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FORM 10-Q

U.S. SECURITIES AND EXCANGE COMMISSION

WASHINGTON, D.C. 20549




---

QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED JUNE 30, 2003


1ST NATIONAL BANCSHARES, INC.

(exact name of registrant as specified in its charter)


|                                             |  |             |  |                   
|-------------------------------------------- |  | ----------- |  | ------------------
|Florida                                      |  | 333-60283   |  | 06-1522028        
|                                             |  |             |  |                   
|(Jurisdiction of Organization)               |  | Commission  |  | I.R.S. Employer   
|                                             |  | File Number |  | Identification No.
|                                             |  |             |  |                   
|5817 Manatee Avenue West, Bradenton, Florida |  |             |  | 34209             
|(Address of principal office)                |  |             |  | (Zip Code)        

Registrants telephone number, including area code: (941) 794-6969

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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 of the past 90 days.

Yes  [X]  No  [   ]

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.

|                                       |  |                                 
|-------------------------------------- |  | --------------------------------
|Common stock, par value $.10 per share |  | 1,896,979 shares                
|                                       |  |                                 
|(class)                                |  | Outstanding as of August 7, 2003





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TABLE OF CONTENTS



|                                      |                                                                                       |                                 |  |  |  |  |  | 
|------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION        
|                                      | Item 1. Financial Statements                                                         
|                                      |                                                                                       | Consolidated Balance Sheet     
|                                      |                                                                                       | Statement of Income (unaudited)
|                                      |                                                                                       | STATEMENTS OF CASH FLOWS       
|                                      | Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                      | Quantitative and Qualitative Disclosure About Market Risk                            
|Part II. Other Information           
|                                      | Item 1: Legal Proceedings Against the Bank - None.                                   
|                                      | Item 2: Changes in Securities and Use of Proceeds - None                             
|                                      | Item 3: Defaults under Senior Securities - None                                      
|                                      | Item 4: Submission of Matters to a vote of Security Holders - None                   
|                                      | Item 5: Other Information - None                                                     
|                                      | Item 6: Exhibits and Reports on Form 8-K                                             
|Ex-31.1 Section 302 CEO Certification
|Ex-31.2 Section 302 CFO Certification
|Ex-32.1 Section 906 CEO Certification
|Ex-32.2 Section 906 CFO Certification



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FIRST NATIONAL BANK OF MANATEE
Index to Form 10-Q
For the quarter Ended June 30, 2003

|                              |         |                                                                                                          |                                                                                       |  |    |    |      |  | 
|----------------------------- | ------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- |  | -- | -- | ---- |  | 
|                              |         |                                                                                                          |                                                                                       |  |    |    | Page
|PART I. FINANCIAL INFORMATION |         |                                                                                                          |                                                                                       |  |   
|                              | Item 1. |                                                                                                          | Financial Statements                                                                  |  |    |    |     
|                              |         | Condensed Consolidated Balance Sheets, June 30, 2003 and December 31, 2002                               |                                                                                       |  | 1  |   
|                              |         | Condensed Consolidated Statements of Income for the three and six months ended June 30, 2003 and 2002    |                                                                                       |  | 3  |   
|                              |         | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and June 30, 2002 |                                                                                       |  | 4  |   
|                              | Item 2. |                                                                                                          | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |    | 6  |     
|                              | Item 3. |                                                                                                          | Quantitative and Qualitative Disclosure About Market Risk                             |  |    | 10 |     
|PART II. OTHER INFORMATION.   |         |                                                                                                          |                                                                                       |  |   
|                              | Item 1. |                                                                                                          | Legal Proceedings                                                                     |  |    | 12 |     
|                              | Item 2. |                                                                                                          | Changes in Securities and Use of Proceeds                                             |  |    | 12 |     
|                              | Item 3. |                                                                                                          | Defaults under Senior Securities                                                      |  |    | 12 |     
|                              | Item 4. |                                                                                                          | Submission of Matters to a vote of Security Holders                                   |  |    | 12 |     
|                              | Item 5. |                                                                                                          | Other Information.                                                                    |  |    | 12 |     
|                              | Item 6. |                                                                                                          | Exhibits and Reports on Form 8-K                                                      |  |    | 12 |     
|SIGNATURES                    |         |                                                                                                          |                                                                                       |  | 13 |   





