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, 2002

                                       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 ___ No X

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant is  $43,675,685.30  (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 28, 2002 of $11.35 per share).

The number of shares of the Registrant's common stock outstanding as of March 7,
2003 was 6,125,500 shares, $0.01 par value per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

The  Registrant's  2003  Annual  Meeting  Proxy  Statement  is  incorporated  by
reference in this report in Part III,  pursuant to  Instruction  G of Form 10-K,
except for the information relating to executive officers and key employees. The
Company will file its definitive  Proxy  Statement with the Commission  prior to
April 30, 2003.


<PAGE>

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




                                TABLE OF CONTENTS


<TABLE>
PART I

        <S>                                                                                                       <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
                    Executive Officers and Key Employees of the Registrant ......................................12

PART II

        Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters ..........................14
        Item 6.  Selected Financial Data ........................................................................15
        Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations ..........16
                 Overview .......................................................................................16
                 Results of Operations ..........................................................................17
                 Income Taxes ...................................................................................21
                 Liquidity and Interest Rate Sensitivity.........................................................21
                 Earning Assets..................................................................................25
                 Loan Quality ...................................................................................26
                 Investment Portfolio ...........................................................................28
                 Capital Resources ..............................................................................30
                 Quarterly Financial Information ................................................................31
        Item 7a. Qualitative and Quantitative Disclosure About Market Risk ......................................34
                 Critical Accounting Policies ...................................................................34
        Item 8.  Consolidated Financial Statements ..............................................................35
        Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...........71

PART III

        Item 10.   Directors and Executive Officers of the Registrant ...........................................71
        Item 11.   Executive Compensation .......................................................................71
        Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
                   Matters ......................................................................................71
        Item 13.   Certain Relationships and Related Transactions ...............................................71
        Item 14.   Controls and Procedures ......................................................................72

PART IV

        Item 15.   Exhibits and Reports on Form 8-K .............................................................72

SIGNATURES AND CERTIFICATIONS
</TABLE>


                                       2
<PAGE>



                                     PART I

                                    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  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 this Form 10-K.

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 fourteen 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,
2002,  the  Company  had total  assets of $730.7  million,  total gross loans of
$605.8 million, total deposits of $648.6 million, and total shareholders' equity
of $50.9  million.  Net income for the years ended  December 31, 2002,  2001 and
2000  was  $5.4  million,  $2.9  million  and $2.5  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.

     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 in Columbia,  Suwannee,  Baker,  Bradford and
Union Counties (the "Core Markets"),  against larger bank holding  companies for
middle  market  customers.  In the  Company's  Expansion  Markets,  many of such
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


                                       3
<PAGE>

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  Markets,  and will  compete in its  Expansion
Markets, primarily with SunTrust Banks, Bank of America,  Wachovia,  SouthTrust,
AmSouth and Compass, all of which are headquartered outside of Florida.

GROWTH OPPORTUNITY FOR THE COMPANY

     Management  believes that a significant  segment of the historical customer
base of Barnett and the  customer  bases of other  acquired  community  banks in
Northeast   Florida,   particularly   individuals  and  small  and  medium-sized
businesses,   prefer  the   personalized   service  that   characterized   their
relationships with the locally  headquartered banks that were acquired.  Many of
these  personal  relationships  have  been  disrupted  as the  larger,  regional
financial institutions  increasingly focus on larger corporate customers,  offer
primarily  standardized  loan and  deposit  products  and  services,  and employ
centralized management and more remote decision-making. Thus, Company management
believes there exists a unique  opportunity to address the under-served  banking
needs of  individuals  and small and  medium-sized  businesses  in its Expansion
Markets,  which are  contiguous  and  demographically  similar to the  Company's
existing Core Markets.  Accordingly, the Company's current strategic focus is to
capitalize on this market opportunity. In pursuing this opportunity, the Company
will  continue to focus on that  specific  segment of the market to which it has
historically  appealed.  The Company  believes that its  historical  strategy of
providing  personalized  and consistent  service to its small and  middle-market
corporate  customers  and  individuals  will  allow it to  continue  to  compete
profitably,  not  only in the  markets  that it  presently  serves  but in other
markets as well.

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.

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.

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


                                       4
<PAGE>

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 will combine
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 intends to pursue this
strategy  throughout  its Core and Expansion  Markets and operate a multi-office
community bank that emphasizes decision-making at the local level.

     To  ensure  that  the  Company's  proposed  expansion  does not  erode  its
standards for service and quality, the Company created four operating divisions:
the  Gainesville  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  will help 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.


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<PAGE>

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
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.  Credit cards are
originated in conjunction with a separate  financial  institution  through which
the Company has a contractual relationship. Credit decisions and credit risk are
handled entirely by the third party institution.  The Company continues to carry
the  receivables  on card  balances  generated  prior to the  initiation of this
relationship.

     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


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<PAGE>

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
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 losses 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 unit, 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
Raymond James that were originated through CNB Financial Services. This business
unit is in the start-up phase and did not materially contribute to the Company's
results of operations during 2001 or 2002.

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  losses  to  outstanding  and
nonperforming  loans,  and  other  variables,  such  as  expected  loan  demand,
investment  opportunities,  core deposit  growth  within  specified  categories,
regulatory  changes,  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  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


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<PAGE>

with,  such  institutions.  Dividends on such  investments are determined by the
institutions and are payable semi-annually or quarterly.

COMPETITION

     Within each market in which 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  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 service companies.

     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.

EMPLOYEES

     As of December 31, 2002, the Bank had 253 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


                                       8
<PAGE>

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.

     The Holding  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 Holding Company may be required to
provide  financial  support for a  subsidiary  bank at a time where  absent such
Federal Reserve policy, the Holding 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 amends Section 4 of the BHC Act
(12 U.S.C.  1843) to authorize  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 issued under section 4(c)(8) of the BHC Act
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


                                       9
<PAGE>

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, 2002, were 7.4% and 8.5%, respectively.

     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 3%. The Company's leverage ratio at December 31, 2002 was 6.3%. 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 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.



                                       10
<PAGE>

"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. PROPERTIES

     The  Bank  currently   operates  out  of  fourteen  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>
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
    1 CNB Place, East U.S. 90 (2) ...................................                20,800                    1996

LIVE OAK (SUWANNEE COUNTY)

    205 White Avenue, S.E ...........................................                 6,000                    1988
    1562 South Ohio Avenue ..........................................                 2,000                    1993
    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

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 under  construction
in the Magnolia Parke area of  Gainesville,  Florida that is expected to open in
2003.  The Company  also owns 1.57 acres of  unimproved  land in Glen St.  Mary,
Florida that was acquired in 2001. The land will be used for the construction of
a branch banking facility that is expected to open in 2003.

                                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.

               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.

             EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT


K. C. Trowell             64      Mr.  Trowell  is  Chairman,   Chief  Executive
                                  Officer and  President  of the Company and the
                                  Bank. He was elected to the Board of Directors
                                  in  1987  and  serves  as   Chairman   of  the
                                  Executive  Committee of the Board of Directors
                                  of the Company and the Bank.  He has served as
                                  the  Chairman and Chief  Executive  Officer of
                                  the Company since its  inception in 1987.  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 Bank of  America  in Lake City
                                  (and  its  predecessors),   American  Bank  of
                                  Jacksonville,   and  Barnett  Banks,  Inc.  in
                                  Jacksonville.  He is a 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        56     Mr.  Frankland is the Executive Vice President
                                  and Chief Financial Officer of the Company and
                                  the  Bank.  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.

                                       12
<PAGE>

Martha S. Tucker           52     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 35 years of banking experience.

Robert E. Cameron          58     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 33 years.  Currently he is a member of the
                                  Board of Directors of the Gainesville Builders
                                  Association and Child Care Resources.

John D. Kennedy            46     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 30 years of banking experience.

David H. Sheffield         39     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 17 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.

Suzanne M. Norris          39     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 17 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.


                                       13
<PAGE>

                                     PART II


      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 14, 2003,  there were 6,125,500
shares of Common Stock issued and outstanding and 509 shareholders of record. In
addition, there were 536,253 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, 2002 was $50.9 million, as compared to
$46.7  million at December 31, 2001.  On July 15, 1998,  the Company  declared a
two-for-one stock split for shareholders of record on August 10, 1998, effective
August 17, 1998.

     Company  dividends  for 2002,  2001 and 2000  consisted  of the  payment of
quarterly cash dividends in the amount 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 long-term debt 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.
















                                       14
<PAGE>


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
                             SELECTED FINANCIAL DATA

<TABLE>
Dollars in thousands except per share               2002          2001           2000         1999          1998
information
------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
<S>                                              <C>           <C>           <C>           <C>          <C>
Interest Income                                  $  41,398     $  40,417     $   32,061    $  23,758    $   21,119
Interest Expense                                   (15,646)      (19,629)       (14,736)      (9,052)       (9,417)
                                                 ---------     ---------     ----------    ---------    ----------
Net Interest Income                                 25,752        20,788         17,325       14,706        11,702
Provision for Loan Loss                             (2,375)       (2,050)        (1,350)      (1,160)         (710)
                                                 ---------     ---------     ----------    ---------    ----------
Net Interest Income After
     Provision for Loan Loss                        23,377        18,738         15,975       13,546        10,992
Non-Interest Income                                  6,304         5,633          3,338        2,952         2,392
Non-Interest Expense                               (21,156)      (19,836)       (15,481)     (11,994)       (9,298)
                                                 ---------     ---------     ----------    ---------    ----------
Income Before Income Taxes                           8,525         4,535          3,832        4,504         4,086
Income Taxes                                        (3,141)       (1,594)        (1,325)      (1,563)       (1,407)
                                                 ---------     ---------     ----------    ---------    ----------
Net Income                                       $   5,384     $   2,941     $    2,507    $   2,941    $    2,679
                                                 =========     =========     ==========    =========    ==========


------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Basic Earnings                                   $    0.88      $   0.48     $     0.41    $    0.49    $     0.55
Diluted Earnings                                      0.87          0.48           0.41         0.48          0.55
Book Value                                            8.31          7.64           7.32         7.04          6.36
Dividends                                             0.20          0.20           0.20         0.20          0.20
Actual Shares Outstanding                        6,125,500     6,106,453      6,099,376    6,116,070     4,856,770
Basic Weighted Average Shares Outstanding        6,104,050     6,094,670      6,095,471    5,995,474     4,856,770
Diluted Weighted Average Shares Outstanding      6,215,775     6,188,477      6,134,270    6,069,737     4,897,922

------------------------------------------------------------------------------------------------------------------
KEY RATIOS:
Return on Average Assets                              0.81%         0.53%          0.62%        0.91%         0.93%
        Return on Average Shareholders' Equity       11.03          6.43           5.74         7.03          8.92
Dividend Payout                                      22.73         41.67          48.78        40.82         36.36
Efficiency Ratio                                     66.00         75.08          74.92        67.92         65.97
Total Risk-Based Capital Ratio                        8.52          9.00          12.00        17.25         16.62
Average Shareholders' Equity to Average
            Assets                                    7.37          8.23          10.82        13.01         10.43
Tier 1 Capital to Average Assets/Leverage
          Ratio                                       6.31          6.50           9.80        12.70          9.70

------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION AT YEAR END:
Assets                                           $ 730,674     $ 612,021     $  467,593    $ 346,076    $  311,565
Gross Loans                                        605,785       511,647        379,859      266,084       187,015
Deposits                                           648,636       532,891        367,686      288,203       265,109
Borrowings                                          25,446        28,148         51,142       12,063        12,570
Shareholders' Equity                                50,921        46,669         44,636       43,075        30,896

------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Banking Locations                                       14            15             12           12            11
Full-Time Equivalent Employees                         253           246            212          183           149

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



                                       15
<PAGE>

           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.

Overview

     The following  analysis reviews  important  factors affecting the financial
condition  and results of  operations  of CNB Florida  Bancshares,  Inc. 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 2002 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  continues to execute on its strategic growth  initiatives that
were put in  place  during  1998.  During  2002 the  Company  began  laying  the
groundwork  for  construction  of a new  branch  on US 90 in Glen  St.  Mary and
entered into a lease  agreement  for a branch in the Magnolia  Parke  section of
Gainesville.  Both of these  branches are expected to open for business in 2003.
In 2001 the Company  added two branches to its First Coast market  (Jacksonville
and St.  Augustine)  and acquired two branches from Republic Bank (Lake City and
Live Oak).  The branch  acquisitions  occurred  in May 2001 and  resulted in the


                                       16
<PAGE>

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.

