<PAGE>


Amortized  cost and  estimated  fair  value  of  investment  securities  held to
maturity at December 31, 2003 and 2001 are as follows (in thousands). There were
no investment securities held to maturity at December 31, 2002.

<TABLE>
2003                                                                       U.S.                   Mortgage-
                                                                       Government                  Backed
                                                                        Agencies                 Securities                  Total
                                                                        --------                 ----------                  -----

<S>                                                                     <C>                       <C>                      <C>
Amortized cost ........................................                 $ 25,000                  $  4,536                 $ 29,536
Gross unrealized:
Gains .................................................                        -                        10                       10
Losses ................................................                     (130)                        -                     (130)
                                                                        --------                  --------                 --------
Estimated fair value ..................................                 $ 24,870                  $  4,546                 $ 29,416
                                                                        ========                  ========                 ========




2001                                                                                           U.S.
                                                                                           Government
                                                                                            Agencies                         Total
                                                                                            --------                         -----

Amortized cost .......................................................                       $ 4,060                        $ 4,060
Gross unrealized:
Gains ................................................................                             -                              -
Losses ...............................................................                            (3)                            (3)
                                                                                             -------                        -------
Estimated fair value .................................................                       $ 4,057                        $ 4,057
                                                                                             =======                        =======
</TABLE>


Of the Company's  investment  securities in an unrealized  loss position held at
December 31, 2003, none were in an unrealized loss position for a period of more
than twelve  months.  Interest  income earned on tax-exempt  securities in 2003,
2002 and 2001 was  approximately  $91,000,  $40,000 and  $48,000,  respectively.
Dividends  of  approximately  $144,000,  $171,000  and  $226,000 on stock of the
Federal  Reserve Bank and the Federal Home Loan Bank are included in interest on
investment securities available for sale in 2003, 2002 and 2001, respectively.


The amortized  cost and estimated fair value of securities at December 31, 2003,
by contractual maturity, are shown below (in thousands):

<TABLE>
                                                                     Investment Securities                Investment Securities
                                                                       Available for Sale                   Held to Maturity
                                                                       ------------------                   ----------------
                                                                  Amortized          Estimated         Amortized          Estimated
                                                                     Cost            Fair Value           Cost            Fair Value
                                                                  ---------          ---------         ---------          ---------
Due in:
<S>                                                                 <C>               <C>               <C>               <C>
One year or less ........................................           $ 4,006           $ 4,008           $     -           $     -
After one through five years ............................             5,506             5,437                 -                 -
After five through ten years ............................            10,608            10,670             7,500             7,496
Over ten years ..........................................            11,560            11,090            17,500            17,374
Mortgage-backed securities and others ...................            27,683            27,626             4,536             4,546
                                                                    -------           -------           -------           -------
                                                                    $59,363           $58,831           $29,536           $29,416
                                                                    =======           =======           =======           =======
</TABLE>



                                       51
<PAGE>



At  December  31,  2003,  securities  with an  amortized  cost of  approximately
$55,011,000  and an  estimated  fair  value of  approximately  $54,290,000  were
pledged to  collateralize  public  funds,  treasury tax and loan  deposits,  and
repurchase agreements.


Gross realized gains on sales of investment  securities  available for sale were
$406,000,  $195,000 and $129,000 for each of the years ended  December 31, 2003,
2002 and 2001,  respectively.  There were no gross realized  losses during these
periods, nor were there any sales of investment securities held to maturity.

4.    LOANS, ALLOWANCE FOR LOAN LOSS AND NONPERFORMING ASSETS
      Loans at December 31, 2003 and 2002 were  comprised of the  following  (in
      thousands):

<TABLE>
                                                                                                   2003                     2002
                                                                                                 ---------                ---------
<S>                                                                                              <C>                      <C>
Commercial .......................................................................               $ 120,033                $ 111,033
Commercial real estate ...........................................................                 365,911                  324,525
Mortgages (including home equity) ................................................                 157,325                  132,513
Consumer .........................................................................                  32,510                   32,199
Credit card ......................................................................                       -                    1,164
Tax free .........................................................................                   5,971                    4,351
                                                                                                 ---------                ---------
   Total loans, net of unearned interest and fees ................................                 681,750                  605,785
Less allowance for loan loss .....................................................                  (7,329)                  (6,574)
                                                                                                 ---------                ---------
   Net loans .....................................................................               $ 674,421                $ 599,211
                                                                                                 =========                =========
</TABLE>


Activity  in the  allowance  for loan loss was as  follows  for the years  ended
December 31, 2003, 2002 and 2001 (in thousands):

<TABLE>
                                                                                2003                   2002                   2001
                                                                              -------                -------                -------
<S>                                                                           <C>                    <C>                    <C>
Balance at beginning of year ..................................               $ 6,574                $ 5,205                $ 3,670
   Provision ..................................................                 2,100                  2,375                  2,050
   Charge-offs ................................................                (1,449)                (1,232)                  (875)
   Recoveries .................................................                   104                    226                    250
   Republic acquisition .......................................                     -                      -                    110
                                                                              -------                -------                -------
   Balance at end of year .....................................               $ 7,329                $ 6,574                $ 5,205
                                                                              =======                =======                =======
</TABLE>

Non accrual loans totaled  approximately  $3,292,000  and $5,611,000 at December
31, 2003 and 2002,  respectively.  Foregone interest, which would have otherwise
been recorded on nonaccrual loans, including those loans that were nonaccrual at
sometime  during  the year and  later  paid,  reinstated  or  charged  off,  was
approximately   $360,000,   $402,000  and  $96,000,  in  2003,  2002  and  2001,
respectively.  In addition to nonaccrual  loans,  nonperforming  assets  include
loans past due 90 days and still  accruing  interest,  other real  estate  owned
related  to  property   acquired  by  foreclosure  in  settlement  of  debt  and
repossessed  assets.  Loans past due 90 days and still  accruing  interest  were
$387,000 and $2,439,000 at December 31, 2003 and 2002, respectively.  Other real
estate owned and repossessed  assets was  approximately  $133,000 and $24,000 at
December 31, 2003 and 2002, respectively, and is included in other assets in the
accompanying consolidated statements of financial condition.

The Company  recognizes  income on impaired  loans  primarily on the cash basis.
Impaired loans are considered to be loans with a probability  that the Bank will
be unable to collect all amounts due  according to the  contractual terms of the


                                       52
<PAGE>



loan  agreement.  Any  change in the  present  value of  expected  cash flows is
recognized  through the allowance for loan loss.  Impaired loan  information for
the year ended December 31, 2003, 2002 and 2001 is as follows (in thousands):

<TABLE>
                                                                                             2003             2002             2001
                                                                                            ------           ------           ------
<S>                                                                                         <C>              <C>              <C>
Impaired loans with an allowance ................................................           $3,237           $6,351           $1,361
                                                                                            ======           ======           ======
Allowance for loan loss on impaired loans .......................................           $  647           $  903           $  204
                                                                                            ======           ======           ======
Interest income recognized on impaired loans during the year ....................           $  195           $  348           $   66
                                                                                            ======           ======           ======
</TABLE>

The average  balance of impaired loans during 2003,  2002 and 2001  approximated
$5.8 million, $3.2 million and $1.0 million, respectively.

5.    PREMISES AND EQUIPMENT
      Premises and  equipment  were  comprised of the  following  components  at
      December 31 (in thousands):

<TABLE>
                                                                                                    2003                      2002
                                                                                                  --------                 --------
<S>                                                                                               <C>                      <C>
Buildings and improvements .......................................................                $ 21,182                 $ 20,130
Equipment and furnishings ........................................................                   9,905                    8,942
Land .............................................................................                   5,119                    5,208
Construction in progress .........................................................                       -                       94
                                                                                                  --------                 --------
                                                                                                    36,206                   34,374
Less accumulated depreciation and amortization ...................................                 (11,056)                  (9,288)
                                                                                                  --------                 --------
                                                                                                  $ 25,150                 $ 25,086
                                                                                                  ========                 ========
</TABLE>

Depreciation expense was approximately $1,863,000, $1,761,000 and $1,503,000 for
2003, 2002 and 2001, respectively.

6.    DEPOSITS
      At December 31, 2003, the scheduled  maturities of certificates of deposit
      are as follows (in thousands):

                 2004.........................      $235,921
                 2005.........................        57,557
                 2006.........................        25,985
                 2007.........................        13,473
                 2008.........................         1,215
           Thereafter.........................             -
                                                    --------
                                                    $334,151
                                                    ========

Interest expense on deposits was as follows for the years ended December 31 (in
thousands):

                                         2003      2002      2001
                                       -------   -------   -------
             NOW ...................   $ 1,310   $ 1,543   $ 1,664
             Money market ..........     2,303     1,889     2,235
             Savings ...............       102       155       196
             Certificates of deposit    11,016    11,213    13,656
                                       -------   -------   -------
                                       $14,731   $14,800   $17,751
                                       =======   =======   =======


                                       53
<PAGE>




7.    REPURCHASE AGREEMENTS
      The Bank has entered into  repurchase  agreements  with several  customers
      under which the Bank  pledges  investment  securities  owned and under its
      control as collateral against the one-day  agreements.  These transactions
      do not satisfy the  financial  instrument  sale  criteria  outlined  under
      generally  accepted  accounting  principles.   Therefore,  the  investment
      securities  remain  recorded on the  Company's  balance  sheet,  while the
      related  repurchase  agreements  are  reflected  as  borrowed  funds.  The
      following  table  outlines  the average and highest  amounts  outstanding,
      interest  expense and average rate paid on repurchase  agreements  for the
      years ended December 31, 2003, 2002 and 2001:

<TABLE>
                                                                         2003                     2002                     2001
                                                                      -----------              -----------              -----------
<S>                                                                   <C>                      <C>                      <C>
Average daily balance ...................................             $13,024,000              $11,557,000              $12,284,000
Highest amount outstanding at
   any month end ........................................              22,550,000               19,190,000               19,136,000
Interest expense ........................................                 113,000                  158,000                  443,000
Average rate paid .......................................                    0.87%                    1.37%                    3.61%
Average rate paid at year-end ...........................                    0.69%                    0.97%                    1.53%
</TABLE>

8.    OTHER BORROWINGS
      During 2001 the Bank  received  funding from Federal Home Loan Bank (FHLB)
      advances.  The  advances  were  collateralized  by a portion of the Bank's
      residential  mortgage  portfolio  and the average rate paid in 2001 on the
      advances was 5.06%.  Interest  expense  paid in 2001 on FHLB  advances was
      approximately  $1,061,000.  The highest amount outstanding during 2001 was
      $40,000,000.  There were no balances outstanding at December 31, 2001. The
      Bank did not utilize funding from the FHLB during 2003 and 2002.

