##### Table of Contents



FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



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QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2002

FIRST NATIONAL BANCSHARES, INC.
(exact name of registrant as specified in its charter)

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

Registrants telephone number, including area code: (813) 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 |  | 1,750,566 shares                
|                                       |  |                                 
|(class)                                |  | Outstanding as of April 24, 2002





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TABLE OF CONTENTS



|                              |                                                                                        |                            |  |  |  |  |  | 
|----------------------------- | -------------------------------------------------------------------------------------- | -------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                          
|                              |                                                                                        | Consolidated Balance Sheet
|                              |                                                                                        | Statement of Income       
|                              |                                                                                        | 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                                            
|                              | Item 2: Changes in Securities and Use of Proceeds                                     
|                              | Items 3: Defaults under Senior Securities                                             
|                              | Item 4: Submission of Matters to a vote of Security Holders                           
|                              | Item 5: Other Information                                                             
|                              | Item 6: Exhibits and Reports on Form 8-K                                              



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##### Table of Contents



FIRST NATIONAL BANK OF MANATEE
Index to Form 10-Q
For the quarter Ended March 31, 2002

|                                 |  |         |  |                                                            |    |                                               |    |  |   |      |  | 
|-------------------------------- |  | ------- |  | ---------------------------------------------------------- | -- | --------------------------------------------- | -- |  | - | ---- |  | 
|                                 |  |         |  |                                                            |    |                                               |    |  |   | Page
|PART I.    FINANCIAL INFORMATION |  |         |  |                                                            |    |                                              
|                                 |  |         |  |                                                            |    |                                               |    |  |   |      |  | 
|                                 |  | Item 1. |  | Financial Statements                                       |    |                                               |    | 
|                                 |  |         |  |                                                            |    |                                               |    |  |   |      |  | 
|                                 |  |         |  |                                                            |    | Condensed Consolidated Balance Sheets,        |    |  |   |     
|                                 |  |         |  |                                                            |    | March 31, 2002 and December 31, 2001          |    |  | 1 |     
|                                 |  |         |  |                                                            |    |                                               |    |  |   |      |  | 
|                                 |  |         |  |                                                            |    | Condensed Consolidated Statements             |    |  |   |     
|                                 |  |         |  |                                                            |    | of Income for the three months ended          |    |  |   |     
|                                 |  |         |  |                                                            |    | March 31, 2002 and 2001                       |    |  | 3 |     
|                                 |  |         |  |                                                            |    |                                               |    |  |   |      |  | 
|                                 |  |         |  |                                                            |    | Condensed Consolidated Statements of          |    |  |   |     
|                                 |  |         |  |                                                            |    | Cash Flows for the three months ended         |    |  |   |     
|                                 |  |         |  |                                                            |    | March 31, 2002 and March 31, 2001             |    |  | 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                       |  |         |  |                                                            | 12 |                                              





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##### Table of Contents






PART I.    FINANCIAL INFORMATION




Item 1.   Financial Statements

FIRST NATIONAL BANCSHARES, INC.




Consolidated Balance Sheet


Assets (000s)

|                                  |  |             |         |             |  |   |         |  
|--------------------------------- |  | ----------- | ------- | ----------- |  | - | ------- | -
|                                  |  | March 31    |         | December 31
|                                  |  | 2002        |         | 2001       
|                                  |  |             |         |            
|                                  |  | (Unaudited) |         | **         
|Cash and Due from Banks           |  |             | 5,487   |             |  |   | 8,094   |  
|Interest Bearing Bank Balances    |  |             | 2,302   |             |  |   | 12,873  |  
|Federal Funds Sold                |  |             | 0       |             |  |   | 0       |  
|Investment Securities,            |  |             | 40,702  |             |  |   | 37,477  |  
|Unrecognized securities gains     |  |             | 446     |             |  |   | 426     |  
|Loans                             |  |             | 150,383 |             |  |   | 145,945 |  
|Less allowance for credit losses  |  |             | (1,632  | )           |  |   | (1,551  | )
|Deferred Loan Fees (earned)       |  |             | (147    | )           |  |   | (91     | )
|Premises and Equip, Net           |  |             | 8,215   |             |  |   | 5,872   |  
|Accrued Interest Rec.             |  |             | 973     |             |  |   | 1,010   |  
|Other Assets                      |  |             | 794     |             |  |   | 1,732   |  
|Deferred Income Tax Charges       |  |             | 83      |             |  |   | 90      |  
|Other R.E. and other assets owned |  |             | 324     |             |  |   | 593     |  
|                                  |  |             |         |             |  |   |         |  
|Total Assets                      |  | $           | 207,929 |             |  | $ | 212,471 |  
|                                  |  |             |         |             |  |   |         |  