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

Results of Operations

     The  Company's  earnings for 2002 were $5.4  million,  or $0.87 per diluted
share,  compared to $2.9 million,  or $0.48 per diluted share, and $2.5 million,
or $0.41 per  diluted  share,  in 2001 and  2000,  respectively.  These  results
reflect growth in net interest income and  non-interest  income.  The decline in
interest  expense  reflects the impact of declining  interest  rates  throughout
2002.  Total assets increased to $730.7 million at December 31, 2002 compared to
$612.0 million at December 31, 2001, an increase of 19%. Included in the results
for 2001 is the impact of the acquisition of the Lake City and Live Oak branches
of Republic Bank in May 2001.

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  quality,
liquidity  and capital  risks.  Net interest  income was $25.8 million for 2002,
compared  to $20.8  million  and $17.3  million  for the  comparable  prior year
periods of 2001 and 2000, respectively. The increase over 2001 was due to growth
in loans,  transaction deposits and improved rates and spreads. During the first
half of 2003, we expect  increased  margin  pressure as interest rates remain at
historically low levels. With our asset sensitivity, however, margin enhancement
is anticipated once rates rise, as is expected later in the year.

     Average loan growth of $95 million was the main contributor to the increase
in average earning assets of $106.7 million,  or 21%.  Increases in time,  money
market and interest  bearing  deposits,  including those accounts  acquired from
Republic Bank, were the main contributors in the $103.5 million,  or 26%, growth
in average interest bearing liabilities.

     The Company's net interest margin  increased to 4.24% in 2002,  compared to
4.15% in 2001. The increase in the margin is due to higher  transaction  deposit
balances and improved rates and spreads.  Table 1 presents a comparative earning
asset composition as well as earning asset yields and interest bearing liability
rates for 2002, 2001 and 2000. Table 1a shows the changes in net interest income
by category due to shifts in volume and rates for years presented.



                                       17
<PAGE>

<TABLE>
                                                         Table 1: Average Balances, Yields and Rates


                                       December 31, 2002                 December 31, 2001                   December 31, 2000
                                       -----------------                 -----------------                   -----------------
                                           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           $  4,697   $      73      1.55%   $  2,773   $    102     3.68%    $   3,429    $     208    6.07%
   Investment Securities
         Available for Sale       43,984       1,891      4.30      33,167      1,864     5.62        33,314        2,110    6.33
   Investment Securities
Held to Maturity                   1,667          99      5.94       6,278        384     6.12         9,869          572    5.80
   Loans (1)                     553,476      39,275      7.10     458,023     38,055     8.31       317,345       29,112    9.17
   Interest Bearing Deposits       3,559          60      1.69         401         12     2.99           895           59    6.59
                                --------   ---------   -------    --------   --------     ----     ---------    ---------    ----

TOTAL EARNING ASSETS             607,383      41,398      6.82     500,642     40,417     8.07       364,852       32,061    8.78
   All Other Assets               55,173                            55,233                            38,424
                                --------                          --------                         ---------

TOTAL ASSETS                    $662,556                          $555,875                         $ 403,276
                                ========                          ========                         =========

LIABILITIES AND
   SHAREHOLDERS' EQUITY:
   NOW & Money Markets          $192,108       3,432      1.79%   $148,026      3,899     2.63%    $ 110,387        3,731    3.38%
   Savings                        21,907         155      0.71      18,707        196     1.05        17,095          238    1.39
   Time Deposits                 291,205      11,213      3.85     235,010     13,656     5.81       151,674        9,019    5.95
   Federal Funds Purchased and
Repurchase Agreements             13,174         191      1.45      14,609        552     3.78         9,565          572    5.98
   Short Term Borrowings              33           1      3.04      20,932      1,061     5.07        17,377        1,176    6.77
   Other Borrowings (2)           10,000         654      6.54       4,667        265     5.68             -            -       -
                                --------   ---------   -------    --------   --------     ----     ---------    ---------    ----
TOTAL INTEREST BEARING
   LIABILITIES                   528,427      15,646      2.96     441,951     19,629     4.44       306,098       14,736    4.81
   Demand Deposits                80,302                            64,337                            49,418
   Other Liabilities               4,999                             3,838                             4,117
   Shareholders' Equity           48,828                            45,749                            43,643
                                --------                          --------                         ---------

TOTAL LIABILITIES AND
   SHAREHOLDERS' EQUITY         $662,556                          $555,875                         $ 403,276
                                ========                          ========                         =========


                                                          ----                            ----                               ----
INTEREST SPREAD (3)                                       3.86%                           3.63%                              3.97%
                                                          ====                            ====                               ====

                                           ---------                         --------                           ---------
NET INTEREST INCOME                        $  25,752                         $ 20,788                           $  17,325
                                           =========                         ========                           =========


NET INTEREST MARGIN (4)                                   4.24%                           4.15%                              4.75%
                                                          ====                            ====                               ====
----------
<FN>

(1)  Interest income on average loans includes loan fee recognition of $494,000,
     $979,000 and $969,000 in 2002,  2001 and 2000  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>



                                       18
<PAGE>


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

<TABLE>
                                                      NET CHANGE DECEMBER 31,             NET CHANGE DECEMBER 31,
                                                      2001-2002 ATTRIBUTABLE TO:          2000-2001 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                                  $     71    $   (100)   $    (29)   $    (40)   $    (66)   $   (106)
   Investment Securities Available for Sale                 608        (581)         27          (9)       (237)       (246)
   Investment Securities Held to Maturity                  (282)         (3)       (285)       (208)         20        (188)
   Loans                                                  7,930      (6,710)      1,220      12,886      (3,943)      8,943
   Interest Bearing Deposits                                 94         (46)         48         (33)        (14)        (47)
                                                       --------    --------    --------    --------    --------    --------
      Total                                               8,421      (7,440)        981      12,596      (4,240)      8,356


INTEREST EXPENSE:
   NOW & Money Markets                                    1,162      (1,629)       (467)      1,272      (1,104)        168
   Savings                                                   34         (75)        (41)         23         (65)        (42)
   Time Deposits                                          3,266      (5,709)     (2,443)      4,956        (319)      4,637
   Federal Funds Purchased and Repurchase Agreements        (54)       (307)       (361)        302        (322)        (20)
   Short Term Borrowings                                 (1,059)         (1)     (1,060)        241        (356)       (115)
   Other Borrowings                                         304          85         389         265           -         265
                                                       --------    --------    --------    --------    --------    --------
      Total                                               3,653      (7,636)     (3,983)      7,059      (2,166)      4,893
                                                       --------    --------    --------    --------    --------    --------
         Net Interest Income                           $  4,768    $    196    $  4,964    $  5,537    $ (2,074)   $  3,463
                                                       ========    ========    ========    ========    ========    ========
----------
<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 $6.3 million in 2002, an increase of 12% from
the $5.6  million in 2001,  and a 69%  increase  from 2000.  Service  charges on
deposit accounts  increased  $299,000 or 10% in 2002,  compared with $528,000 or
22% in 2001.  Secondary  market  mortgage sales increased in 2002 by $206,000 or
11%. The increase in secondary market mortgage sales was primarily attributed to
a strong housing market in the local economy and a continuation  of historically
low interest rates. Other non-interest  income, which includes credit card fees,
credit life insurance  income,  safe deposit box fees, net gains and losses from
sale of securities  and other  miscellaneous  fees,  increased  $166,000 in 2002
compared  to  $195,000  in 2001.  The  increase  in other fee income in 2002 was
primarily  attributed to a $66,000  increase in  securities  gains and a $50,000
increase in investment  services income.  The investment  securities sold in the
fourth  quarter  of 2002  were  short-dated  callable  agency  instruments  with
premiums resulting from movements in interest rate markets.  The securities were
sold as an economic  hedge of a decline in net interest  yield,  which  resulted
from a lowering of market interest rates during the fourth quarter.

     Non-interest  income as a  percentage  of average  assets was 0.95% in 2002
compared to 1.01% and 0.83% in 2001 and 2000, respectively.

Non-Interest Expense

     Non-interest  expense increased by $1.3 million,  or 7%, for 2002, compared
to an increase of $4.4  million,  or 28%, for 2001.  During  2002,  non-interest
expenses as a percentage of average assets decreased to 3.19%, compared to 3.57%
and 3.84% in 2001 and 2000, respectively.

     Salaries  and  employee  benefits  for 2002  increased  $843,000  from 2001
compared to $1.7 million from 2000.  As a percentage  of average  total  assets,
salaries and employee benefits have decreased to 1.67% in 2002 compared to 1.84%
and 2.12% in 2001 and 2000, respectively.



                                       19
<PAGE>

     Occupancy expenses (including furniture, fixtures & equipment) increased to
$3.4 million in 2002  compared to $3.1 million in 2001 and $2.2 million in 2000.
The main contributing  factor for the 2002 increase was higher  depreciation due
to a full year of depreciation  for the Operations  Center and the two purchased
Republic  Branches.  The major  factors  affecting  the  increase  in  occupancy
expenses  from 2000 to 2001 relate to lease  expense,  higher real estate taxes,
utilities  and  depreciation  on furniture  and  equipment  for the new branches
opened in  Jacksonville  and St.  Augustine,  the two  branches  purchased  from
Republic Bank, the  relocation  during 2000 into new facilities in  Jacksonville
and  Gainesville  and the  expansion  of the Lake City  Operations  Center.  CNB
continues to monitor and assess its facility and equipment needs as it positions
itself for future growth and expansion.

     Other  operating  expenses at CNB increased 3% in 2002 compared to 2001 and
37% in 2001 compared to 2000. The increase in 2002 was  attributable  to: (1) an
increase of $224,000 in data processing  fees resulting from higher  transaction
volume  with  our  core   processor,   utilization   of  additional   processing
applications  and  contractual  fee  increases;  (2) an  increase of $169,000 in
telephone and related  expenses,  primarily due to an  enhancement  of bandwidth
capacity between each of the Company's branches;  (3) an increase of $203,000 in
amortization  of intangible  assets due to the core deposit  amortization on the
Republic  branches  for a full  year;  (4) an  increase  of $71,000 in legal and
professional  costs.  The  increases  in these areas were offset by decreases in
advertising,  administrative,  supplies and other operating  expenses.  The main
contributing  factors to the increase in other operating  expenses in 2001 was a
$120,000  increase in postage and delivery due to  additional  courier  runs, an
increase of $454,000 in data processing fees resulting from the conversion to an
improved data  processing  platform and an increase of $364,000 in  amortization
expense  related  to  the  core  deposit   intangible  from  the  Republic  Bank
acquisition.  Other operating  expenses in both 2001 and 2000 included  goodwill
amortization  of  $70,000.  Beginning  in 2002,  amortization  of  goodwill  was
discontinued   in  accordance  with  the  adoption  of  Statement  of  Financial
Accounting  Standards  No. 142 as discussed  in Note 2 of Notes to  Consolidated
Financial Statements.

    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,
                                              2002           2001           2000
                                              ----           ----           ----
Data processing                           $  1,328      $   1,104       $    650
Communications                                 764            595            584
Amortization of intangible assets              746            543            179
Postage and delivery                           700            671            551
Legal and professional                         689            618            487
Advertising and promotion                      532            687            541
Supplies                                       410            578            404
Loan expenses                                  242            248            194
Regulatory fees                                239            255            149
Administrative                                 163            211            196
Education expense                              131            101             62
Dues and subscriptions                          97            100            103
Director fees                                   88             70             72
Other general operating                         79             67            174
Insurance and bonding                           76            105             89
Other                                          350            518            287
                                          --------      ---------       --------
      Total other operating expenses      $  6,634      $   6,471       $  4,722
                                          ========      =========       ========



                                       20
<PAGE>


Income Taxes

     The  effective  tax rate for the year ended  December  31,  2002 was 36.8%,
compared to 35.2% for 2001 and 34.6% for 2000.  The  consolidated  provision for
income taxes increased to $3.1 million in 2002, compared to $1.6 million in 2001
and $1.3 million in 2000.

Liquidity and Interest Rate Sensitivity

     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 daily and weekly  basis.  These funds can be obtained
by converting  assets to cash or by  attracting  new  deposits.  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
$69.8  million and  represented  11.9% of average  total  deposits  during 2002,
compared to $55.0  million  and 11.8% for 2001.  The  Company's  loan to deposit
ratio at December 31, 2002 was 93%, compared to 96% at the end of 2001.

     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 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 maturing on June 30, 2002
(subsequently renewed through June 30, 2003) 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 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,  2002  was  approximately
($691,000). There was $1 million outstanding on the $3 million line of credit on
December 31, 2002. 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 than 6%.

         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.



                                       21
<PAGE>

     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, 2002, the Company was in compliance with all
covenants, except as noted below.

     At December 31, 2002,  the Bank's ratio of  non-performing  assets to total
loans plus other real estate owned and repossessed  assets totaled 1.33%,  which
exceeded the amount  stipulated in the  agreement of 1.25%.  The Bank obtained a
waiver of default with respect to the non-performing assets ratio requirement as
of December 31, 2002.