      In April 2001,  the Company  entered  into a 364-day,  $10 million line of
      credit with a bank.  The  contractual  agreement  provides for interest at
      90-day Libor plus 145 basis points and is  collateralized by the Company's
      investment  in CNB  National  Bank.  During  2001,  the Company  drew down
      $7,000,000 under this line and incurred interest expense of $97,000.  This
      line of credit was modified in October 2001 as discussed below.

      In  October  2001,  the line of credit  agreement  was  modified  into two
      facilities as follows:

      o   Facility  A:   $3,000,000  line  of  credit  maturing  June  30,  2002
          (subsequently  renewed through June 30, 2004). Interest is variable at
          90-day Libor plus 145 basis points.
      o   Facility B: $10,000,000  term loan maturing October 3, 2006.  Interest
          is  variable  at 90-day  Libor plus 170 basis  points and was 2.85% at
          December 31, 2003. Semi-annual principal payments of $714,286 begin in
          April 2004, with the remainder due at maturity.

      In connection with the line of credit  agreement,  the Company is required
      to maintain  compliance  with  certain  covenants  and  restrictions.  The
      following financial covenants are to be maintained on a quarterly


                                       54
<PAGE>



      basis and are calculated at the Bank-level:

      o   Interest  coverage  ratio of  greater  than or equal to 2.00x  through
          September 30, 2003.
      o   Debt service  coverage ratio of greater than or equal to 0.85x through
          September 30, 2002;  1.00x from October 1, 2002 through  September 30,
          2003; 1.25x from October 1, 2003 through September 30, 2004; and 1.50x
          from October 1, 2004 through maturity.
      o   Ratio of  non-performing  assets to total loans plus other real estate
          owned and repossessed assets of less than or equal to 1.25%.
      o   Maintenance  of tier 1 and total risk based  capital  ratios that meet
          the benchmarks for consideration as a  "well-capitalized"  institution
          (currently 6% and 10%, respectively).  Also, maintenance of a leverage
          capital ratio of at least 5%.

      In addition, the Company is subject to the following restrictions:

      o   No additional debt is permitted without consent of the lender.
      o   No  increases  in  dividends   paid  by  the  Company  to  its  common
          shareholders are permitted without consent of the lender.

      Failure to  maintain  any of these  covenants  would  place the Company in
      default  of the  line of  credit  agreement.  In such a case,  absent  any
      waivers obtained from the lender, all amounts payable could be accelerated
      and become due  immediately.  As of December 31, 2003,  the Company was in
      compliance with all covenants.

      At December 31, 2003 there was  $10,000,000  outstanding  under Facility B
      and  $1,500,000  outstanding  under  Facility A, with an interest  rate of
      2.63%.  At December  31, 2002,  there was  $10,000,000  outstanding  under
      Facility B and $1,000,000 outstanding on Facility A, with an interest rate
      of 2.85%.

      In addition to the amended line of credit  agreement,  the Company entered
      into a  $10,000,000  notional  pay-fixed  interest rate swap with the same
      bank.  The  fixed  rate  under  the  interest  rate  swap is 6.45% and the
      variable rate is based on 90-day Libor plus 170 basis points. The interest
      rate swap matures  October 3, 2006 and has been  designated as a cash flow
      hedge of the variable interest payments on the $10,000,000 term loan noted
      above (Facility B). Interest expense on Facility B including the impact of
      the interest rate swap,  was $654,000  during 2003 and 2002.  The notional
      amount of the interest rate swap  amortizes in the same manner as Facility
      B.




                                       55
<PAGE>



9.    OTHER OPERATING EXPENSES
      Components of other operating  expenses are as follows for the years ended
      December 31, 2003, 2002 and 2001 (in thousands):

<TABLE>
                                                   2003                  2002                  2001
                                                  ------                ------                ------
<S>                                               <C>                   <C>                   <C>
Data processing ...............................   $1,514                $1,328                $1,104
Communications ................................      747                   764                   595
Legal and professional ........................      763                   689                   618
Postage and delivery ..........................      739                   700                   671
Amortization of intangible assets .............      712                   746                   543
Advertising and promotion .....................      553                   532                   687
Supplies ......................................      387                   410                   578
Regulatory fees ...............................      274                   239                   255
Loan expense ..................................      260                   242                   248
Administrative ................................      164                   163                   211
Directors fees ................................      105                    88                    70
Education expense .............................      100                   131                   101
Insurance and bonding .........................       98                    76                   105
Dues and subscriptions ........................       83                    97                   100
Other general operating .......................       78                    79                    67
Other .........................................      448                   350                   518
                                                  ------                ------                ------
                                                  $7,025                $6,634                $6,471
                                                  ======                ======                ======

</TABLE>

10.   INCOME TAXES
      The income tax provision  (benefit) for the years ended December 31, 2003,
      2002 and 2001 consisted of the following components (in thousands):

                                        2003             2002            2001
                                      -------          -------          -------
Current:
   Federal ..................         $ 3,418          $ 2,978          $ 1,958
   State ....................             601              524              351
                                      -------          -------          -------
     Total ..................         $ 4,019          $ 3,502          $ 2,309
                                      =======          =======          =======


Deferred:
   Federal ..................         $  (159)         $  (308)         $  (611)
   State ....................             (27)             (53)            (104)
                                      -------          -------          -------
     Total ..................         $  (186)         $  (361)         $  (715)
                                      =======          =======          =======

Total:
   Federal ..................         $ 3,259          $ 2,670          $ 1,347
   State ....................             574              471              247
                                      -------          -------          -------
     Total ..................         $ 3,833          $ 3,141          $ 1,594
                                      =======          =======          =======


                                       56
<PAGE>



Deferred  income tax  assets  and  liabilities  reflect  the net tax  effects of
temporary differences between the carrying amounts of assets and liabilities and
their respective tax bases. Significant components of and the resultant deferred
tax assets and liabilities at December 31, 2003 and 2002 are as follows:

<TABLE>
                                                                                                         2003                 2002
                                                                                                       -------              -------
Gross deferred tax assets:
<S>                                                                                                    <C>                  <C>
   Loan loss provisions ..................................................................             $ 2,667              $ 2,330
   Unrealized loss on interest rate swap .................................................                 189                  260
   Unrealized loss on investment securities available for sale ...........................                 198                    -
   Intangible assets .....................................................................                 346                  266
   Other items ...........................................................................                 138                   36
                                                                                                       -------              -------
                                                                                                         3,538                2,892

Gross deferred tax liabilities:
   Property and equipment ................................................................              (1,284)                (991)
   Unrealized gain on investment securities available for sale ...........................                   -                 (324)
                                                                                                       -------              -------
                                                                                                        (1,284)              (1,315)
                                                                                                       -------              -------
Net deferred tax asset ...................................................................             $ 2,254              $ 1,577
                                                                                                       =======              =======
</TABLE>



A reconciliation  of the statutory federal income tax rate and the effective tax
rate is  summarized as follows for the years ended  December 31, 2003,  2002 and
2001:

                                                   2003        2002        2001
                                                   ----        ----        ----

Statutory rates ............................       34.0%       34.0%       34.0%
Increase (decrease) resulting from:
   Effect of tax-exempt income .............       (1.1)       (1.1)       (2.1)
   State income taxes, net .................        3.6         3.6         3.6
   Nondeductible expenses and other ........        0.3         0.3        (0.3)
                                                   ----        ----        ----
                                                   36.8%       36.8%       35.2%
                                                   ====        ====        ====


11.   LEASE COMMITMENTS
      The Company leases certain office space and equipment under  noncancelable
      operating  leases with options to renew at varying  terms.  Future minimum
      rental payments, by year and in the aggregate, required under these leases
      are as follows at December 31, 2003:

                     2004...........................   $  317,000
                     2005...........................      290,000
                     2006...........................      249,000
                     2007...........................      206,000
                     2008...........................      178,000
               Thereafter...........................      514,000
                                                       ----------
                                                       $1,754,000
                                                       ==========


                                       57
<PAGE>




12. COMPREHENSIVE INCOME
      The Company's  comprehensive  income consists of net income and changes in
      unrealized  gains (losses) on securities  available for sale and cash flow
      hedges,  net of income  taxes.  Comprehensive  income for the years  ended
      December 31, 2003, 2002 and 2001 is calculated as follows (in thousands):

<TABLE>
                                                                                            2003         2002         2001
                                                                                          -------      -------      -------
Unrealized (loss) gain recognized in other comprehensive
 income (net):
<S>                                                                                       <C>          <C>          <C>
     Available for sale securities ..............................................         $(1,394)     $   352      $   563
     Interest rate swap designated as cash flow hedge ...........................             183         (700)           9
                                                                                          -------      -------      -------
     Total unrealized (loss) gain before income taxes ...........................          (1,211)        (348)         572
     Deferred income taxes ......................................................             451          130         (213)
                                                                                          -------      -------      -------
        Net of deferred income tax ..............................................         $  (760)     $  (218)     $   359
                                                                                          =======      =======      =======

Amounts reported in net income:
     Gain on sale of securities .................................................         $   406      $   195      $   129
     Interest rate swap designated as cash flow hedge ...........................            (356)        (290)         (54)
     Net amortization (accretion) ...............................................             567          267           (6)
                                                                                          -------      -------      -------
     Reclassification adjustment ................................................             617          172           69
     Deferred income taxes ......................................................            (230)         (64)         (26)
                                                                                          -------      -------      -------
        Reclassification adjustment, net of deferred income tax .................         $   387      $   108      $    43
                                                                                          =======      =======      =======

Amounts reported in other comprehensive income:
     Net unrealized (loss) gain arising during period, net of tax ...............         $  (373)     $  (110)     $   402
     Reclassification adjustment, net of tax ....................................            (387)        (108)         (43)
                                                                                          -------      -------      -------
     Unrealized (loss) gain recognized in other comprehensive
        income (net) ............................................................            (760)        (218)         359
     Net income .................................................................           6,577        5,384        2,941
                                                                                          -------      -------      -------
        Total comprehensive income ..............................................         $ 5,817      $ 5,166      $ 3,300
                                                                                          =======      =======      =======

</TABLE>


13.   LOANS TO RELATED PARTIES
      Certain officers and directors,  and companies in which they held a 10% or
      more beneficial ownership,  were indebted to (or in some cases, guaranteed
      loans by) the Bank. An analysis of such activities follows (in thousands):

                                                          2003            2002
                                                        -------         -------
Balance, January 1 .............................        $ 7,591         $ 8,223
   New loans and advances ......................          2,079           2,742
   Repayments (excluding renewals) .............         (1,198)         (3,374)
                                                        -------         -------
Balance, December 31 ...........................        $ 8,472         $ 7,591
                                                        =======         =======

The  loans set  forth  above  were made in the  normal  course  of  business  at
prevailing interest rates and terms.