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PART I. FINANCIAL INFORMATION




Item 1. Financial Statements

FIRST NATIONAL BANCSHARES, INC.
Consolidated Balance Sheet




Assets (000s)

|                                 |  |             |         |             |  |  |         | 
|-------------------------------- |  | ----------- | ------- | ----------- |  |  | ------- | 
|                                 |  | June 30     |         | December 31
|                                 |  |             |         |            
|                                 |  | 2003        |         | 2002       
|                                 |  |             |         |            
|                                 |  | (Unaudited) |         | **         
|Cash and Due from Banks          |  |             | 7,745   |             |  |  | 7,995   | 
|Int. Bearing Bank Balances       |  |             | 463     |             |  |  | 5,454   | 
|Fed Funds Sold                   |  |             | 0       |             |  |  | 0       | 
|Investment Securities            |  |             | 48,935  |             |  |  | 40,817  | 
|Unrecognized Security Gains      |  |             | 941     |             |  |  | 963     | 
|Loans                            |  |             | 165,899 |             |  |  | 158,530 | 
|Less Allowance for Credit Losses |  |             | -1,726  |             |  |  | -1,704  | 
|Deferred Loan Fees (earned)      |  |             | -283    |             |  |  | -235    | 
|Premises and Equipment, Net      |  |             | 7,782   |             |  |  | 8,039   | 
|Accrued Interest Receivable      |  |             | 889     |             |  |  | 975     | 
|Deferred Income Tax Charges      |  |             | 0       |             |  |  | 0       | 
|Other R. E. & Assets Owned       |  |             | 34      |             |  |  | 16      | 
|Other Assets                     |  |             | 1,709   |             |  |  | 1,311   | 
|Total Assets                     |  |             | 232,388 |             |  |  | 222,161 | 

** Condensed from audited financial





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Liabilities and Stockholders Equity (000s)

|                                                    |  |         |         |             |  |  |         | 
|--------------------------------------------------- |  | ------- | ------- | ----------- |  |  | ------- | 
|                                                    |  | June 30 |         | December 31
|                                                    |  |         |         |            
|                                                    |  | 2003    |         | 2002       
|                                                    |  |         |         |            
|Deposits                                            |  |         |         |             |  |  |         | 
|Demand, non-interest bearing                        |  |         | 30,356  |             |  |  | 23,958  | 
|Demand, interest bearing                            |  |         | 32,519  |             |  |  | 31,735  | 
|Time (CDs, MMs, & Savings Accounts)               |  |         | 123,649 |             |  |  | 124,818 | 
|TOTAL DEPOSITS                                      |  |         | 186,524 |             |  |  | 180,511 | 
|Repurchase Agreements                               |  |         | 18,382  |             |  |  | 15,811  | 
|Accrued Interest Payable                            |  |         | 836     |             |  |  | 722     | 
|Accounts Payable and Other Liabilities              |  |         | 1,124   |             |  |  | 621     | 
|Fed Funds Purchased and Other Short
Term Borrowings |  |         | 4,000   |             |  |  | 4,500   | 
|TOTAL LIABILITIES                                   |  |         | 210,866 |             |  |  | 202,165 | 
|Stockholders Equity                                |  |         |         |             |  |  |         | 
|Common Stock, par value $.10 per share;             |  |         |         |             |  |  |         | 
|Authorized 2,500,000 shares;                        |  |         |         |             |  |  |         | 
|Issued and Outstanding, 1,892,993                   |  |         | 190     |             |  |  | 185     | 
|Capital Surplus                                     |  |         | 14,160  |             |  |  | 13,888  | 
|Unrecognized Gains & Losses                         |  |         | 629     |             |  |  | 601     | 
|Retained Earnings                                   |  |         | 6,543   |             |  |  | 5,322   | 
|Net Stockholders Equity                            |  |         | 21,522  |             |  |  | 19,996  | 
|Total Liabilities and Stockholders Equity          |  |         | 232,388 |             |  |  | 222,161 | 





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FIRST NATIONAL BANCSHARES, INC