     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  under 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  $147,315,000 and $8,889,000,
respectively, at December 31, 2002 and expire as outlined in the table below (in
thousands):

                              Unfunded                Standby
                            Commitments           Letters of Credit
                            -----------           -----------------
2003                         $   30,758             $   7,971
2004                             37,561                   519
2005                             28,605                   399
2006                              8,939                     -
2007                             10,614                     -
Thereafter                       30,838                     -
                             ----------             ---------

                             $  147,315             $   8,889
                             ==========             =========

     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  in  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 risks 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, 2002, a gradual
increase in interest rates of 200 basis points would have increased net interest
income  over the ensuing  twelve-month  period by 3.76%.  A gradual  decrease in
interest  rates of 200 basis points over this same period  would have  decreased
net  interest  income by 3.83% as  compared  to a stable  rate  environment.  At
December 31, 2001, the internal  analysis  estimated an increase in net interest
income of 1.09% and a decrease in net interest income of 1.11% for a similar 200
basis point increase and decrease in interest rates,  respectively.  The overall
interest rate sensitivity  position increased over the prior year as the Company
focused on  variable-rate  lending and 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, 2002, the Bank's net economic value ratio was 10.04% and 10.13%,  assuming a
gradual  increase or  decrease,  respectively,  in  interest  rates of 200 basis
points over a 12-month  period.  At December 31,  2001,  the Bank's net economic
value ratio was 10.53% and 10.93% for similar changes in interest rates.



                                       22
<PAGE>

     Table 3, "Rate  Sensitivity  Analysis"  presents 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, 2002,  the estimated  fair values
would  necessarily  have been  achieved at that date,  since  market  values may
differ depending on various circumstances.















                                       23
<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  consists of a term loan maturing June 30, 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% 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>

                                       24
<PAGE>

     Core  deposits,  which  represent all deposits  other than time deposits in
excess of $100,000,  averaged 77% of total  average  deposits in 2002 and 80% in
2001.  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, 2002
                                                            Amount
                                                            ------
                                                          (thousands)

              Three Months or Less                        $   34,724
              Three Through Six Months                        35,910
              Six Through Twelve Months                       47,276
              Over Twelve Months                              41,706
                                                          ----------
              Total                                       $  159,616
                                                          ==========

Earning Assets

Loans

     Lending  activities are CNB'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,  2002 were  $553.5  million,  or 91% of
average earning assets as compared to $458.0 million,  or 91% of average earning
assets for 2001.

     The  commercial   loan  portfolio   includes   commercial,   financial  and
agricultural  loans as well as commercial  real estate loans. As of December 31,
2002, the commercial loan portfolio comprised 61% of total loans compared to 55%
in 2001.

     As of  December  31,  2002 the  Company  had  total  gross  loans of $605.8
million,  compared to $511.6  million at December 31, 2001, an increase of $94.1
million or 18%. The  composition  of the Company's  loan  portfolio for the past
five years is presented in Table 5.

                       Table 5: Loan Portfolio Composition

<TABLE>
                                                                   As of December 31,
Types of Loans                                   2002         2001         2000         1999        1998
                                                                     (thousands)
<S>                                       <C>           <C>          <C>          <C>          <C>
Commercial, Financial and Agricultural    $   366,954   $  280,453   $  192,540   $  136,937   $  85,208
Real Estate - Construction                     52,596       41,064       33,648       18,926       8,527
Real Estate - Mortgage                        145,815      147,973      119,701       86,275      72,357
Installment and Consumer                       40,420       42,157       33,970       23,946      20,923
                                          -----------   ----------   ----------   ----------   ---------
Total Loans, Net of Unearned Discount         605,785      511,647      379,859      266,084     187,015
Less: Allowance for Loan Losses                (6,574)      (5,205)      (3,670)      (2,671)     (1,875)
                                          -----------   ----------   ----------   ----------   ---------
Net Loans                                 $   599,211   $  506,442   $  376,189   $  263,413   $ 185,140
                                          ===========   ==========   ==========   ==========   =========
</TABLE>



     Table 6 sets forth the maturity distribution for selected components of the
Company's  loan  portfolio as of December 31, 2002.  Demand loans and overdrafts
are  reported  as due in one  year or  less,  and loan  maturity  is based  upon
scheduled principal payments.


                                       25
<PAGE>


                  Table 6: Maturity Schedule of Selected Loans

<TABLE>
                                                                   December 31, 2002

                                                 0-12             1-5          Over 5
                                                Months           Years          Years            Total
                                                ------           -----          -----            -----
                                                                      (thousands)
<S>                                         <C>             <C>            <C>               <C>
Commercial, Financial & Agricultural        $   90,062      $  153,055     $  123,837        $ 366,954
Real Estate - Construction                      16,526          23,923         12,147           52,596
All Other Loans                                 69,156          74,505         42,574          186,235
                                            ----------      ----------     ----------        ---------
Total                                       $  175,744      $  251,483     $  178,558        $ 605,785
                                            ==========      ==========     ==========        =========

Fixed Interest Rate                         $  112,930      $  178,994     $   95,892        $ 387,816
Variable Interest Rate                      $   62,814      $   72,489     $   82,666        $ 217,969
</TABLE>


     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, 2002, the Bank's
four largest  concentration  categories are: Land  Development  ($38.7 million),
Commercial  Real  Estate  ($29.9  million),  Professional  ($27.2  million)  and
Commercial Construction ($26.1 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  increased from $2.9 million at December 31, 2001 to $8.1
million at December 31,  2002.  Non-performing  assets as a percentage  of total
assets  increased  to  1.11%  in 2002  from  0.47%  in  2001.  The  increase  in
non-performing  assets was primarily attributed to three separate  relationships
totaling  approximately  $5.0 million.  One of the credits is a commercial  loan
totaling  $623,000 at December 31, 2002. The credit is collateralized by rolling
stock, inventory and storage contracts.  The Bank has estimated its loss on this
credit  to be  approximately  $375,000.  The  other  two of  the  relationships,
totaling $4.4 million at December 31, 2002, are  commercial  real estate secured
and are  collateralized  by an  apartment  complex  and a  renovated  commercial
building.  The Bank  does not  anticipate  any  significant  losses on these two
credits at this time.

     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

<TABLE>
                                                                 December 31,
                                         2002          2001         2000         1999        1998
                                         ----          ----         ----         ----        ----
                                                         (dollars in thousands)
<S>                                   <C>          <C>          <C>          <C>          <C>
Non-Accrual Loans                     $  5,611     $  1,377     $    579     $    549     $  1,393
Past Due Loans 90 Days or
    More and Still Accruing              2,439        1,271          840          180           22
Other Real Estate Owned &
    Repossessions                           24          229           56          102          613
                                      --------     --------     --------     --------     --------
  Total Non-Performing Assets         $  8,074     $  2,877     $  1,475     $    831     $  2,028
                                      ========     ========     ========     ========     ========

Percent of Total Assets                   1.11%        0.47%        0.32%        0.24%        0.65%
                                      ========     ========     ========     ========     ========
</TABLE>



                                       26
<PAGE>

     The allowance for loan loss 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
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
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 losses 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, 2002,  was $6.6  million,  or
1.09% of total  loans  outstanding,  net of  unearned  income  compared  to $5.2
million,  or 1.02% on December 31, 2001.  Table 8:  "Allocation of Allowance for
Loan Losses," set forth below, indicates the specific reserves allocated by loan
type.

<TABLE>
                                                         Table 8: Allocation of Allowance for Loan Loss

                                                                             December 31,
                                         2002                 2001                2000                 1999                 1998
                             -----------------    -----------------    ----------------    ----------------     ----------------
                                       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          $  4,929    60.6%    $  3,669    54.8%    $ 2,607    50.7%    $  1,670    51.5%    $  1,061    45.6%

Real Estate - Construction         27     8.7%          25     8.0%         15     8.9%          12     7.1%           6     4.5%
Real Estate - Mortgage            538    24.1%         484    29.0%        293    31.5%         220    32.4%         127    38.7%
Consumer                        1,080     6.6%         932     8.2%        734     8.9%         769     9.0%         621    11.2%
Unallocated                         -       -           95       -          21       -            -      60            -       -
                             --------    ----     --------    ----     -------    ----     --------    ----     --------    ----
      Total                  $  6,574     100%    $  5,205     100%    $ 3,670     100%    $  2,671     100%    $  1,875     100%
                             ========     ===     ========     ===     =======     ===     ========     ===     ========     ===
</TABLE>










                                       27
<PAGE>



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

                  Table 9: Activity in Allowance for Loan Loss

<TABLE>
                                                 2002          2001          2000          1999          1998
                                                 ----          ----          ----          ----          ----

                                                                    (dollars in thousands)

<S>                                           <C>           <C>           <C>           <C>           <C>
Balance at Beginning of Year                  $   5,205     $   3,670     $   2,671     $   1,875     $   1,495
Allowance Acquired by Acquisition                     -           110             -             -             -
Loans Charged-Off:
   Commercial, Financial and Agricultural           756           410            75           312           123
   Real Estate - Mortgage                            71            59            40            13             3
   Consumer                                         405           406           409           309           296
                                              ---------     ---------     ---------     ---------     ---------
      Total Loans Charged-Off                    (1,232)         (875)         (524)         (634)         (422)
Recoveries on Loans Previously Charged-Off:
   Commercial, Financial and Agricultural            96           116            32           188            41
   Real Estate - Mortgage                            33            17             -             -             7
   Consumer                                          97           117           141            82            44
                                              ---------     ---------     ---------     ---------     ---------
      Total Loan Recoveries                         226           250           173           270            92
                                              ---------     ---------     ---------     ---------     ---------
               Net Loans Charged-Off             (1,006)         (625)         (351)         (364)         (330)
                                              ---------     ---------     ---------     ---------     ---------
Provision for Loan Losses
  Charged to Expense                              2,375         2,050         1,350         1,160           710
                                              ---------     ---------     ---------     ---------     ---------
Ending Balance                                $   6,574     $   5,205     $   3,670     $   2,671     $   1,875
                                              =========     =========     =========     =========     =========

Total Loans Outstanding                       $ 605,785     $ 511,647     $ 379,859     $ 266,084     $ 187,015
Average Loans Outstanding                     $ 553,476     $ 458,023     $ 317,345     $ 215,861     $ 171,048
Allowance for Loan Loss
   to Loans Outstanding                            1.09%         1.02%         0.97%         1.00%         1.00%
Net Charge-Offs to
   Average Loans Outstanding                       0.18%         0.14%         0.11%         0.17%         0.19%
</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  agreements,  and to provide an
alternative  investment  for  available  funds.  The  total  recorded  value  of
securities was $49.7 million at December 31, 2002, an increase of 34% from $37.1
million at December 31, 2001.

     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, 2002 investment securities  available-for-sale  made up 100% of the
total   investment    portfolio   of   $49.7   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 (loss). At December 31, 2002,
accumulated  other  comprehensive  income  included  a net  unrealized  gain  of
$108,000,  compared to a $326,000 net unrealized gain at December 31, 2001. Also
included in other comprehensive income is accumulated net gains (losses) on cash
flow hedges.

     As a percent of total earning assets, the investment portfolio has remained
relatively constant at a level of 7% at December 31, 2002 compared to the end of
2001.

     The Company invests  primarily in direct  obligations of the United States,
obligations guaranteed as to the 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.


                                       28
<PAGE>

     The following tables sets 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, 2002

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

<S>                                      <C>                <C>                 <C>                <C>
U.S. Treasuries:
   One Year or Less                      $          -       $       -           $      4,008       $   4,016
                                         ------------       ---------           ------------       ---------
Total U.S. Treasuries                               -               -                  4,008           4,016

U.S. Government Agencies
 and Corporations:
   One Year or Less                                 -               -                  4,056           4,088
   Over One Through Five Years                      -               -                 19,971          20,592
                                         ------------       ---------           ------------       ---------
Total U.S. Government Agencies
  and Corporations                                  -               -                 24,027          24,680

Obligations of State and Political
 Subdivisions:
   Over Five Through Ten Years                      -               -                    608             650
   Over Ten Years                                   -               -                  1,135           1,135
                                         ------------       ---------           ------------       ---------
Total Obligations of State and
  Political Subdivisions                            -               -                  1,743           1,785

Mortgage-Backed Securities (2):
   Over Five Through Ten Years                      -               -                 13,347          13,464
   Over Ten Years                                   -               -                  2,698           2,740
                                         ------------       ---------           ------------       ---------
Total Mortgage-Backed Securities                    -               -                 16,045          16,204

Other Securities:
   Over Ten Years (3)                               -               -                  2,997           2,997
                                         ------------       ---------           ------------       ---------
Total Other Securities                              -               -                  2,997           2,997
                                         ------------       ---------           ------------       ---------

Total Securities                         $          -       $       -           $     48,820       $  49,682
                                         ============       =========           ============       =========

<FN>
(1)  All securities,  excluding Obligations of State and Political Subdivisions,
     are taxable.
(2)  Represents  investments in mortgage-backed  securities which are subject to
     early repayment.
(3)  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,
                                                 2002             2001
                                                 ----             ----
One Year or Less                                 2.41%            2.56%
Over One through Five Years                      4.87             5.72
Over Five through Ten Years                      4.48             4.95
Over Ten Years (1)                               4.46             4.96

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



                                       29
<PAGE>

Capital Resources

     Shareholders' equity at December 31, 2002 was $50.9 million, as compared to
$46.7  million at December 31, 2001.  In 2002,  the Board of Directors  declared
dividends  totaling $0.20 per share,  consistent with 2001 and 2000. At December
31,  2002,  the  Company's  common  stock  had a book  value of $8.31  per share
compared to $7.64 per share at the end of 2001.