                                       58
<PAGE>



14.   DIVIDEND RESTRICTIONS
      The  Company's  primary  source of funds is dividends it receives from the
      Bank.  The payment of  dividends by the Bank,  in turn,  is subject to the
      regulations of the Comptroller of the Currency, which require, among other
      things,  that  dividends  be paid only from net profits of the current and
      immediately  preceding  two years.  At  December  31,  2003,  the Bank had
      approximately  $15,164,000 of retained earnings available for dividends to
      the Company without being required to seek special regulatory approvals.

      As  discussed  in  Note 8 -  Other  Borrowings,  in  connection  with  the
      Company's debt covenants, no increases in dividends paid by the Company to
      its common shareholders are permitted without consent of the lender.


15.   EQUITY
      Dividends Declared
      During 2003,  2002 and 2001 the Company  declared cash dividends of $0.24,
      $0.20 and $0.20 per share, respectively.  At December 31, 2003 the Company
      had declared and unpaid dividends of $375,000.


16.   STOCK BASED COMPENSATION
      Stock Options
      The Company has long-term incentive plans that provide stock-based awards,
      including  stock  options  to  certain  key  employees.  The  terms of the
      Performance-Based  Incentive  Plan ("the  Plan"),  which were  approved by
      shareholders  at the annual  meeting in April 1998,  allowed for a maximum
      grant of 540,000 shares. In May 2001,  shareholders approved a proposal to
      increase  the  number of shares  that may be granted  under the  long-term
      incentive  component of the Plan to 800,000 shares.  Prior to the approval
      of the Plan, there were issued and outstanding options totaling 166,766 of
      which 33,306 were exercised in 2000,  18,626 were exercised in 2001, 6,922
      were exercised in 2002 and 11,662 were exercised in 2003. There are 90,025
      shares  remaining  to be issued  under the Plan as of December  31,  2003.
      Generally,  the options granted under the Plan become  exercisable  over a
      three to four year  period  following  the year of grant,  and  expire ten
      years after the date of the grant. The grant price of all options has been
      equal to the  estimated  fair  market  value of a share of stock as of the
      date of grant.


      Options  outstanding and the activity for December 31, 2003, 2002 and 2001
      are presented below:


<TABLE>
                                                             2003                        2002                       2001
                                                    ------------------------     ------------------------    -----------------------
                                                                  Weighted-                   Weighted-                   Weighted-
                                                                   Average                     Average                     Average
                                                    Shares       Grant Price     Shares      Grant Price     Shares      Grant Price
                                                    --------     -----------     -------     -----------     -------     -----------
Employee stock option plans:
<S>                                                 <C>           <C>            <C>          <C>            <C>          <C>
     Outstanding at beginning of year ..........    684,712       $    8.29      637,634      $    8.34      621,760      $   7.58
        Options granted ........................     91,500           15.65      112,000          10.90       72,500          9.60
        Options exercised ......................    131,162            9.16       29,547           8.33       30,876          5.39
        Options forfeited ......................     12,500           11.37       35,375           9.96       25,750          8.86
                                                    -------       ---------      -------      ---------      -------      --------
     Outstanding at end of year ................    632,550       $    9.53      684,712      $    8.68      637,634      $   8.34
                                                    =======       =========      =======      =========      =======      ========

     Options exercisable at year-end ...........    470,050       $    8.38      522,503      $    8.29      493,087      $   7.97
                                                    =======       =========      =======      =========      =======      ========

Weighted-average fair value of options
   granted during the year .....................                  $    4.50                   $    4.12                   $   3.17
                                                                  =========                   =========                   ========
</TABLE>



                                       59
<PAGE>



The following table summarizes  information  about stock options  outstanding at
December 31, 2003.

                               Outstanding                   Exercisable
                     -------------------------------     ----------------------
                                 Average    Average                   Average
     Exercise                     Life      Exercise                  Exercise
   Price Range        Shares     (Years)      Price       Shares       Price
   -----------        ------     -------      -----       ------       -----
 $  4.00-$  4.68      51,818       2.63     $  4.18       51,818     $  4.18
 $  5.00-$  8.00     220,232       5.21        7.66      209,232        7.65
 $  9.00-$ 10.25     234,000       6.69        9.72      192,250        9.71
 $ 11.90-$ 17.62     126,500       8.98       14.66       16,750       15.24
                     -------       ----       -----       ------       -----
  Total              632,550       6.30     $  9.53      470,050     $  8.38
                     =======       ====     =======      =======     =======


      Restricted Stock
      The Company  awarded  12,500 shares and 5,000 shares of  restricted  stock
      under the  Performance-Based  Incentive  Plan in  December  1999 and April
      2000, respectively.  The weighted average price of restricted stock vested
      during 2001 was $9.00.  Compensation  expense is  recorded  on  restricted
      stock over the related  vesting period.  Compensation  expense is measured
      based on the fair  value  of  shares  issued  at the  date of  grant.  All
      restricted  stock  grants  were fully  vested at  December  31,  2001 and,
      consequently,  no restricted  stock expense was recorded  during the years
      ended December 31, 2003 and 2002.



17.   EARNINGS PER COMMON SHARE
      The  following  table  sets  forth the  computation  of basic and  diluted
      earnings per common share for the years ended December 31, 2003,  2002 and
      2001 (dollars in thousands, except per share data):

<TABLE>
                                                                                     2003                2002                2001
                                                                                     ----                ----                ----
Numerator:
<S>                                                                               <C>                 <C>                 <C>
     Net income available to common shareholders .......................          $    6,577          $    5,384          $    2,941
                                                                                  ==========          ==========          ==========
Denominator:
     Denominator for basic earnings per common share
        Weighted-average shares ........................................           6,199,416           6,104,050           6,094,670
     Effect of dilutive securities:
        Common stock options ...........................................             199,514             111,725              93,807
                                                                                  ----------          ----------          ----------
     Dilutive potential common shares ..................................             199,514             111,725              93,807
                                                                                  ----------          ----------          ----------
Denominator for diluted earnings per common share
     Adjusted weighted-average shares ..................................           6,398,930           6,215,775           6,188,477
                                                                                  ==========          ==========          ==========
Basic Earnings Per Common Share ........................................          $     1.06          $     0.88          $     0.48
                                                                                  ==========          ==========          ==========
Diluted Earnings Per Common Share ......................................          $     1.03          $     0.87          $     0.48
                                                                                  ==========          ==========          ==========
</TABLE>



                                       60
<PAGE>


      For the year ended  December 31, 2002,  shares that could  potentially  be
      issued under  options and  potentially  dilute  basic  earnings per common
      share in the future that were not included in the  computation of dilutive
      earnings per common share  because to do so would have been  anti-dilutive
      totaled  13,278.  There were no  anti-dilutive  shares for the years ended
      December 31, 2003 and 2001.

18.   EMPLOYEE BENEFITS
      Profit-Sharing Plan
      The Company sponsors a 401(k)  profit-sharing  plan in which substantially
      all full-time and part-time  employees are eligible to  participate.  This
      plan allows  eligible  employees to defer a portion of their salaries on a
      pretax basis.  The Company  matches these deferrals on a pro rata basis as
      defined in the plan.  Contributions and administrative expenses related to
      the  plan and paid by the plan  sponsor  totaled  approximately  $321,000,
      $304,000  and $274,000  for the years ended  December  31, 2003,  2002 and
      2001, respectively.

      Health and Welfare Plan
      The Company also provides  health care,  dental care,  disability and life
      insurance benefits to all full-time employees. Total cost related to these
      benefits for 2003, 2002 and 2001 were approximately $713,000, $708,000 and
      $653,000,  respectively.  Beginning in April 2001, full-time employees who
      elected  health care and/or dental care coverage  contributed a portion of
      the monthly premium cost.

19.   CAPITAL
      The  Company  is  subject  to  various  regulatory  capital   requirements
      administered  by the federal  banking  agencies.  Under  capital  adequacy
      guidelines, the Company 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.  Capital
      amounts and  classification  are also subject to qualitative  judgments by
      the regulators about components, risk weightings, and other factors.

      Quantitative  measures as defined by regulation and  established to ensure
      capital  adequacy  require the Bank to maintain minimum amounts and ratios
      of Total and Tier I capital to risk-weighted  assets and of Tier I capital
      to average assets. If such minimum amounts and ratios are met, the Bank is
      considered "adequately capitalized." If a bank exceeds the requirements of
      "adequately  capitalized" and meets even more stringent minimum standards,
      it is considered to be "well  capitalized."  As of December 31, 2003,  the
      Bank meets all capital adequacy requirements to which it is subject.






                                       61
<PAGE>



The following table summarizes the actual and required capital levels and ratios
for the Company and the Bank at December 31, 2003 and 2002.
<TABLE>

                                                                                   Adequately                  Well
                                                            Actual                 Capitalized             Capitalized
                                                            Amount         Ratio      Amount        Ratio     Amount          Ratio
                                                            ------         -----      ------        -----     ------          -----
As of December 31, 2003:
   Total capital (to risk-weighted assets):
<S>                                                        <C>              <C>      <C>             <C>      <C>             <C>
     Consolidated ..................................       $59,023          8.9%     $52,833         8.0%     $66,042         10.0%
     Bank ..........................................        69,798         10.6%      52,763         8.0%      65,953         10.0%
   Tier I capital (to risk-weighted assets):
     Consolidated ..................................        51,694          7.8%      26,417         4.0%      39,625          6.0%
     Bank ..........................................        62,469          9.5%      26,381         4.0%      39,572          6.0%
   Tier I capital (to average assets):
     Consolidated ..................................        51,694          6.4%      32,461         4.0%      40,576          5.0%
     Bank ..........................................        62,469          7.7%      32,437         4.0%      40,546          5.0%

As of December 31, 2002:
   Total capital (to risk-weighted assets):
     Consolidated ..................................       $51,331          8.5%     $48,141         8.0%     $60,177         10.0%
     Bank ..........................................        61,286         10.2%      48,070         8.0%      60,088         10.0%
   Tier I capital (to risk-weighted assets):
     Consolidated ..................................        44,757          7.4%      24,071         4.0%      36,106          6.0%
     Bank ..........................................        54,712          9.1%      24,035         4.0%      36,053          6.0%
   Tier I capital (to average assets):
     Consolidated ..................................        44,757          6.3%      28,362         4.0%      35,453          5.0%
     Bank ..........................................        54,712          7.7%      28,336         4.0%      35,420          5.0%
</TABLE>

20.   COMMITMENTS AND CONTINGENCIES
      Financial Instruments With Off-Balance Sheet Risk
      The financial statements do not reflect various commitments and contingent
      liabilities, or off-balance sheet risks that arise in the normal course of
      business  to  meet  the  financing  needs  of  customers.   These  include
      commitments to extend credit and to honor standby letters of credit. These
      instruments involve, to varying degrees, elements of credit, interest rate
      and liquidity risks in excess of amounts  reflected in the balance sheets.
      The extent of the Bank's  involvement  in these  commitments or contingent
      liabilities is expressed by the contractual,  or notional,  amounts of the
      instruments.