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Liabilities and Stockholders Equity

|                                                    |          |                                         |                          |                                       |     |          |         |             |     |        |         | 
|--------------------------------------------------- | -------- | --------------------------------------- | ------------------------ | ------------------------------------- | --- | -------- | ------- | ----------- | --- | ------ | ------- | 
|                                                    |          |                                         |                          |                                       |     | March 31 |         | December 31
|                                                    |          |                                         |                          |                                       |     | 2002     |         | 2001       
|                                                    |          |                                         |                          |                                       |     |          |         |            
|Liabilities                                         |          |                                         |                          |                                       |     |          |         |            
|                                                    | Deposits |                                         |                          |                                       |     |          |         |             |    
|                                                    |          |                                         |                          | Demand, non-interest bearing          |     |          | 25,649  |             |     |        | 20,528  | 
|                                                    |          |                                         |                          | Demand int. bearing                   |     |          | 26,841  |             |     |        | 19,088  | 
|                                                    |          |                                         |                          | Time
(CDs, MMs, & Savings Accounts) |     |          | 115,360 |             |     |        | 112,568 | 
|                                                    |          |                                         |                          |                                       |     |          |         |            
|                                                    |          |                                         |                          | TOTAL DEPOSITS                        |     |          | 167,850 |             |     |        | 152,184 | 
|                                                    |          |                                         |                          |                                       |     |          |         |            
|Repurchase Agreements                               |          |                                         | 15,664                   |                                       |     |          | 3,532   |            
|Capital Lease Obligation                            |          |                                         | 0                        |                                       |     |          | 505     |            
|Accrued Interest Payable                            |          |                                         | 1,007                    |                                       |     |          | 1,051   |            
|Accounts Payable and other Liabilities              |          |                                         | 734                      |                                       |     |          | 455     |            
|Fed Funds Purchased and other
Short Term Borrowings |          |                                         | 5,000                    |                                       |     |          | 5,500   |            
|                                                    |          |                                         |                          |                                       |     |          |         |            
|                                                    |          |                                         |                          | TOTAL LIABILITIES                     |     |          | 190,255 |             |     |        | 163,227 | 
|                                                    |          |                                         |                          |                                       |     |          |         |            
|Stockholders Equity:                               |          |                                         |                          |                                       |     |          |         |            
|                                                    |          | Common stock, par value $.10 per share; |                          |                                       |     |          |         |             |     |       
|                                                    |          | Authorized 2,500,000 shares;            |                          |                                       |     |          |         |             |     |       
|                                                    |          | Issued and outstanding 1,750,566 shares |                          |                                       | 175 |          |         |             | 175 |       
|Capital Surplus                                     |          |                                         | 12,231                   |                                       |     |          | 12,219  |            
|Unrecognized securities gains                       |          |                                         | 278                      |                                       |     |          | 266     |            
|Retained Earnings                                   |          |                                         | 4,991                    |                                       |     |          | 4,388   |            
|                                                    |          |                                         |                          |                                       |     |          |         |            
|                                                    |          |                                         | Net stockholders equity |                                       |     | 17,675   |         |             |     | 17,047 |        
|                                                    |          |                                         |                          |                                       |     |          |         |            
|Total Liab. & stkhldrs equity                      |          | $                                       | 207,856                  |                                       |     | $        | 212,471 |            
|                                                    |          |                                         |                          |                                       |     |          |         |            