Statement of Income (unaudited)
For the Period January 1 through June 30 (000s)

|                                                |  |          |       |          |  |          |       |          |  |  |       |  |  |  |       | 
|----------------------------------------------- |  | -------- | ----- | -------- |  | -------- | ----- | -------- |  |  | ----- |  |  |  | ----- | 
|                                                |  | 6 months |       | 6 months |  | 3 months |       | 3 months
|                                                |  | 2003     |       | 2002     |  | 2003     |       | 2002    
|                                                |  |          |       |          |  |          |       |         
|Interest Income:                                |  |          |       |          |  |          |       |          |  |  |       |  |  |  |       | 
|Interest Bearing Bank Balances                  |  |          | 72    |          |  |          | 36    |          |  |  | 36    |  |  |  | 7     | 
|Fed Funds Sold                                  |  |          | 0     |          |  |          | 0     |          |  |  | 0     |  |  |  | 0     | 
|Investment Securities:                          |  |          |       |          |  |          |       |          |  |  |       |  |  |  |       | 
|Taxable                                         |  |          | 618   |          |  |          | 834   |          |  |  | 320   |  |  |  | 423   | 
|Exempt from Federal Taxes                       |  |          | 186   |          |  |          | 185   |          |  |  | 94    |  |  |  | 92    | 
|Loan Interest                                   |  |          | 5,197 |          |  |          | 5393  |          |  |  | 2,566 |  |  |  | 2,728 | 
|Loan Fees                                       |  |          | 131   |          |  |          | 81    |          |  |  | 86    |  |  |  | 52    | 
|Total Interest Income                           |  |          | 6,204 |          |  |          | 6,529 |          |  |  | 3,102 |  |  |  | 3,302 | 
|Interest Expense                                |  |          | 1,558 |          |  |          | 1,937 |          |  |  | 768   |  |  |  | 951   | 
|Net Interest Income                             |  |          | 4,646 |          |  |          | 4,592 |          |  |  | 2,334 |  |  |  | 2,351 | 
|Provision for Credit Losses                     |  |          | 64    |          |  |          | 189   |          |  |  | 18    |  |  |  | 89    | 
|Net Interest Income After
Credit Loss Provision |  |          | 4,582 |          |  |          | 4,403 |          |  |  | 2,316 |  |  |  | 2,262 | 
|Other Operating Income:                         |  |          |       |          |  |          |       |          |  |  |       |  |  |  |       | 
|Service Charges on Accounts                     |  |          | 232   |          |  |          | 239   |          |  |  | 109   |  |  |  | 123   | 
|Investment Security Gains                       |  |          | 83    |          |  |          | 0     |          |  |  | 29    |  |  |  | 0     | 
|Trust Fees & Investment Sales
Commissions       |  |          | 449   |          |  |          | 419   |          |  |  | 245   |  |  |  | 214   | 
|Other Income                                    |  |          | 247   |          |  |          | 184   |          |  |  | 127   |  |  |  | 98    | 
|Total Other Operating Income                    |  |          | 1,011 |          |  |          | 842   |          |  |  | 510   |  |  |  | 435   | 
|Other Operating Expenses:                       |  |          |       |          |  |          |       |          |  |  |       |  |  |  |       | 
|Salaries & Employee Benefits                    |  |          | 2,235 |          |  |          | 2,010 |          |  |  | 1,143 |  |  |  | 1,038 | 
|Occupancy & FF&E                                |  |          | 595   |          |  |          | 557   |          |  |  | 309   |  |  |  | 280   | 
|Other Expenses                                  |  |          | 897   |          |  |          | 744   |          |  |  | 468   |  |  |  | 366   | 
|Total Other Operating Expenses                  |  |          | 3,727 |          |  |          | 3,311 |          |  |  | 1,920 |  |  |  | 1,684 | 
|Profit Before Tax                               |  |          | 1,866 |          |  |          | 1,934 |          |  |  | 907   |  |  |  | 1,013 | 
|Estimated State and Federal
Income Taxes        |  |          | 645   |          |  |          | 671   |          |  |  | 308   |  |  |  | 354   | 
|Profit After Tax                                |  |          | 1,221 |          |  |          | 1,263 |          |  |  | 598   |  |  |  | 659   | 
|Earnings per Share                              |  |          | 0.64  |          |  |          | 0.69  |          |  |  | 0.32  |  |  |  | 0.38  | 
|Earnings per Share fully
diluted                |  |          | 0.60  |          |  |          | 0.63  |          |  |  | 0.30  |  |  |  | 0.34  | 