      The Company's  maximum  exposure to credit loss under  standby  letters of
      credit and  commitments to extend credit is represented by the contractual
      amount of those instruments.  The Company uses the same credit policies in
      establishing  commitments  and  issuing  letters  of credit as it does for
      on-balance sheet instruments.

      Commitments  to extend credit are agreements to lend to a customer so long
      as there is no violation of any  condition  established  in the  contract.
      Commitments  generally have fixed  expiration  dates or other  termination
      clauses  and may  require  payment of a fee.  Since many  commitments  are
      expected to expire without being drawn upon, the total commitment  amounts
      do not  necessarily  represent  future  cash  requirements.  The amount of
      collateral obtained, if any, is based on management's credit evaluation in
      the same  manner  as  though  an  immediate  credit  extension  were to be
      granted. Commitments to extend credit amount to approximately $194,000,000



                                       62
<PAGE>


      and $147,000,000 at December 31, 2003 and 2002, respectively.

      Standby letters of credit are conditional  commitments  issued by the Bank
      to guarantee the  performance  of a customer to a third party.  The credit
      risk involved in issuing letters of credit is essentially the same as that
      involved in  extending  loan  facilities.  The  Company had  approximately
      $8,303,000  and  $8,889,000 of standby  letters of credit  outstanding  at
      December 31, 2003 and 2002, respectively.  The Company does not anticipate
      any material  losses as a result of  participating  in standby  letters of
      credit or commitments to extend credit.

      Concentrations of Credit Risk
      The Bank originates residential and commercial real estate loans and other
      consumer and  commercial  loans  primarily in the north  Florida  area. In
      addition,  the Bank  occasionally  purchases loans,  primarily in Florida.
      Although the Bank has a diversified loan portfolio,  a substantial portion
      of its borrowers'  ability to repay their loans is dependent upon economic
      conditions in the Bank's market area.

      Federal Reserve Requirement
      The Federal  Reserve Board requires that certain banks maintain  reserves,
      based on their  average  deposits,  in the form of vault cash and  average
      deposit balances at a Federal Reserve Bank. The Bank's reserve requirement
      as of December 31, 2003 and 2002 was approximately $250,000.

      Legal Contingencies
      The Company is a defendant in certain claims and legal actions  arising in
      the  ordinary  course of  business.  In the opinion of  management,  after
      consultation with legal counsel, the ultimate disposition of these matters
      is not  expected  to have a material  adverse  effect on the  consolidated
      financial condition, operations, or liquidity of the Company.

21.   FAIR VALUE OF FINANCIAL INSTRUMENTS
      Many of the Company's  assets and  liabilities  are  short-term  financial
      instruments  whose carrying  values  approximate  fair value.  These items
      include  cash and due from  banks,  interest-bearing  deposits  with other
      banks, federal funds sold, federal funds purchased,  securities sold under
      repurchase  agreements  and other  short term  borrowings.  In cases where
      quoted market prices are not available, fair values are based on estimates
      using  present value or other  valuation  techniques.  The resulting  fair
      values may be significantly  affected by the assumptions  used,  including
      the discount rates and estimates of future cash flows.

      The  methods  and  assumptions  used to  estimate  the  fair  value of the
      Company's other financial instruments are as follows:

      Cash and Cash Equivalents
      The carrying amounts of cash and cash equivalents  approximate  their fair
      value.

      Other Equity Securities
      Other equity  securities  include stock of the Federal Home Loan Bank, the
      Federal Reserve Bank and  Independent  Bankers Bank. The carrying value of
      these equity securities approximates fair value.


                                       63
<PAGE>



      Investment Securities
      Fair values for  investment  securities are based on quoted market prices.
      If a quoted market price is not available,  fair value is estimated  using
      market prices for similar securities.


      Loans
      The loan  portfolio is segregated  into  categories  and the fair value of
      each loan category is calculated  using present value  techniques based on
      projected cash flows and estimated  discount rates. The calculated present
      values are then reduced by an  allocation  of the  allowance for loan loss
      against each respective loan category.


      Deposits
      The fair values of  non-interest  bearing  deposits,  NOW accounts,  money
      market accounts, and savings accounts are the amounts 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.


      Interest Rate Swap
      The interest rate swap is recorded at fair value of ($508,000) at December
      31, 2003.  Fair value is based on a dealer quote at December 31, 2003, for
      an interest rate swap with similar terms.


      Notes Payable
      The interest  rates on the Company's  notes payable  reprice on a frequent
      basis  (every  three  months)  and,  accordingly,  the fair value of these
      instruments is assumed to equal their carrying value at December 31, 2003.


      Commitments to Extend Credit and Standby Letters of Credit
      The estimated fair values for other financial  instruments and off-balance
      sheet loan  commitments are considered to approximate  carrying amounts at
      December  31, 2003 and 2002 and are based upon fees  charged to enter into
      similar arrangements as of these dates.











                                       64
<PAGE>


The  Company's  financial  instruments  are presented as follows at December 31,
2003 and 2002 (in thousands):

<TABLE>
                                                                              2003                               2002
                                                                   ---------------------------         ---------------------------
                                                                    Carrying        Estimated          Carrying         Estimated
                                                                     Amount         Fair Value          Amount          Fair Value
                                                                   ---------        ----------         --------         ----------
Financial assets:
<S>                                                                <C>               <C>               <C>               <C>
   Cash and cash equivalents ...............................       $ 18,067          $ 18,067          $ 33,601          $ 33,601
   Other equity securities .................................          3,119             3,119             2,997             2,997
   Investment securities available for sale ................         55,712            55,712            46,685            46,685
   Investment securities held to maturity ..................         29,536            29,416                 -                 -
   Net loans ...............................................        681,750           691,553           605,785           625,551
Financial liabilities:
   Non-maturity deposits ...................................        389,535           389,535           316,349           316,349
   Time deposits ...........................................        334,151           336,428           332,287           334,839
   Interest rate swap ......................................            508               508               691               691
   Notes payable ...........................................         11,500            11,500            11,000            11,000
</TABLE>

      While these estimates of fair value are based on management's  judgment of
      the most appropriate factors, there is no assurance that, were the Company
      to have disposed of such  financial  instruments at December 31, 2003, the
      estimated fair values would  necessarily  have been achieved at that date,
      since market  values may differ  depending on various  circumstances.  The
      estimated fair values at December 31, 2003 are not necessarily  indicative
      of fair values at future dates.

22.   BRANCH ACQUISITIONS
      On May 11, 2001, the Company purchased the Lake City and Live Oak branches
      of Republic Bank. The Company acquired loans and deposits of approximately
      $12,000,000  and  $62,000,000,  respectively.  The Company also recorded a
      core  deposit  intangible  of  approximately  $6,000,000,  which  is being
      amortized over its estimated  life of 10 years.  The results of operations
      of these branches are included in the results of operations of the Company
      from the date of acquisition forward.











                                       65
<PAGE>


23.   CONDENSED FINANCIAL DATA (PARENT COMPANY ONLY)

                        Statements of Financial Condition


                                     Assets

<TABLE>
                                                                                                                December 31,
                                                                                                         2003                  2002
                                                                                                       -------               -------
                                                                                                           (dollars in thousands)
<S>                                                                                                    <C>                   <C>
Cash and cash equivalents ..................................................                           $   571               $   415
Investment in CNB National Bank ............................................                            67,398                61,226
Other assets ...............................................................                               968                   972
                                                                                                       -------               -------
   Total assets ............................................................                           $68,937               $62,613
                                                                                                       =======               =======




                      Liabilities and Shareholders' Equity

LIABILITIES
Other borrowings .......................................................                               $11,500               $11,000
Other liabilities ......................................................                                 1,050                   692
                                                                                                      --------              --------
   Total liabilities ...................................................                                12,550                11,692
                                                                                                      --------              --------

SHAREHOLDERS' EQUITY
Common stock ............................................................................                   63                    61
Additional paid-in capital ..............................................................               32,288                30,840
Retained earnings .......................................................................               24,688                19,912
Accumulated other comprehensive (loss) income, net of taxes .............................                 (652)                  108
                                                                                                      --------              --------
   Total shareholders' equity ...........................................................               56,387                50,921
                                                                                                      --------              --------
     Total liabilities and shareholders' equity .........................................             $ 68,937              $ 62,613
                                                                                                      ========              ========

</TABLE>









                                       66
<PAGE>




                              Statements of Income
<TABLE>
                                                                                               For the Year Ended December 31,
                                                                                          2003              2002              2001
                                                                                        -------           -------           --------
                                                                                                    (dollars in thousands)
<S>                                                                                     <C>               <C>               <C>
Dividend income ..............................................................          $     -           $     -           $   824
Interest income ..............................................................                7                34                25
Interest expense .............................................................             (687)             (655)             (265)
                                                                                        -------           -------           -------
Net interest and dividend income .............................................             (680)             (621)              584
Noninterest income ...........................................................                -                 2                 6
Noninterest expense ..........................................................              (75)             (101)             (154)
Realized gains on available for sale securities ..............................                -                 -               125
                                                                                        -------           -------           -------
Income (loss) before income taxes and equity
   in undistributed net income of subsidiary .................................             (755)             (720)              561
Income tax benefit ...........................................................              285               269                98
                                                                                        -------           -------           -------
Income (loss) before equity in undistributed net income of ...................             (470)             (451)              659
subsidiary
Equity in undistributed net income of subsidiary .............................            7,047             5,835             2,282
                                                                                        -------           -------           -------
Net income ...................................................................          $ 6,577           $ 5,384           $ 2,941
                                                                                        =======           =======           =======
</TABLE>