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FIRST NATIONAL BANK OF MANATEE




Statement of Income

For the Period January 1 through March 31 (000s)

|                                         |                                           |                           |                                  |       |      |       |       |       |     |       | 
|---------------------------------------- | ----------------------------------------- | ------------------------- | -------------------------------- | ----- | ---- | ----- | ----- | ----- | --- | ----- | 
|                                         |                                           |                           |                                  |       | 2002 |       | 2001 
|                                         |                                           |                           |                                  |       |      |       |      
|Interest Income:                         |                                           |                           |                                  |       |      |       |       |      
|                                         | Loans (excluding fees)                    |                           |                                  | 2,665 |      |       |       | 2,921 |    
|                                         | Loan Fees                                 |                           |                                  | 29    |      |       |       | 37    |    
|                                         | Investment securities:                    |                           |                                  |       |      |       |       |       |    
|                                         |                                           | Taxable                   |                                  |       | 411  |       |       |       | 464 |      
|                                         |                                           | Exempt from Federal Taxes |                                  |       | 93   |       |       |       | 94  |      
|                                         | Interest Bearing Bank Balances            |                           |                                  | 29    |      |       |       | 117   |    
|                                         | Federal funds sold                        |                           |                                  | 0     |      |       |       | 0     |    
|                                         |                                           |                           |                                  |       |      |       |       |       |    
|                                         |                                           |                           | Total Interest Income            |       |      | 3,226 |       |       |     | 3,633 | 
|Interest expense                         |                                           |                           | 986                              |       |      |       | 1,992 |      
|                                         |                                           |                           |                                  |       |      |       |       |       |    
|                                         |                                           |                           | Net Interest Income              |       |      | 2,240 |       |       |     | 1,641 | 
|Provision for credit loss                |                                           |                           | 100                              |       |      |       | 4     |      
|                                         |                                           |                           |                                  |       |      |       |       |       |    
|Net Interest Income                      |                                           |                           |                                  |       |      |       |       |      
|                                         | After Provision for Credit Losses         |                           |                                  | 2,140 |      |       |       | 1,637 |    
|Other operating income:                  |                                           |                           |                                  |       |      |       |       |      
|                                         | Service charges on deposit accounts       |                           |                                  | 116   |      |       |       | 104   |    
|                                         | Investment sec. gains                     |                           |                                  | 0     |      |       |       | 0     |    
|                                         | Trust Fees & Investment Sales
Commissions |                           |                                  | 205   |      |       |       | 191   |    
|                                         | Other Income                              |                           |                                  | 86    |      |       |       | 62    |    
|                                         |                                           |                           |                                  |       |      |       |       |       |    
|                                         |                                           |                           | Total Other Operating Income     |       |      | 407   |       |       |     | 357   | 
|Other operating expenses:                |                                           |                           |                                  |       |      |       |       |      
|Salaries and employee benefits           |                                           |                           | 972                              |       |      |       | 838   |      
|Occupancy & equipment expense            |                                           |                           | 277                              |       |      |       | 303   |      
|Other expenses                           |                                           |                           | 378                              |       |      |       | 346   |      
|                                         |                                           |                           |                                  |       |      |       |       |       |    
|                                         |                                           |                           | Total Other operating expenses   |       |      | 1,627 |       |       |     | 1,487 | 
|                                         |                                           |                           |                                  |       |      |       |       |       |    
|                                         |                                           |                           | Profit Before Tax                |       |      | 920   |       |       |     | 507   | 
|Estimated State and Federal Income Taxes |                                           |                           | 317                              |       |      |       | 157   |      
|                                         |                                           |                           |                                  |       |      |       |       |       |    
|                                         |                                           |                           | Profit After Tax                 |       | $    | 603   |       |       | $   | 350   | 
|                                         |                                           |                           |                                  |       |      |       |       |       |    
|                                         |                                           |                           | Earnings per share               |       | $    | .34   |       |       | $   | .20   | 
|                                         |                                           |                           | Earnings per share fully diluted |       | $    | .32   |       |       | $   | .19   | 