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COMPREHENSIVE INCOME
(unaudited) (000s)
For the Period January 1 through June 30

Under FASB Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, the Company is required to report a measure of all
changes in equity, not only reflecting net income but certain other changes as
well. At September 30, 2002 and 2001, comprehensive income was as follows:

|                                         |  |          |       |          |  |          |       |          |  |  |     |  |  |  |       | 
|---------------------------------------- |  | -------- | ----- | -------- |  | -------- | ----- | -------- |  |  | --- |  |  |  | ----- | 
|                                         |  | 6 months |       | 6 months |  | 3 months |       | 3 months
|                                         |  | 2003     |       | 2002     |  | 2003     |       | 2002    
|                                         |  |          |       |          |  |          |       |         
|Profit After Tax                         |  |          | 1,221 |          |  |          | 1,263 |          |  |  | 598 |  |  |  | 659   | 
|Unrealized
Securities Gains
Net of Taxes |  |          | 28    |          |  |          | 364   |          |  |  | 92  |  |  |  | 352   | 
|                                         |  |          |       |          |  |          |       |          |  |  |     |  |  |  |       | 
|Comprehensive Income                     |  |          | 1,249 |          |  |          | 1,627 |          |  |  | 690 |  |  |  | 1,011 | 





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STATEMENTS OF CASH FLOWS
(unaudited) (000s)
For the Period January 1 through June 30 (000s)

|                                                                              |  |      |         |      |  |   |         | 
|----------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                                              |  | 2003 |         | 2002
|                                                                              |  |      |         |     
|Operating activities                                                          |  |      |         |      |  |   |         | 
|Net Income                                                                    |  |      | 1,221   |      |  |   | 1,263   | 
|Adjustments to reconcile net income to
cash provided by operating activities: |  |      |         |      |  |   |         | 
|Depreciation & leasehold amortization                                         |  |      | 257     |      |  |   | 271     | 
|Allowance for loan losses (net of charge offs)                                |  |      | 22      |      |  |   | 119     | 
|Decrease (increase) in accrued interest receivable                            |  |      | 86      |      |  |   | -28     | 
|Increase (decrease) in accrued interest payable                               |  |      | 114     |      |  |   | -102    | 
|Increase (decrease) in accounts payable and other liabilities                 |  |      | 503     |      |  |   | -1      | 
|Decrease (increase) in other assets                                           |  |      | -300    |      |  |   | 1,288   | 
|                                                                              |  |      |         |      |  |   |         | 
|Net cash provided by operating activities                                     |  |      | 1,903   |      |  |   | 2,810   | 
|Investing activities                                                          |  |      |         |      |  |   |         | 
|Proceeds from sales and maturities of
Investment securities net of purchases  |  |      | -8,118  |      |  |   | -2,036  | 
|Loans originated, net of principal collections                                |  |      | -7,369  |      |  |   | -13,568 | 
|Capital expenditures                                                          |  |      | 0       |      |  |   | -2,476  | 
|Proceeds from sale of other R. E. and assets owned                            |  |      | -18     |      |  |   | 629     | 
|Increase (decrease) in overnight funds purchased                              |  |      | 0       |      |  |   | 3,750   | 
|Decrease (increase) in federal funds and overnight funds sold                 |  |      | 4,991   |      |  |   | 0       | 
|                                                                              |  |      |         |      |  |   |         | 
|Net cash provided (used) by investing activities                              |  |      | -10,514 |      |  |   | -13,701 | 
|Financing activities                                                          |  |      |         |      |  |   |         | 
|Net increase (decrease) in demand deposits                                    |  |      | 7,182   |      |  |   | -2,686  | 
|Net increase (decrease) time deposits                                         |  |      | -1,169  |      |  |   | -10,899 | 
|Increase (decrease) in term borrowings                                        |  |      | -500    |      |  |   | 4,586   | 
|Increase (decrease) in securities sold under
agreements to repurchase         |  |      | 2,571   |      |  |   | 3,939   | 
|Dividends paid                                                                |  |      | 0       |      |  |   | 0       | 
|Proceeds from issuance of common stock                                        |  |      | 277     |      |  |   | 12      | 
|Retirement of common stock                                                    |  |      | 0       |      |  |   | 0       | 
|                                                                              |  |      |         |      |  |   |         | 
|Net cash (used) provided by financing activities                              |  |      | 8,361   |      |  |   | -5,048  | 
|Net increase in cash and due from banks                                       |  |      | -250    |      |  |   | -15,939 | 
|Cash and due from banks at beginning of year                                  |  |      | 7,995   |      |  |   | 20,967  | 
|Cash and due from banks at end of quarter                                     |  | $    | 7,745   |      |  | $ | 5,028   | 
|Schedule of non-cash investing activities                                     |  |      |         |      |  |   |         | 
|Loans transferred to other real estate owned                                  |  | $    | 0       |      |  | $ | 0       | 





