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FORM 10-Q U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2004 1ST NATIONAL BANCSHARES, INC.  Florida
    
    333-60283
    
    06-1522028(Jurisdiction of Organization)
    
    Commission
    
    I.R.S. EmployerFile 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
    
    3,285,505 shares(class)
    
    Outstanding as of November 3, 2004




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FIRST NATIONAL BANCSHARES,
INC.
Index to Form 10-Q
For the quarter Ended September 30, 2004 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets, September 30, 2004 and December 31, 2003
    
    
    1Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2004 and 2003
    
    
    3Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and September 30, 2003
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    6Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    10PART II. OTHER INFORMATION.Item 1.
    
    Legal Proceedings
    
    
    12Item 2.
    
    Changes in Securities and Use of Proceeds
    
    
    12Item 3.
    
    Defaults under Senior Securities
    
    
    12Item 4.
    
    Submission of Matters to a vote of Security Holders
    
    
    12Item 5.
    
    Other Information.
    
    
    12Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    12SIGNATURES
    
    
    13Ex-31.1 Section 302 CEO Certification
    
    
    14Ex-31.2 Section 302 CFO Certification
    
    
    16Ex-32.1 Section 906 CEO Certification
    
    
    18Ex-32.2 Section 906 CFO Certification
    
    
    19Ex-31.1 Section 302 CEO CertificationEx-31.2 Section 302 CFO CertificationEx-32.1 Section 906 CEO CertificationEx-32.2 Section 906 CFO Certification




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements FIRST NATIONAL BANCSHARES, INC. 
  Assets
(000s) September 30
    
    December 312004
    
    2003(Unaudited)
    
    **Cash and Due from Banks
    
    
    7,992
    
    
    
    6,876Int. Bearing Bank Balances
    
    
    7,738
    
    
    
    8,412Fed Funds Sold
    
    
    0
    
    
    
    0Investment Securities
    
    
    49,770
    
    
    
    46,869Unrecognized Security Gains
    
    
    359
    
    
    
    244Loans
    
    
    236,006
    
    
    
    206,742Less Allowance for Credit Losses
    
    
    -2,360
    
    
    
    -2,067Deferred Loan Fees (earned)
    
    
    -440
    
    
    
    -361Premises and Equipment, Net
    
    
    7,521
    
    
    
    7,737Accrued Interest Receivable
    
    
    1,199
    
    
    
    986Other R. E. & Assets Owned
    
    
    0
    
    
    
    0Goodwill & Other Intangibles
    
    
    1,212
    
    
    
    0Other Assets
    
    
    2,243
    
    
    
    1,794Total Assets
    
    
    311,240
    
    
    
    277,232
 **Condensed from audited financial statements




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Liabilities and Shareholders Equity
(000s) September 30
    
    December 312003
    
    2002DepositsDemand, non-interest bearing
    
    
    37,811
    
    
    
    32,991Demand, interest bearing
    
    
    37,943
    
    
    
    39,603Time (CDs, MMs, & Savings Accounts)
    
    
    184,885
    
    
    
    160,733TOTAL DEPOSITS
    
    
    260,639
    
    
    
    233,327Repurchase Agreements
    
    
    4,455
    
    
    
    11,301Accrued Interest Payable
    
    
    1,159
    
    
    
    651Accounts Payable and Other Liabilities
    
    
    1,185
    
    
    
    438Fed Funds Purchased and Other Short
Term Borrowings
    
    
    17,750
    
    
    
    9,500TOTAL LIABILITIES
    
    
    285,188
    
    
    
    255,217Stockholders EquityCommon Stock, par value $.10 per share;Authorized 7,500,000 shares;Issued and Outstanding, 3,283,590
    
    
    328
    
    
    
    199Capital Surplus
    
    
    22,217
    
    
    
    16,209Unrecognized Gains & Losses
    
    
    224
    
    
    
    153Retained Earnings
    
    
    3,283
    
    
    
    5,454Net Stockholders Equity
    
    
    26,052
    
    
    
    22,015Total Liabilities and Stockholders Equity
    
    
    311,240
    
    
    