     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, 2002, the Bank meets all
capital adequacy requirements to which it is subject.

     At December  31,  2002,  the  Company's  Tier 1 capital,  total  risk-based
capital  and Tier 1  leverage  ratios  were 7.4%,  8.5% and 6.3%,  respectively.
Selected  capital ratios at year end 2002 as compared to 2001 are shown in Table
11.

                            Table 11: Capital Ratios

<TABLE>
                                                                                                Adequately
                                                  December 31,            Well Capitalized     Capitalized
                                             2002             2001           Requirements         Minimums
                                             ----             ----           ------------         --------

<S>                                           <C>               <C>               <C>               <C>
Risk Based Capital Ratios:
     Tier 1 Capital Ratio                     7.4%              8.0%              6.0%              4.0%

     Total Capital to
       Risk-Weighted Assets                   8.5%              9.0%             10.0%              8.0%

Tier 1 Leverage Ratio                         6.3%              6.5%              5.0%              4.0%
</TABLE>





                                       30
<PAGE>



Quarterly Financial Information

     Table 12 sets forth, for the periods indicated,  certain  consolidated 2002
and 2001  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>
                                                                2002                                           2001
                                         --------------------------------------------   -------------------------------------------
(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                   $   6,727   $   6,768   $   6,400  $   5,857   $   5,653  $   5,332   $   5,101  $   4,702
   Provision for loan loss                    (750)       (600)       (525       (500)       (600)      (550)       (500)      (400)
                                         ---------   ---------   ---------  ---------   ---------  ---------   ---------  ---------
   Net interest income after
     provision for loan loss                 5,977       6,168       5,875      5,357       5,053      4,782       4,601      4,302
    Other income  (excluding securities
      transactions)                          1,657       1,552       1,496      1,404       1,676      1,372       1,437      1,019
   Securities gains, net                       191           -           4          -         129          -           -          -
   Other expenses                           (5,338)     (5,355)     (5,304     (5,159)     (5,518)    (5,197)     (4,733)    (4,388)
                                         ---------   ---------   ---------  ---------   ---------  ---------   ---------  ---------
   Income before income tax expense          2,487       2,365       2,071      1,602       1,340        957       1,305        933
   Income tax expense                         (908)       (888)       (738       (607)       (476)      (333)       (462)      (323)
                                         ---------   ---------   ---------  ---------   ---------  ---------   ---------  ---------
   Net income                            $   1,579   $   1,477   $   1,333  $     995   $     864  $     624   $     843  $     610
                                         =========   =========   =========  =========   =========  =========   =========  =========


Per Common Share:
   Basic earnings per common share       $    0.26   $    0.24   $    0.22  $    0.16   $    0.14  $    0.10   $    0.14  $    0.10
   Diluted earnings per common share          0.25        0.24        0.21       0.16        0.14       0.10        0.14       0.10
   Dividends declared                         0.05        0.05        0.05       0.05        0.05       0.05        0.05       0.05
   Book value                                 8.31        8.12        7.93       7.75        7.64       7.61        7.53       7.43
   Market price
         High                                16.34       12.24       12.25      10.12       10.31      12.61       13.63      15.00
         Low                                 11.60       10.70        9.66       9.35        9.11       9.00       10.35       8.00
         Close                               15.89       11.84       11.35       9.80       10.00       9.65       12.95      13.94

Balance Sheet Data (end of quarter):
   Assets                                $ 730,674   $ 686,860   $ 660,943  $ 624,340   $ 612,021  $ 601,792   $ 576,959  $ 502,329
   Loans, net                              599,211     567,722     549,242    514,530     506,442    493,461     463,101    405,788
   Deposits                                648,636     613,030     587,533    549,648     532,891    522,754     489,476    400,028
   Shareholders' Equity                     50,921      49,587      48,352     47,262      46,669     46,242      45,911     45,308
</TABLE>







                                       31
<PAGE>


             Table 13: Quarterly Average Balances, Yields and Rates



<TABLE>
                                                  Fourth Quarter 2002        Third Quarter 2002             Second Quarter 2002
                                             ---------------------------- ----------------------------  ----------------------------
                                                       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                       $   5,768   $    19    1.31%   $  2,572  $    11    1.70%   $  7,290   $   29     1.60%
  Investment Securities Available for Sale    48,389       492    4.03      51,388      552    4.26      37,286      411     4.42
  Investment Securities Held to Maturity         344         4    4.61       1,620       24    5.88       1,901       30     6.33
  Loans (1)                                  591,981    10,256    6.87     566,236   10,119    7.09     540,361    9,648     7.16
  Interest Bearing Deposits                   11,088        45    1.61       1,942       10    2.04         666        4     2.41
                                           ---------   -------    ----    --------  -------    ----    --------   ------     ----

TOTAL EARNING ASSETS                         657,570    10,816    6.53     623,758   10,716    6.82     587,504   10,122     6.91
  All Other Assets                            57,547                        53,927                       53,830
                                           ---------                      --------                     --------

TOTAL ASSETS                               $ 715,117                      $677,685                     $641,334
                                           =========                      ========                     ========

LIABILITIES AND
  SHAREHOLDERS' EQUITY:
  NOW & Money Markets                      $ 207,773       927    1.77    $200,605      924    1.83    $187,711      817     1.75
  Savings                                     22,241        33    0.59      22,323       42    0.75      22,043       41     0.75
  Time Deposits                              322,461     2,930    3.60     297,245    2,767    3.69     275,859    2,654     3.86
  Federal Funds Purchased and
         Repurchase Agreements                10,831        33    1.21      12,803       50    1.55      13,026       47     1.45
  Short Term Borrowings                          139         1    2.85           0        0    0.00           0        0     0.00
  Other Borrowings (2)                        10,000       165    6.55      10,000      165    6.55      10,000      163     6.54
                                           ---------   -------    ----    --------  -------    ----    --------   ------     ----
TOTAL INTEREST BEARING
  LIABILITIES                                573,445     4,089    2.83     542,976    3,948    2.88     508,639    3,722     2.94
  Demand Deposits                             85,651                        80,029                       79,987
  Other Liabilities                            5,587                         5,389                        4,716
  Shareholders' Equity                        50,434                        49,291                       47,992
                                           ---------                      --------                     --------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY                      $ 715,117                      $677,685                     $641,334
                                           =========                      ========                     ========


                                                                  ----                         ----                          ----
INTEREST SPREAD (3)                                               3.70%                        3.94%                         3.97%
                                                                  ====                         ====                          ====

                                                       -------                      -------                       ------
NET INTEREST INCOME                                    $ 6,727                      $ 6,768                       $6,400
                                                       =======                      =======                       ======

NET INTEREST MARGIN (4)                                           4.06%                        4.30%                         4.37%
                                                                  ====                         ====                          ====

----------
<FN>
(1)  Interest income on average loans includes loan fee recognition of $114,000,
     $165,000  and  $93,000  in the  fourth,  third and  second  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>


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

<TABLE>
                                               First Quarter 2002                     Fourth Quarter 2001
                                       -----------------------------------   ---------------------------------------
                                                     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                $    3,154    $       13    1.67%     $     1,572    $        8       2.02%
     Investment Securities Available
for Sale                                   38,685           436    4.57           33,538           425       5.03
     Investment Securities Held to
Maturity                                    2,832            41    5.87            5,149            79       6.09
     Loans (1)                            514,332         9,252    7.30          508,350         9,706       7.57
     Interest Bearing Deposits                439             2    1.85              563             4       2.82
                                       ----------    ----------    ----      -----------    ----------       ----

TOTAL EARNING ASSETS                      559,442         9,744    7.06          549,172        10,222       7.38
     All Other Assets                      55,482                                 62,070
                                       ----------                            -----------

TOTAL ASSETS                           $  614,924                            $   611,242
                                       ==========                            ===========

LIABILITIES AND
  SHAREHOLDERS' EQUITY:

     NOW & Money Markets               $  171,855           763    1.80      $   172,122           881       2.03
     Savings                               21,004            39    0.75           20,157            38       0.75
     Time Deposits                        268,598         2,863    4.32          265,788         3,394       5.07
   Federal Funds Purchased and
      Repurchase Agreements                16,100            61    1.54           14,263            72       2.00
     Short Term Borrowings                      0             0    0.00            1,902            16       3.34
     Other Borrowings (2)                  10,000           161    6.53            9,967           168       6.69
                                       ----------    ----------    ----      -----------    ----------       ----
TOTAL INTEREST BEARING
     LIABILITIES                          487,557         3,887    3.23          484,199         4,569       3.74
     Demand Deposits                       75,430                                 75,417
     Other Liabilities                      4,374                                  4,972
     Shareholders' Equity                  47,563                                 46,654
                                       ----------                            -----------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY                  $  614,924                            $   611,242
                                       ==========                            ===========

                                                                   ----                                      ----
INTEREST SPREAD (3)                                                3.83%                                     3.64%
                                                                   ====                                      ====

                                                     ----------                             ----------
NET INTEREST INCOME                                  $    5,857                             $    5,653
                                                     ==========                             ==========

NET INTEREST MARGIN (4)                                            4.25%                                     4.08%
                                                                   ====                                      ====
----------
<FN>
(1)  Interest  income on average loans includes loan fee recognition of $122,000
     and  $175,000 in the first  quarter of 2002 and the fourth  quarter of 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>



                                       33
<PAGE>


QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     On  January  28,  1997,  the SEC  adopted  amendments  to  Regulation  S-K,
Regulation  S-X, and various forms  (Securities Act Release No. 7386) 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 generally  maintained through a monitoring of balance
sheet  maturity and  repricing  mix. As noted below,  at December 31, 2002,  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 section  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, 2002 and 2001 was  approximately  ($691,000) and $9,000,  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.

     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,  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,  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 policy
is the  establishment  and  maintenance  of an  allowance  for  loan  loss.  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,


                                       34
<PAGE>

can and will fluctuate.

     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,  2002,  the  performance  of  acquired  accounts  did  not  differ
materially from expectations.

                              FINANCIAL STATEMENTS

     The consolidated  financial statements as of December 31, 2002 and the year
then  ended have been  audited by the  Company's  independent  certified  public
accountants,   PricewaterhouseCoopers   LLP.   Their  report  on  the  Company's
consolidated financial statements is also included therein.

























                                       35
<PAGE>

















                          CNB Florida Bancshares, Inc.