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STATEMENTS OF CASH FLOWS

(000s)
March 31


|                                                                              |                                                               |   |         |       |      |   |        |      |  
|----------------------------------------------------------------------------- | ------------------------------------------------------------- | - | ------- | ----- | ---- | - | ------ | ---- | -
|                                                                              |                                                               |   | 2002    |       | 2001
|                                                                              |                                                               |   |         |       |     
|Operating activities                                                          |                                                               |   |         |       |      |   |        |     
|Net Income                                                                    |                                                               |   | 603     |       |      |   | 350    |     
|Adjustments to reconcile net income to
cash provided by operating activities: |                                                               |   |         |       |      |   |        |     
|                                                                              | Leasehold amortization                                        |   |         | 0     |      |   |        | 10   |  
|                                                                              | Allowance for loan losses (net of charge offs)                |   |         | 81    |      |   |        | 2    |  
|                                                                              | Increase (decrease) in interest payable and other liabilities |   |         | 28    |      |   |        | 593  |  
|                                                                              | Decrease (increase) in interest receivable and other assets   |   |         | 1,039 |      |   |        | (416 | )
|                                                                              |                                                               |   |         |       |      |   |        |     
|Net cash provided by operating activities                                     |                                                               |   | 1,751   |       |      |   | 539    |     
|                                                                              |                                                               |   |         |       |      |   |        |     
|Investing activities                                                          |                                                               |   |         |       |      |   |        |     
|Proceeds from sales and maturities of investment
securities net of purchases  |                                                               |   | (3,245  | )     |      |   | 1,515  |     
|Loans originated, net of principal collections                                |                                                               |   | (4,382  | )     |      |   | 748    |     
|Capital expenditures net of depreciation                                      |                                                               |   | (2,343  | )     |      |   | 26     |     
|Proceeds from sale of other R. E. and assets owned                            |                                                               |   | 330     |       |      |   | 142    |     
|Increase (decrease) in federal funds purchased                                |                                                               |   | 0       |       |      |   | 0      |     
|Decrease (increase) in federal funds sold                                     |                                                               |   | 0       |       |      |   | 0      |     
|                                                                              |                                                               |   |         |       |      |   |        |     
|Net cash provided (used) by investing activities                              |                                                               |   | (9,640  | )     |      |   | 2,431  |     
|                                                                              |                                                               |   |         |       |      |   |        |     
|Financing activities                                                          |                                                               |   |         |       |      |   |        |     
|Net increase (decrease) in demand deposits                                    |                                                               |   | (552    | )     |      |   | 1,930  |     
|Net increase (decrease) time deposits                                         |                                                               |   | (7,447  | )     |      |   | 1,712  |     
|Increase (decrease) in securities sold under
agreements to repurchase         |                                                               |   | 2,698   |       |      |   | 2,980  |     
|Dividends paid                                                                |                                                               |   | 0       |       |      |   | 0      |     
|Proceeds from issuance of common stock                                        |                                                               |   | 12      |       |      |   | 19     |     
|Retirement of common stock                                                    |                                                               |   | 0       |       |      |   | 0      |     
|Principal payments under capital lease obligation                             |                                                               |   | 0       |       |      |   | (12    | )   
|                                                                              |                                                               |   |         |       |      |   |        |     
|Net cash (used) provided by financing activities                              |                                                               |   | (5,289  | )     |      |   | 6,629  |     
|                                                                             
|Net increase in cash and due from banks                                       |                                                               |   | (13,178 | )     |      |   | 9,599  |     
|                                                                             
|Cash and due from banks at beginning of year                                  |                                                               |   | 20,967  |       |      |   | 10,387 |     
|                                                                              |                                                               |   |         |       |      |   |        |     
|Cash and due from banks at end of quarter                                     |                                                               | $ | 7,789   |       |      | $ | 19,986 |     
|                                                                              |                                                               |   |         |       |      |   |        |     
|                                                                              |                                                               |   |         |       |      |   |        |     
|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, 2001.