    277,232




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FIRST NATIONAL BANCSHARES, INC. 
 Statement of Income   9 months
    
    9 months
    
    3 months
    
    3 months2004
    
    2003
    
    2004
    
    2003Interest Income:Loan Interest (excluding fees)
    
    
    9,803
    
    
    
    7,795
    
    
    
    3,473
    
    
    
    2,598Loan Fees
    
    
    255
    
    
    
    208
    
    
    
    101
    
    
    
    77Investment SecuritiesTaxable
    
    
    1,113
    
    
    
    899
    
    
    
    381
    
    
    
    281Exempt from Federal Tax
    
    
    253
    
    
    
    280
    
    
    
    84
    
    
    
    94Interest Bearing Bank Deposits
    
    
    55
    
    
    
    80
    
    
    
    11
    
    
    
    8Federal Funds Sold
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total Interest Income
    
    
    11,479
    
    
    
    9,262
    
    
    
    4,050
    
    
    
    3,058Interest Expense
    
    
    3,070
    
    
    
    2,289
    
    
    
    1,074
    
    
    
    731Net Interest Income
    
    
    8,409
    
    
    
    6,973
    
    
    
    2,976
    
    
    
    2,327Provision for Credit Losses
    
    
    302
    
    
    
    172
    
    
    
    102
    
    
    
    108Net Interest IncomeAfter Provision for Credit Losses
    
    
    8,107
    
    
    
    6,801
    
    
    
    2,874
    
    
    
    2,219Other Operating IncomeService Charges on deposit
accounts
    
    
    285
    
    
    
    346
    
    
    
    92
    
    
    
    114Investment Security Gains
    
    
    0
    
    
    
    86
    
    
    
    0
    
    
    
    3Trust Fees & Investment Sales
    
    
    1,169
    
    
    
    663
    
    
    
    414
    
    
    
    214Other Income
    
    
    269
    
    
    
    361
    
    
    
    77
    
    
    
    114Total Other Income
    
    
    1,723
    
    
    
    1,456
    
    
    
    583
    
    
    
    445Other Operating ExpensesSalaries & Employee Benefits
    
    
    3,934
    
    
    
    3,416
    
    
    
    1,313
    
    
    
    1,181Occupancy & Equipment Expense
    
    
    1,048
    
    
    
    904
    
    
    
    365
    
    
    
    309Other Expenses
    
    
    1,441
    
    
    
    1,312
    
    
    
    474
    
    
    
    415Total Other Operating
Expenses
    
    
    6,423
    
    
    
    5,632
    
    
    
    2,152
    
    
    
    1,905Profit Before Tax
    
    
    3,407
    
    
    
    2,625
    
    
    
    1,305
    
    
    
    759Estimated Income Taxes
    
    
    1,211
    
    
    
    903
    
    
    
    467
    
    
    
    258Profit After Tax
    
    $
    2,196
    
    
    $
    1,722
    
    
    $
    838
    
    
    $
    501




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FIRST NATIONAL BANCSHARES, INC Earnings per Share
For the Period January 1 through September 30 9 months
    
    9 months
    
    3 months
    
    3 months2004
    
    2003
    
    2004
    
    2003Profit After Tax
    
    $
    2,196,000
    
    
    $
    1,722,000
    
    
    $
    838,000
    
    
    $
    501,000Average Shares Outstanding1
    
    
    3,272,094
    
    
    
    3,094,708
    
    
    
    3,283,590
    
    
    
    3,138,559Earnings per Share  Basic
    
    $
    0.67
    
    
    $
    0.56
    
    
    $
    0.26
    
    
    $
    0.16Average Shares Outstanding
Fully Diluted1
    
    
    3,490,568
    
    
    
    3,298,519
    
    
    
    3,499,103
    
    
    
    3,298,337Earnings per Share Fully Diluted
    
    $
    0.63
    
    
    $
    0.52
    
    
    $
    0.24
    
    
    $
    0.15
 1. Adjusted for 5% stock dividend paid on September 30, 2004 and 3 for 2 stock split on June
30, 2004 COMPREHENSIVE INCOME
(unaudited) (000s)
For the Period January 1 through September  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, 2004 and 2003, comprehensive income was as follows: 9 months
    