                                 and Subsidiary


                        Consolidated Financial Statements













                                       36
<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, 2002 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, 2002,  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/ G. Thomas Frankland
-----------------------
 Executive Vice President and
    Chief Financial Officer


                                       37
<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  statement 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 (the "Company") at December 31, 2002
and the results of their operations and their cash flows for the year then ended
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 audit.  We conducted  our audit 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
audit provides a reasonable basis for our opinion.  The financial  statements of
the Company as of December 31, 2001, and for each of the two years in the period
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 27, 2003



                                       38
<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



                                       39
<PAGE>


                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
                                                                                                                  December 31,
                                                                                                            2002              2001
                                                                                                            ----              ----
                                                                                                            (dollars in thousands)

                                     ASSETS

<S>                                                                                                      <C>                <C>
  Cash and due from banks                                                                                $ 15,986           $ 17,993
  Federal funds sold                                                                                        5,400              2,100
  Interest-bearing deposits in other banks                                                                 12,215                584
                                                                                                         --------           --------
         Total cash and cash equivalents                                                                   33,601             20,677

  Investment securities available for sale                                                                 49,682             33,003
  Investment securities held to maturity (market value of $0 and $4,057)                                        -              4,060
  Loans, net of allowance for loan loss of $6,574 and $5,205                                              599,211            506,442
  Loans held for sale                                                                                      10,893              9,908
  Premises and equipment, net                                                                              25,086             26,167
  Intangible assets, net                                                                                    6,056              6,802
  Other assets                                                                                              6,145              4,962
                                                                                                         --------           --------
                                                                                                         $730,674           $612,021
                                                                                                         ========           ========
         Total assets

                      LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Deposits:

    Non-interest bearing demand                                                                          $ 80,065           $ 72,859
    Savings, NOW and money market                                                                         236,284            191,495
    Time under $100,000                                                                                   172,671            152,986

    Time $100,000 and over                                                                                159,616            115,551
                                                                                                         --------           --------
        Total deposits                                                                                    648,636            532,891
Securities sold under repurchase agreements and federal funds purchased                                    14,446             18,148
Other borrowings                                                                                           11,000             10,000
Other liabilities                                                                                           5,671              4,313
                                                                                                         --------           --------
        Total liabilities                                                                                 679,753            565,352
                                                                                                         --------           --------

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,
  6,125,500 shares issued and outstanding for 2002 and
  6,106,453 shares issued and outstanding for 2001                                                             61                 61
Additional paid-in capital                                                                                 30,840             30,533

Retained earnings                                                                                          19,912             15,749
Accumulated other comprehensive income, net of taxes                                                          108                326
                                                                                                         --------           --------
        Total shareholders' equity                                                                         50,921             46,669
                                                                                                         --------           --------
        Total liabilities and shareholders' equity                                                       $730,674           $612,021
                                                                                                         ========           ========
</TABLE>


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



                                       40
<PAGE>

                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
                                                                                                      Year Ended December 31,
                                                                                               2002            2001            2000
                                                                                                (dollars and shares in thousands)
INTEREST INCOME
<S>                                                                                          <C>             <C>             <C>
    Interest and fees on loans                                                               $39,275         $38,055         $29,112
    Interest on investment securities available for sale                                       1,891           1,864           2,110
    Interest on investment securities held to maturity                                            99             384             572
    Interest on federal funds sold                                                                73             102             208
    Interest on interest-bearing deposits                                                         60              12              59
                                                                                             -------         -------         -------
        Total interest income                                                                 41,398          40,417          32,061
                                                                                             -------         -------         -------

INTEREST EXPENSE
    Interest on deposits                                                                      14,800          17,751          12,988
    Interest on repurchase agreements and federal funds purchased                                191             552             572
    Interest on other borrowings                                                                 655           1,326           1,176
                                                                                             -------         -------         -------
        Total interest expense                                                                15,646          19,629          14,736
                                                                                             -------         -------         -------
NET INTEREST INCOME                                                                           25,752          20,788          17,325

PROVISION FOR LOAN LOSS                                                                        2,375           2,050           1,350
                                                                                             -------         -------         -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS                                             23,377          18,738          15,975
                                                                                             -------         -------         -------
NON-INTEREST INCOME
    Service charges                                                                            3,273           2,974           2,446
    Secondary market mortgage sales                                                            2,123           1,917             345
    Other fees and charges                                                                       713             613             547
    Gain on sale of securities                                                                   195             129               -
                                                                                             -------         -------         -------
        Total non-interest income                                                              6,304           5,633           3,338
                                                                                             -------         -------         -------

NON-INTEREST EXPENSE
    Salaries and employee benefits                                                            11,095          10,252           8,539
    Occupancy and equipment expenses                                                           3,427           3,113           2,220
    Other operating expenses                                                                   6,634           6,471           4,722
                                                                                             -------         -------         -------
        Total non-interest expense                                                            21,156          19,836          15,481
                                                                                             -------         -------         -------

INCOME BEFORE INCOME TAXES                                                                     8,525           4,535           3,832

INCOME TAXES                                                                                   3,141           1,594           1,325
                                                                                             -------         -------         -------

NET INCOME                                                                                   $ 5,384         $ 2,941         $ 2,507
                                                                                             =======         =======         =======

EARNINGS PER SHARE
    Basic earnings per share                                                                 $  0.88         $  0.48         $  0.41
                                                                                             =======         =======         =======

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

    Diluted earnings per share                                                               $  0.87         $  0.48         $  0.41
                                                                                             =======         =======         =======

    Diluted weighted average shares outstanding                                                6,216           6,188           6,134
                                                                                             =======         =======         =======
</TABLE>

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



                                       41
<PAGE>


                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                   YEAR ENDED DECEMBER 31, 2002, 2001 AND 2000



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

<S>                                                   <C>          <C>       <C>          <C>           <C>          <C>
BALANCE, December 31, 1999                             6,116        $  61     $  30,805    $ 12,746      $ (537)      $   43,075

Comprehensive income:
    Net income                                                                                2,507
    Change in unrealized gain on investment
    securities available for sale, net of $300 taxes                                                        504
           Total comprehensive income                                                                                      3,011
Cash dividends ($0.20 per share)                                                             (1,226)                      (1,226)
Exercise of stock options                                 33                        113                                      113
Repurchase of common stock                               (50)                      (395)                                    (395)
Issuance of restricted stock                                                         58                                       58
                  --- ----                             -----        -----     ---------    --------      ------       ----------
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 ($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 ($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
                                                       =====        =====     =========    ========      ======       ==========
</TABLE>


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


                                       42
<PAGE>


                   CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
                                                                                                       Year Ended December 31,
                                                                                                 2002           2001         2000
                                                                                                 ----           ----         ----


                                                                                                     (dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                           <C>           <C>           <C>
    Net income                                                                                $   5,384     $   2,941     $   2,507
    Adjustments to reconcile net income to net cash provided by operating activities:
        Net gain on sale of securities available for sale                                          (195)         (129)            -
        Depreciation and amortization                                                             2,507         2,046         1,176
        Provision for loan loss                                                                   2,375         2,050         1,350
        Investment securities amortization (accretion), net                                         267            (6)           13
        Non-cash compensation                                                                         -            20            58
                Net (origination of) proceeds from loans held for sale                             (985)         (962)        8,947
        Deferred income tax benefit                                                                (361)         (715)         (370)
        Changes in assets and liabilities:
           Other assets                                                                          (1,229)       (1,469)          928
           Other liabilities                                                                      1,357           194         1,394
                                                                                              ---------     ---------     ---------
              Net cash provided by operating activities                                           9,120        16,276         3,697
                                                                                              ---------     ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES
    Net increase in loans                                                                       (95,145)     (137,959)     (114,126)
    Purchases of investment securities available for sale                                       (47,069)      (42,840)       (1,068)
    Proceeds from sales of investment securities available for sale                              15,191         1,726             -
    Proceeds from called investment securities available for sale                                 8,140        14,100           472
    Proceeds from called investment securities held to maturity                                   4,060         3,395         1,245
    Proceeds from maturities of investment securities available for sale                          7,339        27,946         3,287
    Proceeds from maturities of investment securities held to maturity                                -             3         1,852
    Purchases of premises and equipment                                                            (680)       (3,356)       (9,035)
    Branches acquired from Republic Bank                                                              -        41,921             -
                                                                                              ---------     ---------     ---------
              Net cash used in investing activities                                            (108,164)      (95,064)     (117,373)
                                                                                              ---------     ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase in deposits                                                                    115,745       102,848        79,483
    Net (decrease) increase in securities sold under repurchase agreements
      and  federal funds purchased                                                               (3,702)       (2,994)        9,079
    Net (decrease) increase in FHLB advances                                                          -       (30,000)       30,000
    Proceeds from other borrowings                                                                1,000        10,000             -
    Cash dividends                                                                               (1,221)       (1,219)       (1,226)
    Repurchase of common stock                                                                     (100)         (234)         (395)
    Proceeds from exercise of stock options                                                         246           166           113
                                                                                              ---------     ---------     ---------

              Net cash provided by financing activities                                         111,968        78,567       117,054
                                                                                              ---------     ---------     ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                             12,924          (221)        3,378

CASH AND CASH EQUIVALENTS, beginning of year                                                     20,677        20,898        17,520
                                                                                              ---------     ---------     ---------
CASH AND CASH EQUIVALENTS, end of year                                                        $  33,601     $  20,677     $  20,898
                                                                                              =========     =========     =========
</TABLE>


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


                                       43
<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 2001 and 2000
    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  and  accretion of premiums and  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

                                       44
<PAGE>


    decline is  transferred  from  other  comprehensive  income and  immediately
    recorded in current period earnings. There have been no other-than-temporary
    impairment  losses  recorded  during the years ended December 31, 2002, 2001
    and 2000.

    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.

    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 2002, 2001 and 2000,
    net  loan  fees  included  in  interest  income  amounted  to  approximately
    $494,000, $979,000 and $969,000, respectively.

    Allowance  for Loan  Loss
    The  allowance for loan loss 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
    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 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.

    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.

    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, 2002 and 2001.



                                       45
<PAGE>

    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  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.

    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.

    Intangibles
    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, 2002 and 2001, 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 and 2000.  Absent the impact of goodwill  amortization  in
    2001 and 2000, net income, basic earnings per share and diluted earnings per
    share would have been $3,011,000, $0.49, $0.49 and $2,577,000, $0.42, $0.42,
    for the years ended December 31, 2001 and 2000, 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  $746,000,
    $473,000  and  $109,000  for  2002,  2001 and 2000  respectively.  Estimated
    amortization  expense  on  core  deposit  intangibles  for the  years  ended
    December 31, 2003 through December 31, 2007 are as follows:

                    2003                            $712,000
                    2004                             638,000
                    2005                             638,000
                    2006                             634,000
                    2007                             631,000


                                       46
<PAGE>


    The  gross  carrying  value and  accumulated  amortization  related  to core
    deposit  intangibles at December 31, 2002 was $7.3 million and $1.9 million,
    respectively.  The gross carrying value and accumulated amortization of core
    deposits   was  $7.6   million  and  $1.4  million  at  December  31,  2001,
    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, 2002, 2001 and 2000.

    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 provision 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 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,
    2002 and 2001. The interest rate contract had an unrealized (loss) gain, net
    of  taxes,  at  December  31,  2002  and  2001  of  ($433,000)  and  $6,000,
    respectively.  Of the  unrealized  loss at December  31,  2002,  the Company
    expects to reclassify  approximately  $236,000 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,  2002 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 2002,  2001 and 2000,  over the vesting life of the options,  pro
    forma net income would be as indicated  below (dollars in thousands,  except
    per share data):


<TABLE>
                                                                  As Reported                                 Pro Forma
                                                     ------------------------------------      ------------------------------------
                                                        2002          2001          2000          2002          2001          2000
                                                        ----          ----          ----          ----          ----          ----

<S>                                                  <C>           <C>           <C>           <C>           <C>           <C>
                                                     $  5,384      $  2,941      $  2,507      $  5,151      $  2,818      $  2,407
Net income .....................................

Basic earnings per common share ................     $   0.88      $   0.48      $   0.41      $   0.84      $   0.46      $   0.39

Diluted earnings per common share ..............     $   0.87      $   0.48      $   0.41      $   0.83      $   0.46      $   0.39
</TABLE>



                                       47
<PAGE>

    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.  The
    weighted-average  grant date fair values of the options granted during 2002,
    2001 and 2000 were based on the following assumptions:

    <TABLE>
                                                              Risk-Free                        Dividend
                                                            Interest Rates                       Yield
                                                       -------------------------       -------------------------
                                                       2002      2001       2000       2002       2001      2000
                                                       ----      ----       ----       ----       ----      ----

    <S>                                                <C>       <C>        <C>        <C>        <C>       <C>
    Performance-Based Incentive and other stock
    option plans  ...........................          5.13%     3.75%      6.52%      1.88%      2.08%     2.50%


                                                            Expected Lives                     Volatility
                                                       -------------------------       -------------------------
                                                       2002      2001       2000       2002       2001      2000
                                                       ----      ----       ----       ----       ----      ----


    Performance-Based Incentive and other stock
    option plans  ...........................        6 years   6 years    6 years       38%        36%       30%
    </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  No.  123 in  2002,  2001  and  2000  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.



                                       48
<PAGE>

    Earnings Per Share
    Basic earnings per share is calculated  based on the weighted average number
    of  shares  of  common  stock  outstanding.  Diluted  earnings  per 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, 2002, 2001 and 2000.

    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  $16,125,000,  $19,029,000 and $13,330,000 during
    2002,  2001 and  2000,  respectively,  and cash  paid for  income  taxes was
    approximately  $3,388,000,  $2,025,000 and $1,759,000  during 2002, 2001 and
    2000, respectively.

    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.  Although earlier  application is encouraged,  SFAS 143 is
    effective for financial  statements  issued for fiscal years beginning after
    June 15, 2002. The Company believes the adoption of SFAS 143 will not have a
    significant impact on the Company's consolidated financial statements.