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NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1 - Basis of Financial Reporting

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with instructions to Form 10-Q and do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all normal and recurring adjustments necessary for fair presentation of such
financial statements have been included. For further information, refer to the
consolidated financial statements and the notes thereto included in the Banks
annual report on Form 10-K for the year ended December 31, 2002.

Results for the six month period ended June 30, 2003, may not necessarily be
indicative of those to be expected for the entire year.





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Managements Discussion and Analysis of Financial Condition and Results of Operations.

Overview.

1st National Bank & Trust (formerly First National Bank of Manatee) (the
Bank) commenced operations on July 18, 1986. The Banks activities since
inception have consisted of accepting deposits, originating a variety of loans.
The Banks first branch was opened on Anna Maria Island (5 miles west of the
main office) in October, 1994. The Bank has periodically opened additional
branches in Manatee County and now has five full service locations. The bank
also opened a Trust Department in March of 1995. Earlier this year, the Bank
also opened a loan production office in downtown Sarasota. The Bank, as a
local independent bank, follows a philosophy of developing its equity and
deposit base and focusing its lending activities within its community. The
Banks underlying lending policy has been and is anticipated to continue being
directed toward better-than-normal credit risks.

On January 1, 1999 the Bank was merged into First National Bancshares,
Inc., a Florida corporation (the Holding Company). The Holding Company was
formed specifically for the purpose of having the Bank merged into it. The
Holding Company is now a one bank holding company with no other subsidiaries
than the Bank. Therefore, there are no significant adjustments from the
financial information of the Bank to the consolidated financial information for
the Holding Company.

The following discussion and analysis is based on the Holding Companys
financial condition and results of operations for the period from January 1,
2003 through June 30, 2003. This discussion and analysis should be read in
conjunction with the financial statement summaries of the Holding Company,
included elsewhere in this quarterly report.

Results of Operations.

Earnings in the first half of 2003 were down $42,000 or 3% compared to
earnings in the same period last year as direct result of operating expenses
rising faster than net interest income. This is directly related to increased
staffing in the loan production area in an effort to grow the loan portfolio
going forward. As a result, operating expenses increased by $416,000 with
about half of that coming from increased employee expenses. The Banks
contribution of $64,000 to loan loss reserve was $125,000 lower than last year
and due to slower loan growth.

Second quarter earnings mirrored the year to date earnings, with 2003
quarterly earnings at $598,000 compared to $659,000 in the second quarter of
2002. Operating expenses increased $236,000 in the second quarter of 2003 when
compared to 2002. Again, the major component of this was increased salary
expense in the loan production area.

Net Interest Income. The major component of the Banks earning capacity is net
interest income, which represents the difference or spread between interest
income on earning assets and interest bearing liabilities, primarily deposits.
The spread is considered positive when rate-sensitive assets exceed
rate-sensitive liabilities, and negative when rate-sensitive liabilities exceed
rate sensitive
assets. Net interest income is also affected by changes in interest rates
earned and paid, and by changes in the





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volume of interest-earning assets and
interest-bearing liabilities. To the extent possible, the Bank follows a
strategy intended to insulate the Banks interest rate spread from adverse
changes in interest rates by maintaining spreads through the adjustability of
its earning assets and interest-bearing liabilities. On June 30, 2003, the
Banks loan portfolio had a high ratio of repriceability within one year.

The Bank had modest growth in its loan portfolio outstandings when
compared to last year. This contributed to in increased net interest income.
Falling interest rates and widening margins in the second half of 2002 and
early 2003 also contributed to increased net interest margins. Net interest
income for six months in 2003 was up by $54,000 compared to 2002 while second
quarter net interest income in 2003 was down by $17,000 when compared
to 2002.