    9 months
    
    3 months
    
    3 months2004
    
    2003
    
    2004
    
    2003Profit After Tax
    
    
    2,196
    
    
    
    1,722
    
    
    
    838
    
    
    
    501Unrealized Securities Gains Net of Taxes
    
    
    71
    
    
    
    -528
    
    
    
    561
    
    
    
    -556Comprehensive Income
    
    
    2,267
    
    
    
    1,194
    
    
    
    1,399
    
    
    
    -55




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STATEMENTS OF CASH FLOWS   2004
    
    2003Operating activitiesNet Income
    
    
    2,196
    
    
    
    1,722Adjustments to reconcile net income to
cash provided by operating activities:Depreciation
    
    
    406
    
    
    
    387Allowance for loan losses net of charge offs
    
    
    293
    
    
    
    92Decrease (increase) in accrued interest receivable
    
    
    -213
    
    
    
    111Increase (decrease) in accrued interest payable and other liabilities
    
    
    1,254
    
    
    
    254Decrease (increase) in other assets
    
    
    -204
    
    
    
    -664Net cash provided by operating activities
    
    
    3,732
    
    
    
    1,902Investing activitiesPurchase of securities  net of payments and sales
    
    
    -2,901
    
    
    
    -4,152Loans originated, net of principal collections
    
    
    -29,264
    
    
    
    -21,105Capital expenditures
    
    
    -190
    
    
    
    -202Proceeds from sale of other real estate owned
    
    
    0
    
    
    
    0Increase (decrease) in overnight funds purchased
    
    
    0
    
    
    
    2,570Decrease (increase) in overnight funds sold
    
    
    674
    
    
    
    5,387Net cash provided (used) by investing activities
    
    
    -31,681
    
    
    
    -17,502Financing activitiesNet increase (decrease) in demand deposits, NOW
accounts, money market and savings accounts
    
    
    22,128
    
    
    
    18,182Net increase (decrease)  certificates of deposit
    
    
    5,185
    
    
    
    -5,694Increase (decrease) in securities sold under
agreements to repurchase
    
    
    -6,846
    
    
    
    -1,567Term borrowings
    
    
    8,250
    
    
    
    5,500Dividends paid
    
    
    -9
    
    
    
    -5Proceeds from issuance of common stock
    
    
    357
    
    
    
    275Retirement of common stock
    
    
    0
    
    
    
    0Net cash (used) provided by financing activities
    
    
    29,065
    
    
    
    16,691Net increase in cash and due from banks
    
    
    1,116
    
    
    
    1,091Cash and due from banks at beginning of year
    
    
    6,876
    
    
    
    7,995Cash and due from banks at end of quarter
    
    $
    7,992
    
    
    $
    9,086Schedule of non-cash investing activities
    
    $
    0
    
    
    $
    0Loans 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, 2003. Results for the nine month period ended September 30, 2004, may not necessarily
be indicative of those to be expected for the entire year. Note 2 In March, 2004 the Company merged with the Trust Company of Florida (Trust
Company) effective February 29, 2004. The accompanying condensed financial
statements included earlier in this 10Q include the results of operations of
Trust Company since that date. The total purchase price was $2,453,000
including $1,027,000 in cash and $1,426,000 in common stock. In addition,
acquisition expenses were approximately $83,000. The following table summarizes
the estimated values of the assets acquired and liabilities assumed at the date
of acquisition. ($000s)Current assets
    
    $
    1,294Furniture and equipment
    
    
    72Goodwill and customer relationships
    
    
    1,212Total assets acquired
    
    
    2,578Current liabilities assumed
    
    
    (42
    )Net assets acquired
    
    
    2,536
 Pro forma information includes the Trust Company information as if the merger had been completed as of
January 1, 2003 September 30
    
    September 302004
    
    2003Net interest income
    
    
    8,409
    
    
    
    6,973Total other operating income
    
    
    1,822
    
    
    