    In August 2001 the FASB issued SFAS 144,  Accounting  for the  Impairment or
    Disposal of Long-Lived  Assets ("SFAS 144").  SFAS 144 supercedes  SFAS 121,
    Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
    to be Disposed Of, and the accounting and reporting provisions of Accounting
    Principles  Board  Opinion No. 30,  Reporting  the Results of  Operations  -
    Reporting   the  Effects  of  Disposal  of  a  Segment  of  a  Business  and
    Extraordinary,  Unusual and Infrequently  Occurring Events and Transactions.
    SFAS 144 also  amends  Accounting  Research  Bulletin  No. 51,  Consolidated
    Financial  Statements,  to eliminate  the exception to  consolidation  for a
    subsidiary  for which control is likely to be temporary.  The  provisions of
    this  Statement  were  adopted by the Company on January 1, 2002 and 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  SFAS  44,
    Accounting  for  Intangible  Assets of Motor  Carriers  and amends  SFAS 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.  SFAS 145 is generally effective for financial
    statements issued for fiscal years beginning after May 15, 2002. The Company
    believes the adoption of SFAS 145 will 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


                                       49
<PAGE>

    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 Company
    believes the adoption of SFAS 146 will not have a significant  impact on the
    Company's consolidated financial statements.

    In October 2002, the FASB issued SFAS 147, Acquisitions of Certain Financial
    Institutions  - an  amendment  of FASB  Statements  No.  72 and 144 and FASB
    Interpretation  No.  9  ("SFAS  147").  SFAS  147  removes  acquisitions  of
    financial   institutions   from  the   scope  of  both   Statement   72  and
    Interpretation  9 and requires that those  transactions  be accounted for in
    accordance with FASB Statements No. 141, Business Combinations, and No. 142,
    Goodwill and Other  Intangible  Assets.  SFAS 147 also amends FASB Statement
    No. 144,  Accounting for the Impairment or Disposal of Long-Lived Assets, to
    include in its scope long-term  customer-relationship  intangible  assets of
    financial   institutions   such  as  depositor-  and   borrower-relationship
    intangible assets and credit cardholder intangible assets. The provisions of
    SFAS 147 relating to the acquisitions of certain financial institutions,  is
    effective for  acquisitions  for which the date of the  acquisition is on or
    after October 1, 2002. The provisions of SFAS 147 relating to accounting for
    the  impairment  or  disposal  of  certain  long-term  customer-relationship
    intangible  assets are effective on October 1, 2002.  Transition  provisions
    for previously recognized  unidentifiable intangible assets are effective on
    October 1, 2002, with earlier  application  permitted.  The adoption of SFAS
    147  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
    disclosure  requirements in FIN 45 are effective for financial statements of
    interim or annual periods ending after December 15, 2002. When adopted,  the
    initial  recognition  and initial  measurement  provisions of FIN 45 are not
    expected  to  have  a  significant  impact  on  the  Company's  consolidated
    financial  statements.  The adoption of the disclosure  requirements 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


                                       50
<PAGE>

    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 will
    begin  reporting  quarterly  information  with  respect  to  the  impact  of
    stock-based compensation on reported and pro forma earnings beginning in the
    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  obligation  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 is not expected to
    have  a  significant  impact  on  the  Company'  s  consolidated   financial
    statements.

                                       51
<PAGE>


3.  INVESTMENT SECURITIES
    Amortized cost and estimated fair value of investment  securities  available
    for sale at December 31, 2002, 2001 and 2000 are as follows (in thousands):

    <TABLE>
     2002                                      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 .....................     $ 4,008         $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
                                                             =======         =======         =======         =======        =======


     2000
                                               U.S.           U.S.           State,         Mortgage-
                                             Treasury      Government      County, and       Backed
                                           Securities       Agencies        Municipal      Securities          Other         Total
                                           ----------       --------        ---------      ----------          -----         -----


    Amortized cost ...................       $ 7,494         $20,000         $ 1,025         $ 1,846         $ 2,924        $33,289
    Gross unrealized:
    Gains ............................            21               -              22               4              66            113
    Losses ...........................             -            (166)              -               -               -           (166)
                                             -------         -------         -------         -------         -------        -------
    Estimated fair value .............       $ 7,515         $19,834         $ 1,047         $ 1,850         $ 2,990        $33,236
                                             =======         =======         =======         =======         =======        =======
    </TABLE>




                                       52
<PAGE>

    Amortized  cost and estimated  fair value of investment  securities  held to
    maturity at December 31, 2001 and 2000 is follows (in thousands):

      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
                                                     =======            =======


      2000                                  U.S.         Mortgage-
                                         Government        Backed
                                          Agencies       Securities      Total
                                          --------       ----------      -----


    Amortized cost ..................    $ 7,457         $     3        $ 7,460
    Gross unrealized:
    Gains ...........................          -               -              -
    Losses ..........................         (2)              -             (2)
                                         -------         -------        -------
    Estimated fair value ............    $ 7,455         $     3        $ 7,458
                                         =======         =======        =======

    Interest  income earned on tax-exempt  securities in 2002, 2001 and 2000 was
    approximately  $40,000,  $48,000 and  $52,000,  respectively.  Dividends  of
    approximately  $171,000,  $226,000  and  $146,000  on stock  of the  Federal
    Reserve  Bank and the  Federal  Home Loan Bank are  included  in interest on
    investment   securities   available  for  sale  in  2002,   2001  and  2000,
    respectively.

    The amortized  cost and  estimated  fair value of securities at December 31,
    2002, by contractual maturity, are shown below (in thousands):

                                                        Investment Securities
                                                          Available for Sale
                                                          ------------------
                                                       Amortized      Estimated
                                                          Cost        Fair Value
                                                          ----        ----------
    Due in:
    One year or less  ............................    $    8,064      $    8,104
    After one through five years  ................        19,971          20,592
    After five through ten years  ................           608             650
    Over ten years  ..............................         1,135           1,135
    Mortgage-backed securities and others  .......        19,042          19,201
                                                      ----------      ----------
                                                      $   48,820      $   49,682
                                                      ==========      ==========

    At December 31, 2002,  securities  with an amortized  cost of  approximately
    $31,123,000 and an estimated fair value of  approximately  $31,870,000  were
    pledged to collateralize public funds,  treasury tax and loan deposits,  and
    repurchase agreements.



                                       53
<PAGE>

    Gross  gains on sales  of  investment  securities  available  for sale  were
    $195,000,  $129,000  and $0 for each of the years ended  December  31, 2002,
    2001 and  2000,  respectively.  There  were no  gross  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, 2002 and 2001 were  comprised  of the  following  (in
    thousands):

    <TABLE>
                                                                                           2002                     2001
                                                                                           ----                     ----

    <S>                                                                                 <C>                      <C>
    Commercial, financial, and agricultural ..............................              $ 366,954                $ 280,453
    Real estate--construction ............................................                 52,596                   41,064
    Real estate--mortgage ................................................                145,815                  147,973
    Installment and consumer lines .......................................                 40,420                   42,157
                                                                                        ---------                ---------
         Total loans, net of unearned interest and fees ..................                605,785                  511,647
    Less allowance for loan loss .........................................                 (6,574)                  (5,205)
                                                                                        ---------                ---------
         Net loans .......................................................              $ 599,211                $ 506,442
                                                                                        =========                =========
    </TABLE>

    Activity in the  allowance  for loan loss was as follows for the years ended
    December 31, 2002, 2001 and 2000 (in thousands):

    <TABLE>
                                                                               2002                   2001                   2000
                                                                               ----                   ----                   ----
    <S>                                                                       <C>                    <C>                    <C>
    Balance at beginning of year ..................................          $ 5,205                $ 3,670                $ 2,671
    Provision .....................................................            2,375                  2,050                  1,350
    Charge-offs ...................................................           (1,232)                  (875)                  (524)
    Recoveries ....................................................              226                    250                    173
    Republic acquisition ..........................................                -                    110                      -
                                                                             -------                -------                -------
    Balance at end of year ........................................          $ 6,574                $ 5,205                $ 3,670
                                                                             =======                =======                =======
    </TABLE>


    Nonaccrual loans totaled approximately $5,611,000 and $1,377,000 at December
    31,  2002 and  2001,  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  $402,000,  $96,000 and $25,000,  in 2002,  2001 and
    2000,  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  $2,439,000  and  $1,271,000  at December  31, 2002 and 2001,
    respectively.   Other  real  estate   owned  and   repossessed   assets  was
    approximately   $24,000  and   $229,000  at  December  31,  2002  and  2001,
    respectively,   and  is  included  in  other  assets  in  the   accompanying
    consolidated statements of financial condition.



                                       54
<PAGE>

    The Company recognizes income on impaired loans primarily on the cash basis.
    Impaired  loans  are  considered  to be loans  with a  probability  that the
    creditor  will be  unable  to  collect  all  amounts  due  according  to the
    contractual terms of the 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, 2002,  2001 and
    2000 is as follows (in thousands):

    <TABLE>
                                                                                  2002            2001            2000
                                                                                  ----            ----            ----
    <S>                                                                         <C>             <C>             <C>
    Impaired loans with an allowance ......................................     $6,351          $1,361          $1,041
                                                                                ======          ======          ======
    Allowance for impaired loans ..........................................     $  903          $  204          $  213
                                                                                ======          ======          ======
    Interest income recognized on impaired loans during the year ..........     $  348          $   66          $   40
                                                                                ======          ======          ======
    </TABLE>

    The  average   balance  of  impaired  loans  during  2002,   2001  and  2000
    approximated $3.2 million, $1.0 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>
                                                                                        2002              2001
                                                                                        ----              ----
    <S>                                                                             <C>               <C>
    Buildings and improvements ................................................     $ 20,130          $ 20,011
    Equipment and furnishings .................................................        8,942             8,475
    Land ......................................................................        5,208             5,224
    Construction in progress ..................................................           94                 5
                                                                                    --------          --------
                                                                                      34,374            33,715
    Less accumulated depreciation and amortization ............................       (9,288)           (7,548)
                                                                                    --------          --------
                                                                                    $ 25,086          $ 26,167
                                                                                    ========          ========
    </TABLE>

    Depreciation expense was approximately  $1,761,000,  $1,503,000 and $997,000
    for 2002, 2001 and 2000, respectively.

6.  DEPOSITS
    At December 31, 2002, the scheduled  maturities of  certificates  of deposit
    are as follows (in thousands):

              2003  ......................................       $227,300

              2004  ......................................         50,641

              2005  ......................................         37,949

              2006  ......................................         13,505

              2007 and thereafter  .......................          2,892
                                                                 --------
                                                                 $332,287
                                                                 ========


                                       55
<PAGE>



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

                                                    2002       2001        2000
                                                    ----       ----        ----
    Now  ...................................     $ 1,543    $ 1,664     $ 1,750
    Money market  ..........................       1,889      2,235       1,981
    Savings  ...............................         155        196         238
    Certificates of deposit  ...............      11,213     13,656       9,019
                                                 -------    -------     -------
                                                 $14,800    $17,751     $12,988
                                                 =======    =======     =======

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, 2002, 2001 and 2000:


    <TABLE>
                                                      2002            2001            2000
                                                      ----            ----            ----


    <S>                                           <C>              <C>            <C>
    Average daily balance .................       $11,557,000      $12,284,000    $ 7,666,000
    Highest amount outstanding at
       any month end ......................        19,190,000       19,136,000     16,542,000
    Interest expense ......................           158,000          443,000        447,000
    Average rate paid .....................             1.37%            3.61%          5.83%
    Average rate paid at year-end .........             0.97%            1.53%          6.04%
    </TABLE>


8.  OTHER BORROWINGS
    During 2001 and 2000 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 and 2000 on
    the advances  was 5.06% and 6.77%,  respectively.  Interest  expense paid on
    FHLB advances was  approximately  $1,061,000 in 2001 and $1,176,000 in 2000.
    The highest  amount  outstanding  during 2001 and 2000 was  $40,000,000  and
    $30,000,000,  respectively.  There were no balances  outstanding at December
    31, 2001 and $30,000,000  outstanding at December 31, 2000. The Bank did not
    utilize funding from the FHLB during 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, 2003).  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 3.46% at December
        31,  2002.  Semi-annual  principal  payments of $714,286  begin in April
        2004, with the remainder due at maturity.


                                       56
<PAGE>

    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  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,  2002,  the  Company  was in
    compliance with all covenants, except as noted below.

    At December 31, 2002,  the Bank's  ratio of  non-performing  assets to total
    loans plus other real estate owned and  repossessed  assets  totaled  1.33%,
    which  exceeded the amount  stipulated in the  agreement of 1.25%.  The Bank
    obtained a waiver of default with respect to the non-performing assets ratio
    requirement for its 2002 fiscal year.