                                       67
<PAGE>




                            Statements of Cash Flows
<TABLE>
                                                                                               For the Year Ended December 31,
                                                                                             2003            2002             2001
                                                                                           --------        --------        --------
                                                                                                     (dollars in thousands)
Cash flows from operating activities:
<S>                                                                                        <C>             <C>             <C>
   Net income ......................................................................       $  6,577        $  5,384        $  2,941
   Adjustments to reconcile net income to net cash (used in) provided by
     operating activities:
        Undistributed earnings of subsidiary .......................................         (7,047)         (5,835)         (2,282)
        Depreciation ...............................................................              -               -              87
        Non-cash compensation ......................................................              -               -              20
        Realized gains on available for sale securities ............................              -               -            (125)
   Changes in assets and liabilities:
        Other assets ...............................................................            (65)           (378)           (110)
        Other liabilities ..........................................................            414             162             (25)
                                                                                           --------        --------        --------
          Net cash (used in) provided by operating activities ......................           (121)           (667)            506
                                                                                           --------        --------        --------
Cash flows from investing activities:
   Cash paid related to investment in subsidiary ...................................              -          (1,607)         (7,000)
   Proceeds from sale of available for sale securities .............................              -               -             173
                                                                                           --------        --------        --------
          Net cash used in investing activities ....................................              -          (1,607)         (6,827)
                                                                                           --------        --------        --------
Cash flows from financing activities:
   Proceeds from other borrowings ..................................................            500           1,000          10,000
   Cash dividends ..................................................................         (1,426)         (1,221)         (1,219)
   Proceeds from exercise of stock options .........................................          1,203             246             166
   Payment to repurchase common stock ..............................................              -            (100)           (234)
                                                                                           --------        --------        --------
          Net cash provided by (used in) financing activities ......................            277             (75)          8,713
                                                                                           --------        --------        --------
Net increase (decrease) in cash and cash equivalents ...............................            156          (2,349)          2,392
Cash and cash equivalents, beginning of year .......................................            415           2,764             372
                                                                                           --------        --------        --------
Cash and cash equivalents, end of year .............................................       $    571        $    415        $  2,764
                                                                                           ========        ========        ========
</TABLE>

      During 2001, the Parent Company  transferred  its Deerwood and Gainesville
      buildings,  land and  related  equipment  having a combined  value of $8.7
      million to the Bank as a capital contribution.


24.   SUBSEQUENT EVENT
      On  January  21,  2004,  the  Company  announced  that it  entered  into a
      definitive  agreement to be acquired by The South Financial Group, Inc. in
      an all-stock  transaction.  Under terms of the  agreement,  the  Company's
      shareholders  will receive 0.84 shares of The South Financial Group,  Inc.
      common stock for each CNB Florida  Bancshares,  Inc.  share.  In addition,
      outstanding options to purchase the Company's stock will be converted into
      options to acquire The South Financial  Group,  Inc.'s common stock at the
      0.84 exchange ratio. The transaction is expected to close in July 2004 and
      is subject to regulatory and Company shareholder  approval.  The Company's
      subsidiary,  CNB National Bank, will merge into The South Financial Group,
      Inc.'s Florida banking subsidiary, Mercantile Bank.


                                       68
<PAGE>



            ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                       ACCOUNTING AND FINANCIAL DISCLOSURE


     On May 22, 2002 CNB Florida Bancshares,  Inc. (the "Company") dismissed its
independent   accountants,   Arthur  Andersen  LLP  ("Andersen")  and  appointed
PricewaterhouseCoopers  LLP  as  its  new  independent  accountants,   effective
immediately. This termination followed the Company's decision to seek statements
of qualifications from independent  accountants to audit the Company's financial
statements for the fiscal year ending December 31, 2002. The decision to dismiss
Andersen and to retain  PricewaterhouseCoopers LLP was approved by the Company's
Board of  Directors  on May 22,  2002,  upon  the  recommendation  of its  Audit
Committee.


     During the Company's two most recent fiscal years ended  December 31, 2001,
and the  subsequent  interim  period  through  March  31,  2002,  there  were no
disagreements  between  the Company  and  Andersen  on any matter of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  which disagreements if not resolved to Andersen's satisfaction would
have caused them to make reference to the subject matter of the  disagreement in
connection with their reports.


     None of the  reportable  events  described  under  Item  302 (a) (1) (v) of
Regulation S-K occurred  within the Company's two most recent fiscal years ended
December 31, 2001 and the subsequent interim period through March 31, 2002.


     The audit reports of Andersen on the consolidated  financial  statements of
the Company and its  subsidiary as of December 31, 2001 and 2000 did not contain
any  adverse  opinion or  disclaimer  of  opinion,  nor were they  qualified  or
modified as to uncertainty, audit scope, or accounting principles.


     During the Company's  two most recent fiscal years ended  December 31, 2001
and the  subsequent  interim  period through March 31, 2002, the Company did not
consult with  PricewaterhouseCoopers  LLP regarding any of the matters or events
set forth in Item 302 (a) (2) (i) and (ii) of Regulation S-K.


                        ITEM 9a. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures

     As required by Rule 13a-15 under the  Securities  Exchange Act of 1934 (the
"Exchange Act"), as of the end of the period covered by this report, the Company
carried out an  evaluation of the  effectiveness  of the design and operation of
the Company's  disclosure  controls and procedures.  This evaluation was carried
out under the  supervision  and with the  participation  of the Company's  Chief
Financial Officer and Chief Executive Officer.  Based upon that evaluation,  the
Company's  Chief Financial  Officer and Chief  Executive  Officer have concluded
that the Company's  disclosure controls and procedures are effective in alerting
them to material  information  regarding the Company's  financial  statement and
disclosure  obligation  in order  to allow  the  Company  to meet its  reporting
requirements under the Exchange Act in a timely manner.


Changes in Internal Control


     There have been no changes in internal  controls or in other  factors  that
could significantly affect these controls during the most recent fiscal quarter,
including any  corrective  actions with regard to significant  deficiencies  and
material weaknesses.



                                       69
<PAGE>


                                    PART III


         ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE
                                   REGISTRANT


Name                  Age      Positions Held and Principal Occupations
----                  ---      ----------------------------------------
                               During the Past Five Years
                               --------------------------

Thomas R. Andrews     58       Mr. Andrews was elected to our board of directors
                               in  1994  and  serves  on  the   Nominating   and
                               Corporate  Governance,   Audit  and  Compensation
                               Committees of our board.  Mr. Andrews also serves
                               on the board of directors of the Bank.  He is the
                               owner of Belco  Enterprises,  a  commercial  real
                               estate company.




AudreyS.Bullard       61       Ms. Bullard was elected to our board of directors
                               in  1987  and  serves  on  the   Nominating   and
                               Corporate Governance,  Compensation and Executive
                               Committees of our board.  Ms. Bullard also serves
                               on  the  board  of   directors  of  the  Bank.  A
                               practicing   certified  public  accountant,   Ms.
                               Bullard is an  officer  and part owner of Bullard
                               Development  Co.  and A&R of Lake City,  Inc.  as
                               well as several partnerships and land development
                               firms.  Ms.  Bullard  has been active in numerous
                               civic and service  organizations,  including  the
                               Chamber of Commerce, the Lake Shore Hospital, the
                               Advent  Christian  Advisory  Board,  the Columbia
                               County   Public  School   Foundation,   the  Lake
                               City/Columbia  County  Beautification  Board, the
                               North Florida  Advisory  Council and the Board of
                               Santa Fe Health Care, Inc.


Millard K. Joyner     54       Mr.  Joyner was elected to the board of directors
                               of the Company and the Bank in February 2004. Mr.
                               Joyner,  a graduate of the University of Florida,
                               founded  Joyner  Construction  in  1975.  He is a
                               state  certified  general  contractor and holds a
                               bachelor  degree in  building  construction.  Mr.
                               Joyner is the Vice  President  and a board member
                               of the  Gainesville  Country  Club.  He is also a
                               member of the Rotary Club of Greater  Gainesville
                               and a member  of the  Presidents  Council  at the
                               University of Florida.  He is the past  president
                               and  a  current   director   of  the  Gator  Golf
                               Boosters.  Mr.  Joyner has been a past  member on
                               the board of directors of the Gainesville Chamber
                               of Commerce  and the  Gainesville  Home  Builders
                               Association.  He has served as past  president of
                               the Gainesville  Golf and Country Club as well as
                               a past member of the Board of Governors  Heritage
                               Club.







                                       70
<PAGE>



Raymon Land, Sr.      64       Mr. Land was elected to our board of directors in
                               1998 and  serves on  the Audit  Committee  of our
                               board.  Mr.  Land  also  serves  on the  board of
                               directors  of the Bank.  Mr. Land is the owner of
                               Raymon  J.  Land,   a   watermelon   and  produce
                               brokerage and shipping business.  Mr. Land is the
                               owner of a  commercial  cow and  calf  production
                               operation and raises  registered  quarter horses.
                               Mr.  Land is  President  of Land  Truck  Brokers,
                               Inc., a  transportation  company for produce.  He
                               served  as   President   of  both  the   National
                               Watermelon  Association,  Inc.  and  the  Florida
                               Watermelon Association,  Inc. and presently is on
                               the Executive Committee of both Associations.  He
                               serves  as  Chairman  of the  Board  to  Sunstate
                               Produce,  Inc. and Sunstate Truck  Brokers,  Inc.
                               with offices in Plant City, Florida.  Mr. Land is
                               also a licensed  real estate  salesman  with Land
                               Brokerage Realtor.

Jon W. Pritchett      42       Mr.   Pritchett  was  elected  to  the  Board  of
                               Directors  of the  Company  in 2001 and serves on
                               the Nominating and Corporate  Governance,  Audit,
                               Compensation  and  Executive  Committees  of  the
                               Company's  Board of  Directors  as well as on the
                               Bank's Board of Directors.  Mr.  Pritchett serves
                               as  President  and  Chief  Executive  Officer  of
                               Nextran  Corporation  and  President of Pritchett
                               Trucking,  Inc. He is a board  member of the Mack
                               Truck  National  Dealer  Council  and the Florida
                               Trucking  Association.  Mr. Pritchett also served
                               as a board member on the Gator Boosters from 1997
                               through 2001. Mr.  Pritchett is the son of Mr. M.
                               Pritchett.

Marvin H. Pritchett   70       Mr.   Pritchett  was  elected  to  our  board  of
                               directors in 1988 and serves on the Executive and
                               Compensation  Committees  of our board as well as
                               on the Bank's board of directors.  Mr.  Pritchett
                               serves as Chief  Executive  Officer of  Pritchett
                               Trucking,  Inc., President of Pritchett,  Inc., a
                               timber  firm and  President  of G. P.  Materials,
                               Inc.,   which  sells  aggregate   material.   Mr.
                               Pritchett   is  also  the   Chairman  of  Nextran
                               Corporation, with heavy duty truck dealerships in
                               Jacksonville,  Orlando,  Auburndale,  Tampa, Lake
                               City, Miami, Riveria Beach, Pompano, Kennasaw and
                               Atlanta.  Nextran  Truck  Centers  represent  the
                               following  truck   manufacturers:   Mack,  Volvo,
                               Isuzu,  Mitsubishi and GMC. Mr.  Pritchett is the
                               father of Mr. J. Pritchett.