    1,889Net Income
    
    
    2,143
    
    
    
    1,558Basic earnings per share
    
    
    0.65
    
    
    
    0.50Fully diluted earnings per share
    
    
    0.61
    
    
    
    0.47




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Managements Discussion and Analysis of Financial Condition and Results of Operations. Overview. The 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 year, the
bank opened its third branch on State Road 70 (8 miles southeast of the main
office). In December of 1997, the bank acquired a site at University Blvd. and
Lakewood Ranch Blvd. for a future branch. That site was sold in 2001. The
Bank opened its fourth branch in November of 2000 at the corner of US 301 and
Old Tampa Road in Ellenton (Manatee County). 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. 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,
2004 through September 30, 2004. 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 three quarters of 2004 were up $474,000 or $.11 per
share when compared to earnings in the same period last year. This is a 28%
increase in year to date earnings. Third quarter earnings were up $337,000 over
last year or $.09 per share. This is a 67% increase in third quarter earnings.
The increased earnings are a direct result of increased net interest income
without a corresponding increase in net overhead. The increased net interest
income is directly related to expansion of the Banks lending staff and the
related salary expenses in 2003. The increase in staff resulted in higher loan
growth this year. Year to date net interest income increased by 21% or
$1,436,000, while the third quarters increase was also 28% or $649,000.
Increased Other Operating Income was more than offset by increased operating
expenses however, the net overhead expense grew at a rate comparable to the
banks asset growth. The Banks year to date contribution of $302,000 to loan
loss reserve was $130,000 higher than last year and was the result of loan
growth and not charged off loans. 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-




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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 September 30, 2004,
the Banks assets had a repriceability over a three year period that closely
matched its liability repriceability. The Bank had good growth in its loan portfolio in 2004 and the average
year to date outstandings are ahead of last year by $27,000,000. This growth
has more than offset modestly decreasing interest margins and has resulted in
net interest income increasing significantly. Net interest income for nine
months in 2004 was $8,409,000 compared to $6,973,000 in 2003. For the third
quarter, net interest income was $2,976,000 compared to $2,327,000 last year. Interest Earning Assets. Real estate related loans at September 30, 2004,
accounted for a majority of the banks loan portfolio. Most of the mortgages
are variable rate loans and are adjustable every one to five years. Thus,
volatile interest rates can result in the real estate loans lagging market
conditions. In the first half of 2000, rates were stabile allowing the
portfolio to keep pace with market rates. In the second half of 2000, rates
began to fall and fell more dramatically later in the year and continued into
2001. This had a temporary negative impact on in the banks net interest
income until rates stabilized and the banks balance sheet repriced to the new
market rates. The banks interest margin was much improved in the last three
quarters of 2001 and continued to improve over the first two quarters of 2002.
Over the next two years, margins declined modestly but have trended back up in
the third quarter of this year. The Banks investment portfolio is concentrated primarily in U.S.
Government corporations and agencies. About 20% of the Banks investment
portfolio re-prices in one year. Due to rising interest rates in the third
quarter, the Banks Available-for-Sale portfolio has a market value of about
$359,000 above book value. Non-interest Earning Assets. Non-interest earning assets accounted for 6.5%
of total assets on September 30, 2004, and primarily consisted of cash and due
from banks, equipment and branches, deferred taxes, and accrued interest
receivable. Funding Sources. The primary source of funds for the Banks lending and
investment activities is deposits. At September 30, 2004 the Banks total
deposits were $261 million plus $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 15% of its deposits in NOW
Accounts and 71% of its deposits in Savings, MMAs and CD deposits. Despite the
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 nine month period
ended September 30, 2004 was $1,723 including $1,169,000 from its Financial
Services and Trust Department. These are up 18% and 76% over last year. In
the third quarter total other income was up $138,000 or 31% and Trust and
Financial Services income was up $200,000 or 93%. These increases are largely
attributable to the