Interest Earning Assets. Real estate related loans at June 30, 2003,
accounted for a majority of the banks loan portfolio. Most of the mortgages
are variable rate loans and are adjustable each one to five years. Thus,
volatile interest rates can result in the real estate loans lagging market
conditions. In 2000, rates were initially stable but began to fall in the
second half of the year and this drop in rates continued into 2001 and leveled
off there. This interest rate decline allowed the Bank to significantly
reprice its deposits and widen its margins. Rates continued to fall in 2002
and the first quarter of 2003. The bank maintained its margins during the
first quarter but saw some narrowing of margins in the second quarter as rates
leveled out and loan repricing began to catch up with the faster deposit
repricing.

The Banks investment portfolio is concentrated primarily in U.S.
Government agencies and corporations. About 13% of the Banks investment
portfolio re-prices in one year. The Banks Available-for-Sale portfolio has a
market value of about $941,000 greater than book value.

Non-interest Earning Assets. Non-interest earning assets accounted for 7% of
total assets on June 30, 2003, and primarily consisted of cash and due from
banks, equipment and branches, and accrued interest receivable.

Funding Sources. The primary source of funds for the Banks lending and
investment activities is deposits. At June 30, 2003 the Banks total deposits
were $186.5 million plus $18.4 million in repurchase agreements. The Banks
deposits are highly concentrated in interest-bearing accounts, which is typical
for the Banks market area. The Bank has 17% of its deposits in NOW Accounts
and 66% of its deposits in Savings, MMAs and CD deposits. Despite a high
concentration of certificates of deposit, the Bank does not anticipate the
maturity of such certificates to affect the Banks liquidity, as management
believes that the high concentration was primarily due to customer
relationships and not higher than market rates. The Bank is not in the
practice of paying above market rates on deposits.

Non-interest Income. The Banks non-interest income for the six month period
ended June 30, 2003 was $1,011,000 including $449,000 from its Trust Department
and Investment Sales areas.
These are up from $842,000 and $419,000 last year. For the second quarter,
non-interest income was
$510,000, up from $435,000 last year.





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Periodic security transactions generate investment gains or losses and are
primarily a result of tax management considerations and liquidity requirements.
The bank had no security gains in the first half or 2002 but had $83,000 in
gains in the first half of 2003 of which $29,000 occurred in the second
quarter.

The other significant items of non-interest income represented service
charges on deposit accounts and merchant credit card account income.

Non-interest Expense. The Banks non-interest expense for the six month period
ended June 30, 2003 was $3,727,000 including $2,235,000 of salaries and
employee benefits. The Banks occupancy and equipment expenses for the period
ended June 30, 2003 were $595,000. Non-interest expense was up from $3,311,000
in 2002. The increase in expense is primarily due to growth in the loan
production area of the bank. Non-interest expense was also up proportionally
in the second quarter rising from $1,684,000 in 2002 to $1,920,000 in 2003.

Allowance for Credit Losses. The allowance for credit losses is established
through a provision for credit losses charged to expenses. Loans are charged
against the allowance for credit losses when management believes that the
collectability of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb losses inherent in existing
loans and commitments to extend credit based on evaluations of the
collectability and prior loan loss experience of loans and commitments to
extend credit. The evaluations take into consideration such factors as changes
in the nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions that may
affect the borrowers ability to pay.

An allowance for loan loss expense of $64,000 was charged to operating
expenses for the six month period ended June 30, 2003. The Bank had net charge
offs during this period of $42,000. This compares to an expense of $189,000 in
2002 after net charge-offs of $65,000. The Bank has a total of $1,726,000
reserved for future loan losses.

Loans on which the accrual of interest has been discontinued are
designated as non-accrual loans. Accrual of interest on loans is discontinued
either when reasonable doubt exists as to the full, timely collection of
interest or when a loan becomes contractually past due by 90 days or more with
respect to interest or principal. When a loan is placed on non-accrual status,
all interest previously accrued but not collected is reversed against current
period interest income unless it is adequately secured. Income on such loans
is then recognized only to the extent that cash is received and the future
collection of principal is probable. Interest accruals are resumed on such
loans only when they are brought fully current with respect to interest and
principal and when in the judgment of management, the loans are estimated to be
fully collectible as to both principal and interest. The bank had two
residential real estate loans on non-accrual at June 30, 2003 totaling $68,000.
Where appropriate, the Bank makes specific reserves for future losses on
non-performing loans. The Bank has no specific reserves established at June
30, 2003.