Halcyon E. Skinner    57       Mr. Skinner was elected to our board of directors
                               in  2000  and   serves  on  the   Executive   and
                               Compensation Committees of our board. Mr. Skinner
                               also  serves  on the  board of  directors  of the
                               Bank. Mr. Skinner is the Managing  Partner of the
                               Jacksonville  law offices of McGuireWoods LLP and
                               has been a partner in that law firm for more than
                               five  years.  He  also  serves  on the  Board  of
                               Directors  and  the  Finance   Committee  of  the
                               Jacksonville Symphony Orchestra.





                                       71
<PAGE>



K.C. Trowell          65       Mr. Trowell is our  Chairman and Chief  Executive
                               Officer  ("CEO") and holds the same  positions at
                               the  Bank.   He  was  elected  to  our  board  of
                               directors  in 1987 and serves as  Chairman of the
                               Executive  Committee of our board.  He has served
                               as the Chairman and CEO of the Company  since its
                               inception  in  1987  and of the  Bank  since  its
                               inception  in 1986.  Mr.  Trowell is a Lake City,
                               Florida native and has been actively  involved in
                               commercial  banking  management  in North Florida
                               for over 30 years.  He has also  held  management
                               positions with  NationsBank of Lake City (and its
                               predecessors), American Bank of Jacksonville, and
                               Barnett Banks, Inc. in Jacksonville. He is former
                               Chairman  of the  Board of  Trustees  of  Florida
                               Bankers Insurance Trust. He is a past director of
                               Community  Bankers of Florida,  past  director of
                               the Columbia County  Committee of 100, a founding
                               director  of  North  Central   Florida   Areawide
                               Development  Company,  and a former  board member
                               and chairman of both Lake City Medical Center and
                               Columbia County Industrial Development Authority.


G. Thomas Frankland   57       Mr.  Frankland  has served as the  President  and
                               Chief  Operating  Officer of the  Company and the
                               Bank since February 2004.  Prior to February 2004
                               Mr. Frankland held the position of Executive Vice
                               President  and  Chief  Financial  Officer  of the
                               Company.  Mr.  Frankland served as Vice President
                               and   Chief    Financial    Officer   of   AirNet
                               Communications Corporation in Melbourne, Florida,
                               from March  1998  until he joined the  Company in
                               November  1998.  From May 1994 until August 1996,
                               Mr.   Frankland   was  Vice  Chairman  and  Chief
                               Financial Officer of Ideon Group, Inc. ("Ideon").
                               Following  the   acquisition   of  Ideon  by  CUC
                               International,  Inc. ("CUC"), in August 1996, Mr.
                               Frankland continued in a consulting capacity with
                               CUC through December 1997. Prior to May 1994, Mr.
                               Frankland  was a partner  with  Price  Waterhouse
                               LLP.  During his 24 years  with Price  Waterhouse
                               LLP,  including  the  seven  years he  served  as
                               managing partner of the Jacksonville  office,  he
                               specialized  primarily in the financial  services
                               industry.   He  currently  serves  on  the  Audit
                               Committee  of  the  Board  of  Directors  of  the
                               University of Florida Foundation,  the Warrington
                               College of Business Advisory Council,  the Fisher
                               School of Accounting  Steering  Committee and the
                               Board of  Directors  of the  North  Florida  Land
                               Trust.


Roy D. Jones          35       Mr. Jones  has served  as  Senior Vice  President
                               and Chief Financial  Officer of the Company since
                               February  2004.  Mr.  Jones  served as the Senior
                               Vice  President of Corporate  Development  of the
                               Bank from May 2001 to  February  2004.  From 1997
                               until 2001, Mr. Jones was a Senior Vice President
                               for Bank of America in Charlotte, North Carolina,
                               where he served in various capacities,  including
                               Corporate  Treasury and Accounting  Policy.  From
                               1996  through  1997,  Mr.  Jones  served  as  the
                               Financial Reporting Manager for HomeSide Lending,
                               Inc.  Prior to 1996, Mr. Jones was an auditor for
                               Price  Waterhouse LLP in Jacksonville  and Miami,
                               Florida,  where he  specialized  in the financial
                               services  industry.  Mr. Jones has recently  been
                               involved  with  fund  raising   efforts  for  the
                               Leukemia  and Lymphoma  Society of North  Florida
                               and the North  Florida  Chapter  of the  National
                               Multiple Sclerosis Society.




                                       72
<PAGE>




Martha S. Tucker      53       Ms. Tucker  has served  as Senior  Vice President
                               and  Controller of the Company and the Bank since
                               July 1997. From 1991 through 1997, Ms. Tucker was
                               Vice President and Cashier of the Bank. From 1988
                               through 1991, Ms. Tucker was Cashier for Citizens
                               Bank of Live Oak,  which  merged into the Bank in
                               November  1992.  From  1986 to 1988,  Ms.  Tucker
                               served  as  Assistant  Cashier  for the  Bank and
                               prior  to 1986  held  management  positions  with
                               NationsBank  of Live Oak (and its  predecessors).
                               Ms.  Tucker is a life-long  resident of Live Oak,
                               Florida   and  has  over  36  years  of   banking
                               experience.


Robert E. Cameron     59       Mr.  Cameron  serves  as  the  Southern  Division
                               President  of the  Bank.  Prior  to  joining  the
                               Company in April 1998,  Mr.  Cameron was a Senior
                               Vice  President of Barnett Bank of Alachua County
                               from 1988 until 1998. He also was a member of the
                               Board  of   Directors   of   United   Gainesville
                               Community Development Board. He has worked in the
                               banking  industry  for 36 years.  Mr.  Cameron is
                               active  with  the  Gainesville  Area  Chamber  of
                               Commerce and the  Gainesville  Board of Realtors.
                               Currently   he  is  a  member  of  the  Board  of
                               Directors of the Gainesville Builders Association
                               and Child Care Resources.


John D. Kennedy       47       Mr. Kennedy has served as the TriCounty  Division
                               President  of the Bank since  August  1998.  From
                               1996 through 1998,  Mr. Kennedy was the President
                               of the Bank's Macclenny branch. From October 1973
                               until August 1996 he was with The  Citizens  Bank
                               of  Macclenny,   where  he  served  as  President
                               beginning in January 1987.  Mr. Kennedy serves on
                               the Lake City Community  College  Endowment Trust
                               Board.  He is a member of the Board of  Directors
                               of Baker County Council on Aging and Baker County
                               Tip-Off  Club.  He is also  Chairman of the Baker
                               County Education  Foundation and President of the
                               Girls  Softball  League  of  Baker  County.   Mr.
                               Kennedy has over 30 years of banking experience.


David H. Sheffield    40       Mr. Sheffield serves as the First Coast  Division
                               President  overseeing banking activities in Duval
                               and St. Johns counties.  Mr. Sheffield joined CNB
                               National Bank in 1999. He has 18 years of banking
                               experience in the Jacksonville market,  primarily
                               in the commercial  lending  functional  area. Mr.
                               Sheffield began his career with Florida  National
                               Bank  in  1986  and  has  held   positions   with
                               Enterprise  National  Bank  of  Jacksonville  and
                               Compass  Bank in various  lending and  management
                               capacities.   Mr.  Sheffield  is  a  graduate  of
                               Clemson  University  with  a  B.S.  in  Financial
                               Management.  He is  also a  graduate  of the  ABA
                               Commercial   Lending   Graduate   School  at  the
                               University of Oklahoma and the Graduate School of
                               Banking  at  Louisiana  State  University.  He is
                               actively   involved  in  various   community  and
                               industry  organizations and is active as an elder
                               at his church.




                                       73
<PAGE>




Suzanne M. Norris     40       Ms. Norris currently serves as Division President
                               for  Suwannee  Valley  as well as  Senior  Credit
                               Administrator,  a role she  assumed in 1997.  Ms.
                               Norris came to the Bank in September 1996 and has
                               18  years  of  banking  experience,   working  in
                               various  management  and lending  positions  with
                               NationsBank  in St.  Petersburg,  Tampa  and Lake
                               City,   including  acting  as  commercial  market
                               manager/senior  banking  executive  for Lake City
                               and Gainesville from June 1995 to September 1996.
                               Ms.  Norris,  a  graduate  of the  University  of
                               Florida, has been active in the community, having
                               served as the President of the Lake City/Columbia
                               County Chamber of Commerce.  She currently serves
                               on the Board of Trustees for Lake City  Community
                               College,  the Board of  Directors  for the United
                               Way of  Suwannee  Valley  and  Epiphany  Catholic
                               School and is a member of Altrusa.


Audit Committee Financial Expert

     The Board of Directors does not consider any of the Audit Committee members
to be a  "financial  expert"  as that term is defined  in SEC  regulations.  The
Company  was in the process of seeking an audit  committee  member that fit this
definition,  however this effort was suspended in connection  with the Company's
decision  to enter  into a  definitive  agreement  to be  acquired  by The South
Financial  Group,  Inc. In the event the acquisition of the Company by The South
Financial Group, Inc.  unexpectedly  fails to close, the Company will resume its
efforts to appoint a  "financial  expert" to the Audit  Committee.  The  Company
considers its existing Audit  Committee  members to have  sufficient  ability to
evaluate  and analyze  the  Company's  financial  statements  and to  understand
internal controls and procedures for financial reporting.

     Members of the Audit Committee include Messrs. Andrews (Chairman), Land and
J. Pritchett, none of whom is an officer or employee of the Company. During 2003
the Audit Committee held 4 meetings.  The Audit Committee is responsible for the
matters  set  forth  in its  written  charter  as  adopted  by the  Board.  Such
responsibilities  include  selection and oversight of the Company's  independent
pubic  accountants  and  review of audit  plans,  audit  reports  and  financial
statements.

Code of Ethics

     The Company has adopted a code of ethical conduct that applies to its Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer,  Controller
and other persons having similar knowledge of, and influence over, the financial
activities  of the  Company.  A copy of  this  code of  ethical  conduct  may be
obtained,  without charge, by writing to Roy D. Jones, Senior Vice President and
Chief Financial Officer, CNB Florida Bancshares,  Inc., 9715 Gate Parkway North,
Jacksonville, Florida 32246.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Exchange Act") requires our executive  officers and directors,  and any persons
owning more than 10 percent of a class of our stock,  to file certain reports on
ownership  and changes in ownership  with the SEC.  During 2003,  our  executive
officers and directors filed with the SEC on a timely basis all required reports
relating to transactions  involving our equity securities  beneficially owned by
them, except that Mr. Andrews, Ms. Bullard, Mr. Frankland,  Mr. M. Pritchett and
Mr.  Skinner made one late filing and Mr. Land, Mr. J. Pritchett and Mr. Trowell
made two late filings.