Results for the three month period ended March 31, 2002, 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 second branch was opened in May of 1996 on
State Road 64 (5 miles east of the main office). In January of 1997, the bank
opened its third branch on State Road 70 (8 miles southeast of the main
office). The Bank opened its latest Branch in Ellenton at the corner of US 301
and Old Tampa Road. In December of 1997, the bank acquired a site at
University Blvd. and Lakewood Ranch Blvd. for a future branch. The bank also
opened a Trust Department in March of 1995. 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. At the
time of the merger, the Holding Company had assets of $128,000 and a net worth
of ($55,000). 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,
2002 through March 31, 2002. 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 quarter of 2002 were up $254,000 or 73% compared to
earnings in the same period last year as direct result of net interest income
increasing 35% while the bank and corresponding expenses grew only modestly.
The only major component of the increased overhead was salary expense due to
increased cost of benefits and added personnel to support. Total operating
expenses increased by only 8%. With the exception of personnel expenses, other
operating expenses showed a cumulative decrease due mainly to decreased
occupancy expense. This was the result of the banks purchase of its main
office building and the elimination of a long term lease. The Banks
contribution of $100,000 to loan loss reserve was $96,000 higher than last
year. Excellent loan growth in the first quarter dictated the addition of
$83,000 of the $100,000 contribution to loan loss reserve.





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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 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 March 31, 2001, the Banks loan portfolio had a high ratio of
repriceability within one year.

The Bank had excellent growth in its loan portfolio when compared to last
year. This combined with decreased cost of funds resulted in increased net
interest income. Net interest income for three months in 2002 was $2,240,000
compared to $1,654,000 in 2001.

Interest Earning Assets. Real estate related loans at March 31, 2002,
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 stabile but began to fall in the
second half of the year and this drop in rates continued into early 2001.
However, in the second quarter of 2001, as rates began to stabilize, the Bank
was able to widen its margins throughout the remainder of the year. This was
largely through growth of the loan portfolio and by significantly reducing the
interest paid on deposits as they matured.

The Banks investment portfolio is concentrated primarily in U.S.
Government agencies and corporations. The Banks Available-for-Sale portfolio
has a market value of about $446,000 above book value.

Non-interest Earning Assets. Non-interest earning assets accounted for 6% of
total assets on March 31, 2002, and primarily consisted of cash and due from
banks, capitalized lease, 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 March 31, 2002 the Banks total deposits
were $167.9 million plus $15.7 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 16% of its deposits in NOW Accounts
and 69% of its deposits in Savings, MMAs and CD deposits. In 2001, the bank
was successful in shifting more deposits into NOW accounts and repurchase
agreements and out of certificates of deposit. This was a significant part of
the banks improved net interest margin.

Non-interest Income. The Banks non-interest income for the three month period
ended March 31, 2002 was $407,000 including $205,000 from its Trust and
Financial Services area. 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 2002. The other
significant items of non-interest income represented service charges on deposit
accounts and merchant credit card account income.





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##### Table of Contents



Non-interest Expense. The Banks non-interest expense for the three month
period ended March 31, 2002 was $1,626,000 including $972,000 of salaries and
employee benefits. The Banks occupancy and equipment expenses for the period
ended March 31, 2002 were $277,000. Non-interest expense was up from
$1,254,000 in 2000. The increase in expense is primarily due to the Banks new
branch opened in November of 2000.

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 $100,000 was charged to operating
expenses for the three month period ended March 31, 2002. The Bank had net
charge offs during this period of $17,000. The Bank has a total of $1,632,000
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 no
non-accrual loans at March 31, 2002. Where appropriate, the Bank makes
specific reserves for future losses on non-performing loans. The Bank has no
specific reserves established at March 31, 2002.