The bank
also had no other real estate owned at June 30, 2003.





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Capital Resources. In the normal course of business, the capital position of
the Bank is reviewed by management and regulatory authorities. The Comptroller
of the Currency has specified guidelines for purposes of evaluating a banks
capital adequacy. Currently, banks must maintain a minimum primary capital
ratio of capital-to-assets of 4%. Primary capital includes the Banks
stockholders equity, subordinated debt, and the allowance for credit losses.
At June 30, 2003, the Banks Tier 1 Capital Leverage Ratio was approximately
8.95%. In 1991, the Comptroller began evaluating banks capital on a risk
basis i.e. more capital will be required for commercial loans than for
residential real estate loan and even less will be required for government
bonds. The Comptroller will require a minimum of an 8% capital ratio under
this risk based method. Currently the Bank has a Tier 1 Risk- Based Capital
Ratio of 12.15 %.

Liquidity. Management of the Bank continually evaluates its liquidity
position. Management believes that the Banks investment portfolio, when
combined with interest bearing bank balances and Fed Funds sold, provides
adequate liquidity to meet the Banks needs. As noted in Funding Sources
above, management believes that the high concentration of time deposits is
primarily due to customer relationships and not to higher-than-market rates
and, thus, do not present any unusual liquidity risk. In addition, the bank has
established borrowing lines with correspondent banks, and with the Federal Home
Loan Bank to cover liquidity needs.

Impact of Inflation and Changing Prices. Unlike most industrial companies,
virtually all of the Banks assets and liabilities are monetary in nature. As
a result, interest rates have a more significant impact on the Banks
performance than do the effects of inflation. Interest rates do not
necessarily move in the same direction or with the same magnitude as the prices
of goods and services, since such prices are affected by inflation. In the
current interest rate environment, liquidity and the maturity structure of a
financial institutions assets and liabilities are also critical to maintaining
an acceptable performance level.





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Quantitative and Qualitative Disclosure About Market Risk

The Bank periodically performs asset/liability analysis to assess the
Banks sensitivity to changing market conditions. The primary function of
asset/liability management is to assure adequate liquidity and maintain an
appropriate balance between interest-sensitive earning assets and
interest-bearing liabilities. Liquidity management involves the ability to meet
the cash flow requirements of customers who may be either depositors wanting to
withdraw funds or borrowers needing assurance that sufficient funds will be
available to meet their credit needs. Interest rate sensitivity management
seeks to avoid fluctuating net interest margins and to enhance consistent
growth of net interest income through periods of changing interest rates.

Marketable investment securities, particularly those of shorter
maturities, are a principal source of asset liquidity. Securities maturing,
expected to be called, and amortization within one year or less amounted to
$12,706,000 at June 30, 2003 representing 27% of the investment securities
portfolio.

The Bank moderates its liquidity needs by maintaining short term borrowing
lines with several regional banks. At June 30, 2003, the Bank had lines of
credit established with other banking institutions totaling $36,000,000 of
which $32,000,000 was unused.

Brokered deposits are deposit instruments, such as certificates of
deposit, bank investment contracts and certain municipal investment contracts
that are issued through brokers who then offer and/or sell these deposit
instruments to one or more investors. The Bank does not currently purchase or
sell brokered deposits.

Maturities of time certificates of deposit of $100,000 or more,
outstanding at June 30, 2003, are summarized as follows:

|                          |  |                        |        | 
|------------------------- |  | ---------------------- | ------ | 
|                          |  | (thousands of dollars)
|3 months or less          |  | $                      | 2,765  | 
|Over 3 through 12 months  |  |                        | 13,030 | 
|Over 12 through 36 months |  |                        | 2,341  | 
|Over 36 months            |  |                        | 862    | 
|                          |  |                        |        | 
|Total                     |  | $                      | 18,998 | 

Interest rate sensitivity varies with different types of interest earning
assets and interest-bearing liabilities. Overnight federal funds, on which
rates change daily, and loans, which are tied to the prime rate, differ
considerably from long-term investment securities and fixed-rate loans.
Similarly, time deposits over $100,000 and money market accounts are much more
interest rate sensitive than passbook savings accounts. The shorter term
interest rate sensitivities are key to measuring the interest sensitivity gap,
or excess interest-sensitive earning assets over interest-bearing liabilities.