                                       74
<PAGE>


                         ITEM 11. EXECUTIVE COMPENSATION


     Members of the Compensation Committee of the Board of Directors include Ms.
Bullard and Messrs. Andrews and M. Pritchett.  During 2003 this committee held 3
meetings.  The  Compensation  Committee  is  principally   responsible  for  (1)
establishing  and recommending to the board of directors the compensation of our
CEO, COO and CFO; (2)  establishing  and  recommending to the board of directors
the compensation plan of our other senior management; (3) periodically reviewing
all  salary  administration  and  employee  benefits;  and  (4)  developing  and
recommending to our board of directors stock incentive compensation for officers
and employees.


     Summary  Compensation  Table.  The following table sets forth for the years
ended December 31, 2003, 2002 and 2001, the cash  compensation  paid or accrued,
as well as certain other compensation paid or accrued for those years to our CEO
and the  additional  most highly  compensated  executive  officers for  services
rendered to the Company and the Bank during the periods indicated.

<TABLE>
                         Summary Compensation Table (1)
--------------------------------------------------------------------------------------------------------------
                                              Annual Compensation     Long Term Compensation
--------------------------------------------------------------------------------------------------------------
                                                                               Awards
--------------------------------------------------------------------------------------------------------------
   Name and                                                          Restricted     Securities      All other
   Principal                                                           stock        Underlying    Compensation
   Position                  Year         Salary           Bonus      award(s)     Options/SARs     ($) (2)
                                           ($)              ($)          ($)           (#)
--------------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>             <C>                        <C>              <C>
K. C. Trowell,               2003         299,250         149,625         -          21,000           7,864
Chairman and Chief           2002         285,000         142,500         -               -           6,888
Executive Officer            2001         270,000         108,000         -               -           6,216
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
G. Thomas Frankland,         2003         220,500         110,250         -          15,000           7,864
President and Chief          2002         210,000         105,000         -               -           6,888
Operating Officer            2001         200,000          81,250         -               -           6,216
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Roy D. Jones,                2003         141,625          25,000         -           3,000           6,544
Senior Vice President        2002         137,500          25,000         -           5,000           6,044
and Chief Financial          2001         110,000          10,000         -           5,000           2,942
Officer
--------------------------------------------------------------------------------------------------------------

<FN>
(1)  Columns relating,  respectively,  to "other annual  compensation" and "LTIP
     payouts" have been deleted because no compensation  required to be reported
     in such columns was awarded to, earned by, or paid to the named  executives
     during the periods  covered by such columns.  Non-cash  perquisites are not
     disclosed  in this table  because the  aggregate  value does not exceed the
     lesser of $50,000 or 10% of total annual salary and bonus.

(2)  The amounts shown in this column for 2003 consist of payments for term life
     insurance  premiums  (Mr.  Trowell - $ 864; Mr.  Frankland - $ 864; and Mr.
     Jones -$544 and our matching contributions to the 401(k) plan for 2003 (Mr.
     Trowell - $ 7,000; Mr. Frankland - $7,000; and Mr. Jones $6,000).
</FN>
</TABLE>





                                       75
<PAGE>


                      Option/SAR Grants in Last Fiscal Year

Stock Options.  The following table sets forth the individual grants made during
the last fiscal year to the named executive officers.

<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Potential realizable value at assumed
                                                                                    annual rates of stock price appreciation
                         Individual grants                                                      for option term
------------------------------------------------------------------------------------------------------------------------------------
       (a)                        (b)                  (c)               (d)            (e)             (f)                   (g)
------------------------------------------------------------------------------------------------------------------------------------
                                                    Percent of
                               Number of               total
                               securities          options/SARs
                               underlying           granted to        Excise of
                               options/SAR         employees in       base price     Expiration          5%                    10%
     Name                      s granted (#)       fiscal year          ($/Sh)          date            ($)                    ($)
------------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                 <C>               <C>          <C>   <C>        <C>                   <C>
K. C. Trowell,
Chairman and Chief                21,000              23%               $15.17       06/01/2013       $200,340              $507,780
Executive Officer
------------------------------------------------------------------------------------------------------------------------------------
G. Thomas Frankland,
President and Chief               15,000              16%               $15.17       06/01/2013       $143,100              $362,700
Operating Officer
------------------------------------------------------------------------------------------------------------------------------------
Roy D. Jones,
Senior Vice President              3,000               3%               $15.17       06/01/2013       $ 28,620              $ 72,540
and Chief Financial
Officer
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Aggregated Option/SAR Exercises and Fiscal Year-End Options. The following table
sets forth information  concerning the exercise of stock options during the last
completed  fiscal year by the named  executive  officers and the fiscal year-end
value of unexercised options.

<TABLE>
                     Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year-End Options/SAR Values (1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                            Number of
                                                                            Securities                         Value of
                                                                            Underlying                      Unexercised in-
                                       Shares         Value                 Unexercised                       the-money
                                     acquired on     Realized             options/SARs at                    options/SARs at
     Name                             exercise    (Market-Strike)         fiscal year end                 fiscal year end (2)
------------------------------------------------------------------------------------------------------------------------------------
                                                                    Exercisable   Unexercisable      Exercisable       Unexercisable
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>              <C>            <C>             <C>                <C>
K.C. Trowell                            6,922        $128,472         202,140        15,750          $3,214,770         $  123,322
------------------------------------------------------------------------------------------------------------------------------------
G. Thomas Frankland                         -               -          63,750        11,250          $  909,363         $   88,088
------------------------------------------------------------------------------------------------------------------------------------
Roy D. Jones                                -               -           7,000         6,000          $   89,123         $   67,368
------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  All  information in this table relates to options.  We have not granted any
     SARs.
(2)  As of December  31,  2003,  the market value of our common stock was $23.00
     per share.
</FN>
</TABLE>




                                       76
<PAGE>



              Long-Term Incentive Plans--Awards In Last Fiscal Year


Long-Term Incentive Plans. There were no long-term incentive plan awards granted
to the executive officers listed in the above table in the last fiscal year.


















                                       77
<PAGE>

EMPLOYMENT AGREEMENTS

     Mr. Trowell's Employment  Agreement.  On December 10, 1998, we entered into
an  employment  agreement  with K.C.  Trowell (the  "Trowell  Agreement")  which
provides  that Mr.  Trowell  will serve as our  Chairman  and CEO.  The  Trowell
Agreement has a rolling three-year term, provided Mr. Trowell's  employment term
ends on the first day of the month  following  his 70th  birthday.  The  Trowell
Agreement originally provided for a minimum annual base salary of $250,000.  The
annual base salary is currently  $299,250.  The Trowell  Agreement also provides
for  participation  in the  Incentive  Plan,  and  participation  in our various
savings,  retirement and welfare benefit plans.  Mr. Trowell also is eligible to
receive an annual  bonus  targeted  at 50% of his annual  base  salary.  We also
agreed to provide Mr. Trowell with a company car. The Trowell Agreement contains
a noncompetition  provision.  In the event we terminate Mr. Trowell's employment
for a reason  other  than for  cause,  death or  disability,  or if Mr.  Trowell
terminates his employment for good reason (as defined in the Trowell Agreement),
then we must pay Mr.  Trowell a lump sum equal to (i) the  amount of any  earned
but unpaid salary and bonus,  deferred  compensation and vacation pay, plus (ii)
an  amount  equal to 50% of the sum of Mr.  Trowell's  annual  base  salary  and
highest  annual  bonus  from  the  date  of  termination  until  the  end of the
employment period. If we terminate Mr. Trowell's employment without cause, or if
Mr.  Trowell  terminates  his  employment  for good reason within two years of a
change of  control  of the  Company,  then we will pay Mr.  Trowell  100% of the
amount referred to in (ii) above. In addition,  all options to acquire shares of
common  stock  and  all  restricted  stock  previously  granted  to Mr.  Trowell
immediately become vested and non-forfeitable upon a change in control.


     Mr. Frankland's Employment Agreement. On November 30, 1998, we entered into
an employment  agreement with G. Thomas  Frankland (the  "Frankland  Agreement")
which provides that Mr. Frankland will serve as our Executive Vice President and
Chief Financial  Officer (in February 2004 Mr. Frankland was named President and
Chief  Operating  Officer of the Company).  The Frankland  Agreement  originally
provided  for an annual  base  salary of  $185,000.  The annual  base  salary is
currently  $220,500.  The Frankland Agreement also provides for participation in
the  Incentive  Plan,  and  participation  in our  various  incentive,  savings,
retirement  and welfare  benefit  plans.  Mr.  Frankland also received a signing
bonus of $35,000 and is eligible to receive an annual  bonus  targeted at 50% of
his annual base salary subject to meeting goals and objectives determined by the
board. We also agreed to grant Mr.  Frankland  options to purchase 40,000 shares
of common  stock at a price of $8.00 per  share,  20,000 of which  vested on the
first anniversary of the Frankland  Agreement and 10,000 of which vested in each
of the next two  succeeding  anniversary  dates.  We also  agreed  to grant  Mr.
Frankland  5,000 shares of  restricted  stock,  2,500 of which vested and became
nonforfeitable on the first anniversary of the Frankland  Agreement and 2,500 of
which  vested  and  became  nonforfeitable  on  the  second  anniversary  of the
Frankland   Agreement.   In  all  other  terms,   the  Frankland   Agreement  is
substantially similar to the Trowell Agreement.