    At December 31, 2001,  there was $10,000,000  outstanding  under Facility B,
    consisting of the original $7,000,000 and an additional  $3,000,000 received
    at the  origination  date of the term loan. At December 31, 2002,  there was
    $1,000,000  outstanding on Facility A, with an interest rate of 2.85%. There
    were no advances  under Facility A during 2001. The Company did not have any
    long-term debt outstanding during 2000.

    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 during 2002 and 2001, including
    the  impact  of  the  interest   rate  swap,   was  $654,000  and  $165,000,
    respectively. The notional amount of the interest rate swap amortizes in the
    same manner as Facility B.


                                       57
<PAGE>

9.  OTHER OPERATING EXPENSES
    Components  of other  operating  expenses are as follows for the years ended
    December 31, 2002, 2001 and 2000 (in thousands):

                                                    2002        2001        2000
                                                    ----        ----        ----

    Data processing ........................      $1,328      $1,104      $  650
    Communications .........................         764         595         584
    Amortization of intangible assets ......         746         543         179
    Postage and delivery ...................         700         671         551
    Legal and professional .................         689         618         487
    Advertising and promotion ..............         532         687         541
    Supplies ...............................         410         578         404
    Loan expense ...........................         242         248         194
    Regulatory fees ........................         239         255         149
    Administrative .........................         163         211         196
    Education expense ......................         131         101          62
    Dues and subscriptions .................          97         100         103
    Directors fees .........................          88          70          72
    Other general operating ................          79          67         174
    Insurance and bonding ..................          76         105          89
    Other ..................................         350         518         287
                                                  ------      ------      ------
                                                  $6,634      $6,471      $4,722
                                                  ======      ======      ======


10. INCOME TAXES
    The income tax provision  (benefit)  for the years ended  December 31, 2002,
    2001 and 2000 consisted of the following components (in thousands):







                                       58
<PAGE>

                                         2002             2001             2000
                                         ----             ----             ----
    Current:
         Federal ................     $ 2,978          $ 1,958          $ 1,432
         State ..................         524              351              263
                                      -------          -------          -------
             Total ..............     $ 3,502          $ 2,309          $ 1,695
                                      =======          =======          =======

     Deferred:
         Federal ................     $  (308)         $  (611)         $  (315)
         State ..................         (53)            (104)             (55)
                                      -------          -------          -------
             Total ..............     $  (361)         $  (715)         $  (370)
                                      =======          =======          =======

    Total:
         Federal ................     $ 2,670          $ 1,347          $ 1,117
         State ..................         471              247              208
                                      -------          -------          -------
             Total ..............     $ 3,141          $ 1,594          $ 1,325
                                      =======          =======          =======

    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, 2002 and 2001 are as
    follows:

    <TABLE>
                                                                                           2002            2001
                                                                                           ----            ----
    <S>                                                                                 <C>             <C>
    Gross deferred tax liabilities:
         Property and equipment ....................................................    $  (991)        $  (755)
         Unrealized gain on investment securities available for sale ...............       (324)           (194)
         Unearned loan fees ........................................................          -             (68)
                                                                                        -------         -------
                                                                                         (1,315)         (1,017)
    Gross deferred tax assets:
         Loan loss provisions ......................................................      2,330           1,776
         Unrealized loss on interest rate swap .....................................        260               -
         Intangible assets .........................................................        266             179
         Other items ...............................................................         36             185
                                                                                        -------         -------
                                                                                          2,892           2,140
                                                                                        -------         -------
    Net deferred tax asset .........................................................    $ 1,577         $ 1,123
                                                                                        =======         =======
    </TABLE>






                                           59
<PAGE>

    The reasons for the  differences  between the statutory  federal  income tax
    rate and the  effective  tax rate are  summarized  as follows  for the years
    ended December 31, 2002, 2001 and 2000:

                                                   2002        2001        2000
                                                   ----        ----        ----

    Statutory rates ............................   34.0%       34.0%       34.0%
    Increase (decrease) resulting from:
         Effect of tax-exempt income ...........   (1.1)       (2.1)       (2.7)
         State income taxes, net ...............    3.6         3.6         2.5
         Nondeductible expenses and other ......    0.3        (0.3)        0.8
                                                   ----        ----        ----
                                                   36.8%       35.2%       34.6%
                                                   ====        ====        ====


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 approximately as follows at December 31, 2002:


                  2003.............................         $  235,000
                  2004.............................            230,000
                  2005.............................            197,000
                  2006.............................            152,000
                  2007.............................            130,000
                  Thereafter.......................            360,000
                                                            ----------
                                                            $1,304,000
                                                            ==========


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.









                                       60
<PAGE>


    Comprehensive income for the years ended December 31, 2002, 2001 and 2000 is
    calculated as follows (in thousands):

    <TABLE>
                                                                                             2002             2001             2000
                                                                                             ----             ----             ----

    <S>                                                                                   <C>              <C>              <C>
    Unrealized (loss) gain  recognized in other comprehensive
       income (net):
          Available for sale securities .............................................     $   352          $   563          $   804
          Interest rate swap designated as cash flow hedge ..........................        (700)               9                -
                                                                                          -------          -------          -------
          Total unrealized (loss) gain before income taxes ..........................        (348)             572              804
          Deferred income taxes .....................................................        (130)             213              300
                                                                                          -------          -------          -------

            Net of deferred income tax ..............................................     $  (218)         $   359          $   504
                                                                                          =======          =======          =======

     Amounts reported in net income:
          Gain on sale of securities ................................................     $   195          $   129        $       -
          Interest rate swap designated as cash flow hedge
                                                                                             (290)             (54)               -

          Net amortization (accretion) ..............................................         267               (6)              13
                                                                                          -------          -------          -------
          Reclassification adjustment ...............................................         172               69               13
          Deferred income taxes .....................................................         (64)             (26)              (5)
                                                                                          -------          -------          -------
            Reclassification adjustment, net of deferred income tax .................     $   108          $    43          $     8
                                                                                          =======          =======          =======

     Amounts reported in other comprehensive income:
          Net unrealized (loss) gain arising during period, net of tax ..............     $  (110)         $   402          $   512
          Reclassification adjustment, net of tax ...................................        (108)             (43)              (8)
                                                                                          -------          -------          -------
          Unrealized (loss) gain recognized in other comprehensive
            income (net) ............................................................        (218)             359              504
          Net income ................................................................       5,384            2,941            2,507
                                                                                          -------          -------          -------
            Total comprehensive income ..............................................     $ 5,166          $ 3,300          $ 3,011
                                                                                          =======          =======          =======
    </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):

                                                            2002           2001
                                                            ----           ----

    Balance, January 1 ..............................    $ 8,223        $ 7,093
        Participations ..............................                      (758)
        New loans and advances ......................      2,742          2,482
        Repayments (excluding renewals) .............     (3,374)          (594)
                                                         -------        -------
    Balance, December 31 ............................    $ 7,591        $ 8,223
                                                         =======        =======

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



                                       61
<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,  2002,  the  Bank had
    approximately $8,137,000 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
    The Company  declared  cash  dividends of $0.20 per share in 2002,  2001 and
    2000.

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
    amend 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 and  6,922  were
    exercised in 2002. There are 169,025 shares remaining to be issued under the
    Plan as of December 31, 2002. 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, 2002,  2001 and 2000
    are presented below:

    <TABLE>
                                                                  2002                     2001                      2000
                                                         -----------------------    ----------------------    ---------------------
                                                                       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 ...........       637,634       $    8.34    621,760       $   7.58    552,566       $   7.63
       Options granted ..........................       112,000           10.90     72,500           9.60    102,500           8.64
       Options exercised ........................        29,547            8.33     30,876           5.39     33,306           3.41
       Options forfeited ........................        35,375            9.96     25,750           8.86          -              -
                                                        -------       ---------    -------       --------    -------       --------
    Outstanding at end of year ..................       684,712       $    8.68    637,634       $   8.34    621,760       $   7.58
                                                        =======       =========    =======       ========    =======       ========

    Options exercisable at year-end .............       522,503       $    8.29    493,087       $   7.97    391,784       $   7.40
                                                        =======       =========    =======       ========    =======       ========

    Weighted-average fair value of options
    granted during the year .....................                     $   4.12                   $  3.17                   $   2.86
                                                                      ========                   =======                   ========
    </TABLE>


                                       62
<PAGE>




    The following table summarizes  information about stock options  outstanding
    at December 31, 2002.


                                Outstanding                      Exercisable
                      -------------------------------    ----------------------
                                  Average     Average                   Average
    Exercise                       Life      Exercise                  Exercise
    Price Range       Shares     (Years)      Price      Shares         Price
    -----------       ------     -------      -----      ------         -----


    $3.06-$3.64       6,922       1.00      $  3.64       6,922       $  3.64
    $4.00-$4.68      56,558       3.53         4.16      56,558          4.16
    $5.00-$8.00     223,732       6.23         7.65     197,398          7.64
    $9.00-$10.25    397,500       7.54         9.99     261,625          9.74
                    -------       ----      -------     -------       -------
    Total           684,712       6.71      $  8.68     522,503       $  8.29
                    =======       ====      =======     =======       =======

    Restricted Stock
    The  Company   awarded   17,500  shares  of   restricted   stock  under  the
    Performance-Based  Incentive Plan. The weighted  average price of restricted
    stock  vested  during  2001 and  2000 was  $9.00  and  $8.64,  respectively.
    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 year ended December 31, 2002.

17. EARNINGS PER SHARE

    The following table sets forth the computation of basic and diluted earnings
    per share for the years ended  December 31, 2002,  2001 and 2000 (dollars in
    thousands, except per share data):

    <TABLE>
                                                                            2002                2001                2000
                                                                            ----                ----                ----
    Numerator:
    <S>                                                               <C>                 <C>                 <C>
           Net income available to common shareholders .........      $    5,384          $    2,941          $    2,507
                                                                      ==========          ==========          ==========

    Denominator:
           Denominator for basic earnings per share
             Weighted-average shares ...........................       6,104,050           6,094,670           6,095,471
           Effects of dilutive securities:
             Common stock options ..............................         111,725              93,807              38,799
                                                                      ----------          ----------          ----------
           Dilutive potential common shares ....................         111,725              93,807              38,799
                                                                      ----------          ----------          ----------
      Denominator for diluted earnings per share
           Adjusted weighted-average shares ....................       6,215,775           6,188,477           6,134,270
                                                                      ==========          ==========          ==========

    Basic Earnings Per Share ...................................      $     0.88          $     0.48          $     0.41
                                                                      ==========          ==========          ==========


    Diluted Earnings Per Share .................................      $     0.87          $     0.48          $     0.41
                                                                      ==========          ==========          ==========
    </TABLE>



                                       63
<PAGE>


    For  the  years  ended  December  31,  2002  and  2000,  shares  that  could
    potentially  be issued under options and  potentially  dilute basic earnings
    per  share in the  future  that  were not  included  in the  computation  of
    dilutive  earnings per share because to do so would have been  antidilutive,
    totaled 13,278 and 275,145, respectively. There were no anti-dilutive shares
    for the year ended December 31, 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
    $304,000,  $274,000 and $214,000 for the years ended December 31, 2002, 2001
    and 2000, 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 2002, 2001 and 2000 were approximately  $708,000,  $653,000 and
    $561,000,  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, 2002,  the Bank
    meets all capital adequacy requirements to which it is subject.

                                       64
<PAGE>

    The following  table  summarizes the actual and required  capital levels and
    ratios for the Company and the Bank at December 31, 2002 and 2001.

    <TABLE>
                                                                                          Adequately               Well
                                                                       Actual            Capitalized           Capitalized
                                                                       Amount     Ratio     Amount      Ratio     Amount      Ratio
                                                                       ------     -----     ------      -----     ------      -----

    As of December 31, 2002:
         Total capital (to risk-weighted assets):
    <S>                                                               <C>          <C>     <C>           <C>     <C>           <C>
            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%

    As of December 31, 2001:
         Total capital (to risk-weighted assets):
            Consolidated ........................................     $44,745      9.0%    $39,688       8.0%    $49,611       10.0%
            Bank ................................................      51,729     10.4%     39,667       8.0%     49,584       10.0%
         Tier I capital (to risk-weighted assets):
            Consolidated ........................................      39,540      8.0%     19,844       4.0%     29,767        6.0%
            Bank ................................................      46,524      9.4%     19,834       4.0%     29,750        6.0%
         Tier I capital (to average assets):
            Consolidated ........................................      39,540      6.5%     24,242       4.0%     30,302        5.0%
            Bank ................................................      46,524      7.7%     24,175       4.0%     30,219        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


                                       65
<PAGE>

    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  $147,000,000  and
    $122,000,000 at December 31, 2002 and 2001, 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
    $8,889,000  and  $7,373,000  of  standby  letters of credit  outstanding  at
    December 31, 2002 and 2001,  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 requirement as of December
    31, 2002 and 2001 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.