The bank also has one piece of other real estate owned (OREO)at March
31,2002. It had a balance of $257,000 on March 31, 2002, which was down from a
high of $1,101,000 in the fourth quarter of 2000. The property consists of a
completed condominium project and the remaining 6 units are currently under
contract for sale with an anticipated closing in the second quarter of 2002.
The Bank expects that the sales proceeds from the remaining unsold units will
be sufficient to recover all of the Banks OREO balance





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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 March 31, 2002, the
Banks primary capital ratio was approximately 8.3%. 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 risk based capital ratio in excess of 12.6%.

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. Management believes that the
banks time deposits are concentrated in instruments that are 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 the
maintenance of acceptable performance levels.





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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 following information is
extracted from the Banks 10-K which was filed with the Securities and Exchange
Commission (SEC) effective December 31, 2001.

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 or
expected to be called within one year or less amounted to $3,200,000 at
December 31, 2001 representing 9% of the investment securities portfolio, an
increase from the 2000 amount of $2,100,000. This is due to the fact that 2000
had an unusually low number of expected maturities and call dates as a result
of decreasing rates earlier in the year accelerating maturities.

The Bank moderates its liquidity needs by maintaining short term borrowing
lines with several regional banks. At year-end, the Bank had lines of credit
established with other banking institutions totaling $36,000,000.

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 and other time deposits of
$100,000 or more,
outstanding at December 31, 2001, are summarized as follows:

|                          |  |                        |        | 
|------------------------- |  | ---------------------- | ------ | 
|                          |  | Time Deposits         
|                          |  |                       
|                          |  | (thousands of dollars)
|3 months or less          |  | $                      | 2,398  | 
|Over 3 through 12 months  |  |                        | 13,169 | 
|Over 12 through 36 months |  |                        | 2,864  | 
|Over 36 months            |  |                        | 1,086  | 
|                          |  |                        |        | 
|Total                     |  | $                      | 19,517 | 

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.





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##### Table of Contents



The following table shows the interest sensitivity gaps for four different
time intervals as of
December 31, 2001. For the first year, interest-sensitive assets exceed
liabilities by $21,575,000. Over the following two years, liabilities re-price
faster than assets. Over a three year period, the banks assets and
liabilities are evenly matched. 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.

|                               |  |                        |         |        |  |       |        |        |  |   |         |   |  |   |        | 
|------------------------------ |  | ---------------------- | ------- | ------ |  | ----- | ------ | ------ |  | - | ------- | - |  | - | ------ | 
|                               |  | As of December 31     
|                               |  | (thousands of dollars)
|                               |  | 0-90                   |         | 91-365 |  | 1-3   |        | Over 3
|                               |  | Days                   |         | Days   |  | Years |        | Years 
|                               |  |                        |         |        |  |       |        |       
|Interest-sensitive assets      |  | $                      | 67,993  |        |  | $     | 47,416 |        |  | $ | 52,562  |   |  | $ | 27,825 | 
|Interest-sensitive liabilities |  |                        | 49,321  |        |  |       | 44,513 |        |  |   | 73,070  |   |  |   | 1,938  | 
|                               |  |                        |         |        |  |       |        |        |  |   |         |   |  |   |        | 
|Interest sensitivity gap       |  |                        | (18,672 | )      |  |       | 2,903  |        |  |   | (20,508 | ) |  |   | 25,887 | 
|Cumulative gap                 |  | $                      | 18,672  |        |  | $     | 21,575 |        |  | $ | 1,067   |   |  | $ | 26,954 | 

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

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 the
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                                                                        
|  

|                              
|------------------------------
|                              
|FIRST NATIONAL BANCSHARES, INC
|                              
|                              
|/s/ Glen W. Fausset 04/25/2002
|                              
|Glen W. Fausset               
|President and Director