                                       78
<PAGE>

          ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                   MANAGEMENT AND RELATED STOCKHOLDER MATTERS

<TABLE>
                       Name                                      Amount and Nature of           Percent of Shares of
                       ----                                    Beneficial Ownership (1)       Common Stock Outstanding (10)
                                                               ------------------------       -----------------------------
<S>                                                                    <C>                              <C>
Thomas R. Andrews ..........................................           213,500 (2)                      3.16%
Banc Funds Company LLC .....................................           378,605                          5.61% (11)
Audrey S. Bullard ..........................................           235,427 (3)                      3.49%
G. Thomas Frankland ........................................           149,750 (4)                      2.22%
Roy D. Jones ...............................................             8,250 (5)                         *
Millard K. Joyner ..........................................               200                             *
Raymon Land, Sr ............................................           125,574 (2)                      1.86%
Jon W. Pritchett ...........................................           220,974 (6)                      3.27%
Marvin H. Pritchett ........................................         1,094,491 (7)                     16.21% (12)
Halcyon E. Skinner .........................................             6,000 (8)                         *
K.C. Trowell ...............................................           409,322 (9)                      6.06% (13)
Directors and Executive Officers
as a Group (9 persons) (10) ................................         2,463,488                         36.48%

<FN>
---------------------
(1)  Pursuant  to the  rules  of the  SEC,  the  determinations  of  "beneficial
     ownership"  of common  stock are based upon Rule 13d-3  under the  Exchange
     Act, which provides that shares will be deemed to be  "beneficially  owned"
     where a person has, either solely or in conjunction with others,  the power
     to vote or to direct the voting of shares  and/or the power to dispose,  or
     to direct  the  disposition  of  shares or where a person  has the right to
     acquire  any such  power  within 60 days  after  the date such  "beneficial
     ownership" is  determined.  Shares of common stock that a beneficial  owner
     has the right to acquire  within 60 days  pursuant to the exercise of stock
     options  or  warrants  are  deemed to be  outstanding  for the  purpose  of
     computing  the  percentage  ownership  of such  owner  but  are not  deemed
     outstanding  for the purpose of computing the  percentage  ownership of any
     other person. All amounts are determined as of February 28, 2004.

(2)  Includes currently exercisable options to purchase 4,500 shares.

(3)  Includes  9,614  shares  owned  by  Ms.  Bullard's  husband,  2,000  shares
     transferred to a revocable  trust for benefit of her daughter and currently
     exercisable options to purchase 4,500 shares.

(4)  Includes 63,750 shares  underlying  options that are exercisable  within 60
     days of February 28, 2004.

(5)  Includes currently exercisable options to purchase 8,250 shares.

(6)  Includes 25,000 shares owned by Mr.  Pritchett's  wife, 12,270 shares owned
     by Mr. Pritchett's  daughters and currently exercisable options to purchase
     2,500 shares.

(7)  Includes 107,126 shares owned by New River Developers, 113,702 shares owned
     by Pritchett  Trucking,  Inc., 87,692 shares owned by Mid-Florida  Hauling,
     Inc., 50,938 shares owned by Bulldog  Trucking,  40,148 shares owned by Mr.
     Pritchett's  wife and 55,000 shares owned by Pritchett,  Inc. Mr. Pritchett
     shares voting and  investment  power with respect to all such shares.  Also
     includes currently exercisable options to purchase 4,500 shares.

(8)  Includes currently exercisable options to purchase 2,000 shares.

(9)  Includes 50,000 shares owned by Mr. Trowell's former spouse with respect to
     which he shares voting and investment  power.  Also includes 202,140 shares
     underlying  options  that are  exercisable  within 60 days of February  28,
     2004.

(10) Based on a total of  6,256,662  shares of common  stock  outstanding  as of
     February 28, 2004, plus shares of common stock which may be acquired by the
     beneficial owner, or group of beneficial owners, within 60 days of February
     28, 2004 by exercise of 495,925 options.

(11) Banc  Funds  Company  LLC is a  beneficial  shareholder  of over 5%.  Stock
     ownership is through three  partnerships  which own the  following  shares:
     Banc Fund IV L.P. - 77,220  shares,  Banc Fund V L.P. - 154,874  shares and
     Banc Fund VI L.P. - 146,511 shares.  The address of the principal  business
     office is 208 S. LaSalle Street, Chicago, Illinois 60604.

(12) Mr.  Pritchett is a shareholder  with beneficial  ownership of over 5%. His
     address is Post Office Box 311, Lake Butler, Florida 32054.

(13) Mr.  Trowell is a  beneficial  shareholder  with  ownership of over 5%. His
     address is 9715 Gate Parkway North, Jacksonville, Florida 32246.

*    Represents less than 1% of the outstanding shares of common stock.
</FN>
</TABLE>

                                       79
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

     The following table presents the Company's  Equity  Compensation  Plans. In
April 1998,  shareholders approved the terms of the Performance-Based  Incentive
Plan ("the  Plan")  allowing a maximum of 540,000  shares to be granted.  In May
2001, shareholders approved a proposal to amend the number of shares that may be
granted under the Plan to 800,000  shares.  In addition to options granted under
the Plan,  there were also  options  outstanding  under a  previous,  Board-only
approved  long-term  incentive plan.  This long-term  incentive plan allowed for
periodic stock option grants based on the Company's financial performance. There
are no further grants being made under this plan.

<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
                                 Number of shares to be              Weighted average                Number of
                                 issued upon exercise of             exercise price of          securities remaining
                                   outstanding options,             outstanding options,        available for future
                                   warrants and rights              warrants and rights               issuance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                              <C>                          <C>
Equity compensation plans                537,500                          $ 10.29                      90,025
approved by security holders
------------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders              95,050                            5.29                            -
                                         -------                          ------                       ------
------------------------------------------------------------------------------------------------------------------------------------
Total                                    632,550                          $ 9.53                       90,025
                                         =======                          ======                       ======
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

             ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     During the last two fiscal  years,  the Bank loaned funds to certain of our
executive  officers  and  directors  in the  ordinary  course  of  business,  on
substantially the same terms, including interest rates and collateral,  as those
prevailing at the time for comparable  transactions  with other  customers,  and
which did not  involve  more than the normal risk of  collectability  or present
other unfavorable features.

     Mr.  Skinner  is a  partner  in the law  firm of  McGuireWoods  LLP,  which
provides legal services to the Company.

                 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Fees paid to PricewaterhouseCoopers  LLP for professional services rendered
for the Company are listed below for the years ended December 31, 2003 and 2002.

                                                     2003                  2002
                                                   --------             --------
Audit ................................             $115,000             $115,000
Audit-Related ........................                    -                    -
Tax ..................................               20,600               20,000
All Other ............................                    -                    -
                                                   --------             --------
   Total .............................             $135,600             $135,000
                                                   ========             ========

     The  Audit  fees  for  the  years  ended   December   31,  2003  and  2002,
respectively,  were for  professional  services  rendered  for the audits of the
consolidated  financial  statements of the Company. The "Tax" fees for the years
ended December 31, 2003 and 2002, respectively, were for services related to tax
compliance, primarily including the preparation of tax returns.


 Audit Committee Administration of the Engagement


     The Company's Audit Committee is directly  responsible for the appointment,
compensation,  retention and oversight of auditors who provide audit services to
the Company.  Proposals for such  services are presented to the Audit  Committee
for approval.  Such proposals are provided directly to the Chairman of the Audit
Committee by the firm  proposing  the  services.  Proposals are discussed by the
Audit  Committee,  at which point a decision to accept or reject the proposal is
made.



                                       80
<PAGE>


                                     PART IV


                    ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits.
---------

     3(i)      Articles of  Incorporation  (Incorporated by reference to Exhibit
               3.3 to the  Company's  Registration  Statement No.  33-71082,  as
               amended, on Form S-4 filed February 8, 1994).
     3(ii)     By-laws   (Incorporated  by  reference  to  Exhibit  3.4  to  the
               Company's  Registration  Statement No. 33-71082,  as amended,  on
               Form S-4 filed February 8, 1994).
     10(i)     Bennett Brown Employment Agreement  (Incorporated by reference to
               Exhibit 10 of the  Company's  June 30,  1999 10-Q filed on August
               16, 1999).
     10(ii)    K. C. Trowell Employment Agreement  (Incorporated by reference to
               Exhibit 10 (i) to the Company's  Pre-Effective Amendment No. 1 to
               its  Registration  Statement  on Form S-2 filed as of January 26,
               1999).
     10(iii)   G.  Thomas  Frankland  Employment   Agreement   (Incorporated  by
               reference  to  Exhibit  10  (ii) to the  Company's  Pre-Effective
               Amendment No. 1 to its  Registration  Statement on Form S-2 filed
               as of January 26, 1999).
     10(iv)    1998 Performance-Based  Incentive Plan (Incorporated by reference
               to Exhibit 99 to the Company's Registration Statement on Form S-8
               filed December 7, 1998).
     16        Letter from Arthur Andersen LLP regarding  Change in Registrant's
               Certifying Accountants (Incorporated by reference to Exhibit 16.1
               to the  Company's  Current  Report  on Form 8-K  filed on May 24,
               2002).
     21        Subsidiaries of the Registrant.
     23        Consent  of  PricewaterhouseCoopers  LLP,  independent  certified
               public accountants.
     31(a)     Chief Executive Officer certification  pursuant to Section 302 of
               the Sarbanes-Oxley Act of 2002.
     31(b)     Chief Financial Officer certification  pursuant to Section 302 of
               the Sarbanes-Oxley Act of 2002.
     32(a)     Chief Executive Officer certification  pursuant to Section 906 of
               the Sarbanes-Oxley Act of 2002.
     32(b)     Chief Financial Officer certification  pursuant to Section 906 of
               the Sarbanes-Oxley Act of 2002.

Report on Form 8-K:
-------------------

     On October 23, 2003,  the Company filed a Form 8-K to report its 2003 third
quarter earnings.




                                       81
<PAGE>



                                   SIGNATURES


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


                                           CNB Florida Bancshares, Inc.
                                           ----------------------------
                                           (Registrant)

                                           By:   /s/ Roy D. Jones
                                                 ----------------
                                                     Roy D. Jones
                                                     Senior Vice President
                                                     and Chief Financial Officer



                                           Date: March 10, 2004


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated:


    Signature                      Title                               Date


/s/ Thomas R. Andrews             Director                        March 10, 2004
 Thomas R. Andrews


/s/ Audrey S. Bullard             Director                        March 10, 2004
 Audrey S. Bullard


/s/ Millard K. Joyner             Director                        March 10, 2004
 Millard K. Joyner


/s/ Raymon J. Land                Director                        March 10, 2004
 Raymon J. Land


/s/ Jon W. Pritchett              Director                        March 10, 2004
 Jon W. Pritchett


/s/ Marvin H. Pritchett           Director                        March 10, 2004
 Marvin H. Pritchett


/s/ Halcyon E. Skinner            Director                        March 10, 2004
 Halcyon E. Skinner


/s/ K. C. Trowell              Chairman, CEO & Director           March 10, 2004
 K. C. Trowell


/s/ G. Thomas Frankland        President and COO                  March 10, 2004
 G. Thomas Frankland


/s/ Roy D. Jones               Senior Vice President              March 10, 2004
 Roy D. Jones                  and Chief Financial Officer
                               (Principal Financial Officer)


/s/ Martha S. Tucker           Controller                         March 10, 2004
 Martha S. Tucker              (Principal Accounting Officer)


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