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acquisition of the Trust Company of Florida. However, the Financial Services
revenues when compared to combined pre-merger revenues are up $73,000 year to
date. Periodic security transactions generate investment gains or losses and are
primarily a result of tax management considerations and liquidity requirements.
The bank has had no security gains in 2004. 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 nine month
period ended September 30, 2004 was $6,423,000 including $3,934,000 of salaries
and employee benefits. This is up 14% from last year. In the third quarter,
the banks other operating expenses were $2,152,000 and staff expenses were
$1,313,000, up 13% and 11% from the prior year. The Banks occupancy and
equipment expenses for the nine month period ended September 30, 2004 were
$1,048,000, up 16% from 2003 and the third period expense was $365,000, up 18%
from the prior year. This increase in expense is largely attributable to the
banks acquisition of the Trust Company of Florida in Venice and the
corresponding increase in staff and occupancy. 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 $302,000 was charged to operating
expenses for the nine month period ended September 30, 2004 including $102,000
that was charged in the third quarter of the year. The Bank had net charge
offs during these respective periods of $9,000 and $8,000. The balance of the
loan loss reserve expense was to cover the growth in the loan portfolio. At
September 30, 2004 the Bank has a total of $2,360,000 reserved for future loan
losses. This is up from $1,796,000 at September 30, 2003. 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. At September 30, 2004,
the bank had one real estate secured loan totaling $1,307,000 that was on
non-accrual. As of October 31, 2004, that loan was current and had been
returned to accrual status. Where appropriate, the Bank makes specific
reserves for future losses on non-performing loans. The Bank has set up no
specific reserves on either of these loans.




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The bank also had no other real estate owned at September 30, 2004. 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 September 30, 2004, the Banks primary capital ratio was 8.15%. 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 of 11.3% 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 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 primary functions 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 $9,860,000 at
September 30, 2004 representing 20% of the investment securities portfolio. Federal funds and lines of credit with other banks also provide the bank
with sources of funds for meeting its liquidity needs. At September 30, 2004,
the bank had lines of credit established with other banking institutions
totaling $105,000,000 of which $87,250,000 was unused and available. 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 September 30, 2004, are summarized as follows: Time Deposits(thousands of dollars)3 months or less
    
    $
    3,840Over 3 through 12 months
    
    
    14,308Over 12 through 36 months
    
    
    14,452Over 36 months
    
    
    209Total
    
    $
    32,809
 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 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 September 30, 2004. For the first year, interest-sensitive
assets exceed liabilities by $85,753. For the next




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two years, liabilities reprice more rapidly than assets lowering the
banks asset sensitive position to an essentially balanced position for the
three year period. 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 September 30(thousands of dollars)0-90
    
    91-365
    
    1-3
    
    Over 3Days
    
    Days
    
    Years
    
    YearsInterest-sensitive assets
    
    $
    98,796
    
    
    $
    88,963
    
    
    $
    60,212
    
    
    $
    44,149Interest-sensitive liabilities
    
    
    51,212
    
    
    
    50,794
    
    
    
    136,849
    
    
    
    6,178Interest sensitivity gap
    
    
    47,584
    
    
    
    38,169
    
    
    
    (76,637
    )
    
    
    37,971Cumulative gap
    
    $
    47,584
    
    
    $
    85,753
    
    
    $
    9,116
    
    
    $
    47,087
 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. Disclosure of Evaluation of Disclosure Controls and Procedures Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chairman and Chief Executive
Officer and President and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chairman
and Chief Executive Officer and President and Chief Financial Officer concluded
that the Companys disclosure controls and procedures are effective 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 were no significant changes made in the Companys internal controls
or in other factors that could significantly affect these internal controls
subsequent to the date of the evaluation performed by the Companys Chief
Executive Officer and Chief Financial Officer.




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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.Noneb)
    
    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.Noned)
    
    Published report regarding matters submitted to
vote of security holders.None31.1
    
    CEO Certification pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    CFO Certification pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to 18 U.S.C. section 1350,
as enacted pursuant to section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    Certification 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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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. FIRST NATIONAL BANCSHARES, INC.(Registrant)Date: November 12, 2004
    
    
    
    /s/ Glen W. FaussetGlen W. FaussetPresident and Chief Financial Officer