The following table shows the interest sensitivity gaps for four different
time intervals as of March 31, 2003. For the first year, interest-sensitive
assets exceed liabilities by $16,885,000. Over the following two years,
liabilities re-price faster than assets. The excess of interest-bearing
liabilities over interest-earning assets for the one-to-three year period is
primarily related to the longer maturities of CDs and NOW and MMA accounts
that are regarded as much less rate sensitive.

Table of Contents

|                               |  |                        |        |        |  |       |        |        |  |   |         |   |  |   |        | 
|------------------------------ |  | ---------------------- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------- | - |  | - | ------ | 
|                               |  | As of March 31        
|                               |  | (thousands of dollars)
|                               |  | 0-90                   |        | 91-365 |  | 1-3   |        | Over 3
|                               |  | Days                   |        | Days   |  | Years |        | Years 
|                               |  |                        |        |        |  |       |        |       
|Interest-sensitive assets      |  | $                      | 58,275 |        |  | $     | 64,351 |        |  | $ | 54,469  |   |  | $ | 12,076 | 
|Interest-sensitive liabilities |  |                        | 41,390 |        |  |       | 55,881 |        |  |   | 76,531  |   |  |   | 0      | 
|                               |  |                        |        |        |  |       |        |        |  |   |         |   |  |   |        | 
|Interest sensitivity gap       |  |                        | 16,885 |        |  |       | 8,470  |        |  |   | (22,062 | ) |  |   | 12,076 | 
|Cumulative gap                 |  | $                      | 16,885 |        |  | $     | 25,355 |        |  | $ | 3,293   |   |  | $ | 15,369 | 

The primary interest sensitive assets and liabilities in the one-year
maturity range are loans and time deposits. Trying to minimize this gap while
maintaining earnings is a continual challenge in a changing interest rate
environment and one of the objectives of the Banks asset/liability management
strategy.





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##### Table of Contents






Part II. Other Information




Item 1: Legal Proceedings Against the Bank - None.




Item 2: Changes in Securities and Use of Proceeds - None




Items 3: Defaults under Senior Securities - None




Item 4: Submission of Matters to a vote of Security Holders - None.




Item 5: Other Information - None




Item 6: Exhibits and Reports on Form 8-K

The Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Companys Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures as of
June 30, 2003, pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures were effective as of June
30, 2003, in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in
the Companys periodic SEC filings.

There was no change in the Companys internal control over financial reporting
that occurred during the Companys fiscal quarter ended June 30, 2003, that has
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

Exhibits



| | a) |  | Plan of acquisition, reorganization, arrangement,
liquidation, or succession. - None
| | -- |  | ------------------------------------------------------------------------------------
|
| | b) |  | Articles of incorporation and by-laws.                                              



| |  | 1) |  | A copy of the Amended and Restated
Articles of Incorporation of the Registrant is included
as Exhibit 3.A to the Registration Statement.
| |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 2) |  | A copy of the Bylaws of the
Registrant is included as Exhibit 3.B to this
Registration Statement.                                       



| | c) |  | Instruments defining the rights of securities
holders, including indentures.
| | -- |  | ----------------------------------------------------------------------------
|
| |    |  | None                                                                        
|
| | d) |  | Published report regarding matters submitted to
vote of security holders.   
|
| |    |  | None                                                                        



|31.1 |  | Section 302 Certification of CEO                                                                                              
|---- |  | ------------------------------------------------------------------------------------------------------------------------------
|    
|31.2 |  | Section 302 Certification of CFO                                                                                              
|    
|32.1 |  | Certification of CEO pursuant to 18 U.S.C. section 1350, as enacted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.





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##### Table of Contents





|32.2 |  | Certification of CFO pursuant to 18 U.S.C. section 1350, as enacted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------

|                |  |                                
|--------------- |  | -------------------------------
|                |  | FIRST NATIONAL BANCSHARES, INC.
|                |  |                                
|August 11, 2003 |  | /s/ Glen W. Fausset            
|                |  |                                
|                |  | Glen W. Fausset                
|                |  | President and Director