        Federal Home Loan Bank and Federal Reserve Bank Stock
        The carrying  value of Federal  Home Loan Bank and Federal  Reserve Bank
        stock approximates fair value.



                                       66
<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  ($691,000)  at
        December 31, 2002. Fair value is based on a dealer quote at December 31,
        2002, 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,
        2002.

        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, 2002 and 2001 and are based upon fees
        charged to enter into similar arrangements as of these dates.

        The Company's  financial  instruments  that have  estimated  fair values
        differing from their respective carrying values are presented as follows
        at December 31, 2002 and 2001 (in thousands):


    <TABLE>
                                                                                   2002                             2001
                                                                          ------------------------        --------------------------
                                                                          Carrying      Estimated         Carrying        Estimated
                                                                           Amount       Fair Value         Amount         Fair Value
                                                                           ------       ----------         ------         ----------
    Financial assets:
    <S>                                                                         <C>              <C>          <C>              <C>
          Investment securities held to maturity ...................            -                -            4,060            4,057
          Net loans ................................................      605,785          625,551          516,350          532,776

    Financial liabilities:
          Time deposits ............................................      332,287          334,839          268,537          270,917
    </TABLE>



                                       67
<PAGE>

    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, 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, 2002 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.


23. CONDENSED FINANCIAL DATA (PARENT COMPANY ONLY)

                        Statements of Financial Condition
                           December 31, 2002 and 2001
                                     Assets

    <TABLE>
                                                                                       2002                  2001
                                                                                       ----                  ----
                                                                                        (dollars in thousands)

    <S>                                                                             <C>                   <C>
    Cash and cash equivalents ................                                      $   415               $ 2,764
    Investment in CNB National Bank ..........                                       61,226                53,563
    Other assets .............................                                          972                   345
                                                                                    -------               -------
            Total assets .....................                                      $62,613               $56,672
                                                                                    =======               =======
    </TABLE>


                      Liabilities and Shareholders' Equity

    <TABLE>
    LIABILITIES
    <S>                                                                             <C>                   <C>
    Other borrowings .....................................................          $11,000               $10,000
    Other liabilities ....................................................              692                     3
                                                                                    -------               -------
            Total liabilities ............................................           11,692                10,003
                                                                                    -------               -------


    SHAREHOLDERS' EQUITY
    Common stock .........................................................               61                    61
    Additional paid-in capital ...........................................           30,840                30,533
    Retained earnings ....................................................           19,912                15,749
    Accumulated other comprehensive income, net of taxes .................              108                   326
                                                                                    -------               -------
            Total shareholders' equity ...................................           50,921                46,669
                                                                                    -------               -------
                 Total liabilities and shareholders' equity ..............          $62,613               $56,672
                                                                                    =======               =======
    </TABLE>



                                       68
<PAGE>


                              Statements of Income

    <TABLE>
                                                                                          For the Year Ended December 31,
                                                                                      2002             2001             2000
                                                                                      ----             ----             ----
                                                                                              (dollars in thousands)

    <S>                                                                              <C>            <C>              <C>
    Dividend income ......................................................           $   -          $   824          $ 2,755
    Interest income ......................................................              34               25               71
    Interest expense .....................................................            (655)            (265)               -
                                                                                   -------          -------          -------
    Net interest and dividend income .....................................            (621)             584            2,826
    Noninterest income ...................................................               2                6                2
    Noninterest expense ..................................................            (101)            (154)            (451)
    Realized gains (losses) on available for sale securities .............               -              125              (50)
                                                                                   -------          -------          -------
    Income before income taxes and equity
      in undistributed net income of subsidiary ..........................            (720)             561            2,327
    Income tax benefit ...................................................             269               98              160
                                                                                   -------          -------          -------
    Income before equity in undistributed net income of subsidiary .......            (451)             659            2,487
    Equity in undistributed net income of subsidiary .....................           5,835            2,282               20
                                                                                   -------          -------          -------
    Net income ...........................................................         $ 5,384          $ 2,941          $ 2,507
                                                                                   =======          =======          =======
    </TABLE>
















                                       69
<PAGE>



                            Statements of Cash Flows
    <TABLE>
                                                                                                 For the Year Ended December 31,
                                                                                           2002              2001              2000
                                                                                           ----              ----              ----

                                                                                                  (dollars in thousands)


    Cash flows from operating activities:
    <S>                                                                                <C>               <C>               <C>
         Net income ..............................................................     $  5,384          $  2,941          $  2,507
         Adjustments to reconcile net income to net cash (used in)
           provided by operating activities:

            Undistributed earnings of subsidiary .................................       (5,835)           (2,282)              (20)
            Depreciation .........................................................            -                87                41
            Non-cash compensation ................................................            -                20                58
            Realized gains on available for sale securities ......................            -              (125)                -
         Changes in assets and liabilities:
            Other assets .........................................................         (378)             (110)              187
            Other liabilities ....................................................          162               (25)               28
                                                                                       --------          --------          --------
              Net cash (used in) provided by operating activities ................         (667)              506             2,801
                                                                                       --------          --------          --------

    Cash flows from investing activities:
         Cash paid related to investment in subsidiary ...........................       (1,607)           (7,000)                -
         Purchases - buildings and improvements ..................................            -                 -            (5,010)
         Proceeds from sale of available for sale securities .....................            -               173                 -
         Purchase of available for sale securities ...............................            -                 -               (98)
                                                                                       --------          --------          --------
              Net cash used in investing activities ..............................       (1,607)           (6,827)           (5,108)
                                                                                       --------          --------          --------
    Cash flows from financing activities:
         Proceeds from other borrowings ..........................................        1,000            10,000                 -
         Cash dividends ..........................................................       (1,221)           (1,219)           (1,226)
         Proceeds from exercise of stock options .................................          246               166               113
         Payment to repurchase common stock ......................................         (100)             (234)             (395)
                                                                                       --------          --------          --------
              Net cash (used in) provided by financing activities ................          (75)            8,713            (1,508)
    Net (decrease) increase in cash and cash equivalents .........................       (2,349)            2,392            (3,815)
    Cash and cash equivalents, beginning of year .................................        2,764               372             4,187
                                                                                       --------          --------          --------
    Cash and cash equivalents, end of year .......................................     $    415          $  2,764          $    372
                                                                                       ========          ========          ========
    </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.


                                       70
<PAGE>

           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
    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.

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

                                    PART III

    Except for the information  relating to the Company's executive officers and
    its key  employees,  the material  required by items 10 through 13 is hereby
    incorporated  by reference  from the Company's  definitive  proxy  statement
    pursuant to Instruction G of Form 10-K. The Company will file its definitive
    Proxy Statement with the Commission prior to April 30, 2003.



                                       71
<PAGE>

                             CONTROLS AND PROCEDURES

    Within  ninety  days prior to the  filing of the  Report on Form  10-K,  the
    Company, under the supervision and with the participation of its management,
    including its Chief Executive Officer and Chief Financial Officer, performed
    an evaluation of the Company's disclosure controls and procedures.  Based on
    that  evaluation,  the Chief Executive  Officer and Chief Financial  Officer
    concluded  that such  disclosure  controls and  procedures  are effective to
    ensure that  material  information  relating to the Company is made known to
    them, particularly during the period in which this Report is being prepared.
    No significant  changes have been made to the Company's  disclosure controls
    and procedures subsequent to the evaluation.


                                     PART IV

                        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).

         21       Subsidiaries of the Registrant.

         23       Consent of  PricewaterhouseCoopers  LLP, independent certified
                  public accountants.

         99.1     Chief Executive Officer certification  pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002.

         99.2     Chief Financial Officer certification  pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002.




    Report of Form 8-K:
    -------------------

        On October 23,  2002,  the  Company  filed a Form 8-K to report its 2002
    third quarter earnings.



                                       72
<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/ G. Thomas Frankland
                                                     -----------------------
                                                     G. Thomas Frankland
                                                     Executive Vice President
                                                     and Chief Financial Officer

                                              Date:  March 26, 2003

        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                                      March 26, 2003
       ---------------------
      Thomas R. Andrews            Director

       /s/ Audrey S. Bullard                                      March 26, 2003
       ---------------------
      Audrey S. Bullard            Director

       /s/ Raymon J. Land                                         March 26, 2003
       ------------------
      Raymon J. Land               Director

       /s/ Jon W. Pritchett                                       March 26, 2003
       --------------------
      Jon W. Pritchett             Director

       /s/ Marvin H. Pritchett                                    March 26, 2003
       -----------------------
      Marvin H. Pritchett          Director

       /s/ William J. Streicher                                   March 26, 2003
       ------------------------
      William J. Streicher         Director

       /s/ Halcyon E. Skinner                                     March 26, 2003
       ----------------------
      Halcyon E. Skinner           Director

       /s/ K. C. Trowell                                          March 26, 2003
       -----------------
      K. C. Trowell                Chairman, CEO & Director

       /s/ G. Thomas Frankland     Executive Vice President       March 26, 2003
       -----------------------     and Chief Financial Officer
      G. Thomas Frankland          (Principal Financial Officer)


       /s/ Martha S. Tucker                                       March 26, 2003
       --------------------        Controller
      Martha S. Tucker             (Principal Accounting Officer)



                                       73
<PAGE>


                                 CERTIFICATIONS


I, K. C. Trowell, certify that:

    1.  I have  reviewed  this  annual  report  on  Form  10-K  of  CNB  Florida
        Bancshares, Inc.

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

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

    4.  The  registrant's  other  certifying  officer and I are  responsible for
        establishing  and  maintaining  disclosure  controls and  procedures (as
        defined in exchange Act Rules 13a-14 and 15d-14) for the  registrant and
        we have;

        a)  designed  such  disclosure  controls and  procedures  to ensure that
            material  information  relating  to the  registrant,  including  its
            consolidated subsidiary,  is made known to us by others within those
            entities, particularly during the period in which this annual report
            is being prepared;

        b)  evaluated the effectiveness of the registrant's  disclosure controls
            and  procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

        c)  presented  in  this  annual   report  our   conclusions   about  the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

    5.  The registrant's other certifying officer and I have disclosed, based on
        our most recent evaluation,  to the registrant's  auditors and the audit
        committee of registrant's  board of directors (or persons performing the
        equivalent function):

        a)  All significant  deficiencies in the design or operation of internal
            controls which could adversely  affect the  registrant's  ability to
            record,  process,  summarize  and  report  financial  data  and have
            identified for the registrant's  auditors any material weaknesses in
            internal controls; and

        b)  any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal controls; and

    6.  The registrant's  other certifying  officer and I have indicated in this
        annual report whether or not there were significant  changes in internal
        controls or in other factors that could  significantly  affect  internal
        controls subsequent to the date of our most recent evaluation, including
        any  corrective  actions  with regard to  significant  deficiencies  and
        material weaknesses.

Date:  March 26, 2003
                                            /s/ K. C. Trowell
                                            ------------------------------------
                                            K. C. Trowell
                                            Chairman of the Board, President and
                                            Chief Executive Officer


                                       74
<PAGE>


I, G. Thomas Frankland, certify that:

    1.  I have  reviewed  this  annual  report  on  Form  10-K  of  CNB  Florida
        Bancshares, Inc.

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

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

    4.  The  registrant's  other  certifying  officer and I are  responsible for
        establishing  and  maintaining  disclosure  controls and  procedures (as
        defined in exchange Act Rules 13a-14 and 15d-14) for the  registrant and
        we have;

        a)  designed  such  disclosure  controls and  procedures  to ensure that
            material  information  relating  to the  registrant,  including  its
            consolidated subsidiary,  is made known to us by others within those
            entities, particularly during the period in which this annual report
            is being prepared;

        b)  evaluated the effectiveness of the registrant's  disclosure controls
            and  procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

        c)  presented  in  this  annual   report  our   conclusions   about  the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

    5.  The registrant's other certifying officer and I have disclosed, based on
        our most recent evaluation,  to the registrant's  auditors and the audit
        committee of registrant's  board of directors (or persons performing the
        equivalent function):

        a)  All significant  deficiencies in the design or operation of internal
            controls which could adversely  affect the  registrant's  ability to
            record,  process,  summarize  and  report  financial  data  and have
            identified for the registrant's  auditors any material weaknesses in
            internal controls; and

        b)  any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal controls; and

    6.  The registrant's  other certifying  officer and I have indicated in this
        annual report whether or not there were significant  changes in internal
        controls or in other factors that could  significantly  affect  internal
        controls subsequent to the date of our most recent evaluation, including
        any  corrective  actions  with regard to  significant  deficiencies  and
        material weaknesses.

Date:  March 26, 2003
                                                    /s/ G. Thomas Frankland
                                                    ----------------------------
                                                    G. Thomas Frankland
                                                    Executive Vice President and
                                                    Chief Financial Officer


